Hiljaista Pohdintaa

Hiljaista Pohdintaa

maanantai 28. marraskuuta 2011

Epävakaa persoonallisuus (rajatila), videoita

Kaikki videot ovat englanninkielisiä. Jos ajoittaiset vilkkuvat mainokset häiritsevät katsoessa, niitä voi peittää esim. ohuella pahvilevyllä.

Struggling with Borderline Personality Disorder (Tämän videon asiasisältö on suhteellisen vähäinen, mutta otin sen mukaan kertomaan siitä, että epävakaa persoonallisuus voi vammauttaa älykkään, fyysisesti terveen ja kauniin naisen työttömäksi tai lähes työttömäksi sosiaalihuollon asiakkaaksi. Hän on kertonut sosiaalihuollon asiakkuudestaan ja lähinnä perustulolla elämisestä muutamalla videolla):

http://www.youtube.com/watch?v=W79Z7XhatUE&feature

Borderline Personality Disorder documentary (Dokumentin kuva värisee ajoittain häiritsevästi. Ääni on selkeä, joten tarvittaessa voi ajoittain katsoa kuunnellessa toisaalle):

1. http://www.youtube.com/watch?v=xt40-F5IZjY

2. http://www.youtube.com/watch?v=O84wizi4niU&feature=related

3. http://www.youtube.com/watch?v=opaGywLegAc&feature=related

4. http://www.youtube.com/watch?v=h6Z_T0UWRak&feature=related

5. http://www.youtube.com/watch?v=bHR2ECciBxo&feature=related

6. http://www.youtube.com/watch?v=g9XiOEjpz9U&feature=related

7. http://www.youtube.com/watch?v=M8Pm8zlkVc8&feature=related

A Look at Borderline Personality Disorder:

1. http://www.youtube.com/watch?v=6t6biA9kaMM&feature=related

2. http://www.youtube.com/watch?v=Mf0K_e-NKE8&feature=related

5 Faces of Borderline Personality Disorder:

http://www.youtube.com/watch?NR=1&v=Do6owMR1hSY

BPD: How to Control Extreme Emotions (in BPD):

http://www.youtube.com/watch?v=cqb50CdgMiw&feature=relmfu

Tips How to Deal with a Borderline Personality Disorder During the Holiday Season:

1. http://www.youtube.com/watch?v=E1o2tORz1tc&list=WLEABACAFE2DD676DA&index=10&feature=plpp_video

2. http://www.youtube.com/watch?v=FlYSTY3hS8w&feature=relmfu

Dr. Rhoda Hahn, Borderline Personality Disorder:

http://www.youtube.com/watch?v=WgNqw25MAug

Kolme henkilökohtaista kertomusta epävakaasta persoonallisuudesta. Videot ovat taiteellisia esityksiä aiheesta, mutta saattavat luoda negatiivisia ärsykkeitä herkimmin imitoiville epävakaille persoonallisuuksille. Älä katso näitä videoita, jos sinulla on taipumusta sellaiseen:

1. http://www.youtube.com/watch?v=8QMda42jwO0&list=PLF16E906DC1674620&NR=1

2. http://www.youtube.com/watch?v=6LBMgoKAARw&feature=related

3. http://www.youtube.com/watch?v=82b-IFBK150&feature=related

sunnuntai 27. marraskuuta 2011

Suomalaiset rakastavat orjuutta

Siis omaansa. Suomalaiset vihaavat sosiaaliturvaa ja julkisia sairaanhoitopalveluja. Omia. Suomalaiset haluavat korvata puolustusvoimat pahvisella Mikki Hiirellä, joka seisoo rajalla nallipyssy kourassa. Niin, omat. Puistot, urheilukentät ja -hallit inhottavat suomalaisia. Kyllä, omat. Julkisen puolen työpaikkoja on suomalaisten mielestä aivan liikaa. No joo, onhan niitä, mutta silti. Suomalaiset yritykset rakastavat kuolemaa. O-m-a-a-n-s-a. Suomalaiset haluaisivat, jos vain suinkin mahdollista, maksaa yli 90% tuloistaan veroina. Om ... tiedättehän. Kaikki kulutus harmittaa suomalaisia. Kunpa sitä ei olisi ollenkaan, sanovat he. Kuiva leivänpala, suolasilli ja lasi vettä riittää suomalaisille ruoaksi. Fiskars-muotoiltu säkki riittää heille talven kylmimpiin viimoihin. Sijoittaminen, säästäminen ja tuotot? Suomalaisille? Ehei. Suomalaisille ei yhtään mitään. Suomalaiset tykkäävät raataa orjan lailla, jotta lihavalla Eu-byrokraatilla ja vetelällä etelän miehellä on kaikki hyvä ja riittävästi luppoaikaa suomalaisten huijaamiseen. Suomalaiset ovat todella kilttejä .... helposti k.setettavia. Valitse siitä.

Mistäkö tiedän? No kun suomalaiset vähän jupisevat ja sitten aina valitsevat ne samojen puolueiden hampuusit, jotka antavat meille tämän:

http://www.taloussanomat.fi/jan-hurri/2011/11/27/suostuuko-suomi-velkasuon-kantojuhdaksi/201117709/170

perjantai 25. marraskuuta 2011

Hyperkulta ja liberaali rahasysteemi



Myrsky on tulossa.

Titiyo laulaa Come Along kappaleessa:

".... Dust settles, cities turn to sand
Trespassing this is their land
Time flies, make a statement, take a stand
Come along now, come along with me
Come along now, come along and youll see
What its like to be free
Come along now, come along with me
Come along now, come along and youll see
What its like to be free
Come along now, come along with me
And I'll ease your pain
Come along, come along with me
And lets seize this day
Come along, come along with me
Stay out stay clear but stay close
Friends, foes, God only knows
Lets be the thorn on the rose ...."

Mulatti sopiikin hyvin symboloimaan sivilisaation romahdusta.


Nimimerkki FOFOA (Friend of a Friend of Another) perustaa suuren osan kirjoituksistaan nim. FOA:n (Friend of Another) ja nim. Another:n kirjoituksiin ja omistaa bloginsa heille. Perusteemana kirjoituksissa on se, että kulta on paras tai parhaimpia arvon säilyttäjiä taloudellisen romahduksen olosuhteissa. Joko kullan arvo pysyy paikallaan lähes kaiken muun arvon romahtaessa pohjalukemiin (eli sen suhteellinen arvo nousee huomattavasti) tai sen arvo nousee moninkertaiseksi kaikkien pyrkiessä hankkimaan ja käyttämään kultaa luotettavana arvon säilyttäjänä ja jossain määrin vaihdon välineenä. Kullan arvo on jo pitkään noussut suhteellisen nopeasti. Kultaa on kymmenen kertaa enemmän kuin sen "kilpailijaa" hopeaa, joten se riittää paremmin yleiseksi omaisuuden ja vaihdon välineeksi, ja kullalla on enemmän symbolista, historiallista ja emotionaalista arvoa kuin hopealla, joten talousromahduksen jälkeen kullalla on taipumus syrjäyttää hopea ihmisten laittaessa luottamuksensa kultaan ja kilpaillessa sen omistuksesta. Keskuspankkien ja suuryritysten liikkeelle laskema Fiat-raha tai de facto Fiat-raha erilaisten papereiden tyhjien nimellisten arvojen muodossa on vuosikymmenten kuluessa kerännyt liikaa ilmaa itseensä, ja jossain vaiheessa ihmisten luottamus niihin loppuu, todennäköisesti hyvin nopeasti, josta seuraa korjausliike eli talouden romahdus. Vaikka globaali talous kasvattaa lopullisen romahduksen suuruutta kasvattamalla paperiarvoja enemmän kuin koskaan aiemmin, se todennäköisesti myös pystyy lykkäämään sitä suhteellisen pitkään manipuloimalla ihmisten mielikuvia; kieltämällä ja salaamalla tietoa ja tiedonhankintaa; manipuloimalla markkinoita ja julkista taloutta lukemattomin eri tavoin; de facto pakottamalla ihmisiä systeemin sisään ja kieltämällä ihmisiä poistumasta sen piiristä tai toimimasta sen ulkopuolella; jne. Lisäksi kun globaalin talouden malli tyhjine paperiarvoineen, markkinainterventioineen ja liiallisine lainanottoineen leviää ja pakotetaan leviämään ympäri maailman, kaikki ovat suhteessa toisiinsa suunnilleen yhtä huonossa tilanteessa ja kaikin tavoin kytköksissä toisiinsa, jolloin ihmiset eivät voi eri maiden sisäisiä talouksia vertailemalla huomata tarpeeksi selvästi niiden huonoa tilaa tai huonouden astetta, eikä heidän luottamuksensa voi niin helposti paeta yhden maan taloudesta toisen maan talouteen, siitä huolimatta, että tekniset edellytykset tälle ovat helpommat kuin koskaan aiemmin. Mutta annetaan FOFOAn ja kumppaneiden jatkaa. Kokosin FOFOAn paremmista artikkeleista leikkaa ja kokoa menetelmällä kokonaisuuden, jossa hän sanoo tärkeitä asioita. Artikkelikokonaisuus on suhteellisen pitkä, joten varatkaa kahvia ja keksejä läheisyyteenne, ja aikaa käytettäväksi. Artikkelikokonaisuus jakautuu selvästi havaittaviin osiin, joten sen voi tarvittaessa lukea useammassa osassa. Laitan asiaan tavalla tai toisella liittyvät linkit loppuun. Tässä tekstissä olevan tiedon käyttäminen sijoitustoiminnassa on oman harkintanne varassa:

.... There are four key aspects to Freegold. There are also many more, but these four are key. That's not to say they are all necessary. They are not. But it is to say that in order to understand Freegold you must at least understand the significance of these conditions:

1. The end of the dollar standard (the end of its timeline as the main global reserve currency)
2. The end of parity between paper gold price discovery and physical gold price discovery
3. The Euro-Freegold concept/project, (at least) 31 years in the making
4. The flow of oil

I have compiled a few FOA posts here that at least touch on these four important aspects. They are by no means the complete picture, but more of a tease to get you to read the whole thing. Enjoy!

Trail Guide (08/21/00; 21:04:03MT - usagold.com msg#: 35283)
Reply

Hello SLF and Welcome!

I say welcome because I think you are new here. But then again, I haven't read back through all the discussion that happened while away. As you know many of the posters on this forum present exceptional perspective. The kind that demands a comment or answer before moving along. Often one must be careful not to read them or risk being trapped here. (smile) Yours is the first I saw today, no doubt there are many others in the archives for later. So let's stop a while.

Your post # 35259:

--- I have been following your posts for a couple a years. I am trying to get a grasp on your current thoughts. As time goes on I am trying to see how current events will affect Gold/Dollar. It is my impression that you believe the Euro will be the currency that dethrones the Dollar as the Dollar hyper inflates. What are your latest thoughts about the weak Euro strong Dollar? -----

SLF, I see this whole progression of events as an international chess game. It's a game that has been going on and evolving for many years. It's hard to discuss it in an investment format because far too many "hard money" traders continue to grasp each move on the board as a short term isolated happening. From this view, they play these events for quick profits. Mostly they lose big, because this particular game is unlike anything in the past and continues to evolve away from past historical precedent.

On the other hand, there is a whole world of people out there that are making a killing for reasons they profess to fully comprehend. Yet truly, their wealth making is little more than a mistake of historic human proportions and they will have it all taken away for reasons fully incomprehensible!

SO,,,, For us to see the whole board we must wade away from shore. Away from all the shallow water traders and into the deep blue. There we can feel the real current.

Our dollar has had a usage period that corresponds with the society that interacts with it. Yes, just like people, currencies travel through seasons of life. Even gold currencies, in both metal and paper form have their "time of use". Search the history books and we find that all "OFFICIAL" moneys have at one time come and gone with the human society that created them. Fortunately, raw gold has the ability to be melted so it may flow into the next nation's accounts as "their new money".

This ebb and flow of all currencies can be described as their "timeline". We could argue and debate the finer points, but it seems that all currencies age mostly from their debt build up. In a very simple way of seeing it, once a currency must be forcefully manipulated to maintain its value, it is entering the winter of its years. At this stage the quality of manipulation and debt service become the foremost determinant of how markets value said money. Suddenly, the entire society values their currency wealth on the strength and power of the state's ability to control, not on the actual value of the money itself. Even today our dollar moves more on Mr. Greenspan's directions than from the horrendous value dilution it is receiving in the hands of the US treasury.

This is where the dollar has drifted into dangerous waters these last ten or twenty years. If you have read most of Another's and my posts, it comes apparent that preparation has been underway for some time to engineer a new currency system. A system that will evolve into the dollars slot once it dies.

Out here, in deep water, we can feel what the Euro makers are after. No one is looking for another gold standard, or even something that will match the long life and success of the dollar. We only know that the dollar's timeline is ending and a new young currency must replace it. No great ideals, nor can we save the world! But a reserve currency void is not acceptable.

Now look back to shore and watch the world traders kick ankle deep water in each other's faces over the daily movements of Euros. From here, up to our necks in blue water, you ask "What the hell are they doing?" I'll tell you. They are trying to make $.50 on a million dollar play! Mostly because they are seeing the chess game one move at a time. (smile) Truly, their real wealth is in long term jeopardy.

Our dollar has already entered a massive hyperinflation. Its timeline is ending and there will be no deflation to save it. The currency and all the multitude of derivative instruments that make up our money system have expanded rapidly over the last 20 years. [1] Even at a super hyper rate for the last five years or so. We cannot read it because much of what we "Western" savers call paper wealth has really become money substitutes thats value is supported by the government. This paper wealth creation cannot reverse and is beginning to enter the "natural world" of real things. The best sign that the currency has entered its last, final inflation is seen in the manipulated price gauges. Truly, this is only the beginning. Eventually we will see roaring price increases in everything, even as our government indicates level prices or perhaps a deflation in our price structure. This has to happen, because there is no saving a society's currency that has indebted itself beyond any known example in man's past.

In our time we will all see the Euro become very strong. You will read and hear this. But, Another and I have known for some time that it will be the dollar falling away that will make the illusion complete. I say this because all currencies are but an illusion of value.

Eventually, either before or after the dollar's transition, the illusion that makes currencies real will also undergo a change. That illusion / vision is the current world paper gold market. Often known as the dollar gold market. This marketplace will fail with the dollar's timeline and so too will its use to value gold. In this time gold will not soar in value, rather all currencies will seek their true relationship to a "FreeGold" market. The US dollar will someday see $30,000+ for an ounce of gold. So too will the Euro price gold much higher ($$3,000 to 6,000???).

It is here that our Euro has planned to play the game to the end. (more later)

In your post:

---- When Another talks about "slow oil" what does he mean? Is the current short term oil price increase the beginning of something larger and more sustaining?---------

Yes, SLF! The transition from a world of dollars into something else is truly an evolution. There is no definite point where political wills draw the line. Once the Euro was born and "online" the dollar evolution began to speed up. Oil, out of a seemingly impossible position, suddenly began to rise in price. The paper gold markets were adjusted in what was the first step of their destruction, the Washington Agreement. Now, oil prices are set to evolve high enough to test not only the dollar's strength, but to force the physical gold market to separate from its paper controlling world. Indeed, our paper gold markets will very much simulate the same manipulation of price gauges as the CPI. All in an official attempt to say that our dollar is not dying. In many ways, it will be the paper longs that abandon the gold markets (forcing prices ever lower) even as the physical price soars. Yes, the shorts may make a killing but the money they make will be worthless!!!!!!

Your post:

--- In reading your last post on the trail, you say "one Gold is coming my friends, one Gold"-----

I think Another means that oil flow will slow until we have one physical gold price. Perhaps this is the end of Another's beginning odyssey of many years ago. It could be that the REAL GAME HAS BEGUN!

My friend, the future of physical gold is to become a wealth holding of a lifetime. However, the world will not take lightly to such a recognition of private wealth gain. I hold physical gold in good proportion but am prepared to see its current paper fictional value plunge to Another's very low dollar price. A paper price that will be as fictional as $1.00 gasoline during a dollar hyperinflation. This is the reason I hold a lifetime position in a few gold shares. Their value may plunge to zero before things change (an event the shallow water boys could not stand with). Even in the face of a soaring physical price, investors may choose to believe the paper markets over reality. Don't laugh, they believe the CPI today and continue to buy bonds????

Your post:

--- I know you don't have a crystal ball to see the future, but I am under the impression you are a person that has high level information about what is going on with Gold/oil/currencies.--------

AS Another often put it, "I am but a simple person". Events will make this knowledge real, not the words of myself or Another. Indeed, only "time will prove all things".

I hope to continue this, be back next day? , thanks

Trail Guide

Trail Guide (08/28/00; 20:35:52MT - usagold.com msg#: 35674)
The big trade!

Hello Everyone!

I would like to start this as an offshoot from my post earlier today to Peter Aster (msg#: 35638). It seems we have run into a roadblock of thought. Perhaps a traffic jam would be a better analogy.

Let's talk:

In its most basic form, this presentation has been that;
----in the worldwide modern paper markets, contract trading has taken over the role of setting gold prices at a tremendously understated level.----
Years ago hard physical trading once did that job and did it at a correct level relative the physical product that was changing hands.

For us to follow and grasp this concept change correctly, we must start at the very beginning of simple economic principle.

When someone buys a product and takes possession of that product he impacts the value of that item as it relates to the next person in line waiting to buy. Like this:

----------
When Joe buys one of five apple from the table of a vendor, he leaves only four apples left on the table to be bid on by the next buyer. This ages old act of "hard trading" demonstrates the whole human interaction with supply, demand, need and emotions. When the next buyer sees that only four apples are left, where there were once five, whether he likes it or not his mind will consider the above supply and demand possibilities. All the while personal need and emotions mix in his brain.

The result may or may not be a different bid from the first buyer of an apple. But it will be a true value assessment based on actual, hard, real time circumstances known at that moment.

When Joe brought that apple, he impacted real supply and forced the market,,,,,,, that's everyone trading behind him,,,,,, to form "hard opinions" about "real demand" and "real supply". In this dynamic, the next trade is not priced by "soft opinions" based on conjecture of "will Joe really take delivery".

You see,,,,,, in real life,,,,,,, in real trading,,,,, Joe taking delivery now, hard down, undisputed,,,, and this forms a different "mind set to bid" by the next in line. This mind set is what creates a "real value bid" instead of a "possible value bid". These "hard bids" based on "hard opinions" overshadow and usually bid higher for product than "soft opinions". In times of "Hard Trading",,,,"Soft opinion" bids even fail to materialize mostly because "Joe has shown that he does take delivery"! ========

Now,
I had today, asked 10,000 Kansas investors to line up along their border with Colorado. This nice straight border is very long and allows room for everyone to have some space. I asked half of them (that's 5,000 (smile)) to stand on the Western side of the border (Colorado for you non Americans) and the other half of them to stand directly opposite on the Eastern side (Kansas). All of these people did this in a hurry and they remembered to bring the very last $50,000 in cash they had to their name along with a pen and paper.

This was quite a mess to organize, so I hope everyone will appreciate this effort! (smile)

So,

Today, while the Comex was still open and trading,,,, and the US dealer markets were open,,,,, I instructed all 10,000 of these people to enter into a REAL LEGAL PRIVATE OFF MARKET CONTRACT with each other for "1,000 ounces of gold". In effect, I asked that 5,000 of these investors contract to buy from the other 5,000 the equivalent of "ten 100 ounce gold contracts" that would expire in one hour. That's one hour before the gold markets closed today.

Yes, that's 50,000 contracts for five million ounces of gold that existed during trading today.

Further, not only did the sellers not have any physical gold, their last $50,000 in margin cash could not possibly buy the 1,000 ounces to deliver. Nor could the 5,000 long traders hope to use the last $50,000 they had to their name to buy that same 1,000 ounces. But their margin deposits did seem to make the deal real.

So,

While this trade took place and the contracts were in force (they were legal and binding),,,, I called several bullion dealers to ask if the gold market was being impacted. I also watched the computer screen intently to see if anything would happen.

Surely, with five million extra ounces of gold being traded, it would have changed the price of gold.

"Just think, five thousand rich Americans contracting for five million ounces of gold should have done something!"

Well, it didn't. So all 10,000 Kansas investors canceled their contracts by buying each other's commitments and went home a little smarter.==========

OK,

The reason this little trade didn't impact the "real value" of physical gold was because they didn't trade any real gold. As big as the numbers seem, the real physical supply of gold was never touched. All they traded with each other was their "soft opinion" about the future price of gold. Again, I say soft because they only traded bluffs that were for far more metal than their real financial assets could cover.

Their trading, like so much paper trading today creates and expands a soft paper market that not only overstates demand, but more importantly allows sellers to "vastly overstate supply without DRAWING FROM THE APPLE TRAY.

Further, the worldwide paper markets our margin money has helped sustain, continue to trade an outstanding interest that is far in excess of real available bullion. ------"""" Yet this outstanding interest is the supply gauge that so understates what physical gold would trade at as it's used to price the much smaller dealer gold demand""" ----.
===========

Oh,,,, I'm sure 5% or 10% of my Kansas traders actually did make and receive delivery while I wasn't looking. They most likely had some gold and extra cash to make the deal. But with the size of the world gold market it didn't really notice.

By far, the majority of these investors were playing out my observed typical "Western Style". They trade the price of gold while waiting for someone else to buy enough physical gold to impact supply. All the while helping support a system that dealers use to price bullion at an understated price. Again, a price that's not created by taking real bullion off the market in a volume equal to contracts traded.

=======
My reply to one investor heard saying, "why does anyone have to take delivery at all?".

My good man, then you would end up just like my Kansas traders as they wade in our modern mess. Always settling up and trading nothing, and doing it at a lower price. Because the paper price of bullion will continue to fall from a continued increase in paper supply. No different than the way our governments lower the value of money by supplying more of it. The correlation between the two concepts is indeed staggering. [2]

This logic is almost like our early currency thinkers asking, "you know, we really don't need gold as a currency. Let's just trade dollars!"!===========

Thanks
Trail Guide

FOA (2/26/2000; 11:13:56MT - usagold.com msg#7)
Foundation
A Day Walk

If I had a nickel for every time we thought the dollar was finished, I would have a bunch of nickels! Remember back in the early 80s or even further back into the 70s. All we heard was how the dollar was finished and going to crash and burn. Books about hyper inflation and the need for gold / swiss francs were all over the place.

I read all of them to gain perspective and also acted on some of their advice. Made some money on it too. But even then, something just didn't completely ring true about the whole scenario. Indeed, in hindsight, gold never did return above $800, the dollar didn't hyper inflate and most of the world kept using the dollar as a reserve.

Today, we can more fully understand why so much of that early insight failed to deliver.

True, the dollar was seen as a basket case back then. It had just been pulled from its gold bond and prices were going up all around us. However, because the world had been on a simi dollar / gold standard, all nations that had previously signed onto using the US buck as their currency reserve now did so with even more resolve. More important, it seemed than using gold itself was out of the question as every country's Central Bank brought dollars as fast as we printed them. The dollar still settled most all trade accounts while dollar reserve buying made an obvious show of support for this world system. No matter how much bad press was offered, they were staying on track and they have continued to do so right up into the 90s!

But all of this flew into the face of what every economist was saying, back then. The common understanding of the era was: if the US didn't stop over printing its money, we would all experience a major price inflation,,,,,, and no one could stop it! Again, "major" inflation didn't happen and to ask a further question: if the dollar system was so bad, why didn't the world just dump the reserve system and refrain from using it further? In other words, let the dollar be "the US dollar" but don't use it as a backing for your own money system.

Thick Brush Now

Going against the logic of "sound money": throughout all the currency turbulence of the 70s and 80s era (including today), the US never did reign in the over printing of its currency. It continued almost nonstop money supply expansion for its local economy and in addition sent a good portion of its cash all over the world. On and on the US trade deficit continued to do its work of feeding ever more US cash into foreign economic systems. We printed paper currency by borrowing it into existence,,,,,, used it to purchase real goods overseas ,,,,,, while foreign governments actively soaked up this dollar flood by expanding their own money supply.

Like this: When you buy an item externally, a dollar is sent overseas to pay for it. Usually, through the world currency trading arena, that dollar is converted into the local currency of the nation which the goods came from. But more often than not,,,,,,, as we print that dollar out of thin air, the foreign government takes the dollar into its reserve account and prints one of their units for deposit in the local economic system. They do this because: if the foreign CB didn't save the dollar as a currency reserve ,,,,,, and sent it back into the world currency markets to "buy" an existing unit of their money supply,,,,, this action would drive up their currency value vs the dollar and make the price their goods non-competitive in world markets. In other words, a US citizen couldn't use a printed (borrowed) dollar to buy an item for $10.00 that outside the "dirty float" of exchange intervention would cost $15.00.

This is how the "dollar reserve process" inflates the money supply worldwide as we (USA) run a trade deficit for our benefit. It keeps the dollar exchange rate higher than it would naturally be thus allowing a US citizen to buy goods at a cheaper price than our expanding money supply and implied currency value would normally dictate. A process in and of itself that invites still more dollars to flow out and purchase still more external goods. Had foreign CBs not taken so many dollars, the ever expanding US money supply would have long ago impacted currency exchange rates and forced a major price inflation internally (in the US). Yes, the major inflation so many saw coming,,, back then,,,,, would have arrived,,,,, then.

So why did these other CBs do it? The standard explanation was that this created a market for their goods here in the US. Yes that's true, but it begs the question; did no one in their land want to buy goods manufactured locally,,,,,, and pay for them with the same printed money supply? Why is it the US could inflate its money supply to buy cheaper goods externally for no more than the price of printed paper? But, in the same country our paper was sent to, they couldn't print their own currency to buy their own goods? Why couldn't they raise their real standard of living somewhat using the same process like the US,,,,,, and doing so without the burden of inflation or importing foreign currencies?

Again, why would our printed, inflated money movements not create price inflation for us (USA) in goods purchased externally? What if they (foreign goods producing countries) printed an amount of their money equal to the inflow of dollars,,,, but, without holding paper dollars as reserves to back it,,,,, brought the exact same goods from themselves. Common prevalent economic theory says price inflation would result? Or would it? Or better said: why them and not us?

Into the deep woods again

Again, and as above,,,,, In the 70s, it was widely held that the dollar reserve system forced other countries to inflate their local currencies, thereby importing dollar price inflation. But, as time went by,,,,, indeed a decade or two now,,,,,, the same process continued nonstop, with no change. It seemed that some "other" countries had found a "new way" to somewhat circumvent the dilemma. Or was this "new way" something sold to them in order to extend the dollar system's timeline?

Many of the lesser third world countries experienced a combination of sporadic hyper inflation and deflation as we forced the dollar reserve system down the throats of their citizens. Their people's living standard constantly fell as they worked ever harder to produce more goods in return for more of our printed dollars. But, instead of using the extra inflow of dollars (positive trade balance) to buy their own currencies in the local system,,,,, thereby keeping their currency strong,,,,, they used that dollar flow as collateral to borrow (from IMF and international banks) more dollars from the world dollar float (mostly called Eurodollars). The lure (or the hard sell) was that they could build up their infrastructure,,, increasing their production efficiencies (human productivity's),,,, thereby raising the national standard of living. Further, they were sold the unneeded idea that even if they didn't completely use the dollar surplus to borrow more, they should hold those dollars in reserve (buy and hold US treasuries) and print more of their own money!

Again, it seemed they had no advocate to push for their own best interest. No one told them that their people already worked cheaply enough to more than offset the competitive loss of a stronger local currency. No one told them that with a strong local currency structure,,,,( that using the dollar surplus to buy their own currency would create),,,,,,,, would allow them to borrow in their own capital markets. A more go slow approach that builds long term benefits. This process would free them from the entanglements of making international debt payments in another money. Indeed, the costs of those involvement's later proved overwhelming!

Now the trail becomes more open

For third world countries their international dollar debt exposure eventually locked them into a servitude to the dollar reserve system. Despite all their natural and human resources, currency involvement had taken a lion share of any productivity increases and increased lifestyle this modern world offered.

However, it did help the cause for the dollar reserve system. By creating an ever growing international debt in dollars, eventual dollar demand to service this debt would only increase. Thereby keeping its value artificially high. In addition, any leftover floating dollars quickly took the form of US treasury debt held in these small countries treasuries. There they were used to further hyper inflate their own currency supply.

For the more developed gold owning countries of the G-7, they had a different question in mind. Again, if taking in inflated dollar reserves was the act of importing US dollar inflation into ones local economy,,,,, and in the process creating a market for your goods overseas,,,, why not just print your own currency without taking in dollars,,,,,, and in doing so give the same buying power the US citizens have in your market,,,,,, to your own people?

If it's not price inflationary to take in part of a world "inflated dollar supply" and create jobs for your people locally,,,,,, why would it be any more inflationary to print your own currency outright? Indeed, why does one need a dollar inflow to legitimize the same money inflation process? That being currency inflation to create jobs?

Why should we (as dollar asset holders) think about this question? Because someone else is and doing something about it today!

Back to a marked trail

Today,,,,,, and after all of this,,,, the dollar never did crash from price inflation. At least nothing like what was expected earlier in the last two decades.

The dollar reserve system was never going to fail then because the major world economic powers were willing to use (waste) all the productive efforts of the world's people to keep it running. Looking back we now understand the thinking behind this. Without the dollar acting as a reserve, we would have had to go back to a gold system. There was no other currency structure strong enough or deep enough to carry the load.

But, gold had been proven to be much too easy to circumvent as a national or world currency. It seemed human dynamics would never allow an economic system that operated on a pay as you go process without gold debt. If history had proven anything it was that if we have a money,,,, fiat or gold,,,,,, we are going to lend it, borrow it and in the process create debt. Yes, even using gold!

Even if we have a pure gold system, human nature will find a way to turn it into securities. In doing so we will,,,,, come hell or high water,,,,,, lend more gold than we have and borrow more than we can pay back. One has but to return to the history books to see it all in plain print. Over and over again, we start with a solid gold foundation and soon degrade it into trash. It's not just the American way,,,,, it's the world's way.

Because the modern world had progressed into the efficiencies of using high speed digital fiat currencies, no one at that time or today, was willing to crash the whole system by returning to gold. I suspect that the world's richest would have lost a lot, but so to would "us regular" people. Even with our savings in the form of a "digital illusion", at least we had a job to go to and a dream in our bank account. Removing the dollar and returning to gold would have erased the illusion and temporarily shut down the jobs.

So, dollar hyper inflation never arrived and gold did not make its run because world CBs bet your productive efforts on supporting the dollar reserve. In the process, the US standard of living was raised tremendously on the backs of most of the world's working poor. But this is not about to last!

A broad view from the ridge

Not long after the US defaulted on its gold loans,,,, dollars held as gold certificates,,,,,, major thinkers began the long process of forming another world currency. One that would not maintain the fiction of a gold standard with the somewhat fixed gold prices inherent in such a system. The creation was distorted, to say the least. Just as the River in my first post was often seen in distortion, so too was this currency issue. It began with the European Currency Unit (ECU) and has later progressed to its present state of the Euro.

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.

It seems people saw something else that would make the Euro unique. Paid-up assets also stand behind circulating money. Indeed, if someone owns a $100,000 dollar piece of land , has a good producing job and borrows $50,000 against his land,,,,,, the world is likely to circulate that debt note as a fiat land backed currency. But, if his gold (the land) is worth $1 million in a free physical market,,, AND RISES FURTHER IF CURRENCY SUPPLY OUTPACES REAL PRODUCTION,,,,,,, and his other debts are relatively low ,,,,,, the same note would circulate just as effectively if the $50,000 was borrowed against his name alone.

In essence, the jump into the Euro is more based on a new currency that is more honest in dealing with our historic human dynamics. Let's try not lying to ourselves and admitting that gold alone in a currency will not remove our will to borrow and lend and therefore eventually defraud each other! Would it not be better to at least not shackle the money to gold? Indeed, a real physical freegold market will constantly be devaluating any fiat currency over a long term. While removing the need for CBs to maintain fixed exchange structure through a dirty float against gold.

But, the most important aspect is in the escape valve gold would provide to developing countries with positive trade flows. Those that wish to settle their debts outside the currency arena using gold as a settlement. Or, if they wish, to buy gold in the open market with their trade reserves.

The secret to all of this is in the "Legal Tender laws". Allowing gold to be used as a Legal Tender,,,, "for the settlement of all debts public and private",, but changing international law such that no form of debt can force its payment in gold! This opens a one way street for gold and a two way street in fiat currencies. No one will lend gold because they cannot force its return in the courts, thereby making gold a physical only international currency. Yet, on the other hand, we all must borrow in this modern world and currencies will be the only avenue for this. Creating a demand (and added value) for them [fiat currencies] in addition to general use demand.

The first thought many will have is that everyone will just buy gold to make debt payments, driving out fiat currencies. But remember, if you have debts they will be [enforced] in currency settlement only. One will weigh the cheapest form for repayment! Gold in this atmosphere will be completely free to trade, become extremely expensive and stay that way.

We rest now

True there is a lot more to this story. Some posters have been discussing it publicly for some time on the USAGOLD forum. If you want a wonderful background reading on what "Freegold" would mean,,, get your laptops out tonight and read the entire link below. There is also considerable agitation voiced against this view.

First read all of:

Aristotle (2/7/2000; 7:15:24MDT - Msg ID:24589) It begins!
-----* Executive Summary --an Outline of Observations *----- [3]

My position: The world is going to change its currency system before long and this will greatly impact the wealth of dollar asset holders. Not to mention physical gold holders. As a note for further consideration and talks,,,,, we have talked before about the "Texas Railroad Commission" and how it once declared oil a public utility and later controlled its production. In the future, international law must declare all large gold reserves to be "public utilities" in the countries they reside. Mines will be very profitable and good investments after they recover from the destruction of our existing paper gold market. Still, their total production will be controlled and somewhat taxed. Small private operations will more likely be heavily taxed.

We will pick up the pace later (smile). Eventually getting to oil and the markets today.
Fires out.

Thanks for reading,,,,,, FOA/ your Trail Guide

Sincerely,
FOFOA

***

Credibility Inflation


Here's a neat little concept that FOA introduced briefly in 1999. I think it explains a lot about the inflation, deflation, hyperinflation debate when it finally sinks in that this is where all the money went for the past 30 years: into inflating the credibility of the $IMFS far beyond the underlying reality. And yes, it has a direct impact on the Freegold revaluation as well. So here I will try to expound on this enlightening concept just a bit.

The Setup

Part of the reason the rest of the world did not abandon the dollar in 1971 was that the rate of economic expansion flowing from Middle Eastern oil cheaply priced in U.S. dollars was already exceeding the expansion rate of the money supply. So the switch from a semi-gold-(con)strained monetary system to a much more expandable "balance sheet money system" as I like to call it — or another name I like is "purely symbolic monetary system" — allowed for the non-deflationary addition of many new "quality of life" gadgets, widgets and shipping lanes that the world had never before imagined.

For the next three or four decades we would be able to comfortably afford the new introduction of Betamax VCR's, microwave ovens in every home, personal computers, DynaTAC cell phones, camcorders, digital cameras, LaserDiscs, Compact Discs, DVD's, MP3's, and on and on. Eventually, all of these wonderful products would be built cheaper by someone else on the other side of the world and shipped to us cheaply using the oil purchased from the Middle East with easily available U.S. dollars.

The reason I like the term "balance sheet money" is that whenever there is a need for more dollars they can be easily gotten from any bank's balance sheet. The dollars don't have to be there in the bank. You simply jot down the "need" for them on one side of the balance sheet and the dollars magically appear on the other side. Presto!

Of course once that "need" (demand) is supplied, the balance sheet must then be serviced with interest. But the thing about easy money is that you can always borrow new to service the old. In the previous system (con)strained by its parity fixation to the U.S. Treasury's limited supply of gold all these wonderful life-enhancing advances would have put a deflationary pressure on the dollar.

What this means is that when all these new products came to market, the dollars we needed to purchase them would have become more and more precious with each new widget that came to market. The cost to borrow dollars to buy a new BMC-100P or DynaTAC-8000 would have been prohibitive. And even if you did borrow the money, the service of that debt would have grown more and more burdensome over the life of the loan as dollars became ever more precious.

This deflationary dynamic would have stifled the global economic growth rate and confined it to only reasonable risk-taking. Which is part of the reason the foreign central banks, represented by the BIS, did not lobby the U.S. to officially devalue the dollar against its Treasury gold in 1971.

Rather than closing the gold window, the U.S. could have, for example, raised the price of gold to $200 and kept the system going for another 30 or 40 years. A move like this would have been the mathematical equivalent of increasing the Treasury's physical stockpile 5X to double what it was at the height of the Bretton Woods experiment.

But while that would have satiated the monetary transgressions of the past, it would have done little for the future. It would not have substantially changed the system to one of easy money. It would only have extended the old system of hard money.

It was reasoned at that time that more than just the ridiculous price of gold being broken, the system itself was broken, and needed a global finance structural change. So the international consensus was to let the U.S. default outright on its gold obligations rather than lobbying for a revaluation of its gold at a new fixed rate. But then continue using the dollar anyway, as long as relatively cheap oil could be gotten for dollars.

And with this decision, the stage was set for a renewed global (Western?) economic growth spurt, much like after the end of WWII. Only this time, the value lost through the non-delivery of U.S. Treasury gold would be more than replaced by the value oil brought to the new world economy, especially with first-of-a-kind products like Pong, released for the Christmas season in 1975.

Even at the higher oil prices of the 1970's, the economic demand for oil proved to be a far superior "backing" to the dollar than the depleting Treasury gold had been. And in a certain (limited) sense, the world got its first small taste of Freegold in the 1970's.

But as gold's price began freely rising in the global marketplace, the old alarm bells went off in the dollar's management office. The dollar, which had always been viewed at par with gold, was now seen to be falling as gold soared. So during the mid to late 70's the U.S. Treasury and the IMF held a series of gold auctions to flood the market and quell the perceived danger. But by 1979 the demand for gold was so overwhelming that the auctions had to be stopped.

Through '78 and '79 the dollar plunged against foreign currencies, and in July of 1979 a desperate Jimmy Carter appointed the tough New York Fed President Paul Volker to head the "deeply divided, inexperienced, soft and indecisive" Federal Reserve Board. Then in early October of that year, while attending an IMF meeting in Belgrade, Yugoslavia, Volcker received "stern recommendations" from his European counterparts that something big had to be done immediately to stop the dollar's fall. The general fear at that meeting was that the global financial system was on the verge of collapse.

Returning to the U.S. on October 6, Volcker called a secret emergency meeting in which he announced a major change in Fed monetary policy. The Fed would switch from controlling interest rates through the Fed Funds rate to directly controlling the money supply through bank reserves. One of the side effects of this sharp policy change was that interest rates would now be governed by the marketplace rather than the Fed. The Fed did still raise its discount rate from 11% to 12%, but then the market took the Prime Rate up to 20% within 6 months where it mostly stayed for the next year and a half.

It was later observed that Volcker's 1979 policy change was the most significant change in Fed policy since 1932, when in the middle of the Great Depression the Fed abandoned its "real bills doctrine" and started massive open market purchases of government bonds.

In early 1980, Volcker's new Fed policy began to bite. As interest rates rose, the Dollar first slowed its descent, then stopped falling, and then began to rise. Both the public and the investment community which had stampeded into Gold were lured back into paper by this huge rise in interest rates – and by the prospect of a higher U.S. Dollar.

Many facets went into this change in investment attitude, but one concrete change in the U.S. financial system was the most telling. Way back in March 1971, four months before Nixon closed the Gold window, the "permanent" U.S. debt ceiling had been frozen at $400 Billion. By late 1982, U.S. funded debt had tripled to about $1.25 TRILLION. But the "permanent" debt ceiling still stood at $400 Billion. All the debt ceiling rises since 1971 had been officially designated as "temporary!" In late 1982, realizing that this charade could not be continued, The U.S. Treasury eliminated the "difference" between the "temporary" and the "permanent" debt ceiling.

The way was cleared for the subsequent explosion in U.S. debt. With the U.S. being the world's "reserve currency," the way was in fact cleared for a debt explosion right around the world. It was also cleared for five of the biggest bull markets in history.

The global stock market boom of 1982-87
The Japanese stock market/real estate boom of 1988-90
The Dow (and then Nasdaq) led boom - late 1994 to March/April 2000
The great global real estate boom of 2002-06
The global stock market revival of 2006-07 [1]


And thus, in 1980, began the modern era of Credibility Inflation.

Salting the Mine

Most simply stated, credibility inflation is the expanding confidence in the fiat financial system to always deliver a higher payoff tomorrow than today. And through credibility inflation we ultimately destroy the currency structure by believing it can somehow deliver more than reality will allow.

Credibility inflation is the exact antithesis of price inflations like the 1970's. It is why we saw low consumer price inflation for the last 30 years relative to the massive monetary and financial product inflation. It is partly why we saw gold stagnant or falling for 20 years. Yet it is just as much a product of monetary inflation as regular price inflation is (more on this in a moment). And it is much more catastrophic in the end.

Periods of high credibility inflation are generally not followed by smooth cycles of credibility DEflation. Instead, they tend to SNAP BACK into sudden real price inflation when confidence abates. What happens in the most extreme cases is real price HYPERinflation.

This is one of the main concepts deflationists and mainstream economists completely miss; the SNAP-BACK of credibility inflation that can instantly take down their precious fiat currency. And it is their intentional avoidance of this obvious concept that delivers aid and comfort to masterprinters like Gideon Gono and Ben Bernanke.

When people try to protect their assets against the effects of fiat money, what are they really fighting against? The first inclination is to say "rising prices." Yet it's much more than that! Most everyone agrees that the interest rate paid by the banks never covers the loss of buying power brought on by price inflation. Especially the "after tax" return. It's the same old story, played out decade after decade. We must "invest our savings" (or become a day trader?) because the money will erode in value! Even at 3%, price inflation can eat away at any cash equivalents.

But, price inflation isn't the only story that impacts us. Rising prices come and go, but money inflation continues to affect us without fail. So why do people feel better when price increases slow or stop, even as money inflation runs ever upward? The good feelings usually evolve from the effects that money inflation (increases in the money supply) has on financial instruments. These assets take on the very same characteristic that the rising prices of goods once exhibited. They run up in currency price.

During these periods of "less goods inflation" another sinister form of mindset lurks in the shadows. Credibility inflation! Yes, it has been here many times before as every fiat currency alternates its effects upon the feelings of the populace.

Fiat currencies must, by definition, always expand in quantity. Their continued usage and acceptance is always obtained with the bribe of "more wealth to come!" Without that bribe, humans would never fall for holding a debt to receive the same goods in the future if they could get the real thing today. Human nature has always dictated that we buy what we need now instead of holding someone's IOU to receive it later. That nature is only changed through the "greed to obtain more." Like this: "I'll hold my wealth in dollars as long as my assets are going up. Later those increased assets will buy me a better lifestyle as I purchase more goods and services than I could buy now."

This is the hidden dynamic we see today. Just as destructive as "goods price increases," "credibility inflation" impacts our emotions to "hold on for the future, more is coming!" In every way, "credibility inflation" is just as much a product of an increase in the money stock as "regular price inflation" is. As cash money streams out to cover any and all financial failures, we begin to attach an ever higher credibility to the continued function of the fiat system. In effect, the more money that is printed, the higher we price the credibility factor. [2]

Selling the Salted Mine

Is this not where we are today? Interest rates – and with them, bond valuations – have run their 30 year course from 20% down to 0%. The credibility of paper assets has taken at least three severe beatings in the last decade. And now, to simply slow the acceleration of credibility DEflation, every manner of bailout and market rigging is being employed, practically in broad daylight. And this on the assumption that the global flock of sheep will only watch the numbers, not the men making them or the underlying economy from which they spring.

GDP is one of the great deceivers in the fiat money world. During the last century (??) or so, some form of GDP has always been used to measure the great mass of human endeavors. Yet, throughout this time, some form of fiat currency has always been in effect. Even during the Gold standard, fractional reserve banking expanded "gold note money" more so than the "gold money" in existence. Prior to 1929 this effect, if not creating outright "price inflation" during a time of Gold standard policy, was creating "credibility inflation" in the minds of investors. Using the backdrop of a growing GDP, people bought into inflating financial assets and ignored these signals as evidence that the fractional currency system was failing. Even though the dollar contained a policy statement to supply gold, back then a gold loan was still only good until everyone asked for gold.

The same thing is happening today. People destroy the currency structure by thinking it can deliver more than reality will allow. Instead of all debt failing slowly with each upward march of price inflation, prolonged "credibility inflation" snaps all at once as investors try to suddenly revert to a "buy now mentality." The inability of government authorities to contain the fiction of "good debt" is usually the feature behind the investor mood change. The "snap back" into a sudden "real price inflation situation" caused during this stage by a currency failure always breaks the whole structure. We approach this end today!

The GDP has been the relative gauge to mark all other measurements against. Even so, its numbers reflect little more than the result of an "expanding fiat money supply." Yes, there have been recorded downturns in GDP, but these contractions would have been worse if measured in real (gold) money. In opposite fashion, expansions paint a much brighter picture as all financial liabilities seem less a threat if held against a rising GDP. I submit that the GDP figures offer little more than a way to entice investors to increase their "credibility image" of our monetary system. Fiat moneys are always on a long term upward expansion, and they can hardly do less than bloat the picture.

Someone I know once said; "your wealth is not what your money say it is!"

A great historical example of credibility inflation with parallels to our present financial and monetary system was the system in France under the direction of the esteemed Scottish economist, John Law. In 1716 Law established the first French central bank, the Banque Générale, which was later nationalized and renamed the Banque Royale. Law used the Banque to introduce paper money in France.

Simultaneously, Law aggregated the trading companies in the French colony of Louisiana into a singular monopoly under the name "Company of the Indies" and sold shares of this company back in France. Law exaggerated the prospects of the company so well that he was actually appointed Controller General of Finances (essentially the first French Central Banker) by Philippe d'Orléans and given the official job of pumping this stock. In a way, John Law was kind of like the "Jim Cramer meets Larry Summers" of his time.

Wild speculation on the shares of the Company of the Indies led to the Banque Royale issuing more and more paper money to fund the monetary demands of the buying frenzy. And the "company profits" owed to the shareholders were also paid in fresh paper money. John Law's credibility was being entirely financed by his printing press.

Then, in late 1720, opponents of John Law's paper money attempted en masse to exchange their paper notes for gold. This forced the Banque Royale to cease physical gold "delivery," declare the essence of "force majeure" (which incidentally is a French term from French law), and admit it had issued much more paper than it had in gold. Both the Company stock value and the paper money itself plunged, ultimately to worthlessness. The monetary system in France was revamped six years later, but by the end of 1720 John Law had been disgraced, relieved of his official job, and had to flee France a poor man. He died in poverty nine years later.

Trading Salted Mines

One observation we can make is that in the long-line cycles of monetary history, technical (momentum) trading emerges in the very late stages of cycles in its most frenetic fashion. This is when it draws the most people into the unproductive activity of trading for trading's sake. And this is when it draws in the greatest profits, right before it delivers a catastrophic total loss.

In the early stages of these long-line cycles the greatest profits in society come from productive enterprises like building large companies from the ground up. But in the very late stages the greatest profits seem to come from paper churning and speculation in things that were previously traded mostly on fundamentals, based on actual, physical use.

We can see this in the famous bubbles like the tulip bubble, the Mississippi bubble, the South Seas bubble, the dot com bubble and the housing bubble. But it also occurs at the end of currency cycles. History is full of stories of traders frantically trying to trade out of their positions at the end of long-line cycles, while the currency burns around them. Look at any list of historic hyperinflations to find examples.

The modern version of this late-stage trading fad is most prevalent in the West, because that is where modern currency flows into financial assets at the highest rate relative to their real world, physical counterparts. For example, Western paper gold traders look to the seasonal preferences of Eastern physical gold users to plan their buys and sells. The Asian harvest season, after which farmers invest some of their year’s surplus income in gold is closely watched by Western traders. As is the Indian wedding season where every year Indian brides are adorned with physical gold.

Western paper gold traders love front-running these Eastern gold-buying seasons. Recall ANOTHER's comment on this from my last post:

Everyone knows that western minds don't like or want gold, but if they think you like it they will trade it up in price for the sake of "sticking it to you." Enter the world of "paper gold."
This paper trading mentality works really well right up until the moment it doesn't. And that's when it can deliver a total loss. I sometimes wonder if it should even be considered a profitable activity when a split second of fundamental phase transition can take away a decade of technical trading profits. Or the inverse, when the price of a fundamental misjudgment can be the opportunity cost of generations' worth of wealth. In a way, this is the hard question Freegold poses.

Getting Out Before the Collapse

Above I mentioned that the snap-back effect when a fiat currency loses its credibility (hyperinflation) is one of the obvious concepts intentionally ignored by deflationists and mainstream economists alike. Another obvious concept they remain oblivious to is that the two primary functions of money are in no way necessarily tied together. Those two functions being: "medium of exchange" and "store of value." Just because we have suffered their apparent fixation for centuries, they are most definitely not fixed by nature.

As long as you have the freedom to spend your money – the freedom to spend the fruits of your labor, which exists everywhere outside of outright whips-and-chains slavery – you have the choice of how to save your money. If you can spend your money then you can save your wealth in something other than money.

This is the essence of Freegold.

A medium of exchange need only have value in its usage (trade clearing) function. It can quickly lose all value when it is no longer used. This long-forgotten principle can be easily comprehended in Antal E. Fekete's "A 'fairy' tale" which I used in The 100 Year Clearing:

A ‘fairy’ tale

Let us look at another historical instance of clearing that was vitally important in the Middle Ages: the institution of city fairs. The most notable ones were the annual fairs of Lyon in France, and Seville in Spain. They lasted up to a month and attracted fair-goers from places as far as 500 miles away. People brought their merchandise to sell, and a shopping list of merchandise to buy. One thing they did not bring was gold coins. They hoped to pay for their purchases with the proceeds of their sales. This presented the problem that one had to sell before one could buy, but the amount of gold coins available at the fair was far smaller than the amount of merchandise to sell. Fairs would have been a total failure but for the institution of clearing. Buying one merchandise while, or even before, selling another could be consummated perfectly well without the physical mediation of the gold coin. Naturally, gold was needed to finalize the deals at the end of the fair, but only to the extent of the difference between the amount of purchases and sales. In the meantime, purchases and sales were made through the use of scrip money issued by the clearing house to fair-goers when they registered their merchandise upon arrival.

Those who would call scrip money "credit created out of nothing" were utterly blind to the true nature of the transaction. Fairgoers did not need a loan. What they needed, and got, was an instrument of clearing: the scrip, representing self-liquidating credit.

In this example the scrip money at the fair had value only through its use at the fair, not intrinsic in itself. After the fair, if you ended up with a trade surplus (extra scrip money), you turned in your medium of exchange for gold coins, the tradable store of value at the time. Can you imagine how this concept could work in a fair that's open for business 24/7/365?

So how can we possibly have one thing as a medium of exchange and something else as the store of value in our modern world? Has this ever been tried before in recent times? Of course it has! We have been doing it all along!! But the problems that ultimately come arise from those stores of value that are denominated in, and tied to, the durability of the scrip money, the medium of exchange.

Once upon a time, when the medium of exchange was physical gold coin, it was very durable. And stores of value denominated in that durable medium of exchange, denominated in gold, were quite durable for a time. But through the gold standards of the past century that "paper denominated in gold" became the medium of exchange. And now gold will once again become the store of value.

You see, these two monetary functions play off each other in a see-saw fashion. As "assets" (claims really) denominated in the medium of exchange fail and collapse, true physical "store of value" assets alternately rise to the occasion. It is only our ingrained misconception that both monetary functions must be somehow fixed at parity with each other that leads us to foolish ends. And understand also that the Giants of this world know better.

The Freegold Monetary Quadrangle – Explained in Gold is Money - Part 3

Today all governments of the world hold only two assets in reserve, meaning "for a rainy day." They hold claims against counterparties denominated in the medium of exchange and they hold gold, the store of value. And some of the more forward-thinking governments are already floating their gold reserves on the books, for all to see.

Now, the claims held in reserve have two vulnerabilities; the solvency of the counterparties and the durability of the scrip they are denominated in. Of course new scrip can be easily conjured on the national balance sheet to keep the counterparties technically solvent so most assuredly it will be the scrip itself that fails. The gold in reserve, on the other hand, has no counterparty and plenty of durability. So what monetary asset do you think will rise to fill the global monetary reserve void when the scrip finally fails? Palladium?

Bear in mind too that these Giant balance sheets can move the price (value) of gold more in a split second than all of us could in a lifetime of buying. And with any such tectonic shift in the importance of gold on international balance sheets, you can say goodbye to the fractionally reserved commodity (paper) gold trading arena and anything remotely associated with it.

The Collapse of the Salted Mine – Hyperinflation

First of all I would like to clear up probably the most common misconception about hyperinflation. What most people believe is that massive printing of base money (new cash) leads to hyperinflation. No, it's the other way around. Hyperinflation leads to the massive printing of base money (new cash).


Hyperinflation, in most people minds, conjures images of trillion dollar Zimbabwe notes. But this image is simply the government's reflexive response to the onset of hyperinflation, which is actually the loss of confidence in the currency. First comes the loss of confidence (hyperinflation), then, and only then, comes the massive printing to keep the government and its obligations afloat.

And what sets the stage for hyperinflation is a period of high credibility inflation followed by the loss of credibility. During our period of high credibility inflation the dollar was invisibly hyperinflated in a near-monetary sense. This has already happened. We are already there.

When I say the dollar has already hyperinflated in a near-monetary sense, I am talking about the number of dollars people, entities and even foreign nations think they have in reserve. Not in a shoebox, but in contractual promises of dollars to be delivered more or less on demand by somebody else. Claims denominated in dollars. This is how the vast majority of "dollars" are held; as promises to deliver more dollars. And this is why they are held this way. Because of the more in "more dollars." "Let me spend your dollars today and I will give you more dollars tomorrow!"

The Credibility Waterfall

I think it is fair to say that we have finished our 30-year run of high credibility inflation and we are now in the early stages of credibility deflation. The real question now is, can the credibility of the financial system deflate without tripping a breaker, without causing a credibility waterfall in the currency in which it is denominated?

The difference between today and a few years ago is that a few years ago credibility inflation was being fed by private credit (debt) expansion. Asset values, like homes, were being sustained and driven higher with the arrival of new marks. But today the Ponzi cycle of credibility inflation has peaked, there are no more new marks, and its decline is being managed centrally with the government expansion of new base money to conceal the failures one at a time.

And as in any Ponzi scheme there comes a point when redemptions can no longer be financed by new marks. I think the tipping point of credibility must come once it is clear that Bernie Madoff, I mean Uncle Sam is writing redemption checks that can never be cashed. The point is, we are already past the tipping point. So timing isn't really a question anymore. The credibility waterfall has already happened. But somehow we still have early marks continuing to stockpile rubber checks as if they are worth something. Does this mean credibility still exists? I think not.

I suppose this begs the question, is all that dollar debt out there in the world really worth anything anymore? If you answer yes simply because you cashed some of it in today for new underwear, then I say you didn't answer the question. The question is, is all that dollar debt out there in the world really worth anything anymore? The answer is no, it is not. Only at the margin, where you reside, can it still be cashed in for new underwear. But in aggregate, it is worthless, even today.

And then the next logical question should be, what is gold really worth today? If you answered $1,240 per ounce simply because you bought a gold Eagle today for $1,240, then I say you didn't answer the question. The question is, what is gold REALLY worth today? And the answer is it is priceless, but probably could be had in extremely large volumes for somewhere between $10,000 and $50,000 per ounce. (How much physical gold could China realistically get today if it tried to cash in $2T in debt paper for gold? At today's price it could get more than 50,000 tonnes, but only if that's the real value of gold.)

Only at the margin, where you reside, can physical gold still be had for $1,240 per ounce. But in aggregate, in the vaults of the world's central banks as the only reserve asset not tied to the medium of exchange, it is priceless, in the truest sense of the word.

My advice: Get as much of this priceless reserve asset as you can while it's still going for $1,240 at the margin. Seems like a bargain to me.

Sincerely,
FOFOA

[1] Brown text from The Early Gold Wars by Bill Buckler, The Privateer
[2] Blue text written by FOA in 1999
***

Freegold Foundations


It has been fun to stumble across a number of sites where readers are attempting to explain my writings to others. It feels a little weird, yet pleasing. Some of you are amazingly apt at this difficult undertaking. While others I have seen fall a little short of the mark that I strive to hit. It's tough. Freegold is a deep subject with new angles each new way you look at it. I am constantly discovering this myself. And I know that a few of you know exactly what I'm talking about, while others are wondering whether old FOFOA has slipped off his rocker and scrambled his noodle.

So I thought it would be helpful to both me and you if we explore a few of the more fundamental angles (for lack of a better term) on Freegold. I am the originator of none of the conceptual perspectives I will present in this post. They all come from a few others, primarily FOA, but also Aristotle and others.

Someone wrote in the comments that I use "woolly language" (smile), meaning, I suppose, that I am unclear at times. I can only respond that I teach this thing just as I understand it. If it is not simple enough for you, then perhaps that's a reflection of your own special needs more than of the subject or presentation.

That said, in this post I will attempt to develop precise definitions where possible. But do not confuse precision with universality. If you find yourself emotionally in conflict with my words, I would point out that they are being delivered in a cold (whilst warm and inviting) calculated manner. Emotions – and/or pretentious moral judgment – have no place in this discussion. Check your ego and your dogma at the door, for none of these concepts carry a universal definition. My definitions offered here are for the purpose of this post, which is to help you understand Freegold. It could be said that my definitions are the proper ones for understanding what is actually unfolding right in front of us. If said, I would probably have to agree with that statement.

I will also tackle the term Freegold itself. What does the "free" in Freegold portend? This is an important question. More on it in a moment.

Capital

I'm not going to go into great detail on the concept of capital, other than to give you a mental exercise. Because the term "capital" can be quite confusing in our modern paper/electronic world, I want you to imagine a much simpler human civilization. Imagine an ancient Greek city. All the buildings made of stone and mud, the horse carts and agricultural tools, the linens and skins worn as clothing, the knowledge base passed down through generations; all these creations of man's intellect were the capital of the time.

Now imagine the destruction of capital. Imagine an earthquake or volcano that destroys the fruits of many generations. Or a plague or war, perhaps, that destroys the knowledge base. That's the loss of real wealth you are imagining. And it is this cycle of capital creation and destruction that tells the story of mankind throughout many civilizations.

In modern economics, the word "capital" accounts for many specific things. But I think it is helpful to consider this word in a more basic, fundamental way. Think of it in terms of capital creation, capital employment and capital consumption or destruction. Modern economics would not call consumables capital, which is why I am suggesting a different approach to the word. When we are productive, imagine we are creating this thing called capital. We may figure out a way to turn someone else's capital, combined with our own prowess, into more capital. This would be the employment of capital. And sometimes we simply consume it, or use it up.

If I build a house I have created capital. By owning and living in a home, I am consuming that capital slowly. If I were to buy a specialized tool and use it to make something new, then I have employed capital to create more capital. Is this view of "capital" clear, or woolly?

Savings

Savings are the result of one's production being greater than his consumption. Saving is the convention for deferring the fruits of capital creation—earned consumption—until later. Savings is also the way we hand off capital to the next person who will use it to create more capital. And when it is done right, saving results in the accumulation of capital throughout society at large. When it is done poorly, saving results in the aggregate destruction of capital through frivolous consumption and mal(bad)investment (the misguided employment of capital) resulting in unsustainable infrastructures built on unstable levered foundations.

Here's where it may get a bit counterintuitive. You might, if you were Charlie Munger, think that the best way to pass your earned capital on to another producer is through paper. If you save in paper notes then you are loaning your earned capital to the next producer in line, right? And if you buy gold Charlie says you're a jerk, even if it works, because he thinks you are pulling capital out of the system. But are you really? I bring this up (and please watch a minute or so of that video starting at 1:04:05) because it is the key to this discussion about savings.

We should think about the global economy in terms of production and consumption in the physical realm as opposed to the financial or monetary realm, what I like to call the physical plane versus the monetary plane. A "net producer" produces more capital than he consumes. Likewise, a "net consumer" consumes more than he produces. The global aggregate is generally net-neutral on this production-consumption continuum. I say "generally" because there are times of expansion and times of contraction, so taking time into account, we are "generally" net-neutral (or close to it) as a planet. At least that's the way it is under the global dollar reserve standard.

On the national scale, however, we are all both blessed and cursed by the presence of government. Governments are always net consumers, as it is their very job to redistribute part of our private savings into the infrastructure and secure environment that enables us to produce capital in the way that we do. Government's job is not to produce capital, but to enable and support the private production (and accumulation) of capital!

Being such that human society has evolved in this way, we private citizens must, in aggregate, be net producers so that government can net consume. And we become net producers by saving. Therefore we enable and support our own future net productivity by saving some of our past production of capital today, in the form of savings.

The financial system is really just the monetary plane's record-keeper of this vital process that actually takes place on the physical plane. In its modern incarnation, the global financial system has allowed for a strange international balancing act whereby (literally) one whole side of the planet's net production has allowed the other side to net-consume for decades on end. But this is an unsustainable anomaly, and it is beside the point of this discussion. So please push this giant, global imbalance-elephant in the room over to the corner while we continue this discussion about savings.

The question we must answer here is: Is Charlie Munger right? Are you a good person only if you put your savings into paper where it can be easily redistributed, and a jerk if you buy gold, depriving the paper whores of your savings? Is this the way it works in reality? Or is this simply the sales pitch of one with great bets riding on the continued popularity of paper savings?

The government confiscates a portion of the physical capital created in the private sector through several means. Taxation is one way, forcing you to keep a portion of your earnings in paper so that it can be easily transferred to the government and then used to buy up capital from the marketplace. This forces you to leave some of your production in the marketplace to be taken by the government, preventing you from consuming an amount equal to your productive output.

Printing money, or its modern equivalent, quantitative easing, is another way the government can confiscate real capital from the marketplace without first producing a commensurate amount. This method inflicts what we call "the inflation tax." The "victims" of this confiscation are anyone and everyone holding (and saving) the currency or any paper asset fixed to it, and the damages are relative to the amount of currency each "victim" is holding. Because this form of confiscation is spread so wide and thin, it is mostly not even noticed by the private sector.

The last way the government confiscates capital is by borrowing it directly from the net producers in the private sector. When you buy US bonds, it is you that are loaning your earned claims on capital to the government. So we can see that the government has plenty of ways to create its own claims on capital in the marketplace without first producing a commensurate market contribution (because governments are always net consumers).

In fact, the modern financial system has bestowed these same powers, creating market claims without contribution, upon the private sector as well. I'm not talking about private banks loaning money into existence, for this process has no market contribution from which to feed. It is directly price inflationary until the debtor makes a market contribution to work it off.

What I'm talking about is the private sector's ability to sell unlimited amounts of this debt to the savers, funding the marketplace claims to consumers/debtors with real marketplace capital (contributed by the savers). Private banks that would normally be constrained by their balance sheets for their own survival can now offload that constraint onto the net producers, making themselves—the banks—totally unconstrained.

The banking system sells all kinds of packaged debt to net producers, the savers. It creates this stuff at will to meet demand. And if necessary, it drums up new debtors one way or another to keep this stuff financially funded. Even corporations can dilute their paper shares to take in new claims from the savers without giving up a commensurate marketplace contribution.

This is the process of paper savings hyperinflation. It is a self-feeding, self-fulfilling, self-sustaining, self-propelling system that will ultimately lead to real price hyperinflation. When you produce capital and decide to leave it in the marketplace, postponing your earned consumption until later, and you do so in any paper investment, you are feeding this process of capital destruction through paper savings hyperinflation.

If you buy government debt you are feeding, enabling the growth of government beyond its most basic mandate, providing the infrastructure and secure environment that enables us to produce capital. And if you think an expanding government is good, just beware that all governments are stupid!

"The institution of government was invented to escape the burden of being smart. Its fundamental purpose is to take money by force to evade the market's guidance to have the privilege of being stupid." Richard Maybury goes on (in the linked video) to say that private organizations that petition government for special protections, subsidies and incentives are asking for the same privilege. They want to be relieved of the burden of being smart.

(Not since the Agriculture Adjustment Act of 1933 that paid farmers to destroy crops during the Great Depression in an attempt to raise the price of crops, has there been a more obvious example of government's propensity for destroying real world capital than the 2009 "Cash for Clunkers" program, whereby government literally paid private car dealerships to pour sugar into running car engines ensuring their permanent destruction.)

This is why, when you save in government paper, you are enabling malinvestment and the destruction of capital that goes along with it. And it's the destruction of the capital that you just contributed to the marketplace that you are feeding. The same goes for the private sector. When you save in private paper you are enabling the expansion of frivolous consumption (beyond natural market constraint) and the destruction of your capital contribution to the marketplace that goes along with it.

So what's the alternative? If both public and private paper savings contribute to the expansion of malinvestment, net-consumption and systemic capital destruction, what is a net producer to do? If one wants to produce more capital than he consumes—for the good of the economy—yet he doesn't want to work for free, what is he to do? Or if one wants to produce more than she consumes—for the good of her retirement years and her family's future—what is she to do?

The monetary plane, the modern dollar-based global financial system, has failed these individuals. So what is left? The physical plane? If these individuals trade their earned marketplace credits in for physical capital without employing that capital in productive enterprise, then they are either consuming that capital (capital destruction) or denying other producers the use of it (hoarding, also destructive to the capital creation process). This is not only detrimental to society at large, but also to the future value of your savings that depends on new capital being plentiful in the marketplace when you deploy your savings in the future.

But of course there is one item, one physical asset, that stands out above all the rest. And this isn't some new discovery by FOFOA. Man discovered that this was gold's highest and best use thousands of years ago. Once you've produced capital for the marketplace, whatever asset class you choose to deploy your earned credits into will feel the economic pressure to rise in price. If the monetary plane was volume-fixed (or even constrained), it too would rise in price as real capital is added to the economy. But it has become a system that expands in volume rather than rising in price.

This is hyperinflation: quantitative expansion of savings! If the pool of savings rose only in value and not quantity, then each new net producer would have to bid "savings" away from an old net producer, and "savings" would retain their proper relationship to the pool of real marketplace capital available for purchase.

If you choose to deploy your credits into the everyday physical plane, the tangible goods plane, prices will rise. If all the savers chose oil for example, we'd all pay very high prices at the gas pump. Or choose agriculture for your savings and we'll all have to work an extra hour to feed ourselves. No, you want to choose something that both rises in price (rather than expanding in volume) and also something that does not infringe on others or economically impede the capital creation process that feeds value to your savings. And as an added bonus, if everyone chooses the same thing, it works extra well. This is called the focal point.

But for gold to fulfill this vital function in the capital creation process, it needs to trade in a fixed (or at least constrained) quantity that will allow its price to rise every time a new capital net-increase is contributed to the marketplace. And, unfortunately, paper gold and fractional reserve bullion banking doesn't allow this process to work properly. In fact, it makes paper appear generally competitive, even to gold.

So what about Charlie Munger? Is he right? Are you a jerk if you buy gold? Well, yes and no. If he's talking about paper gold, then yes! But likewise, it seems you are a jerk if you buy Charlie's paper as well! And you're an even bigger jerk if you buy physical commodities and tangible goods without the intention of employing them in real economic activity. It seems—and correct me if I'm wrong here—that physical gold (along with a few other discreet collectible items like real estate, fine art, antique furniture, ancient artifacts, fine gemstones, fine jewelry and rare classic cars) may be the only true wealth holdings in which you are not a jerk. What do you think?

The Money Concept

Use of the term "money" in these discussions seems to be the root of most of the confusion we encounter. Especially for those of us who have spent our entire lives immersed in the last several decades of monetary confusion and change. And that would be all of us. I think it is therefore perfectly rational to define money as a concept rather than a physical thing.

So if money is a concept, then by definition it is an abstract idea or a mental symbol, sometimes defined as a "unit of knowledge," built from other units which act as its characteristics or elements. Currency is but one element of this concept. And the main characteristic of money is that it is a shared idea that enables economic activity and commerce.

Some of you like to imagine a utopian world without money (presumably to get rid of the bankers), where people freely exchange their goods and services with others and everyone sings cumbaya. I see this a lot. A beautiful, peaceful barter world! But what you are imagining is actually a world without currency, not one without money.

In this fantasy paradise you might exchange a service for a good, right? Or perhaps you would part with a good in exchange for a service from someone else. But how do you think the relative value would be determined in this world without currency? Of course "prices" would be abstract ideas or mental symbols, but surely you wouldn't pay someone for a car wash with the title to your car. So what would determine the relative value of a car wash versus a car in this Xanadu?

The answer is the concept of money. This is the ability, unique to humans, to use numbers, mental constructs, to relatively value the goods and services of barter in a way that enables economic activity and commerce. It is the enabler of economic activity and commerce. It is a primeval instinct.

FOA: So, you think we have come a long way from the ancient barter system; where uneducated peoples simply traded different items of value for what they thought they were worth? Crude, slow and demanding, these forms of commerce would never work today because we are just too busy?

Think again.

Lean back and think of all the items you can remember the dollar price for. Quite a few, yes? Now, run through your mind every item in your house; wall pictures, clothes, pots and pans, furniture, TVs, etc. Mechanics can think about all the things in the garage: tools, oil, mowers. If one thinks hard enough they can remember quite well what they paid for each of these. Even think of things you used at work. Now try harder; think of every item you can remember and try to guess the dollar value of it within, say, 30%. Wow, that is a bunch to remember, but we do do it!

I have seen studies where, on average, a person can associate the value of over 1,000 items between unlike kinds by simply equating the dollar price per unit. Some people could even do two or three thousand items. The very best were some construction cost estimators that could reach 10,000 or more price associations!

Still think we have come a long way from trading a gallon of milk for two loaves of bread? In function, yes; in thought no! Aside from the saving / investing aspects of money, our process of buying and selling daily use items hasn't changed all that much. You use the currency as a unit to value-associate the worth of everything. Not far from rating everything between a value of one to ten; only our currency numbers are infinite. Now, those numbers between one and ten have no value, do they? That's right, the value is in your association abilities. This is the money concept, my friends.


This is the concept of money. It is our shared, primeval ability to associate relative values of barter able goods and services. It cannot be destroyed by eliminating currency any more successfully than it can be bottled up and sold. It is an abstract unit of shared knowledge, not a thing. You can dispute this section based on your favorite writer's opinion about the term "money" or "honest money" all you want, but this is the proper way to view the concept of money in its original context and in order to understand Freegold.

Currency

So the "thing" in our modern monetary and financial system that is closest to the concept of "money," the holistic (largely mental and lately derivatized) concept, is the system of institutional bookkeeping accounts of credits and debts. The currency element, alternatively, provides you the "in your hand," "on the run," "money to go" element, so that discrete (and discreet!) "amounts" ("amount" being a truly strange concept as applied to such a non-dimensional item) of said money-system can be transferred among individuals conveniently while operating temporarily outside of the institutional monetary ledgers. (I realize I'm getting a little woolly here, but bear with me.)

Hence, gold was never "the money." It was only ever a barter item, or else a currency item. Similarly, the term "fiat money" seems somehow bogus. Money is a commercial and economic enterprise. It exists even in the absence of a functioning currency. The term "fiat" ought to apply only to the system of "currency" that the government has organized as a suitable non-dimensional yet unitized and standarized "on the go" representative hand(/wallet)-friendly form of "the money system."

"fiat money" = NO
"fiat currency" = YES

And for all the many reasons discussed on this blog, a worthless token fiat currency is a better systemic component than a precious gold currency. Gold is too precious to capital creation and accumulation in the savings function to be squandered in the currency role. And the CBs now know this too!

F A Hayek: I do believe that if today all the legal obstacles were removed… people would from their own experience be led to rush for the only thing they know and understand, and start using gold. But this very fact would after a while make it very doubtful whether gold was for the purpose of money really a good standard. It would turn out to be a very good investment, for the reason that because of the increased demand for gold the value of gold would go up; but that very fact would make it very unsuitable as money. You do not want to incur debts in terms of a unit which constantly goes up in value as it would in this case, so people would begin to look for another kind of money: if they were free to choose the money, in terms of which they kept their books, made their calculations, incurred debts or lent money, they would prefer a standard which remains stable in purchasing power.

I have not got time here to describe in detail what I mean by being stable in purchasing power, but briefly, I mean a kind of money in terms which it is equally likely that the price of any commodity picked out at random will rise as that it will fall. Such a stable standard reduces the risk of unforeseen changes in the prices of particular commodities to a minimum, because with such a standard it is just as likely that any one commodity will rise in price or will fall in price and the mistakes which people at large will make in their anticipations of future prices will just cancel each other because there will be as many mistakes in overestimating as in underestimating.

So, the point about currency is, and mainly for those of you that fret over a NWO currency, or "whatever currency," an Amero or SDR or euro-whatzit... chill TF out! Currency is no big deal. Currency is not the issue that matters here. What matters is what we, as a planet, choose to save.

RS Comment: So often in commentaries of this sort that propose a “solution”, the author is strangely obsessed with the notion of replacing the dollar (as a reserve currency unit) with simply another institutional emission of similar ilk (such as currencies of other nations, SDRs, bancors and whatnot). Their avoidance of any meaningful discussion of the most obvious remedy is almost pathological in the extreme. To be sure, we don’t need to invent any manner of universal reserve currency to fill the role of a unit of account because that role is already served in a fully functional capacity for any given country by its own monetary unit.

What IS desperately needed, however, is a universally respected reserve asset capable of filling our current void with a reliable presence that serves as a store of value. And far from needing to be conjured or created by complex international committees, that asset is already in existence and held in goodly store by central bankers and prudent individuals around the world — it’s known as gold. From amid the ruins of a chaotic financial crisis that was brought about by its own complexity, a degree of sanity will prevail, and gold as a freely floating asset will arise in stature as THE important element of global monetary reserves. The floating aspect is the vital evolutionary improvement over all previous structural monetary failures which tried to use a gold standard at a fixed price (i.e., unit of account) perversely joined to the very elastic money supply of any given country’s banking system.


Gold as a Barter Item

Hard money advocates, or as FOA and Aristotle dubbed them in jest, "Hard Money Socialists," will readily explain to you how gold naturally emerged as money in antiquity. But as FOA argued—in great detail—this is not really the case.

In antiquity, gold was merely a barter item, a physical good for trade. In some cases it was the best, most efficient barter item and in others it was not. For instance, within the locality of one's home, oil might be a more common barter item. Gold was reserved for "on the road" trade, because it carried the most exchange value in a portable item. But at home, you'd be more inclined to perform the labor required to create some of your own capital for trade rather than to part with some of your precious gold.

Eventually gold emerged as a common unit of account. But the physical stuff still wasn't money, or even currency. It was still just a (somewhat standardized) barter item and a physical store of value, an "asset," a "tradable wealth item." It is this role that gold is returning to today, believe it or not.

FOA: We were first alerted to the "gold is money" flaw years ago. When considering the many references to gold being money, in ancient texts, several things stood out. We began to suspect that those translations were somewhat slanted. I saw many areas, in old text, where gold was actually more in a context of; his money was in account of gold or; the money account was gold or; traded his money in gold. The more one searches the more one finds that in ancient times gold was simply one item that could account for your money values. To expand the reality of the thought; everything we trade is in account of associated money values; nothing we trade is money!

The original actual term of money was often in a different concept. In those times barter, and their crude accounts of the same, were marked down or remembered as so many pots, furs, corn, tools traded. Gold became the best accepted tradable wealth of the lot and soon many accountings used gold more than other items to denominate those trades. Still, money was the account, the rating system for value, the worth association in your head. Gold, itself, became the main wealth object used in that bookkeeping.

This all worked well for hundreds and perhaps thousands of years as fiat was never so well used or considered. Over time, society became accustomed to speaking of gold in the context of money accounting. Translations became all the more relaxed as gold and money accounting terms were mingled as one in the same. It was a subtle difference, then, but has become a major conflict in the money affairs of modern mankind; as gold receipts became fiat gold and bankers combined fiat money accounting with gold backing.


(Read more of FOA's historical account starting with "The Gold Of Troy!" found on Gold Trail III – The Scenic Overview.)

Gold as Currency

At some point along the evolutionary trail of the money concept, gold was employed by the power of government fiat and stamped into currency. As I have written before, this was done for the purpose of profit (for the government). The official stamp on these coins designated the overvaluing of the underlying metal. Otherwise there would be no profit in it. And sooner or later, that profit ran out and the gold content had to be debased.

These gold coins were the first fiat currency! Not fiat money; such a thing doesn't exist. The money concept is the creation of private enterprise and finance. Government can only create currency, the portable "on the go" element of the concept.

In the more recent past, while gold shared the currency role along with many national paper fiats, and before we had a globally integrated, computerized, efficient and trusted system of payments (notice I said "payments" and not store of value) gold was the go-to currency for certain payments, especially among less trusting trading partners. And among these, certain "super-producers" accumulated quite a lot of this gold currency.

Do you realize that somewhere out there, there is perhaps four billion (with a b) ounces of gold in private hands (in many forms, including coins, bars and jewelry)? A lot of this gold was accumulated by families over many generations. It is only in modern times (and in the West) that we think of our "nest egg" as something that should be deployed into the marketplace in search of a yield. That we must trust it to a "manager" who we pay to churn us an ROI. This is a very modern and Western view. The rest of the world (the rest of time for that matter) views wealth a little differently.

ANOTHER: This brings us back full circle, to the problem of "digital currencies" and the "mind set" of much of the simple ( and rich ) third world persons. To many of these people, wealth is the surplus of life's work that you pass on after death. Currency is something you, spend, trade or hold for a few years. It isn't wealth.

When Another spoke of "rich third world persons" and "old world giants," what quantities of gold do you think he was talking about? Mr. Gresham asked him once:

Mr. Gresham: "We who read here generally buy the coins, one ounce and less. The "Giants" you speak of are usually buying the large bars (100 ounce?), yes?"

ANOTHER: "I ask you, how many of your bars in tonne? This is the small purchase size."

Good question. How many 100 ounce bars are in a tonne? The answer is 321 and a half. Or 32,150 ounces. And this is a "small" giant! 4 billion ounces in private hands. Let's take just half of that and wonder how many of these "small giants" there might be in the world. 2 billion divided by 32,150 = 62,208. So I'm going to go out on a limb and say, conservatively, that there are probably "tens of thousands" of these so-called "giants" in the world. That 4 billion ounces is out there somewhere, in private hands, and that kind of family wealth doesn't necessarily show up on things like the Forbes list.

So what is my point? My point is that today is not just the sum of the last 10, 20 or 30 years, like it probably seems to most Westerners. To the giants, to the world outside of the West, today is the net sum of centuries of production minus consumption.

Some in the West might argue that the overweight value of Western "paper capital" is justified by the overweight capital contribution from the West for the last half century, reflected in the high development of the developed world, the West. But Another observer might point to that same high level of development and call it capital consumption from the effort to use debt to rebuild the West following WWII. And he might point to Wall Street and suggest that the accumulation of "paper capital" represents real capital consumption, destruction and malinvestment.

The West believes it has much wealth stored in paper promises of never ending debt service, but it hasn't actually been paid yet. The West is hoping to be paid someday. But there is a whole other world out there that, for centuries, has already been paid in full, in gold.

Gold in Modern Bullion Banking

In the not-so-distant past, gold shared the currency role with various national fiats. Gold was a currency, more or less, right alongside this paper. And because the two traded at a fixed parity within the banking system, there was no such distinction as a Bullion Bank.

Modern bullion banking is a carryover from this past. When Nixon abruptly took the dollar off the gold standard in 1971, the billions of ounces in private ownership didn't just disappear. They weren't cast into the streets in disgust. And these giants with 100,000 ounces or more didn't take those tonnes home to the basement. No, they stayed right there in the bank vaults and literally JUMPED in value.

In fact, the banking system never really stopped "banking" with all that gold, even though Nixon demonetized it. While gold was currency, deposits of gold generally went into unallocated accounts just like your deposits of physical dollars do today. Putting gold in an allocated account in the past would be akin to putting cash in a safety deposit box today. Sure, it happens, but it is not common because it has a cost associated with it.

And what is it that banks do with unallocated accounts? They make loans to generate income for the bank, and they use fractional reserve accounting to juggle the deposits and (hopefully) keep everyone happy. And in the rare situation where they come up short on reserves, the Central Bank stands ready to backstop their fractional reserves with a loan of extra reserves.

Even today, a few of the biggest banks still have bullion departments where they can take deposits in physical gold. These banks are what we now call the Bullion Banks. This bullion banking practice seems very foreign to us shrimps with a little gold in the family safe. But yes, just like the billions of ounces that existed during the gold standard era, this practice of bullion banking still exists.

And today the bullion banks still operate with fractionally reserved unallocated gold. Some reports put the remaining amount of unallocated gold being juggled within the banking system at about half a billion ounces, or 15,000 tonnes. But so far, this is apparently enough to support the meager delivery demands on the spot gold trade as well as the allocation needs of the bullion bank-operated ETFs. (More on this in a moment.)

Things have changed in the last decade. The Bullion Banks no longer have the same income-producing uses for this unallocated gold on deposit that they did in the 80s and 90s. Back then they lent it out to hedge funds and mining operations. For mines, a gold loan made great sense because it carried a lower interest rate than a dollar loan and could be paid back with just what they pulled out of the ground. For hedge funds, it also made sense with the low gold interest rate. Funds would just sell the gold into the market for cash and buy it back later, called the gold carry trade. But today, with the rising price of gold, gold loans no longer make sense for anyone. And in 1999 the WAG ended the CB backstop for this Bullion Bank lending practice.

So guess what income-producing activity the banks found to do with some of this unallocated gold today? As the mutually reinforcing factors of rising prices and termination of mine company hedging and waning carry trade activities in the wake of the 1999 CBGA left bullion banks with their full store of unallocated gold deposits but a shrinking base of usual customers for their gold lending services, the ETF mechanism provided the ideal means to relatively safely put these deposits back into play. By delivering them into an allocated account with the ETF in exchange for ETF shares that could be lent or sold for cash, these same Bullion Banks found a new path to dollars that could then be used to churn an income.

I don't think the issue is whether or not the gold in the ETFs actually exists, but rather, how many claims exist on that gold and who (of the claimants) has an actual pathway to take possession of it?

Where do you think the 40 million ounces allocated to GLD came from? Were they purchased on the spot market? And who can withdraw actual physical from the ETF? Here's a hint: Authorized Participants can exchange shares for physical. And who are these "authorized participants?" You guessed it, other Bullion Banks that allocated gold to the ETF.

And it seems that some of these authorized participants are doing just that…

Jan 14th, 2011 08:27
"… large bullion-backed exchange-traded funds continued to see outflows."
RS View: Silly reporters. Instead of calling these “outflows” from the ETFs, it should be called what it is — a redemption of a basket of shares for physical gold by the Authorized Participants (e.g. bullion banks). Such share redemptions would actually be a bullish sign because it entails a reduction in the global supply of paper gold while at the same time signifying a preference by the redeeming party for having the metal over the ETF shares. That is, of course, unless the drawdown in physical gold merely represented the routine sales of the gold inventory that occur to cover the ETF’s administrative expenses.And why do they do this? Because more and more of those "small giants" are converting their unallocated accounts into allocated accounts. This very act stretches the Bullion Bank's fractional reserves ever thinner. So there is a sort of tug-of-war on those scarce gold bars in the Bullion Bank's vault, between the unallocated account holders and the ETF shareholders. And the unallocated accounts outnumber the shareholders by a large margin. Furthermore, they have an actual pathway to physical redemption while the shareholders do not.

And as this fractional reserve rubber band is stretched thinner and thinner, how confident are you that all of the "authorized participants" are following the rules to a T? And since you have no recourse to the actual physical, as an ETF shareholder, how sure are you of the ETF denouement come Freegold, which will be a physical-only market for gold? Will shares still trade at par with physical when that comes? I don't know, but it is a valid question.

Bullion banking is no different than regular banking. They do what all banks do. They take unallocated deposits and loan them out for profit. Then they juggle their fractional reserves to keep everyone happy. And if they ever get in trouble, the central bank comes to the rescue. But no longer for physical gold. Only for fiat currency. That will likely be the denouement of this fractional reserve conundrum, and it is what Another and FOA both predicted. You will ultimately be settled out in cash and told to source your own physical in the physical marketplace.

And for those of you that think all bankers, by nature, are anti-gold, guess again. A better way to view banking versus gold is that "the past" was anti-gold, but "the future" is pro-gold. The first Central Bank Gold Agreement in 1999 (the CBGA, aka the WAG) signaled this change.

The Washington Agreement is most well-known for its cap on central bank gold sales. But much more important than the sales cap was the cap on gold lending! From the Joint statement on gold (the Washington Agreement):
1.Gold will remain an important element of global monetary reserves.

2.The undersigned institutions will not enter the market as sellers, with the exception of already decided sales.

3.The gold sales already decided will be achieved through a concerted programme of sales over the next five years. Annual sales will not exceed approximately 400 tons and total sales over this period will not exceed 2,000 tons.

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

5.This agreement will be reviewed after five years.

And from ANOTHER:

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

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

The sales today are done quietly with purpose. The gold must go to the correct location. That is why these sales do not impact price as they occur, there is a waiting buyer on the other side…

Banks do lend gold with a reason to control price.


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

If they sell gold, a way is clear to "bring gold back" for the nation! Canada has local mines, Australia has local mines, Belgium has South African mines! If they lease gold, it is for a purpose…

This is the real significance of the Washington Agreement! The end of the CB's backing (through lending reserves to the BBs) of the fractional reserve gold practices of the Bullion Banks.

Paper Gold

My purpose here is not to pick on the gold ETFs. Admittedly, all gold ETFs are not created equally. But they are all a reasonable current example of "paper gold" in that they are (for the most part) just claims on gold held by Bullion Banks, not gold itself. The paper markets exist because the public believes gold is a commodity like any other. And I say, paper markets schmaper markets, it's not really about the paper markets, it's about gold being a fractional reserve in the banks.

It is much less important to Freegold that the investing public believes gold is a commodity. Those that really matter already know it's not. And the paper markets and the public's misunderstanding of gold simply help the banks manage their fractional reserves to keep everyone happy.

Yes, the paper markets by their very nature, and only because gold has the highest stock to flow ratio, automatically act in harmony to suppress the price of the actual product. And yes, they do provide a means for the banks to occasionally control the price of paper gold in an effort to manage where their fractional reserves of the real thing actually go.

But the actual physical portion of the paper markets is tiny compared to global gold. COMEX does not project its price discovery globally because it is so powerful. That price is accepted, not projected, because the Bullion Banks choose to use it in their fractional reserve gold banking. The paper markets are markets for claims on gold held by the BBs, not for gold itself.

To put it another way, if the Bullion Banks and their fractional reserve gold banking is a dog, then the COMEX (or "the paper markets") is its tail, not its heart. And the tail doesn't wag the dog. Paper markets will be the price discovery mechanism for gold as long as fractional reserve gold banking exists. Simple as that. Will beating on the tail of a dying dog kill it faster? I don't know the answer to that question. Never tried it.

Also, I'm not here to ask you to avoid "paper gold" on moral grounds. Buy paper gold or ETFs if that's what works for you, by all means. I'm only saying that when you hold "paper gold" you are the same as those that held (external) dollars from 1970 right through until 1972. Dollars were once paper gold too.

There may be a very high price to be paid in the future for the high liquidity of paper claims on gold held by the Bullion Banks today.

The Gold in Freegold

One question I see over and over and over and over again is this, presented in its most recent email incarnation:
Another has stated, as have you, that behind the scene, gold trades between the giants for many times what the posted price is. If this is so, then when the phase change comes, and gold is used to recapitalize the central banks and to redress trade imbalances, could it not continue to be used for those purposes behind the scene at inflated values, with the “posted price” remaining at much lower prices?

The Central Bankers NEED gold to be precious in the hands of the people, fiat currency NEEDS Freegold, just as much as gold needs fiat currency in order to be set free from the fractional reserve practices of the bullion bankers, a carryover from the gold standard. Let the bankers play their fractional reserve games with fiat currency, backed by the CBs as their fiat lenders of last resort, just not with precious gold, and certainly not with the backing of the most precious CB asset.

This isn't about anyone financially screwing anyone else. That stuff happens regardless. This is about the emergence of a stable foundation on which the global economy (and central banks) can operate. To date, there isn't one, only the U.S. dollar.

The same thing that has given the dollar exorbitant privilege all these years is now bringing it down. And that thing is the self-referential foundation on which it is built. It is the mountain of debt, highlighted by China's pile of Treasuries, but also including every dollar denominated savings in the world. That pile of "implied dollars" no longer has a recoverable relation to reality. Freegold provides this base, this stable foundation, for the fiat currency system of the future.

Gold trading behind the scenes at a much higher price was never the CBs way of excluding us from the fun. It was their way of protecting their assets from what is inevitably coming. For the CBs to redistribute their gold among themselves in preparation, it made sense that gold's value (future price) was more than its present price. What Another described was never a parallel trading universe. It was merely preparation for what is coming to everyone.

Nothing is gained for the masters of fiat (the CBs) by having gold trade at a suppressed price, fractionally reserved by bullion bankers, except systemic instability. This is why Another told us that in the future your government will ENCOURAGE you to save in gold. That's because this will bring monetary stability back to a world that has just experienced (past tense used for a future event) the worst INSTABILITY ever.

It's not a gold standard. It is saving your earned credits by buying a physical asset, outside of the currency. Buying a currency asset provides a temporary privilege to the currency issuer, but it ends in collapse. Buying a physical item transfers that purchasing power to the physical plane by exerting upward pressure on physical things and downward pressure on the currency. Buying gold isolates, contains and focuses that pressure on one point for the benefit of all.

The Free in Freegold

Okay, here it is. What you've been waiting for patiently, I presume. This is what gold will be freed from: The fractional reserve banking practice, which is a carryover from the gold standard.

This is the free in Freegold. ...

***

Huomatkaa laajat arkistot:

http://fofoa.blogspot.com/

Suuri osa FOFOA:n lainaamista nim. Another:n ja nim. FOA:n kirjoituksista on saatu tämän sivuston arkistoista (Kun olet kirjoitusosioissa, kelaa sivua huomattavasti alaspäin):

http://www.usagold.com/tableofcontents.html

Eräs kultaa myyvä liike. Luotettavan lähteen leimaama puhtain kulta on todennäköisesti paras kultasijoituskohde:

http://www.tavex.fi/index.php?main=126

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