Monday, April 20, 2015

Death and Taxes

After operating on a fiat system for 20+ years people are starting to realize that the only thing that backs a currency is the real productive efforts of their people. Yes, over time we always borrow more than our productive efforts can pay back and proceed to crash the money system.
But what else is new? (smile)

We call this a money's "timeline" and it's as new an idea as life, death and taxes! Time and debt age any money system until it dies. The world moves on. Only this time gold is going to play a different part in the drama. We will all watch it unfold.
-FOA "Foundation" (2/26/00)

In 1789, Benjamin Franklin wrote, "In this world nothing can be said to be certain, except death and taxes." But while death and taxes may be certain, the combination of the two certainly isn't.

Last Thursday, the day after Tax Day in the US, the Republican-led House of Representatives voted to repeal the estate tax or "death tax" with a bill that President Obama promises to veto. This is a hot-button issue (and it should be IMO) even though it only affects 0.18% of deaths that occur in the US at its current limit of estates valued at over $5.3M.

Why is it such a hot-button issue? Well, for the Democrats, it shows that the Republicans are working hard for the 1%, or even the top 0.1%, the very wealthiest of the elite. But for the Republicans and for the majority of average Americans (68% in one poll), it's about the instinctive feeling that one's accumulated (after-tax) wealth should be able to be passed on in total to whoever you want it to go to, regardless of size.

As you probably guessed, I have a rather nuanced view of this issue. The top argument from the Democrats is that this is a rational point of taxation, in support of the greater social good, with major benefits compared to other types of taxes such as income and consumption taxes in that it only comes from the very rich. For the other side, the argument is a little more difficult to make in today's $IMFS world of paper wealth.

In my opinion, the problem with the top argument against the "death tax" boils down to the difference between real physical wealth and not-so-real-but-highly-liquid paper wealth as wealth is currently defined by the $IMFS. In order to make this problematic argument, Republicans are forced to think of extremely uncommon examples whereby physical wealth that is passed on must be sold, or borrowed against, to pay the tax burden.

The best example they could come up with (that would at least draw a little sympathy) was the small family farm. And while it's actually a good example of the principle, it's quite weak as presented, as an empirical foundation for the need for a congressional vote changing the national tax law, a weakness that is easily exploited:

"And what about those family farms Republicans are always talking about, the ones that are constantly being sold off to pay the estate taxes? They’re a myth. When The Post’s fact-checker Glenn Kessler was doing his estate tax fact check, he asked the office of John Thune, the sponsor of the Senate version of repeal, about the farms we keep hearing about. “Thune’s staff conceded that they could not identify a single farm that had been sold because of the estate tax, but they said some farms had to sell acreage in order to pay the tax.” Nobody else seems to be able to find one, either. You’ll notice that when Republicans talk about this, they always posit a hypothetical family farm being sold off and not “My constituents the Millers had to sell off their farm,” because the Millers are the equivalent of a unicorn." -Washington Post 4/17/15

Speaking of unicorns, imagine one, perhaps yourself as a unicorn, who put all of his wealth—his foregone consumption during his productive life—into physical wealth items like a nice home with a little land, fine furnishings, a few antiques and works of art, and a prized classic car or three. Should such a basket of wealth accumulated over a lifetime of overproduction/underconsumption be halved for the greater good, just because you died and your son or nephew or whomever took over ownership?

How do you figure the value of such an estate anyway? It's full of unique physical items, from the home to the artworks, so all you can really do is estimate a price it would presumably bring if it all went to auction, and then force some of it into auction in order to obtain—for the federal government who can print its own currency—remuneration for public services that was already paid when the money that bought the items was earned in the first place.

I have often said that savers pay inordinately through the "inflation tax" and currency devaluations when they save in currency-denominated paper assets, but does it really make sense to make them pay more for the greater good than anyone else regardless of what they're saving? I say absolutely not!

The Paris Hilton effect is certainly a factor. People are envious of people like her. Why should she live such a lavish lifestyle and not pay any taxes like the rest of us? Well, it's just a matter of scale. If you'd like to be able to leave your own children some wealth that will hopefully give them a head start on life, why does that principle stop at some point where envy kicks in?

The way I look at it is pragmatically. If she's earning income, she should pay income taxes just like everyone else, and she does! If she inherited an income-producing business, then she should pay taxes based on the income she earns. If she chooses not to work and to only consume conspicuously, she will surely run down her inheritance.

If we want to tax conspicuous consumption, we can easily tax all consumption and the conspicuous consumers will obviously pay the most. But we don't, because in reality that taxes the poor inordinately. So, instead, we tax income on a progressive scale where the more you earn, the higher the percentage you pay. Then, of course, there's the issue of investment income.

For that, we tax in a more favorable way because we want to encourage investment based on the notion that it leads to more jobs. And in some cases it does, but in the $IMFS paper world of stocks and bonds, this whole principle has become immeasurably distorted.

In the investment world, there is income and there's capital gains. Income is near zero today with ZIRP and global unprofitability due to asset overvaluation and lots of debt, so all that's really left is capital gains. And where I think we fail is in not distinguishing between capital gains in the paper and physical worlds.

Capital gains are generally only taxed when the item that gained value is sold. A capital gain is figured by subtracting a basis or starting value from the sales price, but the estate tax aims to take a slice based on a zero cost basis and an estimated selling price. It really is a wealth tax. It views the death as a transfer or transaction and the heir as receiving a gain or an income that can be taxed. But this obviously necessitates that slice being sold into the marketplace because the government has no use for physical wealth items like fine furnishings, antiques, works of art or classic cars.

In essence, the idea is that the value of those wealth items be transferred and redistributed to needy consumers. But let's think about that concept for a moment.

For the super wealthy, if you cut their wealth in half, it's not going to have an impact on the amount of basic necessities they consume over their (and even their heirs') lifetime. If anything, it may affect the quantity or quality of luxury items (wants) that they consume. An example the Washington Post article used is an heir buying a Porsche rather than a Ferrari. But here's the issue. How does that reduction from a Ferrari down to a Porsche free up (or create) more basic necessities for the needy consumers to consume. The answer is it doesn't.

Say Bill Gates decides to give away $10B to feed the poor in Africa. Does that create $10B worth of new basic necessities for them to consume? No, but it does redistribute the existing necessities to where he wants them to go. In fact, it does so by raising the price of necessities as the poor in Africa are able to bid some away from the rest of the world.

It's the same concept when we tax wealthy estates in an attempt to convert wealth into consumable necessities. In the arena of necessity consumption, it doesn't take any away from the rich and give it to the poor. What it does is eliminate the marginal saver, turning him into a net-consumer, to the benefit of the poor. This may not be a bad thing, but I think it's a concept worth understanding because it also has a few knock-on effects and unintended consequences.

As I said above, we could certainly tax consumption instead of the complicated system we have today. In fact, the "Fair Tax" proposal is basically a 30% sales tax that would replace all income, payroll and capital gains taxes. This may even be a good idea as it would certainly simplify the tax system, but it would have the same effect as above, that effect being that it would eliminate the marginal saver, turning him into a net-consumer, to the benefit of the poor.

A consumption tax like the "Fair Tax" is progressive on consumption (the more you consume, the more you shoulder the tax burden), but regressive on income and wealth (the more you earn or have, the lower consumption falls as a percentage of your income or wealth). A 30% sales tax would simply raise the price of everything, which will only turn the marginal saver into the marginal net-consumer, increasing the total number of net-consumers.

We certainly want to make sure that the poorest of the poor have the basic necessities and that our government has the income it needs to provide necessary services, but beyond that point we are only (and unnecessarily, IMO) increasing the total number of net-consumers while also increasing the total number of poor living on public aid by disincentivizing both work and saving. And this is true with any tax system, but especially true for something like the estate tax which pretends to transfer necessities from the rich to the poor, but only really transfers them from the marginal net-producer to the new marginal poor.

It feels good to the green envy monster in those who have one to take wealth items away from the super-rich, but let's take a quick look at some of the knock-on effects and unintended consequences.

The most obvious one is that the forced sale of wealth items will put downward pressure on the value of all such items. This only affects the rich, and has no benefit to the poor. The buyer of such items that were forced into the marketplace will get them at a lower price, but he too is rich. The forced seller of the items may have to reconsider his conspicuous consumption and downsize from a Ferrari to a Porsche, but that only affects the bottom line of Ferrari and Porsche, and they too are rich.

The wealthy man is taking nothing away from the poor by holding wealth. If that wasn't so, then it could be said that the more wealth any person has, the more he is withholding from the poor. This would make any savings immoral, which is simply not the case. The wealthy will always consume the same amount of basic necessity consumables, and only their consumption of luxury items (wants) will vary.

Some people truly believe that if only the super-duper-rich weren't allowed to be so rich, then the poorest of the poor starving in Africa would have food on their plates. But this is simply not the case. The super-duper-rich are not withholding food from Africa. If anything, they produced real value at some time and traded it for rather useless but expensive things (like Balloon Dogs and such). There is a problem if we have poor people starving in Africa, but the problem is not that the price of fine art at Christie’s is too high.

Like I said with the Bill Gates example above, the rich can choose to help the poor in one area or another, but all that does is force a redistribution of available necessities by adding money to bid on them in one locale over another, driving up the price of necessities just a little bit everywhere. I'm not saying that's a bad thing, but I am saying that if we try to do that systemically, and not by individual choice, it is a bad thing that will have unintended consequences.

Where those unintended consequences play out is at the margin of any group you choose to observe. The marginal net-producer will become the new marginal net-consumer. The marginal Ferrari driver will become the new marginal Porsche driver and so on. Overall, you will end up systemically increasing the number of people dependent upon the system, reducing the number of people who would otherwise be self-sufficient for their entire lives, and increasing the number of net-consumers and therefore elevating the debt level which has its own knock-on effects, like choking the global economy.

Now before you start railing against trickle-down economics, I'm not suggesting a trickle-down theory here. I'm not arguing for reducing the income tax or any other tax (other than eliminating the estate tax) on the rich. In fact, if the rich are deriving an income from their investments, then that should be taxed like any other income. And if they are trading in and out of liquid paper investments in order to churn an income through short term capital gains, those should be taxed as income as well, and today they are for the most part.

But if you followed my reasoning above on unintended consequences playing out at the margins, then I think it follows that if we systemically encourage and incentivize saving in real wealth items, the opposite will occur. The marginal net-consumer will become the marginal saver. Overall you will end up decreasing the number of people dependent upon the social safety net, increasing the number of people who will be self-sufficient over their entire lifetimes, increasing both the number of productive individuals and total productivity which will expand the arena of necessary consumables, and reduce both the total number of debtors as well as the total level of debt, which will be good for the global economy. And, of course, the marginal Porsche driver will become the marginal Ferrari driver (but who cares, other than that green envy monster?).

Again, tax income all you want, or at least all you can politically get away with, and feed the poor and make sure the government meets its budget, but beyond that, you are only creating more dependence on the social safety net and more dependence on government, less self-sufficiency and more debt. And within this concept, the estate tax makes a quantum leap to the far end of the bad side of the spectrum in going directly after wealth items at the very top in an attempt to convert them into consumables at the very bottom, which simply doesn't work and has knock-on effects that trickle—negatively—all the way down.

This is not supply side or trickle-down theory and there's no Laffer curve here, just a simple concept. But if you can't see the difference, you may want to check that green monster inside. The huge paper fortunes of today which will go poof one day soon would not even happen in the first place. I am on the same side as the critics of wealth disparity who point at investment bankers and Wall Street. That's all a gross aberration, not real capitalism, and an artifact of the end of the timeline of the $IMFS. Like I said at the top, where I think we fail is in not distinguishing between capital gains in the paper and physical worlds. Let's encourage saving in physical wealth items and tax the heck out of the jerks who save in paper choking the economy into global stagnation! :D And eliminating the estate tax is as good of a start as any, as far as I'm concerned!



DP said...

It is much easier to forget the principle of "no double taxation of income", when the green mists descend.

Then again, perspectives matter — so if you believe inheriting something is a transaction where somebody receives an income, then maybe this supposed justification for the inheritance tax, for you, trumps the injustice of double taxation.

Leopard said...

Personally, I am in full agreement with this article. My observations over 50+ years is that someone who inherits money usually does one of two things-either they double their inheritance thus creating more jobs and by extension more income tax or they piss it all away which only puts it back into financial system anyway. So either way there is no need for further government meddling IMHO

Unknown said...

I'm no Repub, but I can tell you that the "unicorn" is real. My Grandfather was a majority owner in a family business for 34 years. He was 85, and the government was talking about cutting the exemption to 1MM, and raising the rate to %55. If he would have passed, based on our appraisal, we would of had to pay 3.5MM in taxes, which would have meant that we would have to sell our business. Fortunately, that did not happen, and he was able to divest his shares to us, and do so in a way to stay under the cap. The "unicorn" may not be the family farm, but the small family owned businesses.

Reality Show said...

Plenty to ponder. You're a class act Fofoa.

Torgny from BullionStar said...

Estate taxes also deprives the poor by eroding built up capital.

Not capital as under $IMFS (newly created fiat/credit) but real capital as savings from profitable businesses that can be utilized for production and innovation and thus employee workers.

But as pointed out by FOFOA, the estate tax and any other tax is just a breeze compared to what's coming in terms of loss of purchasing power from built up but delayed hyperinflation.

fftastic said...

Beardsley Ruml, Chairman of the FED/N.Y., in 1946 on Taxes..., page 35

fftastic said...

And more basics:
Merrill Jenkins Sr.:
TV debate and his book "Money - The Greatest Hoax On Earth"

Canadarob said...

Estate taxes are bull shit because you are getting taxed twice. All that stuff you bought was purchased with after tax money. And then you get taxed again on all the items later? And what if those items go to a new owner and then they die? You tax them again?

Motley Fool said...

Time to play devil's advocate.

“—for the federal government who can print its own currency—“

Printing currency is not the same as printing value. Confiscation of value at least nets them something.

“but does it really make sense to make them pay more for the greater good than anyone else regardless of what they're saving? I say absolutely not! “

Well, one cannot confiscate from the debtors, and if all the savers store wealth in physical items the pool and you cannot confiscate that, the pool of loot becomes much smaller.

“Say Bill Gates decides to give away $10B to feed the poor in Africa. Does that create $10B worth of new basic necessities for them to consume? No, but it does redistribute the existing necessities to where he wants them to go. In fact, it does so by raising the price of necessities as the poor in Africa are able to bid some away from the rest of the world. “

Technically it does create more basic necessities, though with a time lag. Raising the price makes it possible for the marginal producer to be profitable, and shifts the profitability curve of these items, resulting in higher production (eventually).

The same effect could be had by lowering taxes (as if that will happen) since that also lowers costs and increases profitability helping the marginal producer become viable.


Bright aurum said...

Peter Munk may be retired but he still lives. Does he know Another or FOA?
And here is his daughter`s Facebook profile where she mourns for the lost of her mother.
I tried to contact her but I do not know how this Facebook thing really works. Still I think, it is possible to break the firewall especially if there are Jewish readers this blog. Or through an LinkedIn profile perhaps with the people he left behind in Barrick or some other Canadian enterprise that Munk manages. I think I found an Serbian guy there but our two peoples do not get along very well...

Bright aurum said...

Bright aurum said...

@ MF
A lovely game.
One must not forget that by depriving the rich from buying balloon dogs governments actually save plastic material for the tents of the homeless.
And by creating paper gold managers of the POG actually save many pristine environments from the polluting and nature-destroying hands of the savers.

tEON said...

@Bright aurum

I've read Golden Phoenix: The Biography of Peter Munk and while he did spend a significant of time at Klosers with Giants (or potential Giants), I found nothing to indicate he was closely acquainted with Another or FoA. Which, doesn't mean he wasn't... just that his biography gave no hints... as to that being probable. While its doesn't dismiss a possibility - he would have also had to have read the GoldUSA Forums etc.... unless he was told directly. Munk never actually owned any gold himself (so sayeth the bio) - and that point was very much noted.

Sam said...

Great stuff!

One Bad Adder said...

In the A/FoA era, Munk was a four-letter word within PGA ranks ...and regarded as the father of forward-selling - FWIW.

Anonymous said...

As a general rule, with allowance for all sorts of details, the following are all proven to result in the development of wealth:
-sound money and limited debt
-individual and property rights
-low taxation and limited government

And I am no right winger, in the context of today's world I am a classical liberal and center left. We are living in the worst possible world for wealth creation. Unsound money, unlimited debt, heavy taxation on labor and honest business, and wealth distribution towards government and subsidy dependent crony corporations are all a permanent feature of our current dystopia.

It seems absolutely inconceivable to me that we have to relearn these lessons over and over again, but apparently we do.

This is what makes me a pessimist. Freegold or not, I place no hope in humanity absent a major collapse which renders us all insolvent.

Truly, we aren't going to learn otherwise.

DP said...

This currency you earn — from where did it, ultimately, come?

And where will it, ultimately, go?

Edwardo said...

Kind of like President O's Presidency.

Roacheforque said...

"Printing currency is not the same as printing value."
An interesting statement, central to the core here, but once again held hostage by the intricacies of semantics.

I would have no issue with governments printing the means of exchange, but when the means of exchange is held as a long term store of value what we have is "the ability to print wealth" and that is a power that will always be abused, as it corrupts absolutely.

"I place no hope in humanity absent a major collapse which renders us all insolvent."

No argument there, but we won't ALL be insolvent, just those holding "paper wealth" (per Another's "all paper will burn" inferno).

It is interesting to filter current events through Engdahls video posted yesterday at the archives. I'm not sure I agree that the Europeans were amateurs at the derivatives game, or that the European debt crisis was wholly perpetrated by the same Wall Street derivatives sham that Greece into the Euro to start with.

As a former Goldmanite, Drahgi is no doubt well versed in the various shell games of debt that weakly sustain the present systemic stagnation.

Time is of the essence ...

Roacheforque said...

I'm not sure I agree that the Europeans were amateurs at the derivatives game, or that the European debt crisis was wholly perpetrated by the same Wall Street derivatives players and tactics that got Greece into the Euro to start with.

Unknown said...

Bond Armageddon...

Where's M?

Bright aurum said...

You can love him or you can hate him but Munk is the father of your gold stash. ;-)

Edwardo said...

Pardon my temerity, but from where I sit, Bill G, the erstwhile bond king, is making a gross error, at least with regard to a grand strategy. The $IMFS is the short of a lifetime.

Edwardo said...

Make that the short of (at least) a lifetime.

LD said...

A bullion dealer referenced FOFOA and Freegold in the post on his blog titled "Introducing Freegold"

Motley Fool said...


It reads quite well on my first skim.

Canadarob said...

Mf. I agree. Will be a handy link for my inner circle that want an easier summary

MatrixSentry said...

Not too bad. Rare to see a decent treatise.

Anonymous said...

Thanks guys,

I really appreciate it!

Although it's difficult enough to cover enough tenets in a blog post to provide a summary of FreeGold, there's basically no discussions, exposure or debate of FreeGold outside this blog.

With Koos Jansen and Ronan Manly blogging on our platform, we have a rather large reader base and can hopefully encourage a wider public to get interested in FreeGold!

Perhaps you may be interested in the posts preceding the one referenced to as well which are building up for the introduction of FreeGold.

Gold or Fiat? That is the question...

US Dollar as Reserve Currency - Credibility Inflation

Let me know your thoughts!

Anand Srivastava said...

I just had a light bulb moment. I now know why SDRs cannot be the replacement of USD. Its just an impossible solution. It cannot even begin to solve anything at all.

For this we have to understand the basic tenet that Debt is the essence of Currency. SDR purports to be the SoV replacing USD. SDR will be a debt instrument. Now to create a debt instrument you need a debtor, not a creditor. Till now USD has filled the need as the global currency precisely because America was a debtor. And we are in the current problem because of the disparity it causes.

Now for SDR to replace USD, you need a group of Debtor nations. These can be US, Japan, UK and Europe, but China is not yet a debtor. Will it want to be a debtor, that is not the question. The question is whether the world needs more debt instruments. I think the answer is no.

So SDR cannot replace USD. To fix the current problem there needs to be a credit instrument to replace USD. It cannot be another debt instrument. It needs to be Gold.

Think about it. Whenever in the past debt has grown and societies have broken down, they have gone to hard money, never to another soft money. Dollar is harder for everybody except America. This time they will not go to hard money, but they will realize the need for Gold as the hard asset, removing the need for the currency to be hard.

The current problem cannot be fixed by anything other than a credit instrument which is going to be physical Gold. And we will have Freegold. Anyway there is nothing much to be done for getting Freegold. We are already there. Just the current paper gold market needs to break, for the gold to be unshackled. And the chains are near breaking point already.

vizeet srivastava said...

I am in a view that as long as Central Banks and governments exists we will have dirty float. Though the degree of dirt may come down drastically in FG.

Jeff said...

This one's for you, anand.

FOA: In recent society's demonstrated use of unbacked fiat currency, they were advancing a trend to use currency in trade only; while owning wealth assets outside the known money context. As society advanced and trading volumes mushroomed, the need for more digital units increased more so from their trading function than their value retaining function.

This process was rendering the whole school of hard money thought useless as a strategy to to defend one's savings from inflation: as these inflating digital units failed to create a meaningful price inflation. The expanding universe of fiat was best used to gather real wealth, at stable fiat values, each time the fiat cycled through your domain. The object became; to gain fixed value wealth in quantity instead of gaining finite wealth and waiting for it to gain in value...

When the seasons change, as mentioned before, bullion will first have to find it's true "free from money involvement" price in the world. From that point it will return to do it's best job of marking the historic process of falling currency values; unproductive political currency inflation. It will do this so well because physical gold will return to it's roots. It will again be recognized as the best,,,,, "lowest taxed",,,,,,"barter wealth",,,,, the world has even known!

Rather gold will accentuate fiat use by becoming a real wealth reserve that compares fiats against each other thru a single arms length medium. Unable to control this gold medium, because it is no longer money and subject to credit entanglements, national fiats will resort to competing against each other. The free markets as we have always wanted them! First worlds, third worlds, all worlds; trading for what they can do, not what they can control.-

Motley Fool said...


Thoughts huh?

I think if one is going to write a summary, one should go through it with a fine tooth-comb. ^^

Per example : "Under FreeGold, gold is reintroduced as Store of Value but without being tied to gold."
, this is certainly a mistake. the last word(s) could be fiat/the paper price of gold/fiat currencies at a fixed rate/etc.

I picked up other ambiguities, etc when giving it another quick reading.


Ps. Perhaps fofoa will need to amend that statement of his, to account for new developments. ;)

Motley Fool said...

Pps. You are also surely aware that we do not consider silver to be a substitute, not even remotely.

Torgny from BullionStar said...

Motley Fool,

Let me clarify. The post is not intended as a summary but as an introduction.

Thanks for pointing out the error. I'm a human. English is my second language. I make mistakes. Feel free to share the other ambiguities you are referring to.

Yes, I am surely aware that silver not being remotely considered as a substitute by FOFOA.

May I ask you what other introductions and/or summaries you suggest for gold savers as an introduction to Freegold and where else Freegold is debated outside FOFOA?

DP said...

The issue is not whether Freegold is debated outside FOFOA; it very much is.

The issue is always "who is on the 'pro' side?"

They are usually not pro's.

Edwardo said...

Pros are (pro)grammed to not only operate within the present dying system, but are indoctrinated with a mindset that holds fast to the notion that there can be no other mode of existence. The average non pro, at least in theory, is not intractable, but the pro, by virtue of a lifetime of learning lessons too well, but not (so) wisely, and because their livelihood entirely depends on it, is, except in rare instances, unreachable.

fftastic said...


here and here for example

Canadarob said...

On gold holdings,

There seems to be a general mistrust of the official gold holdings of China. Some people seem to think 3000-5000 is more likely, then what they report yet we are OK with US reporting 8000? I'm not saying the gold is gone. But could part of the supply to the east be coming from the states bringing their gold down to 6000 or 5000?

I mean, there can always be more dug up right? If it needed to be? Has it been discussed that there is a high chance that the US would not be shipping out their gold?

Even in the Ben and Chen story, Ben ended up giving his away to square up.

Don't take this as me saying the gold is gone. That wouldn't make any sense. I just find it a little curious that we can be skeptical about chinas numbers but not the US.

Jeff said...

Edwardo said...


Expressing skepticism about what are said to comprise official sovereign holdings, whoever the sovereign, is eminently reasonably since, to my knowledge, none of the official holdings have been independently audited. And, let's face it, in our time, even so called independent agencies have displayed less than scrupulous practices in carrying out their remit.

Michael Martin said...
Would this mean JP Morgan is unable to source a large enough amount of gold and buys the next best thing?

Dante_Eu said...


Back in the day, instead of the famous McGurk Effect!, FOFOA should have used this one.

Mind-bending! :-)

Edwardo said...

Would this mean JP Morgan is unable to source a large enough amount of gold and buys the next best thing?

There is no next best thing, Michael Martin. Gold and that other metal shouldn't be mentioned in the same breath, except, perhaps, when saying something like, "I sold the last of my silver for scrip, which I then used to purchase gold."

Michael Martin said...

Easy there Edwardo. I'm not advocating buying silver. Was just wondering out loud if this is indicative of a giant finally unable to source gold. (i.e. do they know that they aren't sending buses anymore?)
In retrospect I could have phrased it differently... the next best thing being anything else physical (not necessarily precious metals) besides gold.

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

I'm not really chiding you, MM, though it may have sounded that way. I'm simply stating in no uncertain terms that when it comes to gold's role, there are, without qualification, no substitutes.

If JPM is up to playing funny games with silver it's simply another trade, another pump and dump scheme in its very early stages. And if it's some sort of gambit to stay ahead of the HI bogeyman, well, they may not be as astute as some are inclined to think.

Jeff said...

Rob, here a few quotes you mind find interesting.

FOA: Just like the dollar tender in your pocket, US bullion is not yours to begin with. They have the right to call it in. This area is also a hard concept for gold thinkers to come to grips with. After decades of being told that the gold in Fort Knox belongs to the public, the truth that it doesn't and never was Its impending use as a currency supporting supplement is shaking people up that believed that position. Our currency is going to inflate to hell, even as we clean out our official gold reserves to ship overseas. If ever there was a story to buy gold for your own,,,, this is the tail that will create a killer offtake the world over!

However, the political choice, as you alluded to above, should will be allowed to buy our governments gold,,,,, if offered,,,,,, OR have that gold keep oil prices down to $90 a barrel so we can still drive SUVs. I wonder what will happen???

Of course, the US still owns it's gold and has yet to ship any of it's official stocks of the same. A quick check of the ounces held in storage will confirm that. Any physical gold that has "walked from our accounts", to date, came from some other supplier. We contend that this bullion was the same stores that were "lifted" from other 3rd world countries in return for US support during their various banking and currency crisis of the 90s.

Now, the big question is; will the US stand behind it's international "legal tender" obligations and ship it's official gold when serious crisis and currency support protocols demand it? Our record isn't good in this area. In 1971 our dollar held an even closer connection to gold that any of the modern IMF "paper gold" substitutes today and we still closed the window! Still, we think that at this time in history, given the Euro competition, US "political gold" will be shipped to keep the dollar in play. Nothing illegal, mind you, just basic currency defense as needed.

I am sure most Americans are uncomfortable at the prospect of our stores of Political Gold being shipped off to defend the dollar. Uncomfortable as this may be, unprecedented it is not. During most of the years of an active Gold Exchange Standard gold was routinely "shipped off" from nation to nation to satisfy foreign demands. Not just entirely to defend our dollar's value; the aim of these operations was, then and now, more so to keep the dollar in settlement use.

From a dollar point of view, shipping gold then, and now, was in the same context of defending one's currency on the exchange market. In the context of this use; gold was not sold as a commodity, rather it is clearly traded as an officially earmarked "good" that can further support the "tender status" of internationally held dollars.

I have always said that nations do not ship gold reserves because they want to; they ship gold reserves because they have to. Usually, as you point out, for political reasons -- and the gold becomes "political gold" meant to buy time or prevent one politican or another from being blamed for the collapse of the dollar. So we sink ever deeper every day (with more and more dollars piling-up overseas by the day, the result of a massive U.S. balance of payments problem) with no apparent solution on the horizon. Let's make that no apparent solution save one: The threat of destroying the U.S. export market if its trading partners fail to hold U.S. government debt. Why wouldn't the U.S. gold reserve come into play under such circumstances.

To draw a conclusion from this "current event": Deep Storage gold

Americans have the right to buy and own the "Wealth Of Ages". As events draw to a close upon dollar use, we can expect outright use of America's "Political Gold" in restraining the speed of it's currency's burn.

Canadarob said...

Thanks Jeff I guess the next question is how long could/would the US draw down the gold reserves. In freegold, gold above ground is roughly the same as gold in the ground so couldn't they ship the gold down to nothing and then start shipping newly mined gold?

Canadarob said...

Off topic.

It has been speculated here that ANOTHER was Guy de Rothschild who apparently died in 2007?

Just rereading some THOUGHTS and noticed a couple times he was specific to say "in YOUR time" (emphasis mine).

Did he spill the beans because he knew he was dieing?
He knew a revaluation may not necessarily happen in HIS time?
For the elite can totally believe death would be one of the only things that would motivate to spill some secrets. He literally had nothing to lose.
I don't know, just some thoughts.

Aaron said...

Hi Rob-

Those are good questions that unfortunately no one will ever know the answer to. I would like to think of Another as someone that learned some very valuable lessons in life and choose to share those lessons with others for many reasons, some folks in general and others quite specifically.

At least we can be thankful that *we* got the message. ;D

Anonymous said...

Another made it clear that he was an older person, and he also made it clear he expected something to happen fairly soon.

Absent 9/11 and China coming online that may have been true.

Jeff said...

Rob, you mean like Canada? And now you see why you don't want to buy the miners. :)

But gold in the ground and gold above ground are not equal.

FOFOA: The take-home point here is that property rights are a matter of tribal law. And the right to profit from digging up underground minerals is an issue separate from the ownership of above-ground private property, and even separate from land surface ownership.

Canadarob said...

Jeff. Yeah. Like Canada.
In my short investing experience I've had to learn some hard lessons. One of which is, nothing is guaranteed. Anyone of those miners could shut down IMO.
6 months ago most oil companies looked like good bets....I know people who are SURE they bought in at the bottom.....I say oil could go to $20. They say no way. That's what you said about oil at $50.
So yeah. Not a fan unless I can hold it in my hand. Hey, that actually sounds like a good moto.
Jeff. You've been here a while. In your opinion, how much gold do you think the US and China have? Or do you care?

Michael dV said...

not sure what Jeff thinks but I say the amount of gold in possession by a country does not matter.....until it comes time to let it go. In the past it mattered as countries had to declare how much was backing up their currencies and a certain level was required (so they at least had to lie effectively). In FG it will just be an asset that might need to be deployed for settlement. At that moment it will be mandatory to have it. Net producers won't need much because they will meet their obligations with product of their own. Net consumers will find the value of their currency falling fast if they cannot pay with either goods or gold.
In today's world, as long as you have treasuries your CB is fine. Gold is now just an after thought on the CB balance sheet. In FG, US Treasuries will likely be an historical artifact.

Canadarob said...

That's a good point Michael. I never thought of it like that. You wouldn't need gold if you are net producing (assuming it was priced correctly). As soon as you stopped then you would. As a country, when you hit the point where you need it you could dig it up.

Steve said...

Exit Yanis? Or the beginning of the end of the Varoufakis chapter? After being called "an amateur and a gambler" by other EZ finance ministers.

KnallGold said...

Is this shaping up to the classical sell in May?

Armstrong though forecasts a crash in this fall-wait, I just mentioning Martin because there was a short report about him on TV. Funny he made his first millions with coins...the report though confirmed my view of him as a guru, maybe a useful card for some to play.

His computers were shown, quite impressive technically, but you know my stance. Computers can't calculate the future/complex things, it might add to the aura of a guru including self fulfilling prophecies, yes. But if you don't use common sense, instinct, philosophical knowledge etc. you'll find out the limits of your math soon.

Remember, a bad mathematician wants to calculate as exact as possible.

Canadarob said...

Some ones selling gold. Wonder where its going?

Canadarob said...

5 tonnes is pretty small. I wonder what happened behind the scenes. Were they forced to sell?

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

Does anyone know what Martin Armstrong s "solution" is? I'm curious how he thinks this is going to work. He seems to understand a lot but there is something obviously flawed with his logic about where the purchasing power is going to go since he knows that debt will default yet he doesn't think it will go to gold.
He seems to think it will go to in to electronic currency which tells me he doesn't know what he's talking about.
I don't know why I still read him.......I guess I feel he's on to something with his cyclical theory.
Hes just to blinded by his own research to admit he is unsure about something. I think that happens when you are praised for so long. Being humans we can become over confident. He's worried about a wakeup call for so many others I think he will also have a wakeup call.

Edwardo said...


Martin Armstrong's mostly unreadable commentary should only be perused with an eye towards "entertainment". I use the word entertainment advisedly since the guru's entertainment is, arguably, a first cousin to the kind of fun one routinely encounters at state fairs, where freak shows, i.e. "step right up in (the tent) and see the three headed cow" are de rigeur.

As near as I can tell, Armstrong's "solution" involves debt for equity swaps. Guess what, Marty, a physical gold" revaluation is a vastly more elegant solution to the problem at hand, which you have misdiagnosed in any case. It's not governments and debt that are the problem. They are but a symptom, albeit a nasty one. The problem is a way past its sell by date monetary system which makes egregious government and the application of runaway debt possible.

Reality Show said...


Studying Freegold is an incredibly rewarding experience, I've lost count of the number of lightbulb moments I've experienced, and my world view has been forever changed.

There are a number of reasons why the viewpoint hasn't become viral in my opinion:

No-one is actively trying to promote it. Gold is not some greater fool investment, the revaluation will not come about from the masses bidding for gold. There is nothing to market here, nobody is selling anything and all the understanding is freely available to anybody once their intellect and curiosity demand it.

Secondly, the Freegold lens upsets many who believe in sound money. It is wealth that needs to be sound, not money. It's an intellectual line many don't seem able or willing to cross. Fiat currency is a wonderfully efficient medium of exchange and unit of account, and growth requires an expanding money supply. Gold doesn't require a substitute as it is infinitely divisible and so silver continues its journey back to just a useful commodity. These viewpoints mean we're in league with the bankers, or some such nonsense.

Thirdly, although the overall concept is so beautifully simple, it takes a lot of contemplation to undo a lifetime of western thinking. Many detractors simply don't understand the language or the subject properly. My whole life I have measured everything of value in currency terms. Now I couldn't care less what the price of gold is, it is irrelevant to me how the financial plane values the physical plane. The majority of gold "investors" are really just currency speculators, fretting over their profits and losses.

Fourthly, those that make noise in the precious metals arena are often marketing gold and silver. I'm sure all those individuals would love to proclaim $100,000k gold or whatever to their customers, but cannot bare to lose all those silver margins. It is interesting that you, in your role as a silver salesman, have shown such a vocal interest in the subject.

Roacheforque said...

Very insightful commentary there Reality Show.
"It is wealth that needs to be sound, not money." may be one of the most relevant statements about freegold I've read in quite some time - relevant at many levels.

The concept is indeed simple once the shackles of Western monetarism and its dogma are broken.


DP said...

Money (credit/debt) does need to be "sound". If you want the monetary system to endure, that is…

"Sound", however, should not be taken to mean "of constant [or even rising - LOL!] real value".

It should be taken to mean: "viable"; "repayable"; ;"tolerant";"empathetic";"accepting";"yielding". "Compromising".

DP said...

We only need step back in time one post to find reference to the need for borrowers & lenders to accept the concept of risk-sharing, in addition to risk-reward.

And, BTW, if you are not taking any risk, should you reasonably expect to receive any reward? #FDIC

Michael dV said...

RS ...good observations....nicely put

One Bad Adder said...

@RS: - Can I also complement you on an excellent post - well said Sire.

One Bad Adder said...

With DX being continually hammered these past 3 weeks, one might get the impression the almighty US Dollar is finally succumbing to the inevitable quazi-inflation?
$IRX is telling Another tale however - backing into the danger-zone again today.

M said...


I sure hope so... Peter Schiff always thinks that rising oil prices indicates banana republic type inflation coming. But in reality, all it was since 2008 was bubble finance inflation. Is this oil bounce now bubble finance inflation or banana republic inflation ?

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

The next round of system saving cash for non performing debt endeavors is coming and it appears that some select commodities may be in the very early stages of sniffing that out. That said, before any of these markets potentially levitate due to yet another flood tide of CB engineered liquidity there will be some more spectacular wobbles acting as catalysts for the next round of rescue attempts. But the $IMFS is so depleted and frail - think of a terminal patient whose circulatory system is compromised such that drug transmission via IV has become fraught - no one should expect another ho hum business as usual spot and pile into the next bubble outcome. The patient the $IMFS is meant to serve, the global economy, has proven that it can't get better let alone thrive, as every major economy on the planet contracts after scarcely any prior growth even occurred after the initial collapse. This is a recipe for some momentous action of the kind that comes alone perhaps once every three or four generations.

Michael dV said...

I think the next round of activity will be much more than some cycle repeating with slightly ore force. Soon we will have a paradigm shift and new cycles will follow that have little to do with prior cycles. These will not be mere 'every 3 or 4 generation' events but rather once in history events. It will be more like the discovery of nuclear power or the creation of rap music....undoable.
The loss of the entire structure of wealth in every country will long be remembered. Hopefully it will be only of passing historical interest after those who experienced it are gone.
If things do not go well however it could alter human life for eons.

Canadarob said...

Where do you guys go to see the GLD drain?

Edwardo said...

Michael dV,

I think it's safe to say that you and I have different views on the nature of cycles. Cycles vary in time and magnitude, from the hourly to the millennial and beyond. In any event, cycles mark any and all events of consequence in the human realm. The passing of the $IMFS will be no exception.

Aaron said...


DP said...

The fall was in part due to King Salman’s order to give government employees and pensioners a two-month bonus

... So he pays them with US Tbonds, huh?

Jeff said...

Don't blame the traderbots; they are doing their part to get the oil price up but the physical producers aren't playing along this time.

There's a new reserve asset in town.

Canadarob said...
This comment has been removed by the author.
Edwardo said...

The noose tightens

M said...

The next round of system saving cash for non performing debt endeavors is coming I'd imagine yes..

So is the quadrupling down on the dollar by the rest of the world. There is no currency war. There is a coordinated currency circle jerk. And the only thing that will end the IFMS is the mathematical limits of the worldwide dollar circle jerk.

AT said...

Here's a bit of real-world inside intelligence for Fofoa readers: I'm currently working as a software consultant for one of the big 4 accounting firms. They audit the finances of more than 50,000 companies around the world. One of the senior managers told me today that the annual budget of their most important software development project was just cut from $70 to $35 million due to plummeting revenues, caused by currency fluctuations and other factors. The project cancellations and layoffs start next week.

Edwardo said...


I agree there is no currency war as such. Diving currencies and NIRP/ZIRP, dramatic though they seem, are symptoms of the dying $IMFS not a cause. As for doubling down on the dollar, that may come from some quarters, but not from the entities that matter. They have been edging towards the exit as subtly as they can manage for several years now. They will continue to do so.

bluefire said...

A totally unrelated question:
Do you have an opinion on storing part of one's stack in the form of registered small bars (100g) at Goldmoney? I understand from FG perspective you don't want to be part of a pool of gold included in generic 400oz bars, but are those misgivings solved by GM through those small bar registrations?

I am sort of reaching the limits of what I can comfortably store by myself.

Phat Repat said...

How's the saying go, "if you don't hold it, you don't own it". To me, there is no such thing as limits to what I can hold. Too many places to hide things that will never be found, at least not without a complete demolition of property (above and below grade); and if at that point, I'm probably not around, so have at it. ;-)

Things are starting to get tricky as evidenced by the OBA indicator, not to mention the bond market. Yes, I like what I'm seeing, perhaps, just perhaps... Tick Tock...

Anonymous said...

bluefire, I do have a holding with goldmoney and what I do is to keep some registered bars, and a small amount in undivided gold from which storage fees are deducted. That way I don't have to pay storage fees using currency, it's just deducted from your undivided metal. If gold increases in value, so will the undivided gold which means my storage fees remain the same.

bluefire said...

Yes RM, that possibility is one of the things making me think about GM rather than bullionstar for example. It seems with a "percentage of value in currency" based scheme you're at the mercy of some (I expect potentially wild, going forward) swings in price for your storage costs.

The one thing giving me some pause when reading GM terms is that their notice time for changed terms are only 30 days, which when concidering the time you need to give as a heads up if you're going to collect your stuff in Zurich, only gives you 3 weeks to react to a GM "adversarial" change in terms. Otherwise it seems preferable to go with GM over BV or BS.

Motley Fool said...


This relates, bluefire.

bluefire said...

MF, GBI seems potentially interesting, but it is a shame they don't give any easily accessible information on their storage fee structure.

Motley Fool said...

Interesting, though I imagine it will be similar to what it was previously.

bluefire said...

0.65% / year is quite steep, considering GM is 0.12% and BS is 0.39%.

And I guess it is at a "currency value percentage" as is BS.

Motley Fool said...

If you think so. I imagine the fees reflect value and risk to some extend. For example I'll be happy to store* any gold at 0%. :P

*Will not be held liable for definite loss of gold of clients. :D

Canadarob said...

Why not dig a hole in the backyard its free and only you will know its there? Honestly? I have no desire to have my gold anywhere but in secret.

byiamBYoung said...


"I am sort of reaching the limits of what I can comfortably store by myself."

Just my opinion, but if you have so much bullion that you are running out of places to stuff it, you have all the necessary means to devise a creative storage solution.

It's a good problem to have! Here's one suggestion. Hollow out a cigar store indian and fill it with shiny, then position it in your billiard room. Problem solved.

Carillion said...

"Hollow out a cigar store indian and fill it with shiny, then position it in your billiard room. Problem solved."

Unfortunately, some burglars now use metal detectors, so I don't think that does necessarily solve the problem any more.

Most cities offer safety deposit box facilities, so that is always an option. I live only about an hour's drive from my safety deposit box, so I could retrieve my gold quickly if I needed to.

With Goldmoney, my understanding is that all of your gold is held in an individual account in your name. There is therefore no collective pool of gold, and so avoids all the issues that could arise from that. I have an account with them, and find that the storage fees are reasonable.

I think the best advice for storing gold I can give is that you should diversify, and don't hold all of it in one place. For at the end of the day, there are risks no matter where you store it.

Indenture said...

"I live only about an hour's drive from my safety deposit box, so I could retrieve my gold quickly if I needed to."

I hope everyone understands that you will have no time to retrieve your gold from a safety deposit box! There won't be a National Alert Message saying, 'Next week the banks will close because the dollar will crash'. Instead we will wake up one Monday morning and the world will be shut down. There will be no warning (except for what we have been witnessing these past years). It wouldn't matter if you lived right next door to the bank that holds your physical. The doors will be closed and your gold will be controlled by the discretion of the bank. My bet is that if you look at the safety deposit box contract for the bank you use there is a clause removing liability in case of (fill in the blank).

Ken_C said...

Carrillon : "Unfortunately, some burglars now use metal detectors, so I don't think that does necessarily solve the problem any more."

If you are concerned about metal detectors simply get a bag of lead shot and spread it about your back yard. The metal detector will give signals everywhere.

Something similar could be done inside by providing many false paths for the burglar to follow. Burglars/thieves rely on getting in and out quickly.

Indenture said...

If a burglar comes to your house with a metal detector he must know there is metal hidden and if he knows you have metal then you are to blame. (Not specifically you Carrillion but the only reason a burglar would show up with a metal detector and sweep your home and property is because he has been informed which means you told/talked/blabbed about your metal holdings).

We never talk about metal because we don't have any of that barbarous relic.

Carillion said...

Hello Indenture,

Just to clarify, it's a private safety deposit box company, and not a bank. You also don't register what you're putting in the box so gold confiscation is unlikely, as nobody knows you are storing gold there in the first place. In addition, what is in the box is your property, and does not belong to the safety deposit box company in question, so they cannot just claim it is theirs and take it.

However, I have never had a safety deposit box contract with a bank, so I wouldn't know what the standard terms and conditions are for that scenario. In light of your comments, I suspect they might be different.

"If a burglar comes to your house with a metal detector he must know there is metal hidden and if he knows you have metal then you are to blame."

Since electronic devices are generally so cheap these days, burglars usually target cash and jewelry instead. One of the best ways to find jewelry is with a metal detector, which is why some burglars use them as a matter of course. I don't understand why you think the only scenario where a burglar would use a metal detector is if they know there is gold in the house beforehand. Usually burglars just target the easiest houses to break into on the off chance of finding something valuable.

"If you are concerned about metal detectors simply get a bag of lead shot and spread it about your back yard. The metal detector will give signals everywhere."

That is a good idea. Unfortunately, I live in a flat so I don't have a backyard! Still, others would be able to use that tip!

"Something similar could be done inside by providing many false paths for the burglar to follow. Burglars/thieves rely on getting in and out quickly."

Agreed. The more you do that will slow them down in finding your valuables, the more safe your valuables will be.

Motley Fool said...

Fwiw, new metal detectors can distinguish between types of metals, though from my research aluminium reads like you may want to reconsider your lead ball strategy.

Bright aurum said...

@bluefire, Carillion, Motley Fool
It is simple. Get an iron box (chocolates, coffee, tea, eau de toilette are sometimes sold in such). Make sure it doesn`t give out a smell. 95% alcohol wash should do the trick. Put it in it. Store it where normally one would expect to find iron. Near a concrete slab for example for iron bars and rods are usually used to make concrete strong.
The iron box should screen your thing and mask it signature from a metal detector.
Don't keep any cash in it. Burglars bring sometimes specially trained dogs to sniff out the cash!

Dr, Boer said...

@Bright: In biology, your example would be seen as a case of mimicry. Another example is: inserting coins in a plastic tube that is “attached” to some household equipment. Advantage of hiding in plain sight: easy pickup. Disadvantage: maintenance personnel wondering about that peculiar tube, &c.

Ken_C said...

"Fwiw, new metal detectors can distinguish between types of metals, though from my research aluminium reads like you may want to reconsider your lead ball strategy."

Actually it is very difficult to distinguish between lead and gold with a detector. I know because I do metal detecting for gold - I own metal detectors and have done it for some time. When detecting and you get a signal that sounds like gold you have to dig it up to be certain. I have dug hundreds (perhaps thousands) of lead bullets and lead shot from the ground. there are many other metal objects that will also give false signals. A general rule is that you will have to dig about 1000 false signals before you find your first gold nugget. that is presuming you are in gold bearing territory.

Motley Fool said...

Ken C

Ahh. Well, then I stand corrected.

One Bad Adder said...

Knuckle down, Skin Tight!
This latest Dollop of Debt most assuredly won't be passed on at anything approaching positive Yield.

Unknown said...

"The perfect time to build...." A new "financial" city. When you have foundations 30 stories deep, you can put a lot of stuff in the basement. I think this financial city may have foundations of more than one kind.

Unknown said...

Another good article (Rant) from Andy.

Unknown said...

Did everybody retreat to their bunker? I missed the memo, time to go into hiding.

Canadarob said...

It sucks when it gets quiet around here. I need oba to bring out a chart I don't understand.

Ken_C said...

And I thought that I was the only one that did not understand his charts.

Stan Eversham said...

If y'all are getting bored we can always discuss when the "reset" will occur.

simpleminded said...

Hahaha, that's a good one!

kobajashi said...

you guys can always study his charts to learn how to "read" them or can always ask questions.

I also had troubles understanding them but now (after some hard study for myself) i am able to "read" them! (although, still not as good as I would like to J, but I manage to see the most important things )

Thank you Sir OBA

kobajashi said...

I will try to give you some explanation to help you.

First you have the $TYX. This represents the yield curve of the longer time bonds (30year)

Than you have the $IRX. This represents the yield curve of the short time treasury bills (3 month)

When you thake the chart $TYX:$IRX$TYX:$IRX&p=D&b=5&g=0&id=p58451744768

Than this gives you some image off the “will” of investors to put money in these bonds/bills

A rising $TYX:$IRX gives an impression of less people who want to put money in the longer time bonds, so the yields will rise!

That’s why you will have more people who want to try to put money in the shorter time bills, and because of that the yields of the short bills will go true zero (the zero bound)!!!

This will reflect a loss of confidence in paper and could be seen as the start of hyperinflation!!

OBA please correct me if i still miss something J

Greetz Koba

M said...

It feels like its possible for the whole world to go on for another decade under this stagflation. Nothing seems to matter. Japan, who is the US's biggest creditor, is monetizing 100% of its own debt issuance. Both the US and Japan are running trade deficits. If this doesn't matter, then what will ? With Australia starting to tax savings , its almost like TPTB are trying to cause hyperinflation but they cant.

Unknown said...

M - they are trying to create inflation, to combat a perceived deflation. However, I think it (monetary policy) is like the backdraft effect, as in the movie Backdraft.
At first is sucks in as the core collapses, then it blows up in your face.

Lisa said...

thanks Koba - that makes thing more clear for me

Canadarob said...

I agree M. Same with the Greece situation. Yeah they have a bill payment this.....oh and another one next week, they'll just get some more printed cash for that. Then they have a payment every week for forever. But that's OK there's more printed cash for that. I understand that its not sustainable. It just seems like it can be sustainable for my lifetime.

Canadarob said...

Also M, taxing savings and negative interest rates also make me think that it can't be long before people make a run on gold. We are literally at the bottom of exters pyramid.

Michael dV said...

Taxing savings seems to shout 'save in gold'. What better way to avoid taxes on mere paper.

Anonymous said...

This is it, this the final bubble. After this there won't be any others, they are completely out of ammunition. When just 20% of people worldwide get out of the system rather than try to catch a falling knife or chase prices higher, which is always a mug's game, the system as we know it is done.

So it's question of when this one ends. Could be any moment, could be another 5-6 years. I doubt it's much longer than that.

Canadarob said...

I thought capital moves quicker the lower you go on exter pyramid. Already 7 years since the crises began.....

kobajashi said...


I am glad I could be of some help for you.

I am also glad that after years of learning I finally was able to do something in return!

Lots of thanks to FOFOA, OBA, Victor, JR, and all the others who made this blog the fantastic study case it is right now!

@OBA, Bright Aurum,

Was my simple try to explain it as easy as possible good enough?

Or do you think it misses something important?



kobajashi said...

@ Bright aurum

Your chart:$tyx:$spx&p=D&st=2007-02-02&en=(today)&id=p08180603647

exploding to the upside means credibility inflation ending if I remember? Am I correct?

So this also means deflation prelude to hyperinflation possible?

Interesting times!



Mr orange said...

They can't do it in July and august, it's got to be now before June 15 if not June 1st, tlt looks like it will simply double top the day after japan goes, watch the jgb chart, japanese govt bond spiked up in last two weeks, once it goes it will be at snap of finger overnight in United States,,,,,,,the next available area would be sept October,,,,,,,it can't go any farther it will be obama a last year I don't think they will do it then,,,,the political cycle says now like obama says Americans will want that new car smell that means Hillary and jeb won't be in it,,,,,,it appears all major legislation has passed now as has the final government motors lawsuit, obama are etc in final so it's looks like a green light as well on that front, the United States has to print a lot of entitlements the next 15 years they will need to print a lot of entitlements they will need all that extra dollars being absorbed by gold,,,,,,if kyle bass is right about the seventy year debt cycle it started back in 1945 46 that's argue ably when depression ended,,,,,,so it's right time demographically as well,,,,,it's time,,,,it has to happen now, as I said before won't upstage fofoa on trying to time it as I said before as it's not purpose of this blog,,,,but it's time and obama can work on social issues when he's a lame duck, things will probably remain mostly the same as they are now until mid 2016 after this immediate inflation scare,,,,they can't have gold and dollar competing against each other like fofoa says dollar lost to gold way way back,,,,congrats fofoa,,,,,I'll talk to you all on other side? It's been a great blog for my sanity, does anyone know whatever happened to Tyrone and Wendy?

Mr orange said...

On dec 9 2009 we were blessed to read a piece by fofoa called gold the ultimate unbubble, that chart he puts out there with the orbital launch patter in spot on on the night JGBS collapse u will have rush to treasuries and treasuries go negative while gold is in Pluto land,,,,

At the top you of fofoas chart u can see it briefly comes down after the orbital launch, that will be the United States raising rates after going negative to some small bull!,it amount then after that gold will be back at top again one everyone knows they r getting 3/4 of a percent for the rest of everyone's lifetime,,,,,when u combine fofoa and kyle bass u can clearly see what's going to happen;)

Mr orange said...

When I say back on top I simply mean a move from Pluto to neptunes nearest moon, not back to earth, never coming back to earth after initial move you can see the inverted waterfall on that post fofoa posted, thank goodness we have a few smart people on our team

KnallGold said...

Bored? Best music video of the year \m/ (;-)


Besides the videos I've noticed skateboarding to be hip again. Appears to have cycles as well, remember it from my teenage days 35 years ago. Maybe Armstrong can find a correlation with his models ;-)

Apropos timing, a retired (FX) banker in our cigar round said 2015 will be the year of the big break down. Not sure if he really knows FreeGold, as a youngster I have to be cautious with education of elders...

Happy Weekend!

kobajashi said...

Some fofoa quotes:

will only note here that, although the link leads to data about bonds, Warren specifically wrote bills which usually means a duration of one, three or six months. Since there is no FDIC protection for cash accounts with $20 billion, T-bills are the guaranteed cash equivalent. This, of course, brings to mind OBA's Time-Currency Theory referencing the subzero-bound $IRX as well as my conveyance of his theory over the years.

kobajashi said...

Part 2:

January 31, 2012 at 6:43 PM

FOFOA said...

Hello OBA,

Thank you for once again stating your Time-Currency Theory as clearly as possible! Since you left and closed up shop at your own blog two years ago, I have used your theory a couple of times when trying to convey what "the end" will likely look like on the trader's computer screen. I'll just throw them out here JR-style, and you can confirm or deny that I got your theory right, or not. ;)

From my Gold: The Ultimate Wealth Reserve in Dec. 2009:

Debt is the very essence of fiat. But as debt fails, the fiat currency can spike sharply in response. Expect the end game to look very different from what you have been told. The dollar as rated by the USDX, a flawed rating system, may rise briefly to something like 150, a level certainly not expected for a currency on the verge of a hyperinflationary collapse! The COMEX gold price, which is really just the price of paper, may drop to $200 or lower before trading is halted.

You can expect this kind of "spiritual experience" price volatility to be heralded as proof that the goldbugs were wrong all along. But don't be fooled. Many a strong hand will turn weak at the worst possible time. Many a bug will be lured by the warm glowing light only to be electrocuted. Don't be one of them.

Remember that ANY volatility is the enemy of the system. Even the price movements that don't go your way are still bringing down a system that has become a complete farce. Hold tight your gold wealth for a brighter day comes. The world of paper debt is, and has been, circling the edge of a lavatory vortex from which there is no escape.

[And then quoting you from your Time Currency blog] The “PRICE” of short-term paper simply “cannot” be seen to go above PAR …as that in itself rings the death-knell of the System.

Yield in the short-end is essentially determined by how much you pay NOW get back Par over the time period. When you pay $1001 to get back $1000 in 3 months …you're in negative yield. Of itself an oxymoron …and declaring for all the World to see …there IS no monetary Future.

Can ONLY happen in a “Global” Fiat construct FOFOA …the likes of which holds sway at present.

This System is unique in that we've "never" had an arrangement in place before where there was "no escape" monetarily speaking.

In the past, when the economic situation in (say) the UK deteriorated, one simply transferred to a stronger currency ...or Gold ...or Silver they were all monetary functionaries of specie ...or at least "some" of the available currencies were.

We now have the situation where the entire System is stressed beyond coping ...with the $US/Oil configuration back-stopping said System.

It (the REALITY) will permeate ALL facets of "future-derived" valuations FOFOA. Bonds, Stocks, Real-estate ...and even our beloved PM's. (as they are NOW priced with a futures-leaning bias)

The closer you get to the Kernel however (short end of the curve ...<6mo)>DX

...that's why it's SOOO important NOW to dis-associate mentally from the $US pricing of PM's.

We KNOW they're "worth" more ...what we have to realise is ...they're essentially "priceless" under the current regime ...despite what the current market tells us.

What is being priced as Gold ...TODAY ...and what you hold in your hand ...are vastly different. (but you already KNOW that ;-)



kobajashi said...


From my Big Gap in Understanding Weakens Deflationist Argument in April last year:

Okay Rick. If the financial system collapsed tonight and wiped out everyone's assets, their 401Ks and IRAs, their pension and trust funds, the US dollar would spike on the currency exchange like never before. I could imagine it rising well above 100 on the USDX, maybe even to 150, as all that financial sludge frantically unwinds. As you say, many will simply be wiped out as much lower valuations are imputed onto their 401Ks. They will never see it coming; never get the chance to withdraw that retirement money and use it to bid up real goods. So what? Do you really believe this will cause the dollar's purchasing power to rise?

In imagining the dollar being "loved to death" I'm picturing crowds piling into a bomb shelter ($IRX) for protection, and once they are all in, the shelter itself blows up. They never have a chance to rush out into something else. Simply stated, all something else's drop their bid for dollars.

A spike to 150 on the USDX sure sounds deflationary, doesn't it Texan? And it seems impossible to M, right? But it cannot be a sustained spike. Imagine, the price of all US imports from China, Europe, the ME or wherever being cut in half almost overnight, simply because big money rushed into the dollar! Now, suddenly, the dollar buys twice as many euros as it did yesterday. That's twice as many real goods, twice as much oil, and twice as much gold, right?

And because big money rushed into the dollar forcing it too high too fast, the ROW will be happy getting half as many dollars for real stuff. And all dollar debtors will be happy working twice as long to pay of the same nominal debt. And the Fed will suddenly just let the dollar be super strong and not do anything in response.


kobajashi said...

And because big money rushed into the dollar forcing it too high too fast, the ROW will be happy getting half as many dollars for real stuff. And all dollar debtors will be happy working twice as long to pay of the same nominal debt. And the Fed will suddenly just let the dollar be super strong and not do anything in response.


January 31, 2012 at 7:39 PM

FOFOA said...


Meanwhile, "the price of gold" will be despised to death. From my Sept. 2010 post, The Shoeshine Boy:

So, in conclusion, the price of gold will plummet!

That's right. At some point in the future, after the price of gold rockets upward, it will fall like a box of rocks! And right about that time you'll see more of Robert Prechter on CNBC than you ever thought was possible.

But here's the challenge. When the price of gold falls to $200 per ounce, try and get some physical. I'm sure that Kitco will sell you some from their pooled account. And GLD will be standing ready to sell you a share at $20. But just try to take delivery. I think you'll find it will be impossible at that point.

And that's why you've got to take delivery NOW, at the current "high" price of $1,300. Don't wait for the dip. Oh, yeah, the big dip is definitely coming. A **BIG** "correction." But will there be any physical available? Perhaps at $1,200 if you're really lucky. At $200? No way.

When I look into MY crystal ball, here is how I see a future gold price chart developing (roughly, of course): The flight out of "gold"

In other words, it will appear on the surface (very briefly) to be a deflationist's wet dream, but in reality it will be anything but that. And it will happen so quickly and with such confusing signals that most people will simply be trapped in their positions. And the few traders with cricket-like instincts (but no understanding of what is happening) will likely jump into the fire rather than away from it. And then, when the dust settles, a new price discovery market for gold the elemental metal will eventually make itself known.

A long time ago I dubbed this phenomenon a deflationary head-fake that sometimes comes right before currencies collapse.

Does this scenario square with your Theory? Enquiring minds want to know!





Bright aurum said...

You are basically right.
But treasury bond yields and SPX 500 are just derivatives, and gameplays for traders. As your quotes point out, the correct judge of value is the physical plane. When shortages appear one would well know that there is something very wrong with the system going on. And is only then that you get a real instability and a real chance of a total loss of control and $IMS toppling panic.
For now it is only ..'How right we have been to hold all these dollars in reserve. Look how much oil we can buy with them.'..
Oil will do what it does best - burn. More stuff will appear for the taking and as yields rise (in vain attempt to cool down the outbidding). Soon there will be the margin calls for the playaz. Then another round of printing and hopefully the savers will wake up to the realization there is not a snowball chance in hell they got their $IMS buried savings back in real terms. Game over!

M said...

@ Cadrob

How about those oil prices being halved which popped the Canadian housing bubble..? Not. Housing bubble didnt even blink and we are near the one year anniversary of the oil bubble popping.

Canadarob said...

I found a good solution for a medium of exchange....

burningfiat said...

Canada, hmmm good idea, it could work I think. Maybe with koala paws, baby seal hides and panda skulls for bigger denominations!

Canadarob said...

Not sure what your point is. Was the drop in oil supposed to pop housing? The housing drive is based on nothing other than speculation and credit and there is plenty of both.

Bright aurum said...

I should have expanded a little more.
treasury bond yields and SPX 500 are derivatives of real value and they must be liquidated through the medium of the USD in order to get access to that value.
As the USD are born from debt differently so are those derivatives. That is why margin calls get to stress the system so much - they amplify each other both for the derivative (more levels of debt) and the liquidation medium itself.
@ M
How much of Canadian savers' savings that play the housing market come from oil?

Canadarob said...


Nice video. I'm a fan of kyle Mooney. This will be our toast when freehold commeth

kobajashi said...

@Bright aurum

Thank you. Very clear. Much appreciated



burningfiat said...

A bit relating to the wealth tax (in socialist France):

In France, of course, money has never been honorable, except perhaps during the nineteenth century. The Church put it on the Index in medieval times, and ever since the age of industrialism, socialists and Marxists have held it responsible for every evil. It is a foregone conclusion that money will always remain impure.

And yet, how herculean the efforts to acquire it! The French—whether hypocritical or irrational, it doesn’t matter—have no trouble in getting around the contradiction: They simply cherish their own possessions while condemning everyone else’s. Among all peoples, their love of money is doubtless the keenest, as every Frenchman suspects every other of being motivated by selfish, materialistic considerations. Property, savings, and inheritance are sacred; money and finance are suspect. The French cling to the pathological distinction they make between their own little nest eggs and anonymous riches labeled “finance.” This fantasy provides an excuse for the inventors of the wealth tax, euphemistically referred to as the “tax on large fortunes,” levied on an aggregate of static property, impossible for the most part to divide or liquidate; whereas only those profits earned through the dynamic flux of the country’s economy qualify for annual withholding.

-- from Guy de Rothschild's "Whims of fortune"

Also quoted here:

Perhaps we can all recognise a little bit in ourselves of that paradoxical attitude towards money that Guy describes? Best to remain rational and hold that envy in check, yes?

Edwardo said...


My late mother who lived in France, and was something of a Francophile, would, I think, have agreed with every word in that passage from GDR.

ein anderer said...


tell this f.e. the Swiss friends!

Because interest rates go negative, they think the best way to save their wealth is to “store” it in Swiss Franc bank notes! In mere cash! LOL!

As if “cash” is anything else than a promise, not more. Today you get what is promiesd, tomorrow you don’t.

So silly. Instead of changing their cash into some real. No, we like to do it in a complicated manner! We do not like to leave the world of fiction!

FOFOA said...

A new post is up!

Clean Float – Why the Dollar Must Collapse