Monday, May 27, 2013

What is Freegold?


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Dante_Eu said...

First! FirstGold, YEAH! :D

burningfiat said...

Nicely done everyone! Describing Freegold together!

Just awesome work FGT!

Beer Holiday said...

Really great definitions, well done!

In before Tyrone.

Unknown said...

What a great synopsis, and the music selections ... very well chosen!

I'm sure I speak for all those quoted that we are honored to be a part of it.

tEON said...

Wonderful! Thanks so much for creating!

Lisa said...

Amazing inspiring breathtaking

Many thanks Freegoldtube

Naughty Slumdog said...

The ignorant's tribute to the concept:

Freegold is FIAT colateralized with an universal asset: gold. Like in loans/banking, there is no one-to-one link between par value of the loan and market value of the collateral. But there will be no longer FIAT reaching astronomical values and get used as main and unique source of value by some people. And the absolute scale could no longer be counterfeited by government(s).

Nice job in slides !

Naughty Slumdog said...

Gold money and paper: each has it's virtues and sins. And pay respect to mankind/God/life, they both appeared and lived long and healthy for long - there must be a reason for that!

The solution is pooling the virtues and alleviating the sins, not the mere fight between the two monetary concepts. At the end f they day, no human(s) are so strong to change to long the history ... it will reveal itself when it would so wish ...

Ken_C said...

Excellent synopsis. A well spent 21 minutes.


FoNoah said...

That was AWESOME! Well done FGT! Made me nostalgic so I went back and watched my previous favourite - The Ecstasy of Gold.

Bjorn said...

Great job FGT, and GO Mini Superorganism! This forum is truly greater than the sum of our parts.

ein anderer said...

"Unfortunately this video containing music from SME is not available in Germany because GEMA did not have licensed it."
(My links.)
May be it is possible to launch a second version either w/o music or with some other music?

Polly Metallic said...

What a wonderful addition to the body of Freegold thinking. Thanks FGT for the superb production, and to the participants for sharing your views. I really enjoyed this. It brought tears to my eyes. I think the world desperately needs the transition to Freegold as it will go a long way toward mending global imbalances and healing broken economies.

Unknown said...

Phew! I felt that (effort in creation)! Fantastic 'flick' on whatsFreegold, FGT :)

ein anderer said...

Sitting in Germany you could use Thx, Freegolds!

ein anderer said...

now watched. Very great. Music and text are final and conclusive. Thanks.

Knotty Pine said...

Awesome FGT!

You had me even before Ted! Great job!

JoyOfLearning said...

I also get "Unfortunately this video containing music from SME is not available in Germany because GEMA did not have licensed it.".
Thank you Ein Anderer for that link, unfortunatelly for me it didn't work even like that, tried a us, a canada and a UK server... za german population control is hard. I was reading somewhere out of the 1000 most popular youtube videos in germany >600 are blocked. Never underestimate the power of the nanny state. If govts today decide to control the mind of the population they certainly have the means to do it... scary :(

KindofBlue said...

Great explanatory video.

"Early adopters will be richly rewarded."
-- the 93rd Monkey

JoyOfLearning said...

Continuing from previous thread discussion:
ein anderer said: "And why should there not be dealers handling 50K-transactions? With
this argument there could never be sold a Daimler-S (80K and more).
50K is absolutely no unusual cash transaction today. The only ones for
whom this is unusual are we shrimps owning only some few K, because we
are not (yet) accustomed to it :D But we will, very soon. And be sure:
There will be some who will lose their gain quickly because they are
not educated to save.
And don’t forget ebay. There are quite a lot 5 figure auctions!".

Are you aware of any cars sold today in sums of >50k euro with cash? From what I've seen so far in Germany the ordinary people I've met handle anything above a few hundendred exclusively through banks, überweisung transfers and the such. And not just for cars, but for furniture type stuff (german kitchen furniture can get astronomical). I get the feeling that if you had so much cash you'd get a "you must be a criminal" look from most people... unfortuantelly. This might be because of today's culture of paying everything in instalments and a man who actuall saves years and then buys something big being so very strange.

By the way, something that doesn't bode well for the Euro: the other day on german radio I heard news that for years it's been discussed to phase out the 1 & 2 cent coins because they're too unprofitable to pay and worthless. I couldn't believe it. I thought it was only with ancient history and gold coins that this happens: first the governments print a coin at a profit, between the metal and the printed value, and then inevitably they end up at a loss. It's sad when even with a currency of <15 years and not with gold but Copper the same thing happens. Once the 1, 2 coins get phased out, what's next? 10 cent? 50cent, 1 euro? Sad.

ein anderer said...

in the first run it didn’t worked for me either.
Then I learned:
First you have to put the YouTube URL into the entry field of the "Web Proxy" window.
Second: Hit the "Hide my A…"-button.
A new URL is created filling the URL entry field of your browser. Therefore:
Third: Hit "Enter" so that the browser opens this new URL.

ein anderer said...

as far the selling of gold is not taxed (after one year) you can sell your 1 oz, get your 55K, put it on your bank account and pay via digital transfer. You are holding a receipt in your hand saying that you’ve sold 1oz gold. *If* the government is asking you where you’ve got these 55K from you show them the receipt and everything is ok. (Therefore it’s necassry to keep the - anonymous - receipts of bought gold so that you can always show them that your gold is bought more than 12 months ago.)
Yes, theoretically it could be possible that the selling of gold could be taxed. But: In this blog you will find several strong arguments of FOFOA why this is *very* unlikely.

JoyOfLearning said...

I did that, but the same. I mean no more Gema error, but the video just stays black and an "An error occurred, please try again" message appears in the video on another click after the notworking play turns the video screen black.

ein anderer said...

ok. You see the red and orange details of the server’s adress? There are many more "lines" to/from the server. May be trying it several times, until an adress is generated which is working fine?

Anonymous said...

EA and JoL,
it is true that the BuBa profit goes to the government. But apparently the gain from gold revaluation goes straight into equity on the balance sheet of the Eurosystem (you can still see it in the revaluation account), but does not enter the BuBa profit.
Otherwise, about E80bn (3100 tons from E300/oz to E1200/oz) would have been paid out to the German gov't since 2002 and would be absent from the revaluation account.

Michael dV said...

Mikey likes it.

Anand Srivastava said...

Art is sounding more and more like a broken record.

Anonymous said...

Brilliant compilation. Thanks!

Dante_Eu said...

Fantastic work Freegoldtube!

Now, finally, when someone ask us "What is Freegold?"...just lean back and say something like...:

"Ahhhhh, it's time to relax,
and you know what that means,
a glass of wine, your favourite easy chair,
and of course this YouTube video and your home stereo.
So go on, indulge yourself,
that's right, kick off your shoes, put your feet up, lean back and just enjoy the melodies.
After all, music soothes even the savage beasts."

BTW $PoG graph looks more and more like an EKG to me. Soon we may witness flatline...

ein anderer said...

I believe you! :)
So after revaluation the balance sheet says e.g.:
"Gold and gold receivables = 20.000 bn".
What does this mean in practice? Is this figure not much, much bigger as needed? What is "needed", what not?
Thx for some clearings if there is time.

ein anderer said...
This comment has been removed by the author.
michael3c2000 said...

John Williams is interviewed! Gives fundamentals and some clear economic and financial overview and predictions:
After James Turk on gold, his spot is from 25 minutes into Chris Waltzak's Friday show until 1hr1min mark:

michael3c2000 said...

Jim Willie likes silver but doesn't mention his preference for it in public. But here his outlook on gold is quite upbeat as always, including his belief that China has close to 10000 tons of gold and Russia 20000 metric tons. He may be one of the only ones who knows what the next year is slated to contain:

ein anderer said...
This comment has been removed by the author.
ein anderer said...


regarding your questions in the commentary section of FOFOA’s Hold On (to those gold coins and bars)!:
I’ve found a dealer in Baden-Württemberg who is doing such a job too.
And there is a german blogger who has adressed himself to write about Freegold. Nikolaus Jilch is an economic editor of Die Presse, Wien.

MatrixSentry said...

Awesome video! Now when someone asks for a short description of Freegold, we can simply reference the video. Maybe this video needs its own dedicated link on the main blog page?

Peter Schilling's Major Tom (Coming Home) and Nugent's Stranglehold were perfect! Grew up listening to Ted Nugent and forgot what an utter badass he is on guitar! Loaded up my iPhone with Free For All, Cat Scratch Fever, and Double Live Gonzo! Best workout in months!

Michael dV said...

interesting...Willie say the GLD inventory is 'gold in motion' going from the miners to where it is needed...sounds a lot like fofoa's vision of the now rapidly decreasing inventory...

Anonymous said...

Awesome vid, FGT, very well done. I absolutely dig Stranglehold at the end. I particularly enjoyed how you plucked the petals on Will's flower like The Nuge himself:) Groovy.

byiamBYoung said...

21 well spent minutes! What a show!

This is the most unusual blogspot on the interwebs, IMO. A cross between a highbrow debating society, a social laboratory, and a frat party.

Glad to be here.

Brother Wil, no botanist of understanding could be prouder, I am sure :D

GoGo FOU! GoGo Freegold!


Indenture said...

Rock on FGT! I appreciate the effort you put into this presentation.
We view Freegold through the compound eye of it's students.

Unknown said...

Indeed brother Young, this is truly a fraternity of seekers of the truth, and where else can you find the ring of it but here?

Perhaps the greatest strength of Freegold yet to be understood is the character of the people who are invested in it.

A more honorable world awaits ... as we watch.

jeb said...

symposium of intelligence.

answer2me said...

An amusing post on silver by Martin Armstrong circa 1997.......

"There are a few exceptions. I wouldn’t jump into the silver market. I think silver is the commodity from hell. Many people have been trying to talk up silver, but there is no longer a market for this commodity. Frankly 1980 caught the photo industry with their pants down. They had no choice but to buy the market all the way up. However, the industry subsequently put a great deal of money into the development of synthetics, which they have accomplished. We now have magnetic imaging capabilities and digital cameras. Within the next five to ten years film will be obsolete. The only consumer left for the silver market will be speculative demand. On the contrary the industrial use of gold is increasing. Computers and telecommunications equipment all require gold—not silver. Our computer is showing that the gold/silver ratio will probably reach at least 140 - 150:1. Fundamentally this means that gold will exceed its 1980 high and silver will not. Silver can reach 4.25 and then possibly 3.25 to perhaps even 2.83 by next year. This may allow for a rally into 2003, but it will never see new highs again. If it doesn’t fall below 3.50 by next year, then it is going to have a very difficult time around the 10 to 12 area."

Pete T said...

"A good view from you, sirs (and ladies). You think well." ... as Another may have put it. How great is the gratitude we owe those who opened our eyes?

Nice work, FOFOA, in reminding all that -despite inevitable differences in nuanced opinion- the powerful essence unifying and binding Freegolders is far greater.

ein anderer said...

In a very interesting mail discussion with FOFOA - thx for spending time in this! - I’ve learned:

There are two kind of values:
- short term value as it should be seen in money,
- long term value as seen in many real things.

The mistake of the past was trying to see in money long term value. Freegold describes the situation where they don’t see any long term value in money anymore. But only in real things again.

And gold "will be the most liquid of these types of assets" and therefore the most precious.

Chicken have also value and could be used as a store of value. But they are not so precious. FOFOA with deadpan humor ("Gold is Money - Part 1"):

Gold was better than chickens for many reasons, not the least of which that sometimes chickens died. Also, gold could be divided into smaller and smaller pieces. When you did this with chickens, again, they died. This was certainly acceptable at meal time, but not out on the road, traveling the trade routes.


And now I delete my comment to Art. The headline "Gold is Money" picks up what people think. It doesn’t reflect what is.

Tommy2Tone said...

"I particularly enjoyed how you plucked the petals on Will's flower like The Nuge himself:) Groovy."

I laughed out loud myself when that came up. Got some funny looks from across the room. Great job FGT!

Anand Srivastava said...

Awesome video FGT. Thanks

Indenture said...

Gold is Money - Part 1

Robert said...

The post that helped Freegold click for me was the one where FOFOA first presented the fulcrum. Up until that point I was locked into the mindset that "the Chinese do not want to see the value of all their USD foreign exchange reserves plummet to zero." And then the light went on for me. Then I realized "Maybe they don't give a damn because of whatever else they have on the balance sheet -- and how those other holdings would be revalued if the USD went to zero." And I started to understand how the Chinese needed to support the old system to build up its balance sheet with the preciouusssss.

And from there it wasn't a very big leap to look at my own portfolio and say: "I don't care if my stocks all go to zero . . . if my gold is revalued to make up for the loss (and a hell of a lot more)."

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

For me freegold is the consequence of choosing the right money for each of the 3 functions of money.
UoA: Fiat under the tight control of a Central Bank.
MoE: Anything really, but legally the one chosen by the govt.
SoV: Anything considered wealth not under the control of any entity. Gold is the focal point here. Gold must be free to be the focal point.

Indenture said...

"Dollar collapse is the force, goods and services the fulcrum, and gold the load."
Unambiguous Wealth

Robert said...

Yes, Indenture, that's the one where I really started to think about what it means for one asset on a balance sheet to go to zero in a global monetary reset. In everyday experience for a company or an individual it is bad news for anything on the balance sheet to go to zero because there is no simultaneous revaluation of other items on the balance sheet. When something goes down you usually cannot always count on something else to go way way way up.

But that's the whole point of a central bank holding something qualitatively different from fiat currency on the balance sheet. The whole world changes in the event of a serious disruption. Because very few people have thought through the implications of what would happen, very few people can fathom a fundamental revaluation of gold.

Unknown said...


Just some stinky air that smells the place up for a little while, then thankfully dissipates into the vapid void from which it arose.

Unknown said...

Earth to ART:
Since gold is money, I have some dollars to sell you for a $1.40. ALL YOU WANT !!

I know I know, don't feed the Trolls, but I just couldn't resist, and I can use the premium over spot paper for anyone thick enough to pay it.

Unknown said...

(the correct link, sorry)

Robert said...

To the unnamed individual who repeatedly posts advocating a gold standard: Good luck with that! Even if you could convince the majority of the population to vote for such a measure, it'll never happen. Votes in Congress are sold to the highest bidder and Goldman Sachs will always oppose a gold standard and outbid hard money proponents. You might find a few Republicans floating the idea as a gambit to win votes, but they won't be serious about actually implementing such a policy once they are in office.

Even if you could manage to push through a gold standard, you still put a great deal of faith in the government to keep its promise to stay on the standard. Again, good luck with that!

Assuming without conceding that a gold standard is the best possible policy, you still have to ask yourself this question: How does the monetary system evolve post-collapse if there is insufficient political will to return to a gold standard? What then? Can you answer that question?

You have to at least concede the possibility that the only alternative is Freegold. Freegold develops wholly independent of the political process in the U.S. or any other country.

I agree that Freegold will be problematic in the long run. But so what? Step one is to see the world for what it really is. Only after that can we start asking the question of what we can do to make it better. I am afraid you do not see the world for what it is.

Tommy2Tone said...

Cough* Gresham * cough

Michael dV said...

Like Meatloaf's character Robert Paulson in Fight Club, some will endure incredible abuse to be allowed in to the club. They will stand in the rain without food or a raincoat. They will endure verbal insults all in the hope that ultimately they will be allowed into the group. You have to admire the courage and tenacity of some of the would be pledges. Alas not all can enter.
Carry on...

Bjorn said...

Word is spreadin´

Robert said...

" I am saying that gold must be used as money in parallel or in competition with fiat. TWO competing forms of money in usage at the same time. I'm for free markets hence I'm for your freedom to use fiat as money if that is what your wish to do. Why can't you honor MY freedom to use gold as money?"

Fine. Then there is no dispute and you can stop harassing everyone here. If you can convince someone -- anyone -- to pay you in gold for everyday transactions, more power to you! If you can convince someone to accept your yellow metal in everyday transactions without testing it to verify the metal content, more power to you! You will be fighting a very lonely battle . . . alone. Good luck.

Dante_Eu said...

@Michael dV:

Good one! :-)

Art, at last we agree, always suspected FOFOA having multiple personality disorder. ;-)

Unknown said...

I have been Googling some terms relative to Freegold (not "freegold") and finding some interesting things out there.

In a curious way, we Freegold shrimp do "side" with the old "money power" and it's inevitable grip on this world, even though we may not inherantly agree with many core positions of Giants on non-gold, non-money matters.

When I was an "activist" I loathed the Roths, and yet today, I do see their "side" of things, especially in regard to governments, which most of us here probably also no longer see as the great civic body of justice and social equity of the ancient Philosophers of Greek politics.

For some people, this "change of heart" may be the most difficult thing to reconcile. But it is the acceptance of that which you cannot change which brings inner peace. And as you explore your "place" in a world of HUMAN NATURE you can never hope to materially change in any great way, it allows one to follow in the footsteps of Giants without selling out one's soul. The flower reveals this ...

Beyond that ... only time reveals all.

Unknown said...

And specifically ...

Robert said...

Good luck with your proposals, Art. Even if you could get the law changed, which you cannot, nobody will be willing to part with their gold so easily. You can try. Good luck to you.

None of your proposals has anything to do with the Freegold thesis, by the way. The whole Freegold thesis is about what is likely to play out without any legislative changes. You are free to resist it with all your might, but that will be like spitting into the wind.

Dante_Eu said...


More like Pissing Against the Wind. Harder than one can imagine. Especially if drunk. :-)

oldinvestor said...

New Greshams Law:

Good money for store of value will drive out bad money for store of value;


Good money for medium of exchange will drive out bad money for medium of exchange.

Grumps LaBastard said...

Guess what Grumpy Dumpty found? A new blog.

It just started this month. Only 10 posts so far. I've read the 10th, the first and the second. The second one discusses who the Giants are and by damn this kid's got it right. The approach of FOFOA's site is to remain agnostic on this issue, but not TwoShortPlanks:

"Who is at the centre?

Well, there are at least three types of Superrich entities, they are;
1. The ultra-wealthy families who have had money since at least the 1700s’. These families are well known historically but they are very well hidden today, so too is their money (Gold and something else).
2. The Oil wealthy such as the Arab states. These are newcomers to the centre and their future is tied-up with the prosperity of their countries; if the country falls, so do they.
3. The Oligarchical wealthy. More newcomers who have recently emerged from the end of the Cold War. These include most of the families which prospered from the Military Industrial Complex, like the [George] Bushs’, and Mafia type Oligarchs like Putin and his KGB mates.

Ok, so that paints a picture of how all the visible entities fit together…..but there’s another layer. This is a very, very well hidden layer.

Imagine that the Venn Diagram (the whole world) is drawn on a single piece of paper, well, who owns that piece of paper?

I believe that the next and final layer doesn’t really have a name…but I’ll call them the Custodians! The Custodians essentially won 80% of the world between the 1300’s and 1700’s. They comprise of many or most of the Ultra-Wealthy entities dating back as far as the Black Venetian Nobility, the Templars, the Teutonic Templars, the Vatican, and later entities such as the Rothschild family."

This kid also echoes my point about gold being a lifeboat between systems:

"When financial systems collapse the wealth transfer goes into Gold, which then becomes the store of wealth until a new system is put in place, then, the wealth transfer goes back into the new financial system. So, owning Gold is owning a piece of the next financial system, not the current financial system…get it? This [post-transition period] is when Gold is most potent."

From what I gather so far his vision is not a FreeGold vision. He sees gold being used to reboot the system much like my analogy:

"Think of the price of gold as a thermostat for the financial system and the value of gold as a transverse dimension to this system like the imaginary axis in mathematics.

During most of the life cycle of the system a real positive interest rate is possible, the POG is stable or even dropping and the value of gold is stable or dropping. Much of the savings/capital is in real financial space.

As the system reaches debt saturation, that is a real positive interest rate cannot be tolerated, the thermostat function of gold reflects this state. The SoV function of gold is activated as savings/capital flee real space to imaginary space. System implodes.

A new system is put in place with a new thermostat(higher POG). Savings can re-enter real financial space again as a real positive interest rate can exist."

Okay, now how long before my arch-nemesis, Mojo-jojo, pounces?

Jeff said...

But why should the government decide the value of gold or mens suits?

FOFOA: Currency prices everything (but gold) because currency is simply that middleman between their known relative values. Everyone knows that an apple is worth two bananas. So currency between apples and bananas prices those items. But there is no intrinsic, calculable relative value between an ounce of gold and a men's suit. Their relationship is arbitrary… it can be whatever subjective value the superorganism takes it to without affecting anything else. No chain reaction will happen.

Gold! It is the only medium that currencies do not "move thru". It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say "gold moves thru paper currencies".

Jeff said...

FOA (03/10/00)

Over time, one could never compare the returns of investing in stocks and bonds to owning gold. This is simply because when gold is entangled in currency schemes, it's fiat value is falsely presented while the currency system ages. Only the commodity use of gold is reflected, not it's much higher wealth "reserve asset" function.

This will occur in a transition from an ageing currency that's still entangled in gold valuation schemes and politics, into a new currency reserve system that's positioning itself to let gold run. In this new venue, we are going to see gold become a world class "reserve asset" that's not tied directly to any official money system.

Again, once physical gold is swept clear from paper moneys, it's value in real life terms will soar.

Again, for most of us this recent period offers only a fiat value comparison and leads us to accept it's present low fiat valuation. Yet, gold's fiat values over this era were only relative to it's manipulated price during an extended Anglo-Saxon currency timeline. A period that saw the dollar take over the pound's role of representing and dominating all world wealth. Including gold wealth!

During this whole period, gold's value did have small shifts up and down. Even our recent 20+ years are representative of these small shifts. Yet, because of our fiat perceptions we see these moves as large bull and bear runs for the metal. While all the time a truly great value leap in gold was building, waiting for the present dollar lifetime to end. Once the dollar gold entanglements are ended, gold's relative worth in modern world wealth and production abilities will return. In our modern day, the old adage that "gold is worth a mans suit" will prove far, far too low a value.

Jeff said...


Savers don't want to risk their savings in 'investments', and they won't rush out of gold when it finds a higher price. The higher price makes gold more attractive for saving, not less attractive.

FOFOA: The difference between a saver and an investor is that saving is the passive activity of most people while investing requires a tolerance for the risk of loss and active, specialized knowledge and focus. As I wrote in both Glimpsing the Hereafter and The Studebaker Effect:

"A saver is different from an investor or a trader/speculator. A saver is one who earns his capital doing whatever it is he does, and then aims to preserve that purchasing power until he needs it later. Investors and traders aim to earn more capital by putting their already-earned capital at risk in one way or another. This takes a certain amount of specialization and focus."


Once the flow of "gold the wealth reserve" (physical gold only) is credibly reestablished at the revalued Freegold price, the savers will eat it up like hotcakes! Ergo, "its widest distribution possible."

Edwardo said...

Perhaps some of you here have been keeping an eye on bonds, particularly the longer end of the curve. This as opposed to a certain someone who has his eyes glued on the $IRX. Well the ten year is nearing a dangerous level.

Grumps LaBastard said...

But Jeff, if a currency has a positive real rate wouldn't that serve as a SoV?

Anonymous said...

Victory asked a good question towards the end of the previous thread: How does gold act as a spur and break when it flows from a consumer (let's call them Greece) to a producer (Germany) inside the same currency area?

Another relevant question was just asked by Grumps. There will always pbe some investors. When they get a positive real rate by lending fiat (taking a provision for the credit risk into account), they will lend and invest. If they don't get a positive real rate, they will hoard gold, too. What is the regulatory mechanism? We need to take into account that somebody hss to (voluntarily) operate the businesses - otherwise there will be no food. What will be their incentive?

Of course, you already know why I like these two questions!


JR said...

here is a neat excerpt form a St. Lousis FEd paper from Jan/Feb 2013 comaparing 4 types of "QE" - BOJ, BOE, FED and ECB.

The Federal Reserve

As of the end of 2012, the Federal Reserve has purchased $1.567 trillion in long-term government bonds, $1.41 trillion in MBS, and $175 million in GSE debt, for a total of $3.152 trillion in purchases. In addition, the Fed will continue to purchase MBS at a pace of $40 billion per month and long-term Treasuries at a pace of $45 billion per month in 2013. New reserve issuance has or will fund all these purchases, except for $667 billion of Treasury purchases in Operation Twist that were funded by sales of shorter-term securities.

The U.S. purchases can be separated into four distinct programs: QE1 ($1.725 trillion,
announcements 2008-09), QE2 ($600 billion, announcement 2010), Operation Twist ($667 billion, announcement 2011 and extension 2012), and QE3 ($85 billion per month, announcements
2012). Since the initial purchases, the Federal Reserve has maintained the size of its balance
sheet by reinvesting principal payments from maturing assets. Originally, all maturing assets
were reinvested in Treasuries, but the FOMC later decided to reinvest maturing MBS and GSE
debt in MBS.52 Despite the approximate tripling of the monetary base (see Figure 4), the broader
monetary aggregates have increased at healthy but normal rates because banks have chosen to
greatly increase their desired levels of excess reserves.

The European Central Bank

The two ECB CBPPs have been comparatively modest in total size, though they represent
larger purchases of private assets than any other central bank. The ECB announced the purchase of €60 billion in euro-denominated covered bonds in 2009 and €40 billion in similar purchases in 2011, for a total of €100 billion. The ECB never announced a target for sovereign debt purchases under the SMP, but the bank’s balance sheet implies that these purchases cumulatively sum to around €220 billion at their peak. Figure 7 shows that the bulk of these purchases were made during two episodes: (i) the spring/summer of 2010 (with a focus on Greek, Irish, and Portuguese debt) and (ii) the summer to fall of 2011 (with a focus on Italian, Spanish, Portuguese, and Irish debt and no purchases of Greek debt). The total ECB asset purchases—including sovereign debt purchases—total roughly €320 billion. As mentioned previously, most of these purchases have been sterilized, reversing their effects on the monetary base. The path of the European Monetary Union’s monetary base reflects extensions of the LTRO program.

AKA the ECB lends against collateral (aka the LTRO) way more than they monetize debt under the CBPP programs.

Neat stats from the paper (page 77):

ECB's purchases are 3.5% of euro area GDP, for FED its 22.1% of USA GDP, for BOE its 26.3% of England's GDP and for BOJ its 37.3% of Japan's GDP.

burningfiat said...

Victory and Victor,

FOFOA said in Once upon a time

Gold flows in the opposite direction of goods and services. Remember when ANOTHER said, "gold and oil can never flow in the same direction"? Well it's the same thing with other goods and services. Germany and Greece may both be exporting and importing, but Germany is exporting more, which shows up on the BOP as a Trade Surplus and a Capital Account Deficit. At a high enough price, a small amount of gold can (and will) flow in the other direction, from Greece into Germany, and if its value exceeds the (net) trade difference between Germany and Greece, it will turn Germany's Trade Surplus into a Trade Deficit and a Capital Account Surplus.

What else should savers (surplus producers) use their excess currency on, other than buying gold from the de-hoarders in trade deficit zone?

It's "the gold must flow," not "the gold must fluctuate wildly." --FOFOA

burningfiat said...

Victor and Grumbs,

Please reread Glimpsing the Hereafter 2. This time with an open mind! It's all in there, really!

Woland said...

"Ultra Easy Monetary Policy and the Law of Unintended Consequences"
by William White
former head of the BIS Monetary and Economic Dept.


Will GLD break 1000 tons this week?

12 tones to go.

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

It probably will break 1000 unless the entire system freezes up.

Unknown said...

Burningfiat's answer to Grumps/Victor pre-empted and answered my questions. THX

Sam said...

Rueters and Forbes both have interesting articles today commenting on the gold market and the price not representing the demand for physical.

Knotty Pine said...

More from "The Gold Must Flow" re spur and brake within (or outside of) a currency zone:

"If, on the other hand, physical gold flowed from London into Germany and the price was high enough that it offset the trade deficit, then there would be no trade imbalance. There would be no accumulation of debt. Everything would essentially be settled on a cash basis with no international debt. But in order for this to work in reality, the price of gold will have to be much higher than it is today because there's simply not enough gold to flow at today's prices in order to fill the trade gaps that already exist.

And here's another interesting note. It won't matter if London is still using the pound or if they switch to the euro. The gold still balances trade as it flows. So no, it's not a flaw of sharing the same currency that the PIIGS can't balance trade with others in the euro's core. It's a flaw of the current system which existed long before the euro was even born. Within the current system, the euro does remove the possibility of local currency collapse as an alternative adjustment mechanism, but honestly, that's part of what they wanted with the euro. The current system is one of irreversible debt-buildup and gold-debt which sterilizes the flow and price of gold."

"This flow will continue reversing back and forth forever, as it should be, because there is no such thing as a perfect equilibrium. And again, I want to draw your attention to the fact that I'm dealing only in the physical plane, ignoring the monetary plane. This is what Freegold does. And it doesn't matter if the "surplus ex-gold" and "deficit ex-gold" zones each have their own currencies or if they share a single currency. It still works the same way. Savers run the economy. Savers are the marginal surplus-producers and consumers. When the savers start saving more, it means the economy is producing more. When the savers start dishoarding and consuming, the economy is producing less vis-à-vis its balance of trade. This is the spur and brake force of Freegold, the international demand driven by the fluctuating purchasing power of gold as felt by the savers, regardless of any transactional currency effects with which the debtors may be tinkering."

Anonymous said...


there is no disagreement that the gold will flow (from Greece to Germany). But the price of gold in Euros will be the same in both places (transportation cost is negligible). So how does the spur and break work, i.e. why will Greece eventually become competitive compared to Germany again as opposed to simply running out of gold?

(It is obvious that their consumption will stop when they eventually run out of gold, but that just means there is some deindustrialized region left in poverty - similar to what happened to them after the end of the credit binge in 2010. AG, what is it that makes Greece competitive again - hopefuly well before they run out of gold? Some mechanism is missing here that would work just as the international gold standard did before 1922, but rather inside a curtency area).

No, I don't think that the answer is in the article. IMO it has never been discussed here. Hint: The answer is probably related to Grumps' question on interest rates and on incentives to invest in Greece as opposed to Germany.


Stel said...

Refute to James Turk on 24hourgold on 27maj:

No James Turk, gold is not money so Ben Bernanke didn´t lie. Gold was money when we stamped a value on to it or when we where under a goldstandard. We are not going back to stamping values on gold or creating a new gold standard. We have some coins "stamped" but they will not be the general money. Hard money gold is a thing of the past bc it never lasts. History proves that.

But wee will be going back in time, old gold world but looked upon with modern glasses. What is evolving is the money concept. Gold is not money, gold is wealth. Money has three functions today, medium of exchange, unit of account and store of wealth (to some degree). The dollar will be the last standing reserve currency, soon a thing of the past. Oil made our economies expand immensly and we absolutely needed FIAT to accomplish that. "Oil" understood that a currency, printed at will, can not be payment in full for the worlds most valuable commodity.

So the world agreed to let the dollar be the world oil-currency so to expand the economies. The other choice was to go back to a gold standard wich would not accomplice a fast growing world. But some gold had to flow the opposite way of oil to be payment in full. Gold is cornerd by oil since decades ago. The biggest corner there ever was. Ironically one commodity cornering another.

We still live in our FIAT world but it will not last. A FIAT is by design destined to fail in the end. Paper-gold and the derivaties came into existence to hedge for a dollar that couldn´t last. A sort of make-belive to extend it´s lifespan. Some say that an ounce of gold pays for a nice suit just like in the roman times. Yes it does but something is missing in that comparsion. All the wealth that oil brought forward. It´s in that context you can understand what golds future price will be when paper-gold and derivaties have lost theire meaning. They are only an insurance sticker and will not pay out in the end. Designed to function before "gold" but not after.

What also will be gone is the illusion of paperwealth. Your wealth is not what your money says it is. Money is credit (not gold) and not wealth it self. A promise of more to come. And credit is the extending of yours or my credibility so to speak. Banks don´t create mone from nothing, they simply extend yours or my credibility. All the money and it´s derivaties in this is world is grossly overvalued compared to real assets. What is make-belive will eventually fail, always has, always will.

This brings us back to the pure money concept, a shared value in our minds. When gold is finally set free from the paperillusion of wealth all will se what real wealth is. And when that happens the three functions of money will separate. Money (FIAT) will only have two functions left for the foreseeable future, some say for a millennia or more. Money will be left with medium of exchange and unit of account. The result is finally the uniting of the soft and the hard money socialists coexisting. Gold is what prices currencies and not the other way around. Gold is wealth, store of value. It´s been out of fashion for a long time but it never disappeared.

It was always gold that was the fulcrum, the most perfect referencepoint the world has ever had. Modern man just thought it went away for good.

Put not your trust in money,
but put your money in trust.

Oliver Wendell Holmes

A triburte to words of ANOTHER and friends FOA, Ender, Aristole and FOFOA (I understood Antoher but you made it ineveteable)

Aaron said...

Hint: The answer is probably related to Grumps' question on interest rates and on incentives to invest in Greece as opposed to Germany.

Hi Victor, I'm trying to sort out your comments and wanted to bounce this off of you mostly to help clarify things in my head. Are you saying you believe that trade will reverse between Greece and Germany primarily because Greece will issue bonds with a higher interest rate than Germany attracting foreign capital to Greece? I'm guessing if that is the case, implied is the double whammy of encouraging Greeks to save rather than spend which further reduces consumption.

Does that capture what you're getting at?

Hill C said...

Here is the answer to why gold has been down since 2011. Belgium leased over 1/3 of their gold in 2011. If all Euro area countries did the same, pursuant to the ECB statement on gold, some 4000 tonnes could have hit the market in 2011. The question is why? To support the paper market? Why help the US? Will it change with their next statement on gold? How much longer can they drag this out?

"Belgian Central Bank Says 25 Tons Or 10% of Gold Reserves on Loan

The Belgian Central Bank said yesterday that about 25 tons of the European nation’s gold reserves have been lent to bullion banks according to Bloomberg.

Nearly 10% or about 25 metric tons of the National Bank of Belgium’s remaining 227.5 tons of gold reserves are currently lent to bullion banks, Director and Treasurer Jean Hilgers told the central bank’s annual meeting in Brussels.

The proportion of gold reserves on loan declined from 84.3 tons on December 31, 2011, and averaged 48.1 tons in 2012 as loans matured and some gold loans were reimbursed early."

Hill C said...

Here is the evidence that Euro joined the paper game. If all members of the Euro leased an equivalent amount of gold as compared to Belgium (1/3 of holdings), some 4000 tonnes would have hit the market in 2011. The question is why?

"Belgian Central Bank Says 25 Tons Or 10% of Gold Reserves on Loan

The Belgian Central Bank said yesterday that about 25 tons of the European nation’s gold reserves have been lent to bullion banks according to Bloomberg.

Nearly 10% or about 25 metric tons of the National Bank of Belgium’s remaining 227.5 tons of gold reserves are currently lent to bullion banks, Director and Treasurer Jean Hilgers told the central bank’s annual meeting in Brussels.

The proportion of gold reserves on loan declined from 84.3 tons on December 31, 2011, and averaged 48.1 tons in 2012 as loans matured and some gold loans were reimbursed early."

Dr. Octagon said...

Victor the Cleaner - earlier you provided an answer to your own question in post 271 here. While I've found some fantastic comments in that thread, I haven't been able to fully understand a couple of your arguments, and since you brought them up, maybe this is a good time to ask for help understanding your description of balancing trade within the euro zone (post #271) and your argument at the end of post #274, covering the fluctuating price of gold in countries A and B.

My trouble is that you seem to be assuming some level of currency controls, which I don't believe exist. Specifically, you state "If future real interest rates are high in some region, but not in another, then gold starts to flow". Why does gold have to flow? If we're talking about currency within the Euro zone, wouldn't the investors simply shift their currency investments from the low-rate region to the high-rate one? I'm missing the reason why gold is involved in this scenario. I believe this is also why I don't understand your country A and B real gold price swings.

Can you elaborate on this?

byiamBYoung said...


I went on a limb recently and said by Friday, we'd see it drop below 1000.

Feels like a really charged number to me.

But I am not just a shrimp, but a shrimp in the back third of the swarm.

My hunches manifest from the nosebleed seats of the great reset extravaganza coliseum.

Do as I do, and seek alternative verification! I don't trust me, why should you?


Knotty Pine said...

VictorTheCleaner said:

"It is obvious that their consumption will stop when they eventually run out of gold, but that just means there is some deindustrialized region left in poverty - similar to what happened to them after the end of the credit binge in 2010."

Won't the end of consumption be a spur to the Greeks to get off their collective asses and lure some German tourists to spend some of their savings/gold (depreciating vs German production but appreciating vs Greek production/services)? In other words gold's purchasing power in each economy acts as the spur and brake regardless of currency.

In addition the end of the $IMFS will be a huge spur (and brake) in the way the world views money and it's functions.

burningfiat said...

JR, fine stats on QE!

Knotty, nice one!
If I began consuming so much stuff that I had to begin to sell off my gold, that would certainly act as a personal spur to get off my ass! I gather this would also be true in aggregate for a group of people!
The only reason this spur/brake doesn't work now and the only reason the imbalances have become so big is because nobody is ever punished with outflowing gold in this system. All you have to suffer now is an increasingly negative number in some digital account (debt)... Who cares?


Anyone else watch the physical silver groupies on youtube for fun? It will be interesting to see this community assuming gold is revalued overnight to 50k or whatever and silver is still sitting at under 100(or 30). I mean silver is a religion for of these guys.

Diamond Jack said...


Your rebuke to mr. Turk is a wonderful freegold wiki.

Diamond Saint Jack

Kieran O B said...

Poverty can be the spur. Goldless and poor would be as good a kick in the butt as any, it would be a time to work harder, longer and better for less money. Competitiveness returns.

Lisa said...


What Knotty Pine said - isn't it the purchasing power of gold as to goods and services in Greece vs the purchasing power of gold as to goods and services in Germany that is important (not the cost of an ounce of gold in Greece vs the cost of an ounce of gold in Germany)?

From "Once Upon a Time":

The lesson from the monetary changes made in the post-war 20s is that if you want the debtors to ever be able to repay their debts in real terms, you do not sterilize the vital spur and brake function of gold by locking its purchasing power. It is the price mechanism—price changes in goods and services—that
transmits the arbitrage signal that causes gold to physically flow to where it has the greatest purchasing power. For a struggling economy to grow and expand to a point at which it can repay its debts, the gold not only needs to flow, but it must be a fertile member of the economic ecosystem so that it can perform its vital function.

M said...

@ Victor and Grumbs,

If you want to know how much lending people will want to do with a positive rate, you cant use the US dollar as an example. The US dollar was backed by gold and is still the reserve currency.

For a more realistic look at how lending at positive rates does, use a developing nations corporate and govt bond markets as a gauge. They already live in the real world.

M said...

@ Victor

Quote :" No, I don't think that the answer is in the article. IMO it has never been discussed here. Hint: The answer is probably related to Grumps' question on interest rates and on incentives to invest in Greece as opposed to Germany."

The Euro nations all have separate bond markets. Today.

And what will atract investment to Greece ? Wages will fall.Property values will fall, taxes will get lowered and government will be cut. This is happening today too.

M said...

Does anyone know the FOFOA article that talks about the price of capital goods ? FOFOA uses an excavator as an example. He explains how we arrive at the price of the excavator and why it depreciates. I think it was an early post.

RJPadavona said...


I finally found time to sit down and watch this new video. Excellent work! I liked the image of the airplane after Ron's quote.

Keep up the good work. You getter better with every video.

Practice Makes Perfect

ein anderer said...


may be one of -> these?

tintin said...


Recent POG crash has caused increased flow of real gold, generally eastward. And demand for physical delivery has to be met with supply, from where?

Yes, high gold price is not happening due to lack of demand for gold credit which means one leg of support is not there, and official sector support from ECB is gone as you have speculated.

Recent price behaviour and market reaction on the physical front made me think: IS the FED supporting POG to moderate physical outflow? Because if POG goes much lower from here then those vaults will just going to be emptied that much quicker?

GLD lost 6 tons and is sitting on 1012 tons.

Thoughts anybody?

Dante_Eu said...

If you don't want to follow a person, but the person insist that you do so, what does it tell you about that person?

If I would post on Internet explaining why I don't agree with people, I wouldn't do anything else but post on the net. And even if I did, I would probably stop after some time. Because I would probably realise, it's futile.

It has been said before but maybe repetition is a virtue. 99% of people don't care or don't give a rat's @ss about Precious Metals. Then you have 1% gold and silverbugs. Out of that 1% you have (under) 1% of Freegolders. As a freegolder you don't care or don't give a rat's @ss about trying to persuade anyone anything. You just observ. Occasionally, you have a rant. As this one. But that's about it.

So, out of 99.9%, where you might have some chance, you choose to persuade 0.01% who don't give a rat's @ss about convincing others? What does it tell you about state of mind of someone trying to do that? And, most importantly, would You choose to follow that person?

One Bad Adder said...

These two seem to have been caught in a curious stand-off for the last week or so ...and I'm pretty sure we'll see Another divergence as this progresses.

DX-86 / $IRX sub-0.01% sooner rather than later methinks.

@Edwardo - Long-end Yield effect noted.
Fed contrived far! Mr Market will eventually do a MUCH better job with ANYTHING that is NOT <3-mth ....IMHO.

One Bad Adder said...

...aaand - speaking of which - Yahoo is showing secondary market Yields on the 3-mo at Zilch!

One Bad Adder said...

Good effort FOFOA and FGT btw.

Motley Fool said...


"So how does the spur and break work, i.e. why will Greece eventually become competitive compared to Germany again as opposed to simply running out of gold?"

I recall struggling with this something over a year ago. I also recall solving the issue and doing some blog posts on it.

At the time it did not engender much interest.

Perhaps you wish to take a look.


Motley Fool said...

Ps. A subtle point that is often missed, as you do above, when looking at flow of goods is that a border crossing Matters...even in the same currency zone. This crossing a border concept, is also fractal, in that it can be considered from the level of the individual to the level of different countries.

Motley Fool said...

Pps. In concrete example, say for example you live in Greece and gold is cheaper in Germany. Well and good, you will order from Germany...but in doing so gold crosses a border and that affects the trade balance.

Anand Srivastava said...

But Jeff, if a currency has a positive real rate wouldn't that serve as a SoV?

How do you get a positive real rate if you store the currency at home? Isn't that the definition of SoV. There should be no counter party.

If you are earning and interest on it, it is by definition an investment not a Store of Value. For currency to be a store of value, its value should remain constant against goods. ie 0% inflation, over long periods of time.

Since value cannot be fixed very rigidly over the short term, we must keep moving in and out of deflation and inflation.

Doesn't look like a very good idea to me to have a currency be the SoV.

Flore said...

Hitler and freegold

Bjorn said...


Thank you, that really cracked me up. :-)

Dante_Eu said...

Good one, Flore! :-)

Michael dV said...

Thoughts?...heck yes, I think of little else. We are watching a predicted change in the gold market. We are watching the collapse of the currency ($).
I am also asking myself everyday.."if fofoa is not right what else explains this pattern?" Are we really going to pull out of this dive and the POG head 'to da moon"?
Exciting viewing and I watch as a very interested party.

Dante_Eu said...

May 25, 2013:

Jim Rickards at Keiser report

Interesting remark at 23m:20s:

Chinese manipulating paper markets

"...They have the motivation to do so.
You know when you trying to solve a crime, you look at a suspect. The first thing you say is what is the motivation. Chinese have a big motivation, to keep the price of gold low, until they acquire all they need."

Chinese are a patient people so this may take a while. 2 years of sideways market? Why not? :-)

Naughty Slumdog said...

Many hundreds of years, mankind lived happily with gold money. This is an undeniable proof that gold can be money and is definitely of value.

Than mankind start expanding in sophistication as well as headcount and QUIT the gold money.

And he whole mankind lives happily with FIAT. Maybe this is bad, this is risky, this is immoral, another discussion, but more people than ever live better than ever with FIAT. This is an undeniable reality for the last years.

Now how can one claim that one system is completely wrong and another completely right ? If FIAT is a lie and a b/shit, HOW WAS ECONOMICALLY POSSIBLE to live FOR SO MANY DECADES within such paradigm ? And if gold is nothing why on earth central banks of most developed nations (allegedly not idiots) incur so much costs with storing it ?

Naughty Slumdog said...


that's fantastic! I was devastated with laugh !

Reality Show said...

Art, someone with your towering intellect really should be buying all the silver they can get their hands on.

Knotty Pine said...

Great video, thanks!

This video discusses the disconnect between paper and physical gold. The gold stuff starts about 33:50.

JR said...

Yes Art,

Silver is an excellent investment. Better than gold actually.

So glad to see you are paying attention. Keep up the good work, slowly but surely you will get there!!

buying all the gold in the world would be about the dumbest thing such an investor could possibly do, kinda like a doctor owning an oil company and calling it savings.

Buying gold is not an investment, its saving. You but it to preserve purchasing power, not to profit and earn additional purchasing power. It doesn't compound, you don't buy it with the hope you can sell it to a greater fool for a capital gain.

And to milk more out of one of FOFOA's favorite Warren G quotes:

"If you own one ounce of gold for an eternity, you will still own one ounce at its end."

Unknown said...

This current meme of collateral shortages, and the rehypothecation of collateral, and the BIS working paper which clearly defends caution against it (other than for leveraging the client's own long position) sounds to me like yet another early warning signal for revaluation.

Unknown said...

And furthermore, the Paper was never a serious contender over the centuries. Gold always won, time and time again. And so it is today.

It is not the paper itself that challenges gold, it is the CONFIDENCE in the paper system which CBs now wield over gold.

It is quite simple. As long as they can maintain confidence, this system will endure. The great ally, INTERDEPENDENCE which we see as "support" or "use value" gives confidence it's greatest boost due to globalization.

But the weak links in the chain are the events that break the implied social contract, like ABN AMRO and CYPRUS. These increasingly whittle away at the confidence in a system which rewards all people for all things good or bad.

This we grasp from the flower of understanding.

MatrixSentry said...

For newcomers to the blog:

You might be confused about the disjointed nature of some of the comment threads, specifically reference to someone whose handle rhymes with "fart". This sad and very disturbed individual found himself on an exclusive list, a very small one, comprised of pathetic individuals who cannot maintain any semblance of decorum or decency on this blog. As such, his posts are deleted on sight by our gracious blog host, FOFOA. The result is the blog responses addressed to this sick puppy remain here, seemingly speaking to a phantom.

Just like a fart, his noxious emanation can clear a room. However, while some will leave until the fart dissipates, others will giggle or otherwise make whimsical commentary about the nature of the fart or the farter himself. Like a prepubescent boy who sees great entertainment in lighting his farts, so too does our Troll fArt enjoy performing for us. His childish comments are posted to elicit a reaction from us. The replies he receives are the "giggles" of other playmates watching his ass lighting trick. He is right proud of his ability and will continue his show as long as the crowd remains entertained.

This is a sick fucker. Please do not encourage him. His posts will remain only until FOFOA checks in for the day, at which point his farts will be cleared from the room. Any response to him will remain and cause confusion to future readers of the blog post comments.

This has been a public service announcement.

tintin said...

Hi Michael dv,
I don't mean POG heading to da moon from FED support, but rather, putting a floor underneath to slow down the bleed.

heck, the GDL managed has managed to add 1 ton to the inventory today. So the FED support (if I am right) is working.

burningfiat said...

On the subject raised by Matrix may I please raise awareness to the following method for email subscribers (originally here):

Now might be a good time to repeat a public service announcement from a while back. I couldn't find the original comment and I don't recall the author but I will reproduce the content:

If you subscribe to comments via gmail and would rather not be bothered by a troll (let's call him "art"), follow these steps:

1. On the upper right corner of the screen, select the 'gear' drop-down menu and click on 'settings.

2. Click on the 'filters' tab.

3. Click on 'Create a new filter' at the bottom of the screen.

4. In the 'From' field, fill in

5. In the 'Has the words' field, fill in "Art has left a new comment" (be sure to include the quotations).

6. Click 'Continue' on the bottom right of the popup.

7. Under When a message arrives that matches this search: put a check mark in the box next to Skip the Inbox (Archive it) and in the box next to Delete it.

8. Click on the 'Create filter' button, and you're done!

Repeat as needed.

Thx Michael H!

One Bad Adder said...

THIS is where the Rubber meets the Road tintin ...PaperGold MUST be kept in touch with PaperPaper FWIW.

One Bad Adder said... does PaperSilver ...FWIW.

CharlieBravo said...

Can someone direct me to an email conversation between FOFOA and, I believe, Motley Fool. The subject was the purpose and effect of the FED buying MBS's. Not sure if it was in the body of a post or the comment section. Thank You


Phat Repat said...

Obviously name calling isn't the correct approach. And the US is on sale. Yes, that Ex-Priv is nice; for the ROW. Hope you like working for them; as a heads up for the uninitiated, it won't be anything like the Japanese. Good luck...

Knotty Pine said...


This is mostly a conversation between Aquilus and FOFOA but there is a lot of discussion about the Fed buying MBS. Hope it helps.

Unknown said...

I don't know the post, but can give my take on the FED buying MBS ... it is simply "saving the debt, at all costs" as Another put it.

The FEDs primary dealers needed their balance sheet valuations bailed out to at least appear solvent (with so much debt clearly fraudulent, in that lending standards were severely overlooked) so the act of buying them, much like in buying USTs is a show of systemic "strength" or resilience that unrepayable debt will be absorbed, by more debt of course, since all of the FEDs paper are merely "more stately" promises buying "more troubled" promises.

I can't wait for the FED to start buying defaulting derivative positions to save those Quadrillions. I'll be debt free by the end of that year :)

Indenture said...

"It is good to see bullion transactions happening – this shows that our currencies are still alive!" Ender

"When your perspective considers the value of the function of currency, other actions make more sense." Ender

"Freegold is not a monetary standard based on a durable commodity. It is a monetary standard based on pure, printable fiat." FOFOA

tintin said...

Thanks OBA.
So $one:$USD is the inverse of USD index right?

Very clear on the chart that POG and 1/USD move broadly in synch.

Is it like broadcasting loadly that the $$$ system is still under control?

CharlieBravo said...

Knotty pine

That's it. Thank you.


I understand that part of the equation. I was re-reading peak exorbitant privilege. Trying to understand the roll of MBSs purchases and how it adds money to the treasuries account. Still a bit muddled.

Thanks for the help.

M said...

Phat Expat

"Yes, that Ex-Priv is nice; for the ROW."

Why is having a artificially devalued currency a good thing ? So food and energy is more expensive ? So you have less money at the end of the day to buy other things ? We've been through this.

I guess you are a Keynesian. No point in talking economics with you.

JR said...


Trying to understand the roll of MBSs purchases and how it adds money to the treasuries account.

Then FED gives the commercial banks base money (reserves) that they will then spend on $Treasuries:

Say the Fed does $600B in QE but only buys MBS from the commercial banks. The Fed has created $600B new atoms (reserves) which only become molecules once they pass through the USG spending machine. All the Fed has done with the commercial bank balance sheets is an asset swap, a new reserve for an asset. No new credit money (commercial bank liabilities) has been created. New credit money is created when the USG spends in excess of the credit money coming in, either through taxes or borrowed from real savers. This commercial bank who just swapped MBS with the Fed for new base money could now swap that base money asset with the Treasury for a Treasury asset. And yet still, no new credit money has been created… until the USG spends it.

So, in essence, the commercial banking system created new credit money (commercial bank liabilities) when it originated the home loans which created the MBS. That is now circulating. Then the Fed created new base money which it swapped for the MBS. Now the commercial bank is free to swap that base money with the Treasury who will create more new credit money by spending it.

"I can imagine any US bank creating credit to buy treasuries, and holding those treasuries on the balance sheet as risk-free assets. I guess I don't see is why is it necessarily base money that flows into Treasuries?"

Can you see now how any US bank cannot create credit which the USG can spend? The USG can only spend earned credit (earned through production in the physical plane) or else the USG is actually creating new credit money when it spends, without any offsetting production in the physical plane. The money the USG spends either comes from taxes, net-producers (real savers), or else it is inflationary. A base money unit passes through the USG with every dollar it spends. A credit money unit exits along with that base money unit as well. The only question is whether that credit money unit (commercial bank liability) was surrendered to the Treasury from someone who earned it, or created from thin air by the very act of the government writing a check to a government stooge.

The money the USG spends either comes from taxes, net-producers (real savers), or else it is inflationary

When the FED buys MBS and the banks take that fresh base money and then buy $Treasuries, yup, its inflationary when the USG spends it. It didn't come from taxes or net producers.

Phat Repat said...

Keynesian... Labels... Like dropping the race card; weakness of argument, attempting to distract, obfuscation...

"No point in talking economics with you."

No, not if that's all you've got.


Phat, if you are a Keynesian then it isn't a weak argument. You keep saying the ex-priv was good for the rest of the word which is rubbish. Just because they are receiving a bunch of green pieces of paper doesn't mean they are better off. That is the entrepreneur point of our privilege. We print, they produce, we consume.

Phat Repat said...

"That is the entrepreneur point of our privilege. We print, they produce, we consume."

That's it? No other benefit derived by the ROW? That's rather simplistic. What label would you ascribe to yourself?

Anand Srivastava said...

Actually, there maybe some truth to what Phat is saying.

If you had been forced to produce before you consumed, we would not have been able to get into spaces that you were already there.

This would have reduced the pace at which we could have grown. There is a reason why China supported the status quo.

And actually this imbalance allowed the ROW to support the US.

I would say it was ok on the balance. Wish India had actually utilized the given time the way China had.

And luckily for me I realized this before the time was up :-).

CharlieBravo said...


Thanks, that was my original understanding. Somehow, I was over thinking the process. Got wrapped up in atoms and molecules:).

Would it be safe to assume that the purchase of MBSs was done with the understanding that said proceeds be used to purchase treasuries? The common mantra is that the banks are flush with cash, however due to lack of velocity, it is none inflationary. In reality, the money is just working its way through the system (govt spending)

Naughty Slumdog said...


if you are referring to me within the context of "newcomers on blog", Roger, I have no love for trolls.

I have some very basic thoughts that I dare to believe are of relevance for new comers and less experienced people. I am inspired to share such thoughts by you guys.

Let's be realistic: we face a big risk of loosing a great deal of our hard worked savings. This is not about maximizing your savings, it is about shielding it. It is not about having a super mega investment, not about striking some fantastic deal, about multiplying a lot of times your wealth. This is about not being left without your hard worked money because of a "God wanted so" reason. I was queuing at four o'clock in the morning in front of a bank to get YOUR OWN money back. This is a mess, and the physical gold would help you avoid this.

If you believe this is scary movie, remember AIG in 2008/2009 and the cipriot banks. This are not sinners or idiots, they were just hit harder.

Unknown said...

And I think these discussions are actually inter-related, from JR's fine explanation of the US base money shell game to the "cycling of opportunity" in the global Ex-Priv system.

This current FIAT system was designed so well that it creates more and more layers of interdependence to strengthen the web of "support" and "use value" as it expands.

When I referenced FED paper, perhaps FED "digits" was more apt, and the effect of "showing systemic strength or resilience" is more an outcome of the the design than a cause in and of itself.

The point being that gold has never faced such an adversary over the past millennium, which could build up such a resistance (IMHO) to it's natural return to base wealth through a new monetary transition. And that said, it is not even gold specifically that is the prime resistance to the old FIAT system, but rather the new FIAT system, of which gold is merely a critical component/enabler.

So the dyke rises to levels of debt beyond any prediction of sustainability, to the point that wait each day for signs of the next OUTRAGEOUS move to save the system.

Each year since Lehman, each new increment of disbelief, from publicly revealed bailouts to MFG to Cyprus and all the incredible steps in between, who can predict how far the system will go to predict itself?

Is the FED buying defaulting derivative positions beyond ridiculous? Of course it is.

Were savings account "bail-ins" even imaginable only a few short years ago. Of course they weren't.

What comes next, we wait to see. Extra butter for my popcorn please, and a nice cushion for my lawn chair as I feel the waiting could be tiresome.

Who knows what evil lurks in the depths of the system? The flower knows.

Unknown said...

I meant to say, "who can predict how far the system will go to save itself?" above. -W


I meant entire not entrepreneur. Phone auto correct.

Anyways, if you really believe the ROW has benefitted from our consumption please tell me how. Why can't they produce to consume their own production?

I am not smart enough to be labeled anything, but from listening to people who are, clearly the Keynesians are in the dark from a logical and historical perspective.

Pat said...

Yes, Wil,the unimaginable seems to occur daily. The "system" is in full in-your-face mode, no effort to even hide what was indeed unimaginable to at least folks that frequent this blog. The great unwashed on the other hand continue to be as blind as, well, pick your favorite metaphor.
Gold, stocks, housing manipulation I can see as well beneath the sheeples radar. But when blatant depositor theft ala Cyprus, and the subsequent publishing that the laws are in place for this to occur pretty much anywhere, that doesn't get the sheeples attention...
The system has captured the pols, the school system, the mass media, etc; the sheeple are so dumbed down it defies belief.
I am only heartened from a primary precept here, that change doesn't need to come from the masses, that it will occur organically as the system finally dies. Yes, but when, as they have so much control, over Confidence as you state? And the interdependence of the ones you would think have the most to gain by exiting the current system ( Chinese, BRICS; et al )seems to have them all locked into place as well.

Motley Fool said...


There was one benefit to the rest of the world worth mentioning. With the US not producing, their industry was hollowed out and shipped overseas. When TSHTF those factories and skilled workers will still remain. This is beneficial to them.

I would not go so far as to call it a mutual benefit though.

...and one has to remember that ito industry R&D is what really keeps the edge, and afaics most R&D work is not based in the east, and as such they could lose industrial advantage quickly; especially if salaries in the west are adjusted to more realistic ranges.


One Bad Adder said...

@tintin: - Yes ..and Yes!
Signals opposed to "Noise" mate.



yes the rest of the world has benefitted from our wealth but we became wealthy because we used to be big net producers. our wealth allowed us to share in production with other parts of the world. Take for example the dukes of wetting. For a while bosshog was a benefit to the town but once he started consuming via the printing press he no longer was and he was actually "stealing" from the economy..

Ex-priv and our production of wealth(which was shared) are seperate events.

JR said...

Big Sketch on ExPriv,

Its an exorbitant privelege because the US got stuff in exchange for its currency, becuase other nations bought our debt to support our consumption habit.

That doesn't mean the rest of the world did not get something out of the deal. For the Euro/BIS group, they built a new currency. And China and the BRICSs saw economic development abd growth in industrial capacity via undeconsumption, aka they built stuff and then shipped it off without commensurate goods and servcies in return.

WRT to the "China/BRICs got economic development out of the deal" line of thinking, the counterfactual problem is the law of compartive advanatge. You have to assume China/BRICs had no other way of gaining industrial capacity, and to beleive that you have to reject the law of comaprative advantage. They would have traded sans the ExPriv.

You also have to understand that much of the stuff sent to the US is not capital intensive goods anyway. The US has lost lots of unkilled, low-skilled manual labor jobs to overssas. These places make lots of stuff they don't need and ship it to the US. So second, how valuable is the economic development that have?

The US, on the other hand, is still a huge exporter of captial goods, aka the stuff that you have to spend lots of money to make and that gets used to run business that make other stuff.

Obviously there are some generalizations there but these are some ExPriv ideas.

So yeah, if I sell an 1 oz Krug to some dude for $100 bucks, I undoubtedly got a benefit- $100 bucks.

But the buyer got the "exorbitant privilige" of receiving far more value than he gave up.

Unknown said...

Yes, the charts do look ominous (if you can trust them) but the alternate reality whores are in full regalia, red lights humming and in extra lip gloss mode.

I just spoke briefly to our former general counsel, who recently attended a seminar given by a mouthpiece of the Russel 2000.

The general financial meme was that it takes 10 years to fully recover from a "recession" as serious as 2007 and we are just now in year 6. Bernanke has things under control, Yellin will follow his lead and compared to Europe, the US is in "great shape".

I guess I've been under the influence of evil gold hoarders, jerks, time misallocators and brainwashed cult members for so long, I'd nearly forgotten what intelligent people (far from the mass of sheople) actually buy into in this country.

Yes, Pat, CONfidence is sometimes its own reward, at least in the long-term temporary fantasy world we've managed to conjure up through ExPriv, and it's systemic self-perpetuation.

tintin said...
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Sam said...


You shouldn't build an argument around positive side effects outweighing the primary subject, as it is infinitely plausible that these "side effects" could have still been achieved outside of our primary subject. You are complicating a simple subject. If by design I lost my car and had to walk to work I could say that the improved health gained from the forced exercise was a blessing. That doesn't mean it wasn't a privilege to have the car.

Michael dV said...

Just received an order form APMEX. I ordered some 1 gram bars. Last month they sent some individually wrapped bars. This time I ordered over 25 of them and they sent a Valcambi bar. It comes in rows 5x5 and 'change' ( a few extra since I ordered over 25 gms.). The bars are easily split by hand and measures 50x36 mm (2 inches by 1.5 inches). It troy ounce!! Actually pretty cool for small purchases like cars and small companies.


Michael, I don't know how many times I have nearly ordered the Valcambi 50g bar from Gainesville. So you really like it? I think I am going to take the jump. The biggest thing holding me back is having my name out there as a gold owner, but this blog removed most of those fears.

Phat Repat said...

"WRT to the "China/BRICs got economic development out of the deal" line of thinking, the counterfactual problem is the law of compartive advanatge. You have to assume China/BRICs had no other way of gaining industrial capacity, and to beleive that you have to reject the law of comaprative advantage. They would have traded sans the ExPriv."

The what? 'Law' of comparative advantage? Sounds like some econoquakery indoctrination bull stein. The only 'Laws' I adhere to are those brought by nature and formalized for our benefit, by great men, over time. Cue M (et al) for a labeling.

Oh, and see monkey comment below.

" it is infinitely plausible that these "side effects" could have still been achieved outside of our primary subject. "

Sure, just as Ulysses could be written by an infinite number of monkeys banging away on typewriters. But I prefer the more direct route (and, through their ExPriv, I guarantee so does the ROW). Yours, and others, attempts at re-writing history is a fail and shows a complete lack of credibility (and frankly, makes one wonder what your agenda really is).

No worries; the ROW can go happily along their path and the US ours. I have no problem with that, in fact, I welcome it. Though we are interdependent on some levels, and all 'fair' trade is NOT bad, the coming tech (again brought to you by the US) is a game changer that opens opportunities far and wide and on many levels.

And IF ,as purported, FG gets us on that path sooner, well, let's get it on... ;-)

Indenture said...
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Phat said...

"Though we are interdependent on some levels, and all 'fair' trade is NOT bad, the coming tech (again brought to you by the US) is a game changer that opens opportunities far and wide and on many levels."

You are not looking at the ex-priv here. Yes our advancement has certainly helped the rest of the world(due to our relatively more free markets), but that is not the result of us sending them paper that we print and them sending us widgets they work hard for.

Indenture said...
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Indenture said...
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Indenture said...
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Phat Repat said...

"You are not looking at the ex-priv here. Yes our advancement has certainly helped the rest of the world(due to our relatively more free markets), but that is not the result of us sending them paper that we print and them sending us widgets they work hard for."

I most certainly am looking at ExPriv; their ExPriv. As has been my contention all along. If not for, they could not have. KIS.

M said...

@ Phat Expat

The whole premise of your argument is that the ROW benefited greatly from having an undervalued currency under the ExPriv system.

ExPriv does not mean that technologies cannot cross borders. Unless you can explain to me how having a weak currency raises a countries ability to import technology from the west. It is just the opposite in reality. The ROW would be more advanced if technology was cheaper to import.

The ROW would still have everything it has now without ExPriv. The only difference is, the world on both sides of the US border would be more balanced.

The Soviet Union put a satellite in orbit before the US. They put man in orbit before the US. They were the second biggest economy in the world by GDP until 1984. All of this while they were the US's biggest enemy.

M said...

@ Phat expat

"I most certainly am looking at ExPriv; their ExPriv. As has been my contention all along. If not for, they could not have. KIS. "

This is bordering on troll shit. You are not explaining yourself.

Phat Repat said...

"The Soviet Union put a satellite in orbit before the US. They put man in orbit before the US. They were the second biggest economy in the world by GDP until 1984. All of this while they were the US's biggest enemy."

You are more than welcome to live under their system.

"The ROW would be more advanced if technology was cheaper to import."

That is THE most asinine comment I have ever seen. You obviously follow some utopian dip-shit philosophy. Sure, and if Unicorns shat skittles... We ARE in competition with each other and there ARE limited resources. Or is that too much for you?

"This is bordering on troll shit. You are not explaining yourself."

Pot meet kettle.

M said...

ExPriv™ man.

Just substitute America for ExPriv™ in the Team America theme song and you get Phat Expats economics philosophy.


Phat, offer a rebuttle. You bring nothing to the table but pseudo intelligence with no substance.

Phat Repat said...

You are obviously tied to a failed doctrine whether through Uni or Employment or upbringing; and that's fine. But at least be honest with yourself and the board, it's the least you can do.

"You are not looking at the ex-priv here. Yes our advancement has certainly helped the rest of the world(due to our relatively more free markets), but that is not the result of us sending them paper that we print and them sending us widgets they work hard for."


"You bring nothing to the table but pseudo intelligence with no substance."

Yep, lots of substance there. Their ExPriv, that allowed them to send us widgets, is the result of our transferring technology that goes far beyond the paper we gave them. And they will only advance from there. Manufacturing is more important to a country than you might realize. And their ExPriv is to OUR detriment. If you can't see that, then I don't know what else to say; pseudo-intelligently or otherwise.

I know you are regurgitating the platitudes put forth by some French dude and other 'insiders', but as is normally the case, it is only part of the story.

Phat Repat said...

And, thank you to our host for indulging my view regarding ExPriv. I believe I have sufficiently stated my thoughts regarding the misapplication of the term wrt the US.

Looking forward to the arrival of Freegold; whether or not I might hate it as much as the previous. Though it is interesting it was stated that way... Maybe a post on why it could be hated would be of benefit? If there hasn't already been one, of course...

Dante_Eu said...

If one can exchange paper for real things why manufacture something? I mean, manufacturing requires time and effort. Workers may be pain in the @ss, requiring better wages, benefits and stuff like that. Ok, you may employ robots, but the initial cost is high and someone need to maintain them.

If we drug this thing out, why even go to work? I mean, why not just simply hand out this magic paper to everyone. Let's call it food-stamps. Also, one could digitally add as much wealth as possible to any institution that needs it. Those institutions could then distribute wealth to every individual that needs it.

But wait, we still have left R&D, right? Well, yes, but what if those you considered 3rd world yesterday, are beating you down on every plan, even R&D?

But wait, we still have strongest and biggest army in the whole world, right? Well, yes, but what if your army is the result of this magic paper in the first place? And is loosing never ending wars?

And what if you are on top of that, a bully that used to beat up everyone on the school playground?

What could possible go wrong? Well, maybe this. :-)

Dr. Octagon said...

You guys arguing about the Exorbitant Privilege - have you considered the impacts of foreign direct investment (FDI)? There's more to the balance of payments than just trading currency for stuff. If you look at the trade deficit and see "currency going out, stuff coming in", then you're missing the fact that the two are not equal. Currency goes out for other reasons (remittances, US citizens buying foreign stocks, etc).

I don't think FOFOA has spent much time talking about FDI - perhaps JR can correct me.

Naughty Slumdog said...

Dr Octagon,
yes you are right about FDI's - they contribute. But I doubt a country can sustain itself (not to mention prosper to such levels!) just from dividends, interests, software and consulting...

Dr. Octagon said...

@Naughty Slumdog - I don't know what you're referring to with your "I doubt a country can sustain itself..." comment.

Anonymous said...

As much as it pains me to agree with Phat Expat, he does have a point. Yes, we get a lot of free gizmos and what knot from overseas, giving us an artificially and unjustifiably high standard of living, but the look at the downsides of exorbitant privilege. Look at the cultural decay (see e.g. Jersey Shore, political correctness, “slutwalks”, collapse of tradition, etc.), the socialism, and the human capital decay & dysgenics that has resulted from an environment where one's success is determined more by whether one is a member of a favored “victim group” rather than one's merits. Much of this can be attributed to exorbitant privilege/$IMFS IMO. Exorbitant privilege has done massive, probably permanent damage to the United States.

The law of comparative advantage does not tell the whole story. Yes, of course there are private sector actors within the United States who would gladly ship production abroad to save on costs. However, the United States, as a competing entity with various nations around the world, has an interest in keeping its technological know-how within its borders in the same way a corporation has an interest in protecting its trade secrets. The US chose, to its detriment IMO, to allow those private sector actors to do that. While information is porous in the Internet age, there ought to be no doubt that the industrialization of places like China was greatly accelerated by the USD's reserve currency status practically mandating that production be moved abroad.

So yeah, in a strictly hedonic sense, the US “benefits” from Exorbitant Privilege. But this is not truly a benefit, it is a curse that is destroying this country and making us weaker. The real beneficiaries of ExPriv are those who received technological know-how exported by the US brain center. If I were China and I wished to weaken my US rival, I would seek to continue exorbitant privilege for as long as possible, because while I may be denying my people the higher standard of living they might otherwise be entitled to, I am cultivating my human capital at the expense of the United States, which is busy destroying itself.

Relatedly, I like Moldbug's take on the issue of hedonics vs. human capital being the measure of success of a country.

MatrixSentry said...

As a former chart-a-holic, a chart comes along once in awhile that really speaks to me. Check this one out.

So, two ways to interpret this chart. The trend is still in place and we are just experiencing the worst temporary divergence since the gold bull took off. Or, we are witnessing the end of a correlation trend? As a chartist, I say the trend line has been aggressively violated and it is wishful thinking to assume the trendline will be recaptured.

The paper gold price is kaput. Dollars are being aggressively created, far faster than physical gold is coming out of the ground or can be sourced at the present price. Ultimately more rocket fuel is being loaded to an already hot fuel load. Those dollars are seeking all manner of non-gold things, mostly debt and claims on "assets". One thing they are not chasing is paper gold claims. When the worm turns, the light bulb comes on, the swan takes flight, physical gold will disappear overnight when just a fraction of this rocket fuel is injected into the nozzle.

Six months into a year that FOFOA has dubbed The Year of the Window, I have to say this year is well named.

JR said...

Hi Naughty Slumbug,

Think more like the Chinese, who like J.R., salivated at owning a port processing company. Like lets say Smithfield.

Dr. O,

So you are saying the US is a dollar emitter? And to balance it out on the books those dollars get accounted for, like when foreign folks buy US debt or US equities?

The current account deficit (trade deficit) is the flip side of a capital account surplus.

In macroeconomics and international finance, the capital account (also known as financial account) is one of two primary components of the balance of payments, the other being the current account. Whereas the current account reflects a nation's net income, the capital account reflects net change in national ownership of assets.

A surplus in the capital account means money is flowing into the country, but unlike a surplus in the current account, the inbound flows will effectively be borrowings or sales of assets rather than earnings. A deficit in the capital account means money is flowing out the country, but it also suggests the nation is increasing its claims on foreign assets.


Foreign direct investment (FDI), refers to long term capital investment such as the purchase or construction of machinery, buildings or even whole manufacturing plants. If foreigners are investing in a country, that is an inbound flow and counts as a surplus item on the capital account. If a nation's citizens are investing in foreign countries, that's an outbound flow that will count as a deficit. After the initial investment, any yearly profits not re-invested will flow in the opposite direction, but will be recorded in the current account rather than as capital.

So the RoW doesn't just buy debt, they take the homeless dollars and buy US equity and claims on US corporate assets too? Like Al Waleed Bin Talal! (btw, can anyone else pull off the turtleneck and sports coat - I can't, at least not yet).

ein anderer said...


Just realizing that there are quite a lot of contradictions in some WP articles on gold.
This english one says that the USG hold "4,578 metric tons".
This german one says that the USG hold "8.133,5" metric tons (2012).
The latter is referring to the World Gold Council.
Who is right?

Unknown said...

Not only are you spot ON (and I have seen that chart before) but what worries me now is the astronomical price per ounce gold must reach in dollar terms.

Looks like I need to expedite my foreign VISA, but not for the reasons implied here.

M said...

@ Phat Expriv

"And they will only advance from there. Manufacturing is more important to a country than you might realize. And their ExPriv is to OUR detriment."

Yes, manufacturing is important. No disagreement there. But the free market would have found a better way to allocate the manufacturing. Under-developed areas would still be first in line to get the mfging work because they would have the lowest real wages. No need for Expriv for that.

M said...

@ poopyJim

Quote "So yeah, in a strictly hedonic sense, the US “benefits” from Exorbitant Privilege. But this is not truly a benefit, it is a curse that is destroying this country and making us weaker."

I'm not agreeing with that completely. Basically the US enjoyed decades of ExPriv until 2008. It was a party till 2008. Now its finally starting to show its negatives over the last 5 years. But even now, the US dollar is still strong. They can still hand out food stamps and welfare all day long. They are enjoying another stock market boom. They still get cheap oil and gold.

And when it does blow up, they have an 8000 ton ace in their pocket. All of their Expriv debt will be wiped clean and they have a huge pile of real equity to pad their new currency with.

And I would point out that the US did what it did with ExPriv. If Germany (once a saver, always a saver)got the ExPriv, I highly doubt it would have turned out the same way.

Edwardo said...

With respect to Matrix's post at 6:30, (with whom I agree on all the key points) the long end of the curve is breaking out in a way that causes any one concerned to ask if the secular low in rates, some thirty plus years in the making, is now in the rear view mirror? My favorite thesis for why rates have put in a secular low is that the Japan experiment, not even half a year old, is already showing signs of failing-well in advance of the timeline put forward by, for example, Kyle Bass-and bonds are sniffing out not just the snuffing out of the MOPEish idea of a QE tapering off, but, rather, a soon to manifest marked increase in ye olde front lawn dump. After all, despite being in its death throes, it is still a dollar based global monetary system, and, so, when a big player gets into a whole lot of trouble, well, the emitters of dollar currency and dollar debt must do their thing.

Anonymous said...


I'm not agreeing with that completely. Basically the US enjoyed decades of ExPriv until 2008. It was a party till 2008. Now its finally starting to show its negatives over the last 5 years. But even now, the US dollar is still strong. They can still hand out food stamps and welfare all day long.

In my view the party is the negative and has been a negative at least since the 70s (and probably before that). Food stamps, welfare moms, the FIRE sector, etc. - these things *feel* good but are doing permanent damage to US human capital, perhaps dooming us in the long run. What long-term benefit does the US derive from the excessive creation of thug-spawn by welfare mothers while the fertility rate of its most productive citizens falls off a cliff?

This is what I'm getting at, the US only benefited hedonically. As far as its long-run health as a nation, it has suffered. Exorbitant Privilege is like having unprotected sex with a hooker who has AIDS. It might feel awesome while you're doing it, but the consequences are horrible. Competition & meritocracy are what improve a nation's people, not free stuff. Free stuff destroys them.

But yes, FWIW I think it's quite possible the US will stage a comeback come $IMFS collapse.

Jeff said...

Conflating food stamps and welfare with stock market gains and the ExPriv obscure the truth. Not everyone gets a free lunch. Some people get just the crumbs, and some get the lions share. It all depends on where you are in relation to the printing press. Uncle Sugar and the bankers keep the cream. Or are we saying that poor folks on food stamps own 80% of the stock market?

FOFOA: It is a truth about inflation and hyperinflation that only the VERY FIRST entity to use the newly created money profits from the exercise while everyone else suffers. This is because newly created money draws in real economic goods and services to the printer at the same rate as they were offered in the open market before that new money was created. And the printer receives this SUBSTANTIAL PORTION of the real economy at precisely ZERO cost when that new money comes via Ben's mouse named POMO. This 'first spender' effect can be seen both in the BOOM TOWN that Washington DC has become in the middle of a damn depression, and in the LAVISH lifestyles lived by Gideon Gono, Robert Mugabe and all of Mugabe's cronies and friends.

If you can imagine the real economy, the gross national product of everyone's efforts in the whole country for one year, as a bloody red flow animated on a map of the United States, then imagine that at least 20% of this lifeblood of the US (all goods AND services) are flowing right into Washington DC! No wonder 3 out of 10 people in this country work for the government! No wonder DC is the only place in the country that is THRIVING right now. It is receiving 20%+ of EVERYONE'S efforts at ZERO real cost. Is that freaking amazing or what??!!

Jeff said...

Will those welfare queens get their food stamps converted into hot pockets and lamb chops when HI hits? Will everyone get a piece of the pie? When did that ever happen?

FOA: in the real hyperinflation that's coming as it follows our current credit inflation phenomenon it's not the borrowing class that's liquefied, it's the lending class! Remember, out there in our vast dollar world, for every dollar a consumer has borrowed, some entity holds the other side of the credit instrument. Our classic deflation begins when these holders are no longer being paid, resulting in the write-down of their assets. Across the land, banks, credit unions, citizens with lend able funds and every other form of lender no longer own a credit instrument that's sellable at par. That's 100 cents on the dollar.

Hyperinflation begins when pushing on the string no longer is an option. As you pointed out; "the consumer is binged out"! But there is more (smile).

No country ever hyper inflates for the pleasure of the ruling class, as many want to believe. They / We inflate to keep the domestic system in use and do so because it's the last resort. In other words you are forced into it! ...

Just as in many other historic examples and present examples around the world, nation states always choose hyperinflation when no other way out is offered. No nation on earth has ever cascaded themselves into deflation once they are off the gold money system...

I doubt the creditor class as a group is seeking to remove the financial inequalities that separate people through this coming process of hyperinflation. Far from it. As I stated above, the credit hyperinflation has already occurred. It's there, in place as we speak.

What is now faced by this non egalitarian lending crown is the choice of: having their debt instruments defaulted on and losing everything,,,,, or playing 'let the fastest runner win the game!'

My friend this is the choice you get when the currency your assets are denominated in hits the end of its "timeline".

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

JR said...

This is what I'm getting at, the US only benefited hedonically. As far as its long-run health as a nation, it has suffered.

We were the number 1 manufacturing nation in the world until 2012, when shockingly, a country with 4 times as many people finally made more stuff. They should be making multiple of what the US makes on population alone. But they killed their doemstic economy supporting the Dollar via forced savibngs/domestic underconsumption. Which is why we see lotsa growth there as they let their currency appreciate and their poeple consume. Most of the stuff made in China makes should be consumed by its people, but they amde there eocnomy export heavy becuase they supproted the dollar.

China ($1,459) has a much lower stature in world manufacturing when using a per capita comparison, ranking 12th. With its 1.318 billion people, China had more than four times the population of the United States (310 million) in 2010 but only a slightly larger manufacturing value-added. Brazil ($1,445) is only somewhat less manufacturing intensive than China and ranks 13th. India, the second largest country in the world in terms of population (1.225 billion people in 2010) is the 10th largest manufacturing economy but has a manufacturing intensity of a very low $185 per person.

There is a tendency to take too narrow of a view when calculating whether China has the largest manufacturing economy in the world. China's currency appreciation gave it a boost in surpassing the United States in the 2000s; however, when manufacturing value-added is normalized into a per capita metric, the nation's rank among global manufacturers falls to 12th. China's manufacturing performance should not be understated, either—it has demonstrated an incredible ability to grow its physical volume of manufacturing very rapidly.

JR said...

Furthermore, this is occuring with lots of smart young USAers blowing their daddy's money or chasing paper in the FIRE industry. Shocker, the USA doens't work as hard as it does because it is loaded with cheap consumables exported to us by other nations, and all the dollars we ship overseas in return means beacoup bucks are there to be made in the US capital markets so LDO what do the smart young narcisists do- they go make beaucoup bucks.

OMG the puritans would be so much prouder if we had to work hard but we don't and that's the Ex Priv.

And you also have to compare quality of manufacturing. The USA still make the important stuff, aka the CAPITAL goods.

It's a myth that the U.S. doesn't make anything anymore. It's a myth that we don't export anything to the rest of the world.

Yes, we import more than we export. Our trade deficit last year was $558 billion

But we export a lot. Last year, U.S. exports were worth $2.1 trillion. Which raises a simple question: $2.1 trillion worth of what?

Mostly goods. Also, services:

Here's a closer look at our goods exports in 2011. The two biggest categories — industrial supplies and capital goods — account for about $500 billion a piece.

A trillion dollars of indutrial supplies and capital goods were EXPORTED.

JR said...

Time preference is one of my favorite concepts.

The folks who hang out at FOFOA's blog should tend to be by an large low time preference folks (aka savers), so it should be no surprise when these folks' subjective beliefs discount the value of higher time preference consumption ala the Ex Priv in favor of placing greater value on the longer term consequnces (aka Ex Priv means the USA isn't net-producing and saving, its overconsuming).

But there is also something seductively scary about that viewpoint taken to the extreme, whereby folks defer now under the notion of a future bounty. At some point it becomes not saving but investing/gambling, built not on natural setting aside of the extra pordcution, but a forced attempt to "unnaturally" leverage today to take advanatge of an expected future bounty.

Prudence, hard work and underconsumption are all virtuous in some respects. But consumption need not be evil or dirty or immoral or foul - you can't have net-prducers without net consumers. After all, what the hell are you saving for anyway? So that hopefully your or someone you care about will eventually consume in the future, right?


I think two of the most important points that those intiated into the freegold mindset may lose sight of with respect to some of the personal decisions we make in our lives are:

First: The whole point of the deflation versus hyperinflation debate is about the denouement, the final outcome of this 100-year dollar experiment. It is about the ultimate end, and the debate has been going on ever since the 70s when the dollar was separated from gold and it became clear that there would be an end. The debate is about determining the best stance someone should take who has plenty of net worth. And I do mean PLENTY. People of modest net worth, like me, can of course participate in the debate. But then it can become confusing at times when we think about shortages or supply disruptions of necessities like food. Of course you need to look out for life's necessities first and foremost.

Second: it is best that you work to actively establish your desired gold position without undue delay, and then with peace of mind you can turn your full attention to the business of living your life as it was meant to be. Spending significantly further time obsessing over currencies and investments is a fool’s errand."

The human mind is notorious bad at risk assessment, and is arguably evolutionary biased to being risk-averse. And you don't get a second chance at life.

So buy some gold with the extra you have and live you life. Its important to save, but its even more important to understand why you are saving, and the opportunity cost of what your forgoing- living your life today.

And to further recognize that your time preference isn't the same as someone else (assuming your and their time preferences are rational, which for most folks it almsot assuredly isn't). So yea, your opportunity cost is different than theirs.

So caveat emptor if you chose to dismiss carpe diem, and more to the point, don't be so hard on other folks. Maybe they are right too, and thsi life stuff can be really hard sometimes.


@phat and poppy

You guys are looking at general wealth creation and calling it a part of ex-priv. Just like in a town when one individual becomes rich by creating something everyone can use. Others essentially begin to work for this individual because of what he produces. Everyone is much better off as wealth grows. This is what you are describing and then saying it is ex-priv. Either you do not realize you are making this erronious connection or you believe ex-priv is required to come from wealth creation.

As JR brought up. Currency suppression only makes that country poorer for the benefit of another. That is the easiest way to put it. They should be able to consume what they produce but they can't afford it. How crazy is that?

Lord Sidcup said...

As a long time follower of this blog and the comments it is sad to see the collapse in quality of the conversations here.

Dr. Octagon said...

Hi JR - I'm not as much interested in foreigners buying US assets as I am the other way around. US currency leaving the US to purchase foreign assets. That currency may or may not come back to the US immediately, but if the value of the assets purchased increase, you won't see those gains in the current account, unless or until the asset is sold.

For example, see this:

In the above discussions, there is talk of currency leaving the US to buy imported widgets. The US gets the widget for the cost of producing the currency. The widget producer exchanges those incoming dollars for newly created local currency from their central bank, and the central bank sits on the US currency, or buys treasuries with it. The production cost difference between the currency and widget is not borne by the widget maker - it's borne by the holders of the foreign currency, who pay via inflation. The widget maker's factory actually goes up in value relative to the local currency.

Now, as a US citizen or company, what if instead of buying a widget, I build a foreign widget factory. How would that look?

The currency still goes to the foreign central bank for exchange, and the US current account shows the same outflow of currency. But the value has not been consumed - it has been invested, and those investments can be sold later. What used to look like "an unstoppable, unending broken water main gushing out dollars" may just be flowing into a remote storage tank where the returns are better. If economic conditions warrant it, the flow can be reversed by selling the foreign assets.

I don't have this thought process fully fleshed out yet, but I'm sure there's an interesting story here.

JR said...

ein anderer,

The US bullion depository at Fort Knox is not the only US gold hoard. The US has its gold in the NY Fed vault too. From the english wiki article:

The United States Bullion Depository holds 4,578 metric tons (5,046.3 short tons) of gold bullion (147.2 million oz. troy). This is roughly 3 percent of all the gold ever refined throughout human history. Even so, the depository is second in the United States to the Federal Reserve Bank of New York's underground vault in Manhattan, which holds 7,000 metric tons (7,716 tons) of gold bullion (225.1 million oz. troy), some of it in trust for foreign nations, central banks and official international organizations.

JR said...

Dr. O,

The US had a US current account surplus, not a deficiet. This is because we have a huge tarde deiciet (a curenct accouny deficiet)

AKA yeah we send might some dollars out to invest in foreign stuff, but because most of the dollars we send out go to buy our imports, not froeign invetsment, we have a lot os capital flowing back into $ captial markets than we have dollars going to foreign captial markets.

JR said...

Lord Sidcup,

it is sad to see the collapse in quality of the conversations here.

The help pick it up.

Actions speak louder than words.

Dr. Octagon said...

JR - you say "most of the dollars we send out go to buy our imports, not froeign invetsment". What's your source for this?

JR said...

The same source I have cited in my previous two posts on this: the US has a currnt account deficiet and a capital account surplus.

Foreign direct investment in the United States [edit]

Broadly speaking, the U.S. has a fundamentally 'open economy' and low barriers to foreign direct investment.[10]

U.S. FDI totaled $194 billion in 2010. 84% of FDI in the U.S. in 2010 came from or through eight countries: Switzerland, the United Kingdom, Japan, France, Germany, Luxembourg, the Netherlands, and Canada.[11] A 2008 study by the Federal Reserve Bank of San Francisco indicated that foreigners hold greater shares of their investment portfolios in the United States if their own countries have less developed financial markets, an effect whose magnitude decreases with income per capita. Countries with fewer capital controls and greater trade with the United States also invest more in U.S. equity and bond markets.[12]

Foreign direct investment in the United States has rebounded slowly after falling from the $310
billion recorded in 2008, a record surpassed only by the $320 billion invested in 2000 in U.S.
businesses and real estate. (Note: The United States defines foreign direct investment as the
ownership or control, directly or indirectly, by one foreign person [individual, branch,
partnership, association, government, etc.] of 10% or more of the voting securities of an
incorporated U.S. business enterprise or an equivalent interest in an unincorporated U.S. business
enterprise (15 CFR §806.15 [a][1]). In 2011, according to U.S. Department of Commerce data,
foreigners invested $234 billion in U.S. businesses and real estate.


Here are US total imports in 2012, in millions of dollars: 2,736,286.

USA net foreign ivestment abroad in 2011 was 419 billion.

Dr. Octagon said...

Thanks JR. I'll have a look through those this weekend. I have been looking at (also see tables and other links from that page).

ein anderer said...

JR, & all
… Federal Reserve Bank of New York's underground vault in Manhattan, which holds 7,000 metric tons (7,716 tons) of gold bullion (225.1 million oz. troy), some of it in trust for foreign nations, central banks and official international organizations.
Does anybody know how much of this FED vault gold belongs actualy to the US? Is the WGC correct, so that we can say "WGC minus Fort Knoxx = amount of US gld in NYC"?

M said...

I called into the Peter Schiff show again today. I was on at 1:18. All I asked him is if he thought gold would become the majority holding of savers around the world like it used to be. He went on some tangent about the gold standard but he did say that he believes gold will be the majority holding of savers once again. He cut me off because it was the end of the show. I planned on asking him what the price of gold would be if more then 50% of the worlds savings was in physical gold. Because he thinks 50k is too high.

Schiff is so fixated on the gold standard that there is no way of getting him to think in terms of freegold.

Dr. Octagon said...

"None of the gold stored in the vault belongs to the New York Fed or the Federal Reserve System. The New York Fed acts as the guardian and custodian of the gold on behalf of account holders, which include the U.S. government, foreign governments, other central banks, and official international organizations. No individuals or private sector entities are permitted to store gold in the vault."

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