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FOFOA On Gold's "Focal Point", Or Is Silver Money Too?

Tyler Durden's picture


All those who believe there is sentiment of complacency within the precious metals camp may be forgiven. After all if one likes gold, one should like silver, and/or vice versa. Today FOFOA presents a counterargument. "I don't write about silver very much. Just like I don't write about copper or pork bellies. But, in fact, I have addressed many of the standard arguments for silver over gold in various comments on this blog and others. I'm sure someone will dig them out again and post links as people pose these arguments once again in the comments. But here's a new one. One of the argument for silver that we hear often is that it is "the poor man's gold." So I guess gold is "the rich man's gold." Well, what is the main difference between rich men and poor men? Is it that the rich have an excess of wealth beyond their daily expenses? In fact, the really rich have "inter-generational wealth," that is, wealth that lies very still through generations. The poor do not have this. So what do you think is going to come of all that "poor man's gold" that the silverbugs have hoarded up? Is it going to lie very still for generations? Or will it circulate, to meet daily needs? Note that circulation velocity is the market's way of controlling the value of any currency. Faster circulation = lower value. Lying still for generations = very slow circulation." Thus, today's question - is silver money too?


Focal Point: Gold

In game theory, a focal point (also called Schelling point) is a
solution that people will tend to use in the absence of communication,
because it seems natural, special or relevant to them. The concept was
introduced by the Nobel Prize winning American economist Thomas
Schelling in his book The Strategy of Conflict (1960). In this book (at
p. 57), Schelling describes "focal point[s] for each person’s
expectation of what the other expects him to expect to be expected to
do." This type of focal point later was named after Schelling.

a simple example: two people unable to communicate with each other are
each shown a panel of four squares and asked to select one; if and only
if they both select the same one, they will each receive a prize. Three
of the squares are blue and one is red. Assuming they each know nothing
about the other player, but that they each do want to win the prize,
then they will, reasonably, both choose the red square. Of course, the
red square is not in a sense a better square; they could win by both
choosing any square. And it is the "right" square to select only if a
player can be sure that the other player has selected it; but by
hypothesis neither can. It is the most salient, the most notable square,
though, and lacking any other one most people will choose it, and this
will in fact (often) work.

Schelling himself illustrated this
concept with the following problem: Tomorrow you have to meet a stranger
in NYC. Where and when do you meet them? This is a Coordination game,
where any place in time in the city could be an equilibrium solution.
Schelling asked a group of students this question, and found the most
common answer was "noon at (the information booth at) Grand Central
Station." There is nothing that makes "Grand Central Station" a location
with a higher payoff (you could just as easily meet someone at a bar,
or the public library reading room), but its tradition as a meeting
place raises its salience, and therefore makes it a natural "focal
point." [1]

Salience: the state or quality of an item that stands out relative to neighboring items.

There are two simple, but seemingly, apparently impossible-to-comprehend concepts. The first concept is why money not only can
be split into separate units for separate roles, one as the store of
value and the other to be used as a medium of exchange and unit of
account, but why it absolutely must and WILL split at this point
in the long evolution of the money concept. This means no fixed gold
standard, or any system that attempts to combine these units/roles into
one, making easy money "less easy" and hard money "less hard." And by
"must" I do not mean that we must do this, I mean that it is happening
today whether we recognize it or not.

And the second concept,
once the first is understood, is how and why gold and only gold will
fill the monetary store of value role. Not gold and silver. Not precious
metals. Just gold. People often ask why I don't mention silver. They
assume that when I say gold I really must mean gold and silver, or
precious metals. So let me be clear. When I say gold, I mean gold and
only gold.

Money's most vital function in our modern world is
lubricating commerce, or more specifically, keeping the essential supply
lines flowing – supply lines that bring goods and services to where
they are needed. Without it we would be reduced to a barter economy,
eternally facing the intractable "double coincidence of wants." This is
the problem whereby you must coincidentally find someone that not only
wants what you have to trade, but also, coincidentally, has what you
want in return. And in the modern world of near-infinite division of
labor, this would be a disaster. [2]

So we need money, and lots
of it. In fact, we need money in unrestricted amounts! (I'll bet you are
surprised to see me write this!) Yes, I said it, we need unrestricted
money in order to fulfill this most vital function in our modern society
– lubrication! But here's the catch: we need the right money in order to perform this seemingly impossible task. Let me try to explain.

is debt, by its very nature, whether it is gold, paper, sea shells,
tally sticks or lines drawn in the sand. (Another shocking statement?)
Yes, even gold used as money represents debt. More on this in a moment.

this reason, the money used as a store of value must be something
completely separate and different from the medium of exchange. It must
be so, so that the store of value unit can expand in value while
the medium of exchange unit expands in quantity and/or velocity. You may
be starting to encounter my thrust. Expand… and expand. Unrestricted by
artificial constraints.

Compare this concept to a gold standard
in which you fix the value of gold to the dollar at, say, $5,000 per
ounce. The assumption is that this is where the price of gold will stay
for a long time, if you manage the system properly. So what is the
result? You artificially constrain the expansion of the medium of
exchange fiat currency while also restricting the value expansion of the
store of value. You are locking the two together. Do you think this
works and makes sense?

I said we need unrestricted money in order
to ensure the lubrication of the vital supply lines in our modern
world. This is it. This is what really matters. If we have a major
monetary and financial breakdown, what do you think will be the worst
consequence? Do you grow all of your own food? Do you make – or know
someone who does – all of your own stuff? How long could you survive
without any stores? Do you trust your government to be sufficiently
prepared to take care of you with no supply lines flowing?

you ever stretched a rubber band until it breaks? You can feel the
resistance grow gradually and observe the smooth thinning of the band
until finally it loses its continuity and the two parts snap back
stinging your fingers. A tiny observer of this exercise, perhaps a flea
resting on your thumb (or an economist), one who doesn't really
understand rubber bands, might swear that it could be stretched forever.
The smooth change in the stretching rubber gives little warning of the
abrupt (sometimes painful) deformation that is coming.

This is
where we are today. The dollar standard is like a stretched rubber band.
It has been stretched and stretched, but it cannot provide the
unrestricted money that we need today. They think it can. And that's why
they are spewing it out in quantitative easy money boatloads. But it's
not the right money. As I said above, we need the right money in order to perform this seemingly impossible task.

resistance you feel is the artificial restraint built into the dollar
system. It appears to be infinitely expandable, but it is not. It is
just like the rubber band. Oh sure, you can print all the dollars you
can imagine, to infinity and beyond! But it won't work. It won't do the
most vital job, beyond a certain point. And yes, we are beyond that

I want you to imagine a tiny micro economy. Just two guys
stranded on a tiny island. Let's call the guys Ben and Chen. They have
divided the island in half and each owns his half. They each have a tree
which bears fruit and three tools for fishing, a spear, a net and a
fishing pole. For a while they both fished often. Fish were the main
trade item between Ben and Chen. Sometimes Ben would take a vacation
from fishing and Chen would provide him with fish to eat. Other times
Chen would take a break.

But after a while Ben got lazy, and Chen
got tired of giving Ben free fish to eat. At first they used sea shells
as money to keep track of how many fish Ben owed Chen. Then they
switched to leaves from the tree. Finally they just broke a stick off
the tree and drew little lines in the sand. If Chen gave Ben a fish, Ben
drew (issued) a line in the sand on Chen's side of the island. There
were only two of them, so it was easy to avoid cheating.

lines sort of became Chen's bank account. Each one represented the debt
of one fish that Ben owed to Chen. But after a while they started adding
up, and Chen worried that he would never get that many fish back from
Lazy Ben. So Chen cut a deal with Ben. Chen said he would keep accepting
lines drawn in the sand for fish, but he wanted to be able to use them
to purchase some of Ben's other stuff (since Ben didn't like to fish).

first he used them to purchase fruit from Ben's tree. But after a while
the pile of fruit just rotted on Chen's beach. Next he started
purchasing Ben's tools. First the spear, then the net and lastly the
fishing pole. But at this point Chen realized that Ben would NEVER be
able to repay those fish without his fishing tools. So Chen rented them
back to Lazy Ben.

Of course Ben was still lazy, and now he owed
rent on top of the fish he already owed. The lines in the sand grew even
more rapidly as lines were added to pay for rent even when Chen hadn't
given Ben a fish. Then Ben had a great idea. Why even go through the
charade of selling the fishing pole and then renting it? Ben could just
sell Chen some "special lines" which had a "yield." For ten one-fish
lines, Chen could buy a special "bond" that would mature into 11 lines
in a year's time. They tried this for a while, but all that happened
were more lines in the sand. So many lines! Nowhere to walk. Chen's
"bank account" was taking up all of his real estate!

Finally Chen
had had enough. He called Ben over and said, "Okay, since you refuse to
fish for yourself, let alone to pay me back, I want to use these lines
to buy some of your gold coins." Oh, did I mention that Ben had a
treasure chest of gold coins that had washed ashore? Of course these
gold coins were the last thing that Chen wanted, because what good are
gold coins on a tiny island with only two inhabitants?

actually, they turned out to be an excellent record of the debt Lazy Ben
owed to Chen the fisherman. You see, at first, Chen bought half of
Ben's gold with the lines he had already accumulated, transferring his
"bank account" over to Ben's side of the island and consolidating his
"wealth" into gold. It worked out to 100 lines for one gold coin, or 100
fish per ounce.

But after a while, Ben realized that he was
running out of gold. He knew it would only be a short matter of time
until he ran out, so he closed the gold window. And once again, Chen
started accumulating lines and special yielding "bond" lines. Finally,
they agreed that the value of the gold coins had to be raised higher
than 100 fish per ounce. Ben suggested 500/oz., but Chen saw the
short-sighted flaw in his thinking. So Chen said that the value of
ounces should float against the number of lines issued by Ben. This way,
Ben would never run out of gold, and his lines would always and forever
be exchangeable for gold coins. Finally, a sustainable accounting

Now I do realize the glaring flaws in this analogy I
cobbled together. So spare me the critique. It is far, FAR from perfect.
But it does help with a few good observations.

First, the lines
in the sand and the gold coins are both money on this island. One is the
medium of exchange/unit of account and the other is the store of value.
The store of value is quoted at any given time in units of lines, but
its value floats, it is not fixed, so it never runs out. This
method of accounting forces Lazy Ben to part with something more
substantial than simply issuing more lines via line-yielding "special
bond lines."

In this case it was the accounting of transactions
between a consumer and a producer. But it works just as well between any
two actors with unequal levels of production and consumption. Some
people just produce more while others can't stop consuming. I'm sure you
know a few of each type.

Also, notice that gold coins and lines
in the sand both represent the debt owed from Ben to Chen. And with
gold, Chen can wait forever to be paid back (which, on this island, is
quite likely). The gold doesn't spoil, and Chen's possession of it
doesn't interfere with Ben's ability to fish or eat fruit. But notice
also that the more lines in the sand that Ben issues, the more the value
of the gold (representing a debt of fish) rises. So the longer Ben runs
his trade deficit, the more debt he owes for each ounce of gold that
Chen holds.

This is not so dissimilar to the special bond lines,
with a few notable differences. The bond values are not only quoted in
lines, they are also denominated in lines. So the principle amount paid
for the bonds drops in value as more lines are issued to lubricate the
vital trade. To counteract this "inflation," interest is paid by drawing
more lines without the reciprocal delivery of fresh fish. But these
additional "free" lines also dilute the value of lines, which leads
ultimately to infinity (or zero value) in a loop that feeds back on

The more fish Chen supplies to Ben, the more lines he
receives, the more bonds he buys, and the more lines he receives in
service to interest. Eventually Chen will be receiving two lines for
each fish, one for the fish and one for the interest. And then three,
and then four. And so on. Wouldn't you rather just have one gold coin
that floats in value? I know Chen would.

Another observation is
that the medium of exchange on our island devolved into the most
insignificant and easy to produce item. A simple notation in Chen's
"account." Is that so different from what we have today? And Ben could
issue them with ease as long as Chen let him. Once Chen had so many
lines, he wasn't about to just abandon the system, was he? Wipe the
(beach) slate clean? No, Chen wanted to get something for his lines.
Something compact that didn't interfere with Ben's ability to work off
his debt should he ever decide to do so. Something durable. Something
physical from Ben's side of the island. Something… anything other than those damn-stupid lines!

hope that this little analogy helps you visualize the separation of
monetary roles, because those talking about a new gold standard are not
talking about this. I understand that sometimes you have to speak in
terms familiar to your audience in order to not be tuned out, but I also
hope that my readers come to understand how and why a new gold standard
with a fixed price of gold, no matter how high, will simply not work

The full explanation of why it will not work is quite
involved, and I'm not going to do it here. But the short answer is that
the very act of defending a fixed price of gold in your currency ensures
the failure of your currency. And it won't take 30 or 40 years this
time. It'll happen fast. It wouldn't matter if Ben decided to defend a
price of $5,000 per ounce, $50,000 per ounce or $5 million per ounce. It
is the act of defending your currency against gold that kills your currency.

You can defend your currency against other currencies… using
gold! Yes! This is the very essence of Freegold. But you cannot defend
it against gold. You will fail. Your currency will fail. Slowly in the
past, quickly today. If you set the price too high you will first
hyperinflate your currency buying gold, but you won't get much real gold
in exchange for collapsing the global confidence in your currency, and
then you will have to empty your gold vaults selling gold (to defend
your price) as your currency heads to zero. And do you think the world
trusts the US to ever empty its vaults? Nope. Fool me once…

you set the price too low, like, say, $5,000/ounce, you will first
expose your own currency folly with such an act and have little
opportunity to buy any of the real stuff as the world quickly
understands what has gone wrong and empties your gold vaults with all
those easy dollars floating around. You will sell, sell, sell trying to
defend your price, but in the end, the price will be higher and you'll
be out of gold. Either that, or you'll close the gold window (once
again), sigh, and finally admit that Freegold it is.

Yes, the
gold price must… WILL go much higher. The world needs MONEY! And by
that, I mean recapitalization. Unfortunately the dollar is not the right
money. And printing boatloads of it will no longer recapitalize
anything. Today we are getting a negative real return on every dollar
printed. That means, the more you print, the more you DEcapitalize the
very system you are trying to save. Less printing, decapitalized. More
printing, decapitalized. Freegold… RECAPITALIZED. Yes, it's a Catch-22,
until you understand Freegold.

There Can Only Be One

"focal point" is the obvious, salient champion. But for many reasons,
some things are not as obvious as we would think they should be. Mish
ended his recent post, Still More Hype Regarding Silver; Just the Math Maam, with the following disclosure:

As a deflationist who believes Gold is Money (see Misconceptions about Gold for a discussion), I am long both silver and gold and have been for years.

Now is it just me, or did he say that because gold is money, he is long both silver and gold?

Here's another one from a recent article on Zero Hedge:

Part 3. People lie…..

“…I want to make it equally clear that this nation will maintain the dollar as good as gold, freely interchangeable with gold at $35 an ounce, the foundation-stone of the free world’s trade and payments system.”
-John F. Kennedy, July 18, 1963

“That we stand ready to use our gold to meet our international obligations–down to the last bar of gold, if that be necessary–should be crystal clear to all.”
-William McChesney Martin, Jr. (Federal Reserve Chairman) December 9, 1963

Lesson: When someone says you can exchange paper for precious metals – make the swap before they change the rules.

Wait. Did he just take two quotes about monetary gold and extend the
lesson to all precious metals? Is this right? Should we all be assuming
that "gold" always means "precious metals?"

According to Wikipedia:

precious metal is a rare, naturally occurring metallic chemical element
of high economic value, which is not radioactive… Historically,
precious metals were important as currency, but are now regarded mainly
as investment and industrial commodities…

The best-known precious
metals are the coinage metals gold and silver. While both have
industrial uses, they are better known for their uses in art, jewellery
and coinage. Other precious metals include the platinum group metals:
ruthenium, rhodium, palladium, osmium, iridium, and platinum, of which
platinum is the most widely traded.

The demand for precious
metals is driven not only by their practical use, but also by their role
as investments and a store of value. Historically, precious metals have
commanded much higher prices than common industrial metals.

Here's how I read the above description. Precious metals have a high economic
value. But because of investment demand, they also tend to have a price
higher than it would be on its industrial merits alone. Gold and silver
carry some additional sentimentality for their past coinage. In other
words, precious metals are industrial commodities with an elevated price
due to levitation from investment demand. Fair enough?

Now to
understand Freegold, I think there are two issues that need to be
addressed. The first is the difference between money, or a monetary
store of value, and an industrial commodity levitated by investment
demand. And the second, once the first is understood, is whether silver
belongs in category with gold as money, or with platinum as an elevated
commodity. You see, the very key to understanding Freegold may actually
lie in understanding the difference between gold and silver with regard
to their commodity versus monetary wealth reserve functions.

from here, I will explore the valuation fundamentals of money versus
levitated commodities. And then I will explore the history of silver as
money and ask the question: Is silver money today?

First, money.
Money is always an overvalued something. Usually a commodity of some
sort. But it can be as simple as an overvalued line in the sand, or a
digital entry in a computer database. But the key is, it is always
overvalued relative to its industrial uses! That's what makes it money!
If it was undervalued as money, it would go into hiding, just like
Gresham's law says, be melted down, and sold for whatever use valued it
higher than its monetary use.

It is fair to also say that
commodities levitated by investment demand are overvalued in a similar
way. But there are a couple of important differences. First is that all
of our experience with commodity markets during currency turmoil
happened while the two naturally-divergent monetary functions (the spur
and the brake) were rolled into one unit, namely the dollar. This left
only the commodity markets as an escape. Second is that monetary
overvaluation usually has official support while commodity overvaluation
often has government disdain.

There is this idea out there that
if you have a paper investment market for a commodity that is larger
than the physical units backing it (fractionally reserved, so to speak),
that the commodity's price must automatically be suppressed by the
market. This is simply not true unless we are talking about money
masquerading as a commodity.

A paper market brings in investment
demand and leverage (borrowed money), two levitating factors that would
simply not be present if the paper market disappeared. And these two
factors, "the speculators," can take a commodity's price well into
overvalued territory. Just look at oil for an example. Even the sellers
of the physical stuff say they prefer a lower price than right now, not
to mention during the all-time high in 2008.

You'd think the
sellers of a physical commodity would love a higher price driven by
speculators. But they don't, because it is only a real price if all the
investment participants have a real use for, and ability to take
possession of, your physical commodity. Otherwise it's just a casino.

Back to the Zero Hedge piece:

today’s prices, a million dollars in gold weighs less than fifty
pounds, but a million dollars in silver weighs more than 2,300 pounds!
So ask yourself, how many rich people are storing their own silver? How
many hedge funds hold physical silver in their own storage facility?

So a million in gold only weighs 50 lbs.? Sounds like low storage fees
and easy delivery! 2,300 lbs. for silver? Wow, that sucks. How many rich
people are taking possession of their silver? Not many, I'd guess.

be honest, I really don't know if silver is overvalued or undervalued
today at $30/ounce. But if you are counting on the industrial
fundamentals of silver for your moonshot like the Zero Hedge article is,
or on a busted paper market like the "vigilantes," you may be in for an
unpleasant surprise. The same fundamental arguments that are used today
were also used back in 1982. [3] In gold, at least, we know that
jewelry demand rises and falls opposite the price of gold. [4] But then
again, gold is money, right? So, is silver still money?

Easy Money

was certainly used as money in the past. So why not again today? Maybe
the people will rise up and demand silver money! Maybe China, or
somebody else, will remonetize silver and start a new silver standard,
right? After all, China was the last to use a silver standard.

don't mean to pick a fight with silver. In fact, I write this post with
a heavy heart. But there is so much silver hype right now that I feel I
owe it to my readers to at least try to spell out Another perspective.
And China is certainly on the minds of the silverbugs these days. How
often have we heard about China encouraging its citizens to buy gold and
silver lately? (There's that "gold and silver" again.)

But did
you know that China was practically dumping its silver a decade ago? And
to this day it is still a large exporter of silver. Not gold. Just
silver. In 2009 China exported 3,500 tonnes of silver. That amount will
probably be cut in half for 2010. The drop is due to increases in both
industrial and investor demand, but also due to China's recent move to
stem the shipment of all natural resources leaving its shores.

sure many of you know that China was the last country on Earth to end
its silver standard back in 1935, in the middle of the Great Depression.
But do you know why? And would China ever want to start a new
silver standard? Does it make any sense now that they've sold most of
their silver? And what has changed since 1935 that would make them want
to go back?

Something very interesting happened after Jan. 30,
1934 when Roosevelt devalued the dollar against gold. The price of gold
went up 70%. What do you think happened to silver? Did it go up more
than gold? Did it shoot the moon? Was it leveraged to gold? No, it
dropped like an unwanted rock.

In response to the falling price
of silver, on June 19, 1934 (four and a half months later) the U.S.
Congress approved the Silver Purchase Act of 1934 which authorized
President Roosevelt to nationalize silver holdings (to buy silver). This
decision resulted in an increase in the world price of silver, which
forced China to abandon the silver standard in November 1935.

US Silver Purchase Act created an intolerable demand on China's silver
coins, and so in the end the silver standard was officially abandoned in
1935 in favor of the four Chinese national banks "legal note" issues.

Remember what Mundell wrote (See Mundell in The Value of Gold).
The use of a commodity as money is the overvaluing of that commodity
for profit by the monetary authority. When the US started buying
commodity silver on the open market (to prop up the price artificially)
the Chinese people found it was better to sell their silver coins for
melt value than to use them in commerce for face value (which was lower
than melt).

This effect to China's base money (silver) in 1934
was similar to what the US felt in 1933 and 1971 with gold. The main
difference being that the demand for silver in 1934 was artificial (from
one single entity, the US govt.) while the demand for gold has always
been real, global and market-driven. This price supporting move (not
unlike the Agriculture Adjustment Act and other destructive price
control measures) by the US caused the "Shanghai Financial Crisis" which
lasted from June 1934 until November 1935, finally ending in Currency
Reform on Nov. 4, 1935.

So, in 1934, the US govt. wanted to
devalue (set the price of) the dollar against gold and silver. In order
to do so, it had to influence the market of each. For gold, it had to
inflict capital controls internally and sell gold externally at the new
higher price. For silver, it had to BUY silver at the new higher price.
Sell gold, buy silver. The same exact thing that happened 45 years
earlier with the Sherman Silver Purchase act of 1890.

Pushed by
the Silverites, the Sherman Silver Purchase act of 1890 increased the
amount of silver the government was required to purchase every month. It
was passed in response to the growing complaints of farmers and mining
interests. Farmers had immense debts that could not be paid off due to
deflation caused by overproduction, and they urged the government to
pass the Sherman Silver Purchase Act in order to boost the economy and
cause inflation, allowing them to pay their debts with cheaper dollars.
Mining companies, meanwhile, had extracted vast quantities of silver
from western mines; the resulting oversupply drove down the price of
their product, often to below the point where it was profitable to mine
it. They hoped to enlist the government to artificially increase demand
for, and thus the price of, silver.

Under the Act, the federal
government purchased millions of ounces of silver, with issues of paper
currency; it became the second-largest buyer in the world. In addition
to the $2 million to $4 million that had been required by the
Bland-Allison Act of 1878, the U.S. government was now required to
purchase an additional 4.5 million ounces of silver bullion every month.
The law required the Treasury to buy the silver with a special issue of
Treasury Notes that could be redeemed for either silver or gold.

plan backfired, as people turned in the new coin notes for gold
dollars, thus depleting the government's gold reserves. After the Panic
of 1893 broke, President Grover Cleveland repealed the Act in 1893 to
prevent the depletion of the country's gold reserves. [5]

To "set
the price" of anything, you must either buy or sell that thing.
Governments cannot just "set" prices. Whenever they try, the items just
disappear or go into hiding. If the price you set is lower than the
value, then you will have to sell. If the price is too high, you will
have to buy. More from Mundell:

"[In the 1870s] France
pondered the idea of returning to a bimetallic monetary standard, but
with American production of silver going up and Germany dumping silver
as the new German Empire shifted to gold, France realized it would have
to buy up all the excess silver in the world on its own."

if your standard is going to overvalue something, you must buy it. If
you undervalue something, you must sell it. And what was the US doing
with gold throughout the entire Bretton Woods system? That's right, it
was SELLING gold through the gold window. So it wasn't the gold that the
US monetary authority was overvaluing for profit. It was the
cotton-pulp paper in the FRNs! Cotton pulp! That's the overvalued
commodity today!

Remember what Another wrote? "Any
nation/state can put its economy/currency on a gold standard. They only
have two requirements. Own a stockpile of gold and raise the price very

Why do you think you need a stockpile of gold to
start a gold standard? In the case of France in 1870 above, they
realized they would have to buy all the excess silver in the
world to keep a silver monetary standard. You don't need a stockpile to
do that! Yet you don't need to worry about buying all the gold to have a
gold standard. You need to be prepared to SELL! That's why you need a
stockpile. So what's the difference?

Could it be that silver is
only a commodity today (and for the last 150 years at least) and because
of this, any monetary use is not backed by the free market? Any silver
standard is an unnatural levitation requiring BUYING of silver by the
monetary authority. While a gold standard gives the free market what it
really wants, gold, requiring SELLING of gold by the monetary authority.

you find an example where the opposite occurred? Can you show me where a
government ever had to buy gold and sell silver (at whatever price or
ratio) in order to maintain its system?

The US quit bimetallism
during the Civil War, prior to the Silverite movement. [6] This ended
the government's "overvaluing" of all silver for use in money. After the
Civil War, there was a difference between commodity silver (what the
miners dug up) and monetary silver (overvalued silver in US coins)
because in order for the US to sustain bimetallism (or a silver
standard) it would have had to value (buy) ALL the excess silver in the
world at the overvalued price of the coins.

This meant it would
have to BUY any and all commodity silver that was offered for sale (to
prop up the price). You see, silver needs its price propped up (huh?
why?) while gold appears to need its price suppressed (see: The London
Gold Pool). So rather than actually "valuing" silver, the government
compromised with the Silverites and agreed to buy a specified quota of
commodity silver. At least it did until it ran out of gold in 1893.
Something must have been wrong with that 16:1 ratio in the 1800s, huh?

70 years later, when the price of commodity silver finally
overran the value of the coins in 1964, it was because of cotton-pulp
printing (inflation) only, not global monetary demand! This is exactly
how commodities act. They respond directly to monetary inflation until
the commodity value overruns the face value.

So it seems that the
free market wants to exchange its "money" for gold. But "the people"
(at least in the late 1800s) wanted silver to be money. They wanted to
SELL their silver to the government while the government SOLD its gold
to the market. This is a one-way flow that tends to end in a vault full
of silver with no gold. So why did the US Government intervene in the
silver market and support this folly?

The government caved
primarily because of politics (pressure from the Silverites – the
farmers and miners out west), and tradition secondarily (past use of
silver as money, the US Constitution, etc.). Politically, "the people"
will always want easy money. And silver was their easy money of the day.

deflation in the late 1800s was hurting the farmers. The farmer
business cycle is seasonal. Borrow money for equipment and seeds to
plant in the spring. Then grow your product. Then harvest and sell in
the fall and pay off your debt with the proceeds.

The effect of
causing an inflationary environment through "easy money" means that it
is A) easier to pay off your debt in the fall than it was in the spring
(or the year before), and B) you get more money for your crop than you
did last year. The effect of a deflationary environment is the opposite.
Your debt gets harder to pay and you get less money for your crop. It's
the same for all businesses actually. But farmers were a big political
group in the 1800s that were all roughly on the same business cycle.

bears repeating: "The people" wanted silver back then (late 1800s)
because it was the "easy money" of the time. "The people" NEVER
want harder money. Today silver would be harder money, so it will never
have the support of "the people" (other than the silverbugs). 16:1 was
quite obviously an artificial monetary ratio, because whenever
they maintained it, there was a run on the gold. The market wanted to
push the ratio much wider, and the government, in service to "the
people," fought that market force.

Today silver would be "harder" money than cotton-pulp. This is why there will NEVER be a big enough political movement of the people that will bring back a silver standard. We have now discovered easier money than silver!!!

you want harder money, it's gold. If you want easier money, it's
cotton-pulp. So where does silver fit in? Well, it's just another
industrial commodity with a lingering sentimental mystique as the old
"easy money."

And where does gold fit in? Freegold of course! The monetary wealth reserve as demonstrated by the Central Banks of the world!

what if gold really is the wealth reserve of choice for the giants that
A/FOA said it was? That means silver is nothing but an industrial
commodity today, being somewhat levitated by the lingering hype. What if
silver is just a commodity, like copper or oil?

Monetary value is a self-supporting, self-sustaining levitation. Money is the bubble that doesn't pop. The price of money is arbitrary. Not so with commodities.

So... is silver really money today? I know gold is. Here's the evidence:

Does anyone have any evidence that silver is still money today?

I am aware that the stock of silver is disappearing into our landfills.
These "properties" of silver have been with the metal since the early
80s, through decades of single-digit prices. [3] So, is jacking the raw
materials from industry and holding them hostage for ransom at a higher
price the real play today? (Hint: this tactic often ends badly for the
speculator.) Or is the real play front running the new global monetary
wealth reserve during a transition in our international monetary system?

one silverbug who is starting to put two and two together! I think he
might also be reading FOFOA. ;) (Hi Joe. I think you are confusing me
with FOA in your video. But that's okay, it's a wonderful compliment to
me! Tip to others: If you mention me in a video include a link in the
description and I might just find your video.)

Did you hear him at 6:35? "Only one metal in the world that fits the
bill for money, and that's gold!" That's right Joe! Good job from the
"Silverfuturist". There can be only one! Did you see my subheading? And
please read the description of a "Focal Point" again. It's the first
thing in this post. Can you put two and two together like Joe?

don't write about silver very much. Just like I don't write about copper
or pork bellies. But, in fact, I have addressed many of the standard
arguments for silver over gold in various comments on this blog and
others. I'm sure someone will dig them out again and post links as
people pose these arguments once again in the comments. But here's a new

One of the argument for silver that we hear often is that
it is "the poor man's gold." So I guess gold is "the rich man's gold."
Well, what is the main difference between rich men and poor men? Is it
that the rich have an excess of wealth beyond their daily expenses? In
fact, the really rich have "inter-generational wealth," that is, wealth
that lies very still through generations. The poor do not have this.

what do you think is going to come of all that "poor man's gold" that
the silverbugs have hoarded up? Is it going to lie very still for
generations? Or will it circulate, to meet daily needs? Note that
circulation velocity is the market's way of controlling the value of any
currency. Faster circulation = lower value. Lying still for generations
= very slow circulation.

So as you contemplate which commodity
will be the monetary focal point of the future, I'll leave you, as I
often do, with a little music.



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Sat, 12/18/2010 - 14:44 | 815617 The Answer Is 42
The Answer Is 42's picture

Silver is not gold. The underlying drivers are very different. Gold is ultimately about hedging against the collapse of fiat currency. Siler has been mistaken by some to be an alternative but it's not. It has too much intrinsic value to be that.

Sat, 12/18/2010 - 15:15 | 815667 flacon
flacon's picture

Viva La FOFOA!

Sat, 12/18/2010 - 19:20 | 816043 Malcolm Tucker
Malcolm Tucker's picture

Here is Nigel Farage telling the EU the Euro crisis "is like watching a slow motion car crash"

If things devolve in Europe then long gold and silver in euro terms would be a great trade before the next mega ultra galactic bailout ...

Sat, 12/18/2010 - 21:09 | 816208 velobabe
velobabe's picture

cotton_pulp, bitchez

Sun, 12/19/2010 - 15:59 | 817182 RockyRacoon
RockyRacoon's picture

More cotton... less pulp, Honey.

Sat, 12/18/2010 - 16:13 | 815756 Quixotic_Not
Quixotic_Not's picture

You're right, with the Chinese burning through Ag like water in their electronica kamps, you'll find out just how different they are post haste!  ;-)

Sat, 12/18/2010 - 20:24 | 816106 dlmaniac
dlmaniac's picture

Silver satisfies all the necessary elements for a commodity to be money. Its rampant industrial usage (thus shortage) IS A PLUS INSTEAD OF NEGATIVE to its value b/c it means you have to revalue it REALLY HIGH to use it as money.

FOFOA's using China's past decade selling silver as proof of China not believing in silver is as questionable as someone citing China's mass acquiring of TBonds as proof of China's faith in US$. Don't get me wrong. I have tons of respect for FOFOA but I have doubts on this particular point of his. China was simply fooled into a long term silver supply contract the same way they were fooled into holding TBonds.

Not any more. Look at the KWN and Jim Willie insider info out of LME: Deep-pocket Asian buyers are draining LME of BOTH gold and silver, and they are particularly intensive in silver. Who are they? It's China busy dumping Dollars for silver. Wouldn't you say it has more to do with them being "silver bugs"?

And were there no such goofy European VAT on silver we'd be talking about 40$ silver easily right now.

Be nimble PM investors. Don't get religious. If gold overshoots its ratio against silver (which is what happens now) then trade some of your gold for cheap silver. If silver does gold then vice versa. I know it's hard to operate but I think it'll be an effective strategy to maximize your wealth.

Sun, 12/19/2010 - 00:09 | 816469 Oh regional Indian
Oh regional Indian's picture

Good points dl. But also to be noted is that sometimes a frimly held conviction can come across as being religious.

Also, I think it's safe enough to say that the earth would be a mightily different place if we did not have the moon. And of course a MIGHTILY different place if we did not have the sun.

There is a magic ratio in there that reflects(!) where gold and silver may find themselves.

Last but not least, Freegold or freesilver will only create another group of oligarchs.

Is that such a good thing?


Sun, 12/19/2010 - 00:27 | 816494 nuinut
nuinut's picture

Freegold or freesilver will only create another group of oligarchs.

Indeed it will.

A group that will include every holder of gold.

A group that anyone will be free to join by purchasing gold themselves.

A group which anyone who produces value in the world will be able to join. 

You seriously don't see where this goes?

Does no one consider that we may be able to enjoy a better system after the demise of this one?

All things being equal, we'd have at least a 50% chance of better rather than worse, no?

I guess this is why ZH is considered a "doomer" site. It's almost all it attracts.


Has no one made the connection that the monetary system is the DNA of the society that forms around it? Change the system and you change the nature of the society. The participants now have different motivations. To look at their behaviour now, and extrapolate it into a future using a different system is absurd. 

Sun, 12/19/2010 - 09:21 | 816783 Oh regional Indian
Oh regional Indian's picture


My personal take is that this is a dualistic world. Expressedly dualistic. To imagine that one metal will on the sole role of Monetary arbiter, beyond all cultural/historical and other factors shrieks of closed minded-ness.

If you say that the sea of fiat (however it might be envisioned, even as in the article above) is somehow a counterbalance, to my mind that is dis-ingenuous.

Maybe that is is my biggest problem with the A/FOA thesis.

It has the feeling of another uni-polar solution, something that cannot and does nto exist in real life.

We are bi-polar. We are probably bi-metallic too! ;-)



Sun, 12/19/2010 - 14:20 | 816933 FreeMartinArmstrong
FreeMartinArmstrong's picture

Bi polar we are !

but so is money ! that is why the two main functions(store off value and medium of exchange) can NOT be in the same entity !

The two poles are hard and easy, the hardest being gold, everbody(focal point) seems to agree, but the easiest in todays economies is the cotton or the digital cards we use today. NOT silver ! not anymore. society changed ! it wll be a good investment as a commodity but can not be money anymore. something easier came around, infintely available even. can't get any aesier. ask the bernank about it.

the ONLY solution will be freegold, because it will give us a bi polar moneysystem back again, today the dollar tries to be both poles ! it will lead to system failure, because at the end one can not divide by zero. as money today is debt. debt denominated in debt will destroy the debt.

simple as that ...

Mon, 12/20/2010 - 01:13 | 818090 dlmaniac
dlmaniac's picture

Gold is no harder than silver if you think about it from monetary point of view. FOFOA mentions that France could not go to silver standard b/c of all the silver out there so he concluded gold is better as it does not have that problem. Wrong. First of all China and Mexico were both on silver standard during that time. They weren't panic b/c of US quiting silver standard or someone else' silver output. It's silver being under-valued that broke their silver standard.  Secondly gold is not immune to outside interruption. Gold ran into several cases throughout the history that its value took a hit when a mass new gold mine was found.  Gold's relative hardness over silver as monetary metal is a myth.

Just remember this it's the market force chooses silver to be money for thousands years. It's not by a bunch kings, central bankers or central government. I would not count on IMF$ coming out to arrange it.

Sun, 12/19/2010 - 16:03 | 817194 RockyRacoon
RockyRacoon's picture

Has no one made the connection that the monetary system is the DNA of the society that forms around it? Change the system and you change the nature of the society. The participants now have different motivations.

A damned fine and important point!  The folks who junked you are ignorant of the weight of your statement.  The "system" is a reflection of its money.  Change the money and you change the nature and intent of the system.  Greed will prevail in all cultures or systems of exchange, but the effects can be more easily negated with an honest and unitary system of exchange.   Thanks for your insights!

Sun, 12/19/2010 - 13:08 | 816944 Sean7k
Sean7k's picture

I think we can resolve this issue in a very simple manner: eliminate legal tender laws. I guarantee we will find out what is useful as money and what is not. We will find out the value of every monetary substitute. 

We will see how people store their wealth and what they use for everyday transactions. Why this preoccupation with rules? Let the markets decide...

Sun, 12/19/2010 - 16:07 | 817199 RockyRacoon
RockyRacoon's picture

A beautiful sentiment, but impractical in the sense that there are too many involved with (embroiled in) the current system of fiat currencies.   They ain't gonna let go without a revolution -- but that could be arranged.

Sun, 12/19/2010 - 23:02 | 817933 Unbeliever
Unbeliever's picture

The Gov't wants a standard unit of accounts so they can effect taxes.

Sat, 12/18/2010 - 16:22 | 815771 Gloomy
Gloomy's picture

Taleb makes the point, and I think it is a good one, that you should diversify into several metals and agricultural land, because it is easier for central banks to manipulate gold alone than multiple markets. Hedge your bets-and silver is an important component of that.

Sun, 12/19/2010 - 13:51 | 817001 DoChenRollingBearing
DoChenRollingBearing's picture

Gloomy, Mr. Taleb is a man I respect a lot.

Diversity in precious metals holdings is indeed a good thing.  I practice it every day!

I am not in a position to manage agricultural land however.  A possible way to play food shortages are the ETFs like DBA and CORN, which of course are paper assets.

Sat, 12/18/2010 - 16:25 | 815778 tmosley
tmosley's picture

Gold has intrinsic value as well.  It is used in industry.  It's just that the price of gold is high enough to make recycling efforts economical.  Practically all of it is recovered.  This is also the case with expensive catalysts like platinum and palladium.  The same will eventually happen with silver.  Once it becomes more expensive to pull out of the ground than it is to recycle.  This is likely to happen temporarily when the gargantuan supply shortage caused by decades of undervaluation hits as new silver production will take years or decades to come on line.

Silver is likely to be priced a lot more like platinum during an industrial panic, and more like palladium until  new mines come on line.

Sat, 12/18/2010 - 21:15 | 816161 dehdhed
dehdhed's picture

yup, even wealth isn't accumulating gold nearly as much as they should but imagine when the wealthiest of them all, i.e mega-technology corporations, decide they need to secure silver supply for the future.

silver isn't a poor man's gold, it's more like a rich man's black gold.  it's a scarcity issue.

i like gold for all the reasons stated in this article, but if one were to give me palladium or platinum or rhodium, i wouldn't degrade it like this article tries to do with silver.  even the poor man's gold analogy is designed to instill feelings of inferiority.  friend of friend of another has an agenda and at times he tries to levitate gold to the status of deity.  another's agenda was simply to bring about a greater awareness of gold's value to the 'giants', and fofoa seems to try to capitalize on another's teaching.  in this article, he degrades one asset to prop his own.

for instance, i could make up stories how a billionaire might pay $1,000,000 a day to sustain life a little longer,  or perhaps that same man might pay $1000 for every sip he took, if forced to die of thirst instead.   one might even argue how air would be more valuable than anything.  although i try to wake up each day with an appreciation as though i just the lottery,  i wouldn't try to argue that silver is not even worth the air you breath freely everyday.  even though i believe air is more important than silver, tomorrow i'm not going to rush out and invest in balloons full of air.

i am in no way trying to degrade gold. i own both gold and silver, but not because i think they are equals.  if anything, i think oil is more an equal to gold.   but at the same time, i think silver is the next oil. 

the 'value' of gold is completely different than it's price.  and even though i don't think silver's 'value' could ever be greater than gold's, i don't dismiss the possibility that one day it's price might.

Sat, 12/18/2010 - 17:02 | 815833 akak
akak's picture

OK, I may earn a few junks here for this, but the more I read of this "FOFOA", the more I find his convoluted, excessively long-winded expositions to be irrelevant, historically ignorant and flat-out incorrect, if not in fact disingenuously misleading.

For one thing, there is this idea of the separation of the value storage and medium of exchange functions of money, in which he proposes gold as the storage of value, and a (presumably government-issued, inflationary) fiat currency as the means of exchange as the best of all worlds.  But why would anyone want a dishonest, government-issued, fiat currency in ANY aspect of a reformed monetary world?  The flaw in his analysis is that there can NOT be, in practice, such an artificial separation ---- all money is in some sense "storing value", while SIMULTANEOUSLY being used as a means of exchange.  Is the money in my wallet purely a means of exchange?  Isn't it storing value, even if only for a few days?  And what of my checking account?  A 3-month CD?  A one year CD?  Just where is the line between these two functions of money?  I would aver that there is in fact no such line.

Another problem I have with his "Freegold" scenario is the fact that if one wants to store their value in gold, and use fiat as the day-to-day means of exchange, is this not in fact the system we ALREADY have today?  What is to stop anyone from storing all their long-term savings in gold right now?

Every time I read this FOFOA, I get the sinking feeling that I am being sold a bill of (questionable) goods by a fast-talking, long-winded salesman in a purposely complex and dishonest-feeling manner.

Sat, 12/18/2010 - 17:48 | 815918 kiwidor
kiwidor's picture

Yup.  And the practical reality?  How many of us can afford to have gold sitting around?  2/5ths of 3/8ths of fuck all. So for all those intergenerationally wealthy with nice quiet money lubricating their passage through life, his argument is unnecessary.  And for those without that luxury, his argument is irrelevant. 


Sat, 12/18/2010 - 19:44 | 816073 DebtBasedCurrency
DebtBasedCurrency's picture

Are you saying you have no abilty to save? How about cancelling your internet than and save the money in PM's you spend on that? You do not have the abilty to set aside 10% of your income and invest how you see fit?

Sun, 12/19/2010 - 12:00 | 816876 Max Hunter
Max Hunter's picture

You may want to take a more sobering view of our population. Upwards of 70% live from check to check. That means they have NO money for gold. If you cancelled your internet, it would take 2 years to save enough for a gold eagle, minimum. I think the person is better off with the internet for that time.

It's nice to hammer out on paper a mathematical solution to everyone's problem but it's not realistic.

Sun, 12/19/2010 - 19:48 | 817496 kiwidor
kiwidor's picture

I was pointing out that few people have enough spare fake-money to buy real money.  As for my ability to save, it's none of your business.  I can, but choose not to.    If that means I perish when i run out of food, so be it.  But at least I'm off the hamster wheel.


Sun, 12/19/2010 - 02:34 | 816637 Spitzer
Spitzer's picture

At $1380 gold, his arguments are relevant.

I personally find FOFOA makes more sense then any other gold commentators. Look at his inflation/deflation explanation. Second to none.

Sat, 12/18/2010 - 17:55 | 815927 AUD
AUD's picture

No junks from me.

FOFOA is definitely convoluted, excessively long-winded, irrelevant, historically ignorant and flat-out incorrect, & in fact disingenuously misleading.

There's no way I'm going to attempt to read that gibberish but in scrolling through I noticed this:

Money is debt, by its very nature, whether it is gold, paper, sea shells, tally sticks or lines drawn in the sand. (Another shocking statement?) Yes, even gold used as money represents debt.

What a load of garbage, money is what extinguishes debt, it is not debt. Debt is debt, the opposite of money, which is why the dollar is not money but debt. Like the value of a bounced cheque, dollar is moving slowly toward zero. In the meantime its value is uncertain, leading to the 'price' volatility we see in commodity & financial markets.

There, how long did that take to read, like 1 minute?

Sat, 12/18/2010 - 18:27 | 815984 SRV - ES339
SRV - ES339's picture

There's no way I'm going to attempt to read that gibberish

And yet you comment and trash, without understanding the argument?

What a load of garbage, money is what extinguishes debt, it is not debt 

In the fractional reserve fiat system you live in, every dollar in your pocket was borrowed into existence by the Fed, so it is, by definition, debt. This link explains it in detail... a lot of "gibberish" in there though... and it's "over a minute" long!


Sat, 12/18/2010 - 18:30 | 815987 Quixotic_Not
Quixotic_Not's picture

"In the fractional reserve fiat system you live in, every dollar in your pocket was borrowed into existence by the Fed, so it is, by definition, debt."

The first rule of Fight Club is...

Sun, 12/19/2010 - 02:51 | 816654 AUD
AUD's picture

Didn't I write; the dollar is not money but debt, the very next sentence after What a load of garbage, money is what extinguishes debt, it is not debt?

Yet you accuse me of commenting & trashing without reading the article?

Next you'll be posting some bullshit from Lyndon LaRouche & telling me to read it! You're an idiot.


Sat, 12/18/2010 - 18:55 | 816022 tmosley
tmosley's picture

Money, free money like gold, is debt owed by society to a producer who has loaned the fruits of his labor to that society.

FOFOA is very smart, but he operates on a flawed premise, as is pointed out above by akak.  You simply can not separate the store of value function from the medium of exchange.  If you do, you will have instant hyperinflation.  The only thing that holds hyperinflation at bay is the propensity of people to hold  their extra dollars, whether in a mattress or in the bank. If EVERYONE saved in terms of gold, then you wouldn't be able to get any in exchange for dollars, and everyone would quickly stop using dollars, but would just use gold (or some other substitute).

Sat, 12/18/2010 - 20:23 | 816114 BrosMacManus
BrosMacManus's picture

I had my first engaging conversation with someone that actually wanted to discuss our debt-based monetary system's flaws and what would evolve in the event of our reserve currency status and/or fiat system's collapse. Not being well versed in financial matters, this person's preconceived notions were a considerable impediment to forwarding the discussion to the "what happens when" phase of the discussion, with lots of starts and stops to back fill and clarify what money is. As I reflected on my conversation, it struck me how FOFOA must feel at times in in explaining his freegold concept. I've been reading FOFOA and Another's archives, but admit my understanding is far from complete. That said....

It strikes me that freegold is the next branch of our monetary system's evolutionary tree, but instead of it being driven by environmental factors as most evolutionary changes are, freegold is the genetically modified equivalent conjured up in the labs of the central banks (and the Bilderberg-esque elitist individuals/organizations that control them). Freegold is elegant, but not particularly beneficial for us lowly plebes, once instituted. Freegold, as I understand it, is the anchor and ballast for all currencies, but most importantly is the basis in which sovereign nations settle their current accounts; it is not primarily intended as a medium of exchange, but rather as a store in which to value the currency, at the sovereign level. I may be off here, but intuitively I seem unable to make the connection that FOFOA does re: gold being the only suitable store of value when I bring this down to the individual's perspective. Yes, gold is singularly qualified to serve as the sovereign's store of value, and as a result all individuals should aspire to acquire it while they can. However, being priced as it is, I can't see his perspective that the poor man's gold is still nothing more than an overvalued commodity when applied to the individual. Nevertheless, being of the belief that TPTB are driving us inexorably to freegold, gold seems to be the better medium in which to store value, even if bought in fractional and or gram increments. However, silver still seems to me to serve some role in the monetary system at the individual level, whether as an alternate Salinas-Price style non-denominated free floating currency or as store of value once the POG becomes unattainable. I don't understand the mutual exclusivity, but at the same time don't ascribe to there being a natural mathematical linkage of the two via the GSR.

Sun, 12/19/2010 - 03:41 | 816675 nuinut
nuinut's picture

BrosMacManus: When you say "at the sovereign level", are you applying this to individuals as well as nations? Freegold is the tool that supplies the sovereignty, placing the sovereign individual on equal footing with the sovereign nation. is singularly qualified to serve as the sovereign's store of value, and as a result all individuals should aspire to acquire it while they can.

Freegold is the permanent availability of physical gold, with the rate of exchange for currencies not being distorted with the inclusion of paper gold. Perhaps you mean "while they can get it at such an advantageous exchange rate for fiat"?

I can't see his perspective that the poor man's gold is still nothing more than an overvalued commodity when applied to the individual.

The move to freegold, which will spontaneously occur when physical gold and paper gold cease to trade at par, will propel the relative value of physical gold into a permanent orbit, which will not be mirrored by silver. Silver may well be valued relatively higher than currently too, but FOFOA's point is that gold will make this particular phase transition alone. If silver goes up too, it will not be to the same extent nor for the same reasons as gold.

Sat, 12/18/2010 - 21:19 | 816228 SDRII
SDRII's picture

not if there was a one time revaluation - think ecb m2m

Sat, 12/18/2010 - 21:33 | 816247 tmosley
tmosley's picture

Right, just like a junkie will get clean and never use again.  I sure as hell ain't gonna bet my life savings on THAT one.

Sat, 12/18/2010 - 21:41 | 816246 dehdhed
dehdhed's picture

What a load of garbage, money is what extinguishes debt, it is not debt.

do you not see you argued perfectly fofoa's point.  when two things can be exchanged equally, are they not the same?  currency has no intrinsic value but to represent a debt owed.  that's how it facilitates trade.   if you give someone currency for a good, it represents your debt owed to them.  they in turn pass that debt owed to them to someone else.  if i give someone currency for apples, it represents a debt of apples owed.  the apple vendor might exchange his claim to my apples owed for something else, but in each case it continues to represent debt.

if someone forgoes fruit of their labors and accumulates currency, their wealth represents debts owed to them.  even a closet full of currency doesn't represent wealth except in the sense that the closet full debt owed to that person can be exchange for things with intrinsic value.   and then the debt would get passed along. 

it's like when i write a check, i didn't create wealth, i exchanged the accumulation of debts owed to me for something else.

Sun, 12/19/2010 - 00:31 | 816499 dkny
dkny's picture

And the most interesting question is how does this currency come into existance.

Mon, 12/20/2010 - 15:58 | 819272 Dr. Sandi
Dr. Sandi's picture

Evelyn Wood. Her techniques can increase reading speed so much that you can read as fast as you talk, thereby qualifying for a high-paying job in media, or as President of the United Snakes. Then fully reading these long articles isn't nearly such a chore.

Sat, 12/18/2010 - 18:09 | 815950 Lionhead
Lionhead's picture

I'm glad this FOFOA chap has posted this rubbish. He has revealed himself to be a poor thinker & has wrongly interpreted the facts; at the minimum, his writings require a good editor to scrub his poorly composed words into something that's understandable & concise. Sorry, FOFOA chap, you get an F on this work. Come back to ZH when you improve your skillset as a thinker & writer.

Sat, 12/18/2010 - 18:13 | 815956 Quixotic_Not
Quixotic_Not's picture

"Come back to ZH when you improve your skillset as a thinker & writer."

Candy stripe a cancer ward?

Sat, 12/18/2010 - 22:30 | 816298 DavidPierre
DavidPierre's picture

Mr. Lionhead:

Yes... and quite right!

"Less is More!"

Way to many words thrown out with no connection or meaning... confusion shines...wisdom darkened!

Why... he just makes Old Fart's eyes water and my brain go to head aching when trying to make any sense, rhyme or reason, or what-so-ever out of his jumble.

{Editing is the process of selecting and preparing language through processes of correction, condensation, organization, and other modifications to make your point in a blog format.}

Now... TheDP ... EDITS... and be most helping to reduce his heavy backpack by throwing out most of FOFOA's uselessness and usual verbal baggage before he sets out into the wild unknowns.

Have himself contact I... here @ ZH ...having much experiences and many years of taking greenhorn wrighters into the  Rocky Mountains and Grizzled Bear's WilderNests of CyborgSpace. 

Sun, 12/19/2010 - 01:01 | 816544 Lionhead
Lionhead's picture

I heartily recommend your services sir to the FOFOA chap. ;)

Sun, 12/19/2010 - 07:59 | 816743 Al Gorerhythm
Al Gorerhythm's picture

As in ship-wrighters? Contact I? Wildernests? WHAT THE?! You couldn't edit an high school newspaper.

I highly recommend that you to attend the scool for righters that dont spel good..

Sun, 12/19/2010 - 17:52 | 817328 RockyRacoon
RockyRacoon's picture

Even more scary:  He is old enough to vote.  

(The Coon runs screaming off into the dark woods...)

Sun, 12/19/2010 - 21:10 | 817460 DavidPierre
DavidPierre's picture


"Zero Hedge has been known to utilize such stylistic tropes as hyperbole, sarcasm, and irony ... with the end goal of making the reader aware..."*


Sat, 12/18/2010 - 18:27 | 815985 Blah Blah Blah
Blah Blah Blah's picture

No junk, just a hearty "Amen".

Sat, 12/18/2010 - 18:47 | 816005 Withdrawn Sanction
Withdrawn Sanction's picture

"Every time I read this FOFOA, I get the sinking feeling that I am being sold a bill of (questionable) goods by a fast-talking, long-winded salesman in a purposely complex and dishonest-feeling manner."

Hear, hear, akak.


So many errors so little time.  But to indicate just a couple:  First, the idea that we need ever-expanding amounts of money to function as a “lubricant” seems genuinely absurd.  Why expanding?  Who knows.  Does a car engine need ever-expanding amounts of lubricating oil?  No, really all it needs is a pump/pipes (the saving/lending channel), a reservoir (savings/unspent income), and a filter (a risk pricing and bankruptcy mechanism).  (Yeah, I know, the metaphor is not perfect, but you get the idea.)  In short, why put the adjustment burden on the quantity of money alone?  Why not allow prices and velocity to adjust too? 

Second, as for the monetary commodity is concerned, the important question is who controls the standard, while the question of its physical composition is a secondary consideration (important, but not primary).  If the standard is to be controlled by the government, no standard is safe from abuse.  If it’s to be the market, no standard need be specified in advance. That is, the market itself (i.e., through the self-interested choices of millions of men and women) will decide what they want to use and accept in exchanges and for wealth storage. 

What I THINK they/we will choose is a bimetallic standard.  Having silver coins circulate alongside gold coins enhances the divisibility of gold coin.  It allows us to conduct exchanges on a far smaller scale.  Consider that today, even a 1/10th oz. gold coin would be good for exchanges of $130 or more; whereas a 1/10th oz. silver coin (if such exists) would purchase as little as $3 worth of goods.

As a side note, the exchange rate between gold and silver (i.e., the mint ratio) would be market-determined as well.  This recognizes the fact that the relative values of gold and silver can change over time for a variety of reasons.   If silver were to become more valuable relative to gold, say, because of a new breakthrough medical procedure, the mint ratio would fall.  The same outcome occurs if a large deposit of gold or gold mining method were discovered that greatly added to gold supply.  On the other hand, if gold were to become relatively more valuable than silver (for monetary or non-monetary reasons), the mint ratio would rise (i.e., it would take more ounces of silver to exchange for an ounce of gold).   A fixed mint ratio, however, has the potential to drive one metal or the other from circulation, according to Gresham’s Law, depending on which one becomes relatively more valuable than the fixed ratio indicates.


Bottom line:  as far as possible, human beings should be able to determine for themselves what form and standard of money they should use and accept.  Telling them that only gold can function as money seems as narrow-minded as foisting irredeemable fiat currency on them does.


Sat, 12/18/2010 - 19:52 | 816083 Jendrzejczyk
Jendrzejczyk's picture

Bottom line: Fofofoafoafo is putting up a video of a crack head to support his theories.

Sun, 12/19/2010 - 04:10 | 816685 sterling effort
sterling effort's picture

Junked you for low content. The guy in the video is so not a crack head. He may have some sort of autism such as Aspergers that causes him to appear 'different'. People with this type of syndrome have the need to grasp a topic and use their considerable intelligence to 'worry' the hell out of it. Some obsess on obvious things such as trains; others......cows or whatever. This guy has chosen silver as his 'thing'. He is more informed on his topic of choice (silver) than you can imagine. He is smarter than you, and when it comes to his topic (silver) he has the added advantage of being impervious to boredom. A powerful combination. He is completely unaware that dickheads like you view his difference as a disability.

Sun, 12/19/2010 - 08:06 | 816747 assetcoin
assetcoin's picture

Sterling, I applaud your defense of the Silverfuturist.  I have been a subscriber to his YouTube channel for almost a year.  He is very intelligent and passionate about silver and all precious metals.  I have learned a lot from him, and he's pointed me toward good books and articles to learn more.  His name is Joe, and though we've never met, I consider him a mentor and friend.

Sun, 12/19/2010 - 08:52 | 816770 Jendrzejczyk
Jendrzejczyk's picture

My sincere apologies to Joe for not being able to diagnose his "--ability" from an eight minute video.

Sun, 12/19/2010 - 09:04 | 816775 Jendrzejczyk
Jendrzejczyk's picture

"He is smarter than you..."

Yes, pretty much everyone is, but I do take slight offence at being called a dickhead.

Sun, 12/19/2010 - 11:57 | 816875 Non Passaran
Non Passaran's picture

... while calling another person a "crack head" :-)

Sun, 12/19/2010 - 12:29 | 816903 Jendrzejczyk
Jendrzejczyk's picture

Wearing my asshat all day as penance.

Sun, 12/19/2010 - 17:10 | 817283 greenbear
greenbear's picture

I've watched silverfuturist's videos for some time and as someone else once said, at first I thought who is this crazy guy but now I just think I love this crazy guy!  He has a unique perspective on things, I've learned a lot from him, and he is always a joy to watch whether I always agree with his POV or not. 

Sun, 12/19/2010 - 20:46 | 817606 THE DORK OF CORK
THE DORK OF CORK's picture

Silver futurist is a intelligent guy but at least in this video he does not address WHY silver supply is declining.

It may be declining due to a epic price manipulation to protect the perceived value of the dollar.

If the true value of Silver is $100 - $500 a ounce then when a computer goes to silicon heaven then its silver may be recycled and more marginal silver/cooper mines may be utilised.

Indeed the silver content of a computer may be only a dollar and if the silver price is multiplied by 10 then the silver content of the computer is now worth 10 dollars.

If a computer had a price of 501 dollars then 510 dollars is not such a huge obstacle to buying this item.

The dynamics are similar to non monetory ores such as uranium - although very expensive a explosive price rise of uranium will not effect the cost of nuclear power in a dramatic way as the infrastrucal and maintence costs are much higher.

In the case of oil and gas any rise in these fuels has a dramatic effect on the price of energy has they have a lower infrastrucal cost but higher input cost.

In effect the ratios are entirely different.

FOFOA arguments regarding the oil / gold relationship may infact orbit around these properties.

Sun, 12/19/2010 - 01:37 | 816578 blunderdog
blunderdog's picture

Why expanding?

Along with FOFOA's poor choice of spokesman, there are some crucial elements he just could not seem to wrap words around.

1) The human population is increasing.  It always has been.  This may change, but for now, it means that our monetary system REQUIRES a bit of inflation to keep up with population growth if the monetary system is intended to shuffle around resources of limited quantity.

2) If you choose a given element or physical commodity as the "ultimate" representation of wealth, you lose the ability for the store of wealth to adapt to distribution of information.  Information today represents its OWN form of value.  A man who knows how to construct a waterwheel possesses a form of wealth that the uninformed does not possess, but could at any time without the exchange of any physical resources.  This means that the valuation of human labor is fundamentally and inescapably dependent on the distribution of human knowledge--if every human on Earth could construct a fusion reactor out of dirt and air, our economic system would collapse.

Personally I'd say FOFOA is very well focused on half the picture, but the other half is so completely beyond the scope of this article that you can pretty much disregard all the final proclamations.

Sun, 12/19/2010 - 21:57 | 817801 BigJim
BigJim's picture

1) The human population is increasing.  It always has been.  This may change, but for now, it means that our monetary system REQUIRES a bit of inflation to keep up with population growth if the monetary system is intended to shuffle around resources of limited quantity.

(Besides the point that the gold supply IS increasing by around 2% per annum)... why?

Resources of limited quantity will continue to 'shuffle around', irrespective of constant, declining, or increasing money supply.

Mon, 12/20/2010 - 01:22 | 818105 blunderdog
blunderdog's picture

... why?

Because "the economy" is an organic system, and lifeforms don't get fatter by standing still.  They have to consume.

If you create an artificial life-form (the market consumer) that grows by doing nothing, you create a completely self-destructive system.

This may be the goal, who knows.  I say if you want to understand economics, start with biology, not math.  You can't prove a fuckin' thing.

Mon, 12/20/2010 - 07:12 | 818270 Haywood Jablowme
Haywood Jablowme's picture

Does a car engine need ever-expanding amounts of lubricating oil?  No, really all it needs is a pump/pipes (the saving/lending channel), a reservoir (savings/unspent income), and a filter (a risk pricing and bankruptcy mechanism).  (Yeah, I know, the metaphor is not perfect, but you get the idea.) 


So you're telling me you can go 200k miles without an oil change?  Please, do tell what make of car engine and lubricant you're using.  I'm surprised you haven't mass-produced it yet and made a killing for yourself.  Who needs green energy anyways?

I don't agree with everything FOFOA says, but it ain't rocket science to understand that injections of new cash / quantitative easing to the moon is being implemented (and required in the meantime) to feed the black-hole vacuum that is the derivatives market in order to keep the system "lubricated" such that a slow / cascading takedown of the current currency system can continue until a Freegold system or an astronomical fixed spot price is implemented to balance the world's ever-expanding money printing.

Freegold will happen or gold will be fixed at a price so high, that those who aren't living check-to-check, have sizable wealth (compared to the typcial citizen of the ussa), and have physical in-hand will keep it. 

For those that passed on their temptations of having the latest Apple fad or paying $125/month for shit cell phone plans so they can feel cool tweeting as they take the subway to the nearest unemployment office but had the foresight to accumulate or reposition what was left of their savings into several grams / small ounces of gold, they will most likely part from their gold physical holdings after the reset in order to survive.

Having said that, I disagree with his take on silver as money (it will be used) but do agree if it's a choice between gold and silver on a central banking level, gold will be chosen for recapitalization.




Sat, 12/18/2010 - 20:37 | 816146 jakethesnake76
jakethesnake76's picture

Somebody tell me where to get back my hour of reading ,( i read slow when kids are yelling about christmas :) 

Sat, 12/18/2010 - 21:23 | 816234 Dingleberry Jones
Dingleberry Jones's picture

Major props on this post. I too agree that Freegold seems like a scam at worst and a misguided attempt at a new currency at best.

Sun, 12/19/2010 - 02:06 | 816605 Windemup
Windemup's picture

I'm in agreement with AKAK.

Sun, 12/19/2010 - 07:44 | 816739 saulysw
saulysw's picture

Akak : no junks from me either. Your issues are well stated and reasoned. However, I don't agree with you. I think FOFOA has a place in the world to make you think about money, gold and the concept of "storage of value". It is true that a lot of his posts are long, but this is usually because he is providing examples to later illustrate a point. I have found many of his writings to be very illuminating....and now, on saying that, I am not at all certain that the day of "freegold" will ever come. It might, and it might not. One thing that is stated in many places and ways is that you are encouraged to research and make up your own mind about all this. That is not the usual message from a snakeoil salesman.

One thing that undermines the FOFOA message, in my opinion, is that Another was banging on about Freegold over a decade ago, as a more-or-less immenent event. Gold has done well, it's true, but not to the level he was envisioning. How long exaclty will this take, will it be another decade - or two? Also, there is an expressed belief that the Euro will not only survive, but do well, due to it's gold reserves. I'm not certain that's going to pan out either. Overall, It makes very interesting reading though, in my opinion, for an alternative perspective.

This is the first time he's really made his position clear on silver. I'm not sure he's got it right. I'd still rather get his opinion than anyone in the MSM (Main Stream Media), any day.

Sun, 12/19/2010 - 10:43 | 816825 israhole
israhole's picture

"OK, I may earn a few junks here for this, but the more I read of this "FOFOA", the more I find his convoluted, excessively long-winded expositions to be irrelevant, historically ignorant and flat-out incorrect, if not in fact disingenuously misleading."-akak

Agreed.  And it isn't just silver, but all commodities.  Let's see where the ag's are trading as well as silver, when gold goes to $5000+.  Anything can be used as to exchange value, as the barter system proved long ago.

Sun, 12/19/2010 - 23:58 | 818005 Fearless Rick
Fearless Rick's picture

kak, BINGO! This and other articles by these FOFOA's and others of his ilk are pure rubbish. It reinforces my understanding of why the oligarchs find it so easy to overwhelm the hordes of common men. Here we have some of the (supposedly) brightest economic minds on the web, reading the writings of some anonymous author, on a website based upon a movie theme, in which the writer then quotes from said movie-themed website. Pure fantasy, and some of the mooks here have eaten it all up.

I gained more political insight and worldly wisdom from smoking a blunt and watching the "wizard of Oz" last night than I did from reading his article. FOFOA's circular reasoning and hokum stories about two guys stranded on an island might be the most loathsome example of overt dumbing-down that I have seen this year.

Just in case you don't catch my drift, a note to Tyler, to stop posting this garbage and stick to fundamental reality. If not, I will have to come to a basement near you and kick your stupid ass. Stop misleading the herd, Tyler. It's not funny.

Oh, yeah, and kiss my ass, punk.

Sat, 12/18/2010 - 19:09 | 816033 Lionhead
Lionhead's picture

Answer 42, you need to get a better command of the facts on precious metals along with this FOFOA chap. Now, let us look at the facts, not some one's opinion or interpretation. Please peruse this image from the USGS on the abundance of metals in the earth's crust that is shown here:

As one can see, towards the bottom right corner of this image, AG (silver) & AU (gold) are both in the difficult to find area. Gold is in the rarest category, while silver is above, more or less in between the rarest group & the so-called "rare earth" minerals. In fact, silver is in less abundance than the so-called "rare earth" group.

Anyone making an argument that silver is just another easy to find mineral or just a by-product of base metal mining is making a specious argument. This is mis-information to confuse the public & investors. Everyone is intitled to an opinion; no one should mis-represent the facts.

Sat, 12/18/2010 - 20:43 | 816156 let-them-eat-cake
let-them-eat-cake's picture

Any more use of the facts will be dutifully rewarded in Vogon poetry.

Sun, 12/19/2010 - 00:57 | 816530 Lionhead
Lionhead's picture

Yes, yes, that's it!  ROFLMAO!!!

Sun, 12/19/2010 - 02:10 | 816612 Windemup
Windemup's picture

I'm beginning to think I'll need a Bable Fish to interperit FOFOA.

Sat, 12/18/2010 - 23:04 | 816373 IQ 145
IQ 145's picture

 Yes silver is money also; moronic bs.

Sat, 12/18/2010 - 23:04 | 816374 IQ 145
IQ 145's picture

 Yes silver is money also; moronic bs.

Sat, 12/18/2010 - 23:04 | 816375 IQ 145
IQ 145's picture

 Yes silver is money also; moronic bs.

Sun, 12/19/2010 - 01:17 | 816564 Hearst
Hearst's picture

What a joke of an article!  Look everybody gets it.  In todays world GOLD is paraded around as real money and SILVER is just a crayon color.  SORRY only problem is that Silver has been used as money as long IF NOT LONGER than Gold has.  

FOFOA writes some nice articles about Gold but obviously was absent when Silver was being discussed.  In many regions of the world today the world Silver & money are the same.  To argue that because Silver dropped while Gold rose in the Great Deppression we ought to rid ourselves of the futile understanding that Silver is a store of wealth and money is ridiculous!


Maybe I missed of the MANY unnecessary paragraphs the author spews out, but did he even bring up the concentration of short positions in todays Silver market held by four or less companies?  Did he bring up Silvers LONG TERM history as money?  I mean what's this guy's deal?

Sun, 12/19/2010 - 01:53 | 816595 TheGreatPonzi
TheGreatPonzi's picture

I am French, and we use the same word for silver and money: argent.

Which often drives a lot of confusion. To differenciate the two, we are obliged to say "argent-métal", i.e. "silver-metal".

That may tell a lot to you, just like Gold/Geld in German. There is no coincidence.

Sun, 12/19/2010 - 10:59 | 816835 israhole
israhole's picture

And it's the same in Argentina, where "plata" is silver, or money.

Sun, 12/19/2010 - 18:34 | 817387 Old Pecksniff
Old Pecksniff's picture

How can anyone say that silver is not money?  The patriarch Abraham paid 400 shekels of silver for the field in which he buried Sarah.  During the Roman era 12 silver denarius was equal to one gold aureus.  Pound sterling in England originally meant one troy pound of sterling silver.  The Congress in 1789 set price of an ounce of gold at 15 ounces of silver.  American coins were minted with silver until 1965.

Sat, 12/18/2010 - 14:45 | 815618 tpbeta
tpbeta's picture

So there's only enough sentiment magic to keep gold alone safe from imploding bubble lunacy. But wait - I thought gold buggery was based on the item's rarity and true value, not sentiment.

Sat, 12/18/2010 - 14:49 | 815622 razorthin
razorthin's picture

So, are we saying that the silver market can collapse while the gold market doesn't?  Are we saying that the gold/silver price ratio will keep rising, and will not revert to the mean?  If we are not saying either of these things, then what's your point?

Sat, 12/18/2010 - 14:52 | 815626 jahbless
jahbless's picture

ok i just threw all my Ag out of the third floor window.

thanks for nuthin', ZH.

p.s i trust this is the correct govt. approved response.

yours in servitude, jahbless

Sat, 12/18/2010 - 14:54 | 815634 jahbless
jahbless's picture

p.p.s this dude just called my father, a retired bond trader of 40 years, a vigilante.  I never knew he was so cool.

Sat, 12/18/2010 - 14:54 | 815632 tpbeta
tpbeta's picture

That Silverbug in the video isn't exactly Keynes, is he?

Sat, 12/18/2010 - 15:21 | 815673 Blindweb
Blindweb's picture

It's also a bit out of context.  I've watched all of his videos.  He's given scenarios where a creditor nation like China can remonitize silver, by settling debts in it, if it's in their best interest.   

Sat, 12/18/2010 - 16:52 | 815820 GoinFawr
GoinFawr's picture

@ Blindweb

"...a creditor nation like China can remonitize silver, by settling debts in it, if it's in their best interest."

Exactly. Creditors wear the pants.

Sat, 12/18/2010 - 15:29 | 815689 nontaxpayer
nontaxpayer's picture

No, he actually makes sense...

Sun, 12/19/2010 - 00:57 | 816529 dark pools of soros
dark pools of soros's picture

completely -  he stumbles onto explaining the difference of money vs assets better than any financial book ever has

Sat, 12/18/2010 - 15:08 | 815633 Stuck on Zero
Stuck on Zero's picture

Ever buy a sack of flour with a gold coin?  What do you get in change?  A thousand apples?  1200 asparagus tips?  No, you get silver in change.  All the above is superfluous analysis.

Sat, 12/18/2010 - 16:03 | 815743 dearth vader
dearth vader's picture

You're spot on, Stuck. This was literally true in times when PMs were part of the specie. Later on, when only Ag was left (in the 60s), when you paid in silver you got change of nickel and bronze and zinc.

Sat, 12/18/2010 - 16:13 | 815749 Problem Is
Problem Is's picture

+1 Exactly, Stuck
Gold and silver are complimentary, not adversarial.

In the absence of trust in fiat, gold and silver will become currency. Maybe not in the macro sense (Read: All of FOFOA's arguments), but as the citizen's defense in the micro everyday transaction world.

Silver Change From a Gold Transaction
Silver and gold will act to store value against the Bernank and as a currency to facilitate local transactions whether officially recognized or not. Plopping down a half ounce of gold, getting your purchase and change in silver makes perfect real world sense...

Failure of Economic Theory
Real world sense is where the dismal science is a dismal social study of a failure... If you can't empirically test your hypothesis... You ain't no science, Econ...

FOFOA offers a lot of convoluted what if arguments. Your argument Stuck, is simple and concise.

Sat, 12/18/2010 - 17:07 | 815838 Blano
Blano's picture

This is why if TSHTF silver will have great value.  In this example, which is representative of the overwhelming majority of transactions, gold cannot compete.

Sun, 12/19/2010 - 07:51 | 816740 Bendromeda Strain
Bendromeda Strain's picture

Not to mention gold is for storing, silver is for sharing. In times of great stress, the silver candlesticks were worth more than the piano they sat on. Even FOFOA agrees that gold will go underground for a period where no bid is met. Why the heck would you not want to be holding silver during this phase of the event? Are gold stocks going to get you through during a bank holiday? I thought counterparty risk in all forms was a touchstone of PM ownership. Check that - I know what I believe and am only feigning confusion. Carry on.

Sat, 12/18/2010 - 18:15 | 815962 pgarner
pgarner's picture

Hm, Stuck. I have to admit I've never bought a sack of flour with a gold coin. Damn. Or was that example theoretical? Haha.

Mon, 12/20/2010 - 05:50 | 818272 Haywood Jablowme
Haywood Jablowme's picture

So instead, how many blowjobs did you have to give, not including the one you gave to your moms in the backseat of the flour owners F150?

Factual or theoretically speaking.



Sat, 12/18/2010 - 14:54 | 815635 tony bonn
tony bonn's picture

"Money is debt, by its very nature"

absolute foolish bullshit. money extinguishes debt unless of course it is fiat monetized debt which only confounds and compounds debt.

silver is money in the small.....

Sat, 12/18/2010 - 15:10 | 815655 Bearster
Bearster's picture

Bingo! +10!

I pity anyone who cannot distinguish between a positive and a negative, a liability and an asset, a value and owing someone else a value.

Anyone who is seriously interested in the idea of what makes gold money should read some of the works of Professor Antal Fekete.  One thing to look at: the ratio of stocks to flows.  There is, today in human possession, somewhere around 80 *years* of annual mine production of gold.  For silver, I think it is around 40-50 years.  OK, good point FOFOA: gold is the rich man's gold and silver is a bit different.

But, and this is the key but.

No other commodity exists in such vast, VAST quantities (as a ratio of stocks to flows) compared to gold and silver (yes, gold and silver in the same breath).  Every other commodity has a ratio of less than a year.  Vs. 40-50 years and 80-years.

The fact that such vast amounts have been held away from consumption, the fact that despite such a huge SURPLUS of silver and gold existed, the price of silver did not fall.  This would not, and did not in fact, occur for any other commodity.  Be it expensive industrial metals like platinum or crude oil, wheat, etc.

The huge stocks to flows tells you that marginal utility does not decline for gold and silver the way it does for any other commodity.  While I do not believe that silver is "better" than gold, and my advice to my family and friends is to buy gold (and only get silver once you have the position in gold that you want), silver does have one advantage over gold.

Silver is more marketable in the small.

If you want to hoard a little out of your weekly (or monthly) wage, that amount of wealth would buy a very small gold coin.  At such sizes, the bid-ask spread widens.  Gold's spread widens less than any other commodity except one.  Silver.

Sun, 12/19/2010 - 01:33 | 816568 False_Profit
False_Profit's picture

silver and gold are complimentary..."good gold" in the book of genesis, gold for baby Jesus, silver for judas...

paper is currency, pm's are money.

merry Christmas!

Sun, 12/19/2010 - 02:27 | 816629 greenbear
greenbear's picture

Well, silver is given major props as well; it is used as an analogy for the words of God: 

Psalms 12:6 The words of the LORD are pure words: as silver tried in a furnace of earth, purified seven times.


Sun, 12/19/2010 - 11:06 | 816839 eftian
eftian's picture

Love Fekete, but where is this 40-50 years worth of silver production in human possession? Most analysis I`ve seen puts the number around 1 billion ounces, 2 tops, so at 700m ounces/yr of mine production seems like 2-3yrs to me.

Sat, 12/18/2010 - 17:39 | 815896 boiow
boiow's picture

"Money is debt, by its very nature"

is actually true if you contemplate it. If as a society you work on an 'exchange' basis. then being paid in money implies 'future'. ie; you get paid in money to spend it in the future. so its not really the money that you want, its the goods and services that the money 'owes' you in the future that is the 'debt.'

  in other words money provides the promise of future fulfilment. which is debt.

Sat, 12/18/2010 - 20:30 | 816125 e_goldstein
e_goldstein's picture

"in other words money provides the promise of future fulfilment. which is debt."

no it's not.  what you just described is savings, not debt.

credit is debt. debt involves counterparty risk.  

savings, if done in physical assets instead of interest accruing accounts, is not dependent on counter-party risk and is in no tied to debt.

Sat, 12/18/2010 - 20:35 | 816134 TheGreatPonzi
TheGreatPonzi's picture

But if money is not debt, and debt is debt, is debt debt and is money money? In other words, does your money buy debt or does your debt buy money? Or is money the money of the debt and the debt the debt of the money which has been paid by debt? Put more simply, is debt the new money created by previous debt? Is debt debt and money that is debt debt money debt money debt debt?

Sun, 12/19/2010 - 00:37 | 816508 Stuck on Zero
Stuck on Zero's picture

Debt is an IOU for something of value to the debt holder. The Federal government only promises to give you one thing in return for dollars: writing off your tax debt.  The Fed does not guarantee that you can do anything else with your dollars. 

The only thing that extingushes debt is a final consumption without recourse of trade.  For example:  a fine meal, a night on the town, a suit of clothes, a vacation, blowing 150 rounds from your Barret 50 Caliber, or buying Christmas presents for the kids.  Anything else, gold or dollars included, can be exchanged for something else.  If it can be exchanged for something of value it's an asset not a debt.

Sun, 12/19/2010 - 01:39 | 816581 boiow
boiow's picture

whatever you choose to save in. ie; gold, silver ,currency etc. is the counterparty risk . because anything used as a store of value is the counterparty.

Sat, 12/18/2010 - 14:56 | 815636 traderjoe
traderjoe's picture

I only scanned this article because I couldn't really get into the premise. I don't understand why it has to be an exclusive one v. the other argument. Gold stores value nicely in compact weights, but how are you going to buy a carton of milk at the grocery store? Shave a bit off?

Perhaps that is his slow v. fast circulation argument, but that doesn't lessen the monetary value of silver. Arguably the opposite. I've been able to tip waitresses, etc. with a nice silver Maple. They love it. Can I do that with gold? No. Especially if it goes to some larger $5k per ounce. 

And arguing that industrial properties changes the metal from monetary to industrial? Why can't it be both? I like that the metal has dual purposes, where admittedly gold resides solely on confidence/sentiment, etc. The fact that silver is being used up in industrial processes but can be acquired and stored as money makes in more attractive IMHO. 

I don't like buying after such large rises in prices, but I've been dollar cost averaging since about $16, and intend to continue to proceed to do so...

Sat, 12/18/2010 - 15:00 | 815639 Cheesy Bastard
Cheesy Bastard's picture

Note that circulation velocity is the market's way of controlling the value of any currency. Faster circulation = lower value.

When a currency collapses it is that currency which circulates quickly as people try to get rid of it.  When the collapse of the peso happened in Argentina, dollars, gold and silver all retained value.

Sat, 12/18/2010 - 15:10 | 815654 Stuck on Zero
Stuck on Zero's picture

Gresham's Law in action.

Sat, 12/18/2010 - 15:29 | 815688 Sudden Debt
Sudden Debt's picture

Today I've bought 10 x 20 Balboa coins from Panama and 20 x 1 silver star peso coins from cuba and those coins are just damn cool!

The 20 Balboas are the largest silver coins ever made! 120 grams!

Sat, 12/18/2010 - 15:41 | 815710 jahbless
jahbless's picture

SD - you're a yerpeen right?  If you bought online, care to share your source? 

I'm all about traveling the world in Ag, mon.

Sat, 12/18/2010 - 17:15 | 815847 Sudden Debt
Sudden Debt's picture

Sorry, I still buy they below spot and like to keep it like that. If I put them on a site with over a million readers that are almost all into silver. The well will dry up a bit to fast :)

But almost all are auction sites, and that DON'T include Ebay.

The reason why these coins are mostly still cheap is because the price is set with catalogue prices. Meaning that they mostly look at the catalogue 2010 jan. to price their coins.

In jan 2011, this will all change.

Sun, 12/19/2010 - 18:15 | 817360 RockyRacoon
RockyRacoon's picture

Here is a website that you can pick up all sorts of foreign coinage at good prices; many priced based on "catalog value" which can be less than spot.   You have to know what you are buying but most silver coinage is described as such.  Beware of "silver" coins that are 50% silver up to sterling.  Try to get .999 if possible.  

Don't forget the shipping for your winnings from yerupp to whatever part of the Ozarks you live in.,-3,language,E.html

Sat, 12/18/2010 - 15:57 | 815730 Cheesy Bastard
Cheesy Bastard's picture

Between 3 1/2 and 4 oz silver per coin?  Very nice!

Sat, 12/18/2010 - 17:18 | 815857 Sudden Debt
Sudden Debt's picture


They are. Cool he :) 129,59 gr., 925


Sun, 12/19/2010 - 18:16 | 817364 RockyRacoon
RockyRacoon's picture

Yep, they are about the size of a Crystal Burger.   I have two of them and they are massive.  But you can't eat them.

Sat, 12/18/2010 - 16:51 | 815818 patience...
patience...'s picture

Could always pick up a Kookaburra at 1 kilo.


might need a bigger pocket though.

Sat, 12/18/2010 - 14:58 | 815641 RobotTrader
RobotTrader's picture

Nice base being built.

Sat, 12/18/2010 - 15:26 | 815679 Spalding_Smailes
Spalding_Smailes's picture

EUR/USD dropping like a stone .... book it.

Cat = load up.

Insurance,Large Banks,REIT's,Metals /USA,Utilities .... and China personal products.


Sat, 12/18/2010 - 15:01 | 815643 yabyum
yabyum's picture

Silver has beem money in my lifetime(b1953). Try heading down to the store for a loaf of bread and a gallon of milk w/gold. Hell pick up a pre -1982 penny, that too is is worth its weight in something of value.

Sat, 12/18/2010 - 15:03 | 815644 razorthin
razorthin's picture

Hell, I'm thinking that even converting all paper to the current scrap-metal coinage puts you far ahead.  We might be smarter to do the reverse-water bottle routine.

Sat, 12/18/2010 - 20:36 | 816140 hamurobby
hamurobby's picture

Nickles are worth 6.5 cents, and the bank will hand you all you want for 5 cents each.


Sat, 12/18/2010 - 23:35 | 816417 razorthin
razorthin's picture

Even easier money than pre-1983 pennies I suppose, since you don't have to search for them

Sat, 12/18/2010 - 15:05 | 815646 shuswap
shuswap's picture

I actuall think the thought that FOFOA is trying to get across is not so much that silver is not money but that gold must be the one and only floating standard. Anything can be money for exchange,even lines in the sand. And silver is an excellent currency, it just doesn't store wealth like gold .

Sat, 12/18/2010 - 22:08 | 816281 FreeMartinArmstrong
FreeMartinArmstrong's picture

bingo on gold

what is so excellent about industrial stress on a currency ?

silver changed, it's no longer the easy money, but still has that nice monetary glow from the past, be not confused by it, it will not do in today's economy as money. sheeple are used to cotton. or creditcards. they want to keep their currency's !


Freegold is about recapitalization

Sat, 12/18/2010 - 23:59 | 816454 nuinut
nuinut's picture

Exactly. Only gold will recapitalize its physical owners.

This has nothing to do with using coins as currency, a function for which two (or more) metals can be utilized simultaneously.

FOFOA is speaking of a floating wealth reserve, for which only one metal is required. Seeing as how all the major players own gold, it is unlikely that silver will be utilized.


Silver is poor mans gold. Q.E.D.

Think about it.

Sun, 12/19/2010 - 01:55 | 816598 blunderdog
blunderdog's picture

Yes, shuswap, you nailed his point, which is what makes him wrong.

Gold is as good as any "one and only floating standard," and better than most.  But it could finally turn out to be uranium or platinum or light sweet crude, in which case gold floats relative to what REALLY matters.

Don't kid yourself.

(As far as it goes, though, he's convinced me to convert some more ounces of Ag into Au, because I think his view is highly prevalent, and I ain't about to argue with every monkey on the planet.)

Sun, 12/19/2010 - 20:00 | 817521 qussl3
qussl3's picture

Although gold may perhaps become the only floating standard, but other stores of intrinsic value, silver, corn, wheat, oil etc would all benefit if there is such a move.

It is nigh impossible to imagine a scenario where such a recapitalization event occurs without a mad rush into anything with intrinsic value - even stocks.

For today though, silver will likely be the better investment as the tailwinds driving it are manifold compared to gold.

1)Any argument made for gold as a floating store, silver will at the least benefit from the halo effect, possibly temporary but almost certain regardless.

2)Based on geological scarcity, a price ratio of 20:1 is not unreasonable.

At minimum, if we accept how platinum is priced realtive to gold - higher, as it is more scarce; why should silver be priced at a discount?

3)To borrow FOFOA's point on price controls, the USG has possibly been divesting its silver stockpile for years to meet demand created by the then "market" price.

Perhaps some industrial demand may not have existed without "cheap" silver, but any transition away from those uses would demand cheaper substitutes where avaliable or pricing pressure in final demand.


Sat, 12/18/2010 - 15:36 | 815648 honestann
honestann's picture

Wow, very long.  I'm going to reply to the general question and premise, then go back and read the whole long article.

I prefer gold as money.  Still, please understand that I own physical silver too, as well as a few silver stocks.  So I'm not against silver at all.

As "money", gold is superior in every way I can think of.

#1:  Gold is much more inert than silver.  Gold coins at the bottom of the ocean for centuries looks like brand new gold coins.

#2:  Gold is more compact.  One distinction of a "rich man" is that holding a substantial portion of his wealth in silver would weight many, many tons.  He couldn't even begin to transport his silver in his car.  If he wants to move to another country, transporting that much silver is a huge hassle and expense.  In contrast, he can easily and conveniently transport all his wealth in gold via FederalExpress for a few hundred dollars at most.

To buy something expensive with gold is easy, but silver is huge and bulky.  So we can buy a house with a couple bowling ball carrying bags full of gold, or we can buy a fancy car with gold coins in one jacket pocket.

#3:  If everyone converts their fiat, fake, fraud, fiction, fantasy, fractional-reserve toilet-paper savings into gold, no manufacturing process is massively dislocated.  And for the same reason, the scarcity and price of gold is much more stable, because demand does not change much in booms versus busts (ignoring the fact that booms and busts would be vastly milder on an honest gold standard == no fractional reserve practices permitted).

4:  One of the primary purposes of a gold (or silver) standard is to have a simple way to determine the appropriate exchange rate for any good versus any other good.  This is trivial to create with a single sheet of paper or computer file that states the current/standard conversion rate between gold and each good.  Thus conversion between any two goods requires we look up the conversion rate of good #1 to gold, and good #2 to gold.  This works just as well with silver as the standard.  However, what does not work well is two separate exchange rates, one for gold and another for silver... precisely because the relative value of gold and silver will change (due to silver being a good with fairly strong supply and demand variations).

#5:  The supply of silver is much less consistent, again due to its many applications in products... but also because silver is simply a consequence of mining other metals.  Thus if the demand for copper or nickel or other metals changes dramatically, the supply of silver will too.


Important note.  Having a gold standard does NOT mean anyone should hold their wealth in gold.  That might be convenient, but obviously it is smarter (if you have time), to convert your [gold/paper] income into whatever real, physical, durable commodity that is especially cheap at the moment.  Nobody who advocates a gold standard would ever want to force anyone to hold gold, buy or sell with gold, or anything else.  Every gold advocate I have ever heard from believes in liberty, which means everyone is free to hold their wealth in any form they wish.  The purpose of the gold standard is to have a single standard for value comparison/exchange, and very importantly, one that cannot be manipulated or created out of thin air at near zero cost by a predator class.

PS:  The notion that "money" serves two purposes is very misleading.  The fact is, in a gold (or silver) standard, there is no reason whatsoever to "hold value" in gold (or silver) --- none.  Everyone would be free to save their wealth in any real, physical, durable, valuable material or good.  However, the other purpose of money is absolutely central --- a way to quickly, easily, conveniently determine the relative values or exchange-rates of any two goods.  Therefore, the author above, like a huge number of thinkers, make a huge mistake that leads to all sorts of other mistakes --- that people need to save wealth in the same form they exchange wealth for goods.  Not so.

PS:  Also note that "money" is a real, honest gold standard cannot be denominated in "dollars", "euros", "pesos", "yen", or any other bogus fictional name.  To be a real, honest gold standard IN FACT, money must be denominated in grams.  Otherwise the entire notion of a gold or silver or any "real" money is just as bogus as the current fiat fraud.

PS:  The article goes crazy due to making some of the mistakes I mention above, plus ignoring obvious facts.  For example, if Chen wasn't totally brain damaged, he would soon stop giving fish to Ben.  Thus the entire rest of the scenario is bogus.  Chen would soon realize that production is production, and he can produce something other than "more fish" and save that production himself.  He has no need for Ben at all, except perhaps to play checkers with or debate philosophy once in a while.

Unfortunately, the author doesn't know how to identify essentials, and think in terms of those essentials.

Sat, 12/18/2010 - 16:28 | 815746 delacroix
delacroix's picture

it wouldn't take too many rich people, storing some wealth in silver, to consume the available supply, then what? if gold is the monetary pickup truck, silver, is a two seater sports car. WTF             (fofoa= psyops infiltrator?)  sounds like desperation. you better sell your silver, which we don't have any of, and buy gold, which we have a shitload of. its much easier to control the price of gold, and we need silver, to buy some more time. theres still so much left to steal, before it all collapses.   fofoa are you  a traitor, or  are you just fucking stupid? so much knowledge, and no common sense.

Sat, 12/18/2010 - 17:56 | 815928 kiwidor
kiwidor's picture

+31.1034768 g

Sat, 12/18/2010 - 16:33 | 815788 dearth vader
dearth vader's picture

A great expose, honestann, thank you, but for:

Therefore, the author above, like a huge number of thinkers, make a huge mistake that leads to all sorts of other mistakes --- that people need to save wealth in the same form they exchange wealth for goods. Not so.

As for me, that's exactly FOFOAs point also. Gold for wealth storage, anything else for money.
And in regards to your last PS:
Read it as a joke on the Bernank (Ben) and the Chinese (Chen). FOFOA is describing the madness that developed for a decade between these two. So, it's not the article that goes crazy, it's reality :D

Sat, 12/18/2010 - 22:17 | 816303 FreeMartinArmstrong
FreeMartinArmstrong's picture

...anything that can expand in infinite amount and/or velocity


silver wont't do because of that

Sun, 12/19/2010 - 11:51 | 816867 velobabe
velobabe's picture

Ben and Chen, two males. that is the wHOLE damn problem, throw in a female, voila, civil rest. then see what kind of lines are drawn in the sand. you need a woman on that island to make sense to survive and thrive. this sounds like a chapture in On The Road.

Sun, 12/19/2010 - 15:01 | 817110 trav7777
trav7777's picture

throw in a woman and you have a war.

Either that or whoever has the woman ends up spent into the poorhouse and has to eventually trade her to the other side, where the cycle repeats

Sat, 12/18/2010 - 15:05 | 815649 Silverhog
Silverhog's picture

Silver been a excellent form of money for 5000 years. I respect Silver as a source of value, much higher than copper and way above pork bellies. Foolish article.

Sat, 12/18/2010 - 15:09 | 815652 Clint Liquor
Clint Liquor's picture

Silver is not a store of wealth? Really? Why can two Mercury dimes buy a gallon of gasoline today just like they could in 1945?

Sat, 12/18/2010 - 20:49 | 816176 BrosMacManus
BrosMacManus's picture

This is a point I've inquired about before in a previous ZH article...

The average price of gas in '64 was 27 cents. If gas is now selling for $3 and that 90% Ag '64 quarter according to coinflation is now worth $5.27, is Ag overpriced, gas underpriced, or are the supply and demand fundametals altering Ag's store of value?

Sat, 12/18/2010 - 21:33 | 816249 akak
akak's picture

I think your figure of 27 cents for a gallon of 1964 gas is a little high.  Be that as it may, the fundamentals of silver have radically changed since 1964, not the least of which being that there is no multi-billion ounce government stockpile (or any other even remotely siimilarly-sized stockpile) in existence today, while the number of industrial uses for silver have almost exponentially increased since that time, along with the world having three times as many people in it today as in 1964, with annual silver mine production not having kept pace with either that population increase nor with those industrial demands.

Sat, 12/18/2010 - 23:15 | 816394 IQ 145
IQ 145's picture

 All these statements are true; but god forbid you should actually buy any. I regard the current price of $30/oz. as not significantly different than the bottom of 4.35/oz.  The market may be actually be distributing supply rationally at $150/oz. that remains to be seen. This is the most underpriced item in the world.

Sat, 12/18/2010 - 23:25 | 816403 akak
akak's picture

If gold is the neglected stepchild of the world's current monetary system, silver is its battered and abused, chained-in-a-dark-closet stepchild.

Sun, 12/19/2010 - 00:23 | 816489 Oh regional Indian
Oh regional Indian's picture

I like that tragic description of silver akak.

Well said!


Sun, 12/19/2010 - 00:47 | 816520 tmosley
tmosley's picture

I recall a short story about a dystopian future where "equal opportunity" had been taken to such an extreme that people were forced to wear helmets that negated their intelligence if they were smart, wear ugly masks if they were beautiful, and were burdened under heavy weights if they were strong.  The protagonists of this story were two people, a man and a woman, who were so beautiful, strong, and intelligent that they were able to break their bonds and fly away with each other (superman style).  Your metaphor reminded me of that for the first time in more than ten years since I read it.

Sun, 12/19/2010 - 11:56 | 816874 Pants McPants
Pants McPants's picture

I believe the story you are thinking of is Harrison Bergeron by Kurt Vonnegut.  Great story!


Sadly, in today's world, most will champion equality before freedom.  That that concept transposes cause and effect is lost. 

Sun, 12/19/2010 - 23:33 | 817984 Oh regional Indian
Oh regional Indian's picture

Pants, well observed and said.

This twisted version of equality as the god everyone is supposed to worship has clay feet indeed.


Mon, 12/20/2010 - 05:51 | 818273 nuinut
nuinut's picture

Isn't it ironic that freedom is the corollary of Freegold.

But then again, irony is the most abundant element in the universe. 

Sun, 12/19/2010 - 01:31 | 816574 delacroix
delacroix's picture

natural gas is starting to look interesting (as an underpriced asset)

Sat, 12/18/2010 - 15:14 | 815656 Blindweb
Blindweb's picture

I've read all of FOFOA's articles and agree with free gold, BUT he severely underestimates the effects of a collapsing monetary system in tandem with a collapsing industrial society due to peak oil and plantetary limits being reached.  The British and U.S. central banks have suceeded over the past 100-200 years in demonitizing silver, there's been several articles on this. (One recently on itulip I think)  Centralized power is going to be declining for 100-300 years, maybe longer.  Freegold may take centuries to come about.  The only way it is coming about any time soon is if the central banks volunteerily did it now while there's still some faith them in them.  In times of stress individuals and societies tend to fall back on old habits rather than moving forward to untested ones. 

I believe silver will me remonitized for quite a long time when the shit really hits the fan.  I'm also hedged by the fact that silver is going to be rapidly increasing in importance as industrial society falls apart.  Conductivity, reflectivity, antibacterial (supposedly silverware saved many rich folk during the medieval plagues), pretty (more primitive/'natural' forms of mating wealth displays will become popular again as people become priced out of technogadgets)   .  

Sat, 12/18/2010 - 15:16 | 815668 no cnbc cretin
no cnbc cretin's picture

Well said!

Sat, 12/18/2010 - 15:27 | 815681 Blindweb
Blindweb's picture

Also, if say China comes out of the coming resource wars on top and decides remonitizing silver is in their best interest, even if a fixed price silver system isn't sustainable it doesn't mean that they can't have one by force. 

Sun, 12/19/2010 - 12:51 | 816928 Non Passaran
Non Passaran's picture

Of course one can't have one by force - didn't you read previous comments?

Tue, 12/21/2010 - 11:02 | 820764 Blindweb
Blindweb's picture

Do you understand anything?  Of course you can, all you need is enough hegemony.  With enough force you can put the world onto an excrement standard.  I clearly stated that it wouldn't be sustainable.  Sustainable is relative though.  It's certainly plausible for them to sustain a fixed price silver standard for the rest of my life.  Like Fofoa you fail in realizing that civilization can go backwards as well as forwards

Sat, 12/18/2010 - 15:11 | 815658 Gubbmint Cheese
Gubbmint Cheese's picture

Dave Franklin of Sprott on silver (via canadian show BNN)


Do NOT follow this link or you will be banned from the site!