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Guest Post: Gold And Triffin's Dilemma
Submitted by Joe Yasinksi and Dan Flynn of GBI,
Have you seen Robert Triffin?
"It was the outcome of an unbelievable collective mistake, which, when people become aware of it, will be viewed by history as an object of astonishment and scandal"
-Jaques Reuff 1972
The obscure Belgian economist Robert Triffin is not only very dead he also isn't exactly a household name, yet. Triffin, who died in 1993 studied at Harvard, taught at Yale, worked at the Federal Reserve, the IMF, and was a key contributor to the formation of the European monetary system. Triffin exposed serious flaws in the Bretton Woods monetary system and perfectly predicted it's inevitable demise yet his work remains largely ignored and unstudied by today's mainstream economists. This "flaw" became known as the Triffin dilemma, and many believe Triffin's dilemma has as serious implications today as it did 50 years ago. In short, Triffin proposed that when one nations currency also becomes the worlds reserve asset, eventually domestic and international monetary objectives diverge. Have you ever wondered how it's possible that the USA has run a trade deficit for 37 consecutive years? Have you ever considered the consequences on the value of your Dollar denominated assets if it eventually becomes an unacceptable form of payment to our trading partners? Thankfully for those of us trying to navigate the current financial morass, Robert Triffin did.
Prior to the 1944 Bretton Woods agreement, central banks used gold as the asset to back their currencies. By the end of World War II, the United States had established itself as the world's creditor and largest holders of gold. Under the 1944 Bretton Woods agreement, the US Dollar was fully backed by gold at a fixed value of 1/35th an ounce per dollar, and foreign Central Banks could use US Dollar assets as reserves backing their currency, in lieu of gold. This agreement avoided the inevitable deflationary pressure a return to pre-war gold/currency ratios would have forced just as Europe was beginning to rebuild, and allowed US debt held abroad to be used as an asset by central banks against their local currencies.
In the 1960's Triffin observed that there existed an excess of dollars offshore relative to the gold available to tender at the set $35 price. He hypothesized that given foreign central bank demand for dollars as reserves, the trend of a growing and continuing glut of dollars was going to continue unabated. It would continue until the excess reserves would so clearly be many multiples of the gold available to satisfy them that enough countries would start tendering dollars for gold and eventually the entire scheme would collapse. Triffin went as far as congress in 1960 to testify that the system as currently devised could not possibly maintain both liquidity and a stable value in the dollar and eventually, the agreement would prove unsustainable. As Triffin predicted, on August 15, 1971 the United States closed the gold window as Richard Nixon came on national television and defaulted on US gold obligations while national gold reserves drained from over 20,000 tons to 8,133 tons. Up until Nixons actions, foreign sovereigns tendered their dollars for gold at an increasing pace. On that day, nations that were holding US dollars because they were "as good as gold" were left with paper promises and nothing more.
At that time, the world was at a crossroads. Would foreign governments and trade partners continue to accept fully fiat US Dollars? The alternative was a deflationary return to a hard (pre-Bretton Woods) gold standard. It can be argued that structural support was granted to the dollar given the fact that with cheap oil, the US economy was expanding at a pace far more rapid than the growth in US government debt. They rationalized that US dollar was still a claim on future growth and production and the rest of the world was lifting it's standard of living as well. Going backwards to the last failed monetary regime was politically unappealing.
And so the US dollar hegemony continues to this day. The dollar is fully entrenched as the settlement currency for international trade. As of today if any nation wants to buy oil, the lifeblood of the global economy, they pay in dollars. This alone, along with demand for foreign reserves create an unnatural demand for US assets, specifically treasury debt. Robert Triffin opined that the collapse of Bretton woods did not solve his dilemma because the country that supplies the world with it's reserve asset in the form of their currency and debt will still be forced to supply an excess of this reserve to satisfy world demand and thus, run a trade deficit in perpetuity. Such a dynamic can not exist under the natural laws of economics, it can only survive only with active and unanimous political support and intervention.
The issue facing the modern United States is that since the rest of the world uses the US dollar as a reserve behind their own currencies, that demand has allowed the United States to run a deficit in perpetuity and the mechanics of this trade has allowed the US to export price inflation abroad. Quite simply, the US imports real goods in excess of the real goods it exports. The deficit balance minus service exports is made up with printed US dollars. Our trade partners ship/recycle the same dollars back to the United States in exchange for US Treasury Debt. The US Treasuries are held as reserves on the balance sheet of their central bank, and local currency printed against those new reserves. This process, although inflationary for our trade partner, allows them to keep their currency weak vs the US Dollar and prices cheap for US consumers.
Every nation on earth other than the United States has a limit to their potential trade deficit confined by their existing reserves plus their borrowing capacity. Not only does the US have the capacity to run a perpetual and growing trade deficit but the rest of the world actually demands us to run a balance of payment deficit or else their reserves will have to shrink, along with their credit, currency and economy. Good deal for us, no? This situation means that for 40 years our trade partners have not only tolerated, but dysfunctionally enabled our perpetual deficits. The United States has had the "exorbitant privilege" of being the issuer of the worlds' reserve currency. We've all enjoyed the benefits, now comes the pain.
Sure enough as Triffin foretold the US trade surplus began shrinking immediately after the collapse of Bretton Woods and transitioned to a permanent trade deficit by 1975, never to return to a surplus to date, 37 years later. The previously stable national debt (with a permanent ceiling of $400 billion dollars) has ballooned to over $16 trillion dollars, a multiple of 40 times what it was during the previous monetary regime. Given this 4-decade perpetual trade deficit with the rest of the world and "hyperinflation" of US dollar credits and claims, many have wondered how the US has avoided massive price inflation at home.
Triffin's dilemma continues to play an important role in the ongoing financial crisis the world has found itself in since 2008. The governor of the Peoples Bank of China specifically referenced Triffin's Dilemma as the root cause of the current financial disorder and suggested an immediate effort to transition away from the US dollar to avoid more catastrophic consequences.
The US Council on Foreign Relations aptly describes why Triffin's dilemma becomes unsustainable:
"To supply the world's risk-free asset, the center country must run a current account deficit and in doing so become ever more indebted to foreigners, until the risk-free asset that it issues ceases to be risk free. Precisely because the world is happy to have a dependable asset to hold as a store of value, it will buy so much of that asset that its issuer will become unsustainably burdened."
Have we reached the day when the United States has become unsustainably burdened? Can US debt honestly be considered to still be risk free? S&P certainly doesn't think so, neither does our second largest creditor, China (after our own Federal Reserve) who has been a net seller of US government debt for some time now. And where will the world go to find another dependable asset to hold as a store of value?
Triffin's endgame is simple. A rapid diversification of reserves out of the dollar by foreign central banks. This diversification out of the dollar is only possible given a viable alternative. More and more nations are agreeing to unilateral trade agreements settled in their individual currencies. With each new agreement, global demand for the dollar wanes. It is no coincidence that QE1 coincided with China and the rest of the world backing off demand for US treasury debt. The amounts of QE2 and QE3 match perfectly (or close enough for government work) with US trade deficits from 2009 to today. Given the US Government's seemingly permanent addiction to "free" foreign goods, the trade deficit appears to be irreversible. The extreme danger for those of us in the United States, holding assets denominated in US dollars, is that the Fed is actively creating base money to feed the addiction. As the monetary base grows, the value of existing US dollar denominated assets and credit is devalued. One way to protect against this debasement of your savings is to do as the central banks do – acquire and hold physical gold bullion.
The blueprint for this alternative has been in plain sight since the late 1990's, and if you watch what central banks do – not what they say – you can benefit.
For the first time in FOUR DECADES, global central banks have become net buyers of gold. This central bank demand has been driven by countries that previously had an insatiable appetite for US treasury debt – most notably China. After 40 years, the political and structural support for US dollar holdings abroad is slipping away. Foreign central banks know that the only way to protect their reserves (and defend the value of their home currency), is by holding gold. Their preparations are well under way.
Just as central banks are increasing their gold purchases, private citizens also are exercising their right to diversify their own private reserves. But given the still infinitesimal rates of gold ownership (1% tops most estimates) there is a long way to go. Why shouldn't the average person do what the big boys are doing? Diversifying out of the dollar, out of paper currencies and making sure their assets aren't someone else's liability seem prudent for everyone in times like there. Here at GBI, we see ourselves as a way for every investor to have the choice on how to save their stored labor. We want to make it as easy to buy and sell gold as it is to move money from your savings account to your checking account. We can all walk in the footsteps of the giants, as a Friend and mentor is apt to say.
As a bonus, if gold was to become the worlds foremost reserve asset, would that not finally solve good old Triffins dilemma? Wouldn't gold serving as the preferred global saving vehicle and fiat continuing to serve as the worlds spending vehicle finally break the natural tension Triffin has so aptly illuminated for us? Perhaps, but given golds stable supply and other unique features (see our next essay titled "Forget Supply and Demand, it's all Stock to Flow."), it would by necessity be at a much higher price to function in that reserve role. Some estimates put that potential price into the many tens of thousands of dollars, and given a monetary and fiscal path that seems to be following Triffin's fateful trajectory, how could any price be ruled out?
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Gold Bitchez!
Bacteria bitchez!!!
Bacteria that poop gold?
http://www.washingtonpost.com/blogs/innovations/post/a-bacteria-that-poops-gold-yep-that-exists-and-its-in-an-art-exhibit-video/2012/10/04/1617f178-0e5d-11e2-bd1a-b868e65d57eb_blog.html
Several olympic sized pools filled with these hungry little buggers and I'll be rich...RICH I SAY!!!
In a century.
FOFOA explores Triffin's Dilemma at length:
fofoa.blogspot.com
FOFOA is a must read for gold bugs. Just make sure you have plenty of quiet te so you can focus on what he is saying.
...and leave your baggage at the door. ^^
One of the best summaries I've seen of Triffin's Dilemma. I think--think--that Chris Whalen endorsed this endgame (what I call a suicide mission) for the US dollar.
I'm 55% precious metals with almost half of that in the truest (physical) form. The rest is CEF for the most part. I'm hunkered down (since '99) but not sanguine at all.
"...trade deficit in perpetuity...."
Sounds like along time.
Excellent article...thank you!
"The Day of the Triffins," coming soon to a theatre near you.
Matinee: "The Trouble With Triffins".
Those guys at FOFOA blog are fools dancing on the string held by bankers. They actually believe another paper system like the about-to-collapse Euro is the right solution. I cannot wait for the days when Euro finally dissovles to see how they will spin their brain dead theory.
You may be waiting a while there friend. :P
Turns out you don't need to wait for long. Check the story below. See that is reality while you guys at FOFOA blog are living in a dream, wishfully thinking people would love your central planning solution. Tell me why a poor nation like Bulgaria gives Euro a thumb-down if it's such a great idea. Try spinning that.
Bulgaria Refuses To Join Eurozone
http://www.zerohedge.com/news/eus-poorest-member-country-smacks-down-euro-bulgaria-refuses-join-eurozoneYou must have just skimmed his stuff or read someone else's misinterpretation. The Euro != freegold.
Euro is freegold: A currency not tied to hard backing and a CB marking its gold reserve to market value.
Wrong. Where you are missing the point is that there is no recognized "market value" currently for physical gold, only the fake paper-gold one (albeit some symptomatic arbitrage here and there). Once the paper-gold market fails during a major fiat collapse and the monetary giants scramble for the real thing with no counter-party risk, then a true physical market will have to develop and freegold will come of age. The Euro CB may in fact be one of the giants who end up driving the creation of a real physical market so that they *can* mark their physical reserves to market post-paper. Freegold isn't the Euro nor is it even a monetary system ... it is a post-paper-gold paradigm in which gold will be chosen as the best medium for saving wealth. Not imposed like hardened currencies must be imposed ... chosen freely.
An honest gold price is the ultimate enemy to bankers' print-to-rule scam. Expecting ECB to give you an honest gold price is like expecting the thieves to notify you in advance about their planned theft so that you could move your wealth away. You guys are so out of touch it's almost hilarious.
The right way to fix the issue is bringing the hard currency back and abolishing all CBs so no bank could get away with their fractional scam any more.
Out of touch, huh? Who sets your 'honest' gold price behind the "hardened currency?" You? Me? Comrade Dear Leader? Price-fixing is tyranny.
Price-fxing is your beloved ECB's specialty. Look at what they are doing in the bond market - unlimited bond purchase to cap the yield. Tell me about tyranny please.
Why are you on one hand against price-fixing and then on other supporting the entity doing it? This is like reading free gold - you guys contradict yourselves all the time.
It's your assumptions about how monetary systems function causing your contradictions.
Do you own any eurozone bonds? No? Then why do you care?
The ECB are protecting their currency so the people using it (you know, the regular folks) don't get wiped out. That's their mandate. Currency stability.
Bondholders accepted the risk when they made their purchase. Someone's gotta take the hit; why should it be John Q. Public who uses euros?
Currency stability?? You are kidding yourself. ECB does not give a damn about regular folks. They are there to socialize the loss should the fractional reserve game melt down. It's such perpetual fractional system that destroys stability. The only thing ECB wants from you, the sheeple, is you use their FIAT so they can socialize it every time it blows up.
And don't give us that already debunked "but you can save in gold" FOFOA myth. In a FIAT system it's impossible that everyone saves in gold while no one holds FIAT. That FIAT will be in someone's hand so when the inflation hits it still hurts the people.
Really like those strawmen, eh?
Good luck to you.
I can tell you are upset b/c someone dare call your naked ECB/freegold emperor out.
@ dlmaniac,
The euro is not freegold; the euro is a currency compatible with freegold.
Freegold is simply the absence of gold denominated credit (aka paper gold) in the market.
The euro is compatible with this because (as you can easily see if you care to look at this week's ECB consolidated financial statement) market price gold values the euro, and the ECB (issuer of the euro) are publicly acknowledging this. This means the users of the euro value the euro, not the ECB. If the users of the euro think it is overvalued, they will buy gold with it, and in doing so bid up the price of gold in euros. Pretty straightforward.
Can you not see a little dissonance between the current gold valuations of:
One CB is attempting to ignore the market, and relying on the public continuing to do that too, while the other is acknowledging its subservience to the market. Of course all this contrasts sharply with many popular ZH comment memes, so I don't expect these observations to gain much traction here.
Sincere apologies for interupting your confirmation bias, but there may be other readers both willing and able to think for themselves who may appreciate a different perspective to consider than the same old conspiracy theory/doom and gloom one.
Thanks for the Freegold refresher. I think many gold bugs could benefit from a logical challenge to their rigid worldview on gold.
So a country not joining the euro is the same thing as the euro is destroyed? Curious thinking there.
Here comes the denial, again. Euro is destroyed b/c it merely repeats the same failure of every FIAT system that promotes credit expansion.
You're right. Better stock up on those ultra stable Ben bucks.
Does FOFOA know how to explore any subject in any other way?
I am no ADD-afflicted jumping bean modern American by any means (just the opposite), but honestly, this guy needs to realize that his mega-verbosity has and is turning off MANY people to what he has to say.
Nothing that is worthwhile doing is ever easy.
We've tried, some of us to condense it, but given the difficulties of nuance, the length is required.
In time I have grown to appreciate it. More is better. ^^
Amen, fool. +31.1034768g
What he has to say is complex and important. I appreciate his verbosity. There are those who have done a decent job of distilling it down to the bare bones. I believe Blondie did it best, here: http://flowofvalue.blogspot.com/2010/10/freegold_41.html
If you cannot convince then confuse. His whole "FIAT + gold" system is a banker pipe-dream to retain their monopoly over everyone's money.
Hardly, maniac. First of all it isn't "his," it is going to happen all on its own. Secondly, it will not be a fiat + gold "system," it will be the failure of both the dollar and the manipulated paper gold markets resulting in a paradigm shift for savers and their prefered savings medium. This is what Motley Fool meant by leaving your baggage at the door. A gold (or anything) standard *cannot* work and once you let him walk you through why, you won't want it to.
It's not "lack of saving medium" causing the problem. You can save in anything today. It's elite's monopoly to print FIAT causing it. Does his free gold system get rid of the FIAT monopoly? NO! He is still advocating it, which is music to bankers' ear.
Baggage ... it's keeping you from the truth. Fiat isn't the problem. Saving your excess production in the same thing being fractionalized and loaned is the problem. Take the time to understand what is being said rather than just recoiling from the fact that fiat *must* stay.
Put down the cult coolaid and think of this: Why do bankers deserve to fractionalize the money to steal in the first place? They don't. Promoting another paper system is supporting bankers to retain their monopoly.
Reread your history, sir. The banks fractionalize because *we*, their depositors, have always deliberately encouraged them to do so. There may be a great criminal banking system out there but it isn't criminal because of the fractionalizing, it is criminal because they have been allowed to buy up the political class who let them get away with both taking money that doesn't belong to them and socializing their losses when they over-leverage and it blows up on them. If you don't want to participate in a fractionalized banking system ... don't; store you weath in GOLD.
"If you don't want to participate in a fractionalized banking system ... don't; store you weath in GOLD."
You still don't understand the issue: You have no choice but to participate in the fractional system. You cannot have everyone saving in gold while no one holds the FIAT, can you? Any time you collect a paycheck, pay a bill or go shopping you have to go through FIAT and there you are screwed by the bankers. If you don't take the bankers head on you will always be screwed.
Gold for savings. Fiat for medium of exchange. Where is the problem? If you want to spend some savings, trade some gold for fiat. If you don't like what the banks are doing to the fiat, convert it to gold as soon as you get it.
"Where is the problem?"
When you try to save in gold you need someone to trade his gold for your fractional FIAT. That could happen only if you could con a fool into taking the loss of purchasing power for you or be willing to overpay for someone else' gold and therefore take the loss yourself.
It's still a scam to shuffle the losses around and pretend it's a fair solution.
My understanding of FOFOA is - The person selling his Gold to you is either
- retired and selling a portion of his wealth just to cover his monthly expense. No one else sells to you except
miners, who also will use the cash to run day to day operation
- is a person going to sell Gold to raise cash to open a business.
Once everyone understands that Gold is for saving and currency for a month's expense. Govt cannot steal via currency dilution in a month. Take an example - say a man earns $5000 per month. He uses $4000 for expenses + taxes and the remaining saving of $1000 is converted to Gold.
Govt can steal via inflation only for a short duration just like people in 3rd world countries who don't buy their Govt bonds or have currency deposits at bank, but only in real assets. freegold is when people realize that only Gold is the focal point for saving.
Government and bankers can steal as long as the public use the FIAT. All they need is printing some money and then buying gold with it. Once they take the gold off the market savers end up with less gold in the market so the price will have to bid up. After price bids up, savers end up taking in less gold than they deserve so there bankers and govt rob them. And that's just one of many ways their FIAT can screw the public.
Does not matter if it's a month or not. Dollar does not crash in one month either but it's failing steadily nonetheless.
you are precisely explaining currency management by any GOVT post-freegold as described by FOFOA.
In this case you are explaining dilution of currency by Govt to battle deflation. When Govt prints money to buy Gold, more money chase same Gold and goods and so Gold/goods price will proportionately increase. People will understand they can buy less Gold/goods after expenses and will demand more salary. This is like Zimbabwe printing zimb dollar to buys US Dollars to buy oil. Also remember Govt can buy only a tiny fraction of Gold, whereas all the savers will immediately get a jump in their Gold wealth. So see no one is effected.
If you think that all people decide Gold is for saving and currency for expense, No Govt can steal anything from you. As FOFOA says - you need to leave your baggage.
"People will understand they can buy less Gold/goods after expenses and will demand more salary."
Let's use math to show how this is not possible. Say you and 4 other guys pool your whine in a big barrel with each owning 20% (your salary). Then a guy (banker and/or government) comes in to take 20% out and then puts 20% water in (dilution).
So you say, "Wait, you dilute it to 80%." The guy says, "No problem, you just go for a quarter instead of 20%(demand more salary) when you take your share out. A quarter(25%) X 80% = 20%. You still have your whine back."
The problem is there are only 4 quarters in a pool for 5 guys so someone is bound to take a loss.
"No Govt can steal anything from you."
If you let govt print to battle deflation or for whatever excuses they are so good at supplying, you will take a loss as I show above. You guys are telling the world the mathematical impossibility and yet expect us to believe it's a sound solution.
And why do you want to battle deflation to begin with? Battling deflation is merely stealing money from those who do not want to pay for a high price and then give it to those who want a high price. Another price fixing scam.
my last shot at trying to explain a thesis.
your wine is like an existing saving. Wine is not like a new earnings. Also as I told you, Govt can only buy little Gold say 0.001% of existing Gold. The increase in price of Gold goes to remain holders of Gold who hold 99.999% of Gold. As the new earning are geting diluted say 2% a month, ie they will demand 2% increase in salary each month - maybe with a small lag. This small stealing via inflation is worth the use of fiat currency to do day to day transaction.
I have real world experience in this regard because I lived in a high inflation and people never saved in currency, but saved only in real assets. But once the useless Gold as focal point is understood, it alone absorbs the excess savings of people. Since people of 3rd world nations did not save in currency, they were never effected by currency dilution, but were only asking for higher salary. If the Govt wants to manage currency properly, they will not dilute as you say because they cannot steal via inflation.
Adios. No more extending this thread. for you your way, for me my way. let us see how things go.
"your wine is like an existing saving. Wine is not like a new earnings."
No you don't get the analogy. The pool of wine is like a pool of FIAT, NOT "an existing saving". That pool is where your salary comes from. Its purity stands for how much purchasing power it has.
When someone dilutes the wine the loss is delivered. There's no way you can demand higher salary to compensate for the loss.
As I previously wrote to FOFOA, without a response:
While Schelling's focal point is certainly a legitimate theory. Your interpretation of his explanation of it, somehow became exclusionary and finite. I believe you took his general description as the outer confines and conclusions rather than the introduction to the premise.
Allow me to explain using Schelling’s own example:
Three of the squares are blue and one is red. According to the theory both contestants will pick the red square, and I agree. However, if we add a green square and tell the contestants that they must each pick two in order to win, they will still pick the red and green squares. The focal point theory is still in tacked, and they still win the prize. The theory does not limit the choices to merely one in order to stay valid.
Here is another example of musical chairs.
10 people walking around 9 chairs (8 blue chairs and one black chair). They are told that when the music stops, only those sitting in blue chairs with go on to the next round.
Ok, start the music... and now stop the music. What do we find? There is only one person standing. Why? because humans will always defer to their instinct of reaction rather than inaction. It didn't matter that we said the rules were that only by sitting in the blue chairs would you be taken to the next round. They will not stand idly by while there is an empty seat... even if you tell them it is the wrong one.
I like your second example more.
I tend to agree that in panic some will sit in the black(silver) chair only to be informed they still lose. ^^
The concept is not exclusionairy, yet in trade marginal effectivenes plays a role, and the black(silver) chair will always be more inefficient than the blue(gold) ones.
Hell, it's very likely some will sit on the green (UST's) chairs just to not be left standing. They still lose. :)
I don't believe that gold only, to the exclusion of silver, is as much a for gone conclusion as FOFOA and others think, for the above reasons as well as the below:
Just as palladium is not money because the Russians control the supply, thereby making it unstable via manipulation. This is the same type of thing you get when you have only one form of money; no competition. This makes for an environment ripe for manipulation. The squeezing out of silver as a monetary unit was done for that very reason. Gold was held and controlled by the CB. With silver in the way, they could not control the monetary system to the extent they needed to. They needed to limit the competition. This was good for the bankers but bad for the people at large.
Imagine this: if the only cars available were Chevy's, and they were put to market. The price discovery that would be found would be regarding those who wished to have a car and those who did not. Price discovery was not found necessarily for a Chevy, but rather for a car in general. If GM limited production for various reasons, be it legitimate or otherwise,a new price discovery would be found. They could manipulate the supply at will, thus causing new price discoveries. However, if we introduce competition of Ford, suddenly we find true price discovery, of not only cars in general, but also for the individual auto maker, one over the other. Even if one wishes to manipulate the supply, true price discovery is maintained.
I suggest you read up on the history of silver. The above sounds like it was absorbed from conspiracy minded silverbugs.
That aside, I do not mind waiting to see which if us is proven correct. Do you?
Yes, we certainly will see. And yes, waiting is no problem, as the event is most assuredly going to be nothing less than spectacular.
Regarding reading up on the history of silver, I believe I have read on the history of silver. As much as I could? Perhaps not. But what I have read I believe lends to an understanding that acknowledges that silver has played a larger roll in monetary history than that of gold.
Since you give no specifics for my education in the history of silver, perhaps you could give a breakdown as to your belief, as well as the belief from the FOFOA camp, as to why such an ardent belief that there can be but one victor in the metals.
I found my competition argument above rather compelling as to dealing with the manipulation aspect of monetary metals being lessened by a bi-metal and historic approach. Also, I find the "focal point" argument, as applied to gold/silver, rendered by FOFOA, to expose a fundamental lack up understanding in the psychology of man, and of Schelling's thesis, and therefore lacking credibility as the reason for the professed outcome.
This post, http://fofoa.blogspot.com/2010/12/focal-point-gold.html, which you dislike so much, has some of the history.
This post, http://fofoa.blogspot.com/2011/05/return-to-honest-money.html, may be of help...not because it contains much history, but because it dicusses related concepts, and is specifically aimed at hard money socialists. :P
In short ( and insufficient words) : during the time of the gold standard, gold was hard money and silver was easy money...this is what william jennings brians speech of a cross of gold was all about. There is always demand for a hard money and a soft money. At that stage the savers demanded gold and the spenders demanded silver. Fiat money is much much easier than silver ever was, so today there would be no demand for it as the 'easy money', fiat wins. Savers still demand gold.
Here is one more posts that I'd recommend. http://fofoa.blogspot.com/2010/09/shoeshine-boy.html
I will read your links. Some of the same, I may have already read.
However, I think you mistake me as a gold hater. To the contrary, I very much am a gold proponent, simply not to the exclusion of silver.
The FOFOA camp, seam to disavow all historical evidence of the human psychological experience with silver. Rather leaning to their self contrived notions of meanings found along the way, transposed onto their self glorified understanding of the parchment of history. No, better to acknowledge we simply don't know what we think we know for sure, based on what we believe we have full grasp of. Instead, to aknowledge we, in fact, don't know, and simply rely on what we know for sure... that silver has always played a role.
The phrase, "Post hoc ergo propter hoc" comes to mind.
The new system will not be as the last, nor can it. The old gold standard compared to a new. The fiat system between has engrossed such debt that a new system must consider it to some degree if not in total. This aspect alone is sufficient for the need of further assets to be considered in a new currency, less gold would have to be valued so high as to make it untenable.
I tried to be selective in my choosing, to what I think may benefit you most as regards this discussion.
I do not think you are a gold hater, I simply think you treat both metals as equivalent.
I used too, and so understand perfectly. After deep contemplation I have come to the conclusion that silver is not as good as gold.
Still it is a remarkable metal, with wide and varied uses and may do well in future on those fundamentals alone.
I simpy do not think the same arguments can be used for both.
The thesis I hold is always open to challenge. If you can demonstrate to me a flaw in my thinking, I would thank you for it.
Nobody can know the future with certainty, but I do think one can hold some convictions on what may be, and see those proven right or wrong. :)
Peace
Ps. Freegold does predict an almost unthinkable value for future gold...in the region of $60,000. ;)
I certainly hope the FOFOA camp is wrong... in-so-much as the outlook on silver. My stash is a bit slanted to a silver bias. I will continue to try and enhance my understanding. If I come across anything profound, I will pass it to you, as I trust you will do the same.
best regards
Ps. $60,000 oz gold, I find untenable. I believe that would pose many problems that, in and of itself, would be quite difficult to ever reach, save that of a hyper-inflationary event where all asset classes saw near equivalent increases.
You can find my blog linked in my info, if you need to inform me of profound things. :P
This is becoming a religious debate and your lack of understanding of freegold is hampering the discussion. You are attacking strawmen and I am going to end up having to drop this until you demonstrate that you understand what the freegold concept actually is, and can offer arguments against that. The system you appear to be advocating is some form of gold standard with no fractional lending. That is extremely problematic and there are real (non-scam) reasons why we can't go back there and wouldn't really want to anyway.
It's you hanging onto the free gold belief while unable to recognize the glaring "you cannot have everyone saving in gold while no one holds the FIAT" hole in it. As long as bankers print whoever holding that FIAT will be robbed, and you are letting your ego get in the way of truth. That's the sign of being religious.
Nobody said everyone would be holding gold, and nobody fiat under freegold. If that happens under freegold, the currency would fall in value rather rapidly. I assume once we have hyperinflation our monetary authorities will be more careful about the amount of debt and printed money they allow to be created out of thin air. If you will notice, when QE2 stopped, so did the gold price. This is the natural function of gold, but it cannot function fully until the paper gold system collapses. Gold is the degree to which the market votes on the direction of monetary/fiscal policy. It's a check on excess, and frees anyone who doesn't want to be robbed. Assuming the future fiat will have a positive real interest rate, there will be less reason to hold gold and more reason to hold other assets.
Think of it this way:
Saving everything you earn in gold is essentially a vote of no confidence on the direction of the monetary system. However, this voting function is impeded from functioning due to the paper gold system that multiplies the "supply" of gold in the market, which defeats the purpose of owning gold in the first place. If our monetary authorities are mismanaging the currency, in a freegold system, everyone just runs to physical gold and the fiat currency collapses. It is the check and balance on fiat mismanagement BECAUSE it can freely float against the fiat. Today, this is not possible, but it will be. Don't you see, targeting a stable price for gold is the future of wise monetary policy? That is the Freegold thesis. A gold standard doesn't accomplish this because it fixes the price of gold at an abitrary paper value.
"Targeting a stable price for gold is the future of wise monetary policy"
See this is where the free gold thesis contradicts itself: You cannot get any more stable than using gold directly, and yet FOFOA is hell-bent on having a FIAT in the play that just invites the banker and government to inflate and create instability. Why the hassle?
This is like bringing a fox into the henhouse under the reasoning, "Look, the fox would starve itself if it eats all chickens up. This check & balance should force the fox to manage it right. Ok, let's keep the fox in here."
There are at least two major problems I have with the FreeGold scenario:
1) Why does it presuppose that there MUST be a governmentally-issued fiat currency, which as dlmaniac wisely points out is just a continuation of "letting the fox guard the henhouse"? He is correct, and you Freegolders are wrong, when he states that to the extent that fiat currency exists and is used, those holding it and using it are robbed of value --- the entire sordid history of fiat currency demonstrates this.
What about NOT having governmental-issued money in the first place, but instead allowing a FREE MARKET in money? It seems to me that FOFOA and his Freegold theory either do not consider such a possibility, or are actively opposed to it.
2) As poster tmosely and others here have pointed out in the past, what is to stop the Freegold scenario from collapsing into an effective gold standard? What if I do not want to use the government's fiat currency, but decide to transact with my neighbor for his chickens with gold directly? Then what if he, in turn, exchanges his gold for he neighbor's tomatoes, and on and on until gold ITSELF is being used (to any degree) as the medium of exchange and NOT government fiat currency? Is the government going to PREVENT me from using gold as money? And if not, how are they going to stop the market spurning their (invaraibly depreciating) fiat currency in lieu of gold?
I have never read FOFOA address this scenario ---- but maybe I simply did not read sufficiently far into his 325,658,234 words on the subject.
Hey akak
Yes, obviously you have not read sufficiently, as these are adressed. ^^
1. Because people demand it. Not you or I, perhaps, but a large swathe of the population.
2. Due to Gresham's law.
I picked for you three shorter relevant posts. ^^
http://fofoa.blogspot.com/2009/09/greshams-ghost.html
http://fofoa.blogspot.com/2010/07/debtors-v-savers-ii-foa-retro-house-mi...
http://fofoa.blogspot.com/2010/12/focal-point-gold.html
If people really want FIAT then Russia and China (and many other nations) would not whine about US$ losing value any more. In an economy there's a creditor and there's a debtor. They have different demand. It's always the debtors wanting infated FIAT so they can pay the creditor back cheap. The problem with this "people want it so we ought to have it" mindset is that it's never debtors setting economic rules. It's the creditors. Creditors can afford to ignore the debtors but debtors have to beg creditors for loans. What do creditors like? Anything but inflated FIAT.
Motley Fool,
I have to say, your two points make no sense to me at all, and if those are the responses that FOFOA would give on the problems with the Freegold scenario that I stated above, then it is obviously a highly flawed theory.
Let me take point #2, to which you responded "Gresham's Law". Gresham's (so-called) Law, in which "bad money drives out good money", ONLY applies in the case of government coercion, namely, legal tender laws, in which people are FORCED to use the bad money, so they naturally hoard the good. Are you saying, then, that under the Freegold scenario people are going to be FORCED to use the government-issued fiat currency, just as we are today with US dollars for example? If so, then Freegold is a total farce.
On your point #1, it again fundamentally goes back to freedom: why would ANYONE chose, absent governmental coercion, to use the inferior product (fiat currency) in lieu of the superior product (gold)? I fail to see large swaths of the population ever making such an irrational choice.
akak
Perhaps I have simply succeeded in illustrating that there is a reason for the length of FOFOA's posts. Simple answers don't help, when perspectives differ so vastly.
I have typically found that theories or principles which cannot be summarized in several paragraphs, at the most, are usually flawed or spurious. If my simple and clearly-stated objections to (or misunderstandings of) the Freegold scenario cannot be answered in a similarly concise manner, then I suspect that the problem lies with the Freegold theory and not with my questions.
Totally aside from all that, I am deeply troubled by what I have to call the clearly quasi-religious nature of the Freegold community --- the revelations of the mysterious prophets Another and Friend of Another constantly quoted like some kind of Bible, the interpretations of those revelations by the high priest FOFOA, the implicit demands that this revealed truth is perfect and cannot be questioned, the unanimous agreement and exaltation by the followers --- really, it is all quite creepy. The extent to which FOFOA's blog and the Freegold community come across as some kind of cult has been noted by many others besides myself, and it does absolutely nothing to endear me to the whole concept. I wonder if the advocates of Freegold here are aware, or can even see, how cultlike it all appears to the uninitiated (or even to the initiated).
And for those downarrowing me here, why don't you try responding with some arguments or logical objections instead --- if I in error or misunderstanding what FOFOA has to say, then enlighten me instead of just anonymously spitting on me.
The concept is actually rather simple, and intuitive. The problem wiht conveying lies not so much in the wording used, as the baggage most people bring to the table in the form of their previous understanding and biases.
My answers were simple, and clearly stated. Yet, your ideas of how the world should be gets in the way of simple understanding.
We are aware of and often joke about the cult-like attributes ascribed.
FOFOA's new footer is : Evil gold hoarders, jerks and brainwashed cult members: Join here.
I'm sorry, I cannot offer you a blue or red pill and instant enlightenment ( *grins*), all I can do is show you the path. Whether you choose to walk it is up to you.
The thing about knowledge is that every man has to c it for himself. My understanding does not help you; you need to walk the path yourself.
Even though I could make it easier for you by having extended conversations and explaining everything in minute detail, I choose not too.
akak
What I will do for you is offer up a single post, to see if it piques your interest. It was not even written by FOFOA ( all hail our glorious cult leader *hahahaha*).
The rest is and has always been up too you.
http://fofoa.blogspot.com/2010/04/gold-money-more-than-meets-eye.html
Thanks Motley Fool --- I will read this later today.
@ akak
1) There is no such presupposition that there be a governmentally-issued fiat currency. Anything the market accepts as a medium of exchange will work fine. Facebook credits, akak scrip, dollars, whatever. All a currency needs is acceptance by the market, who are the users of the currency. Whatever currency/s are used, none of them are given their value by the issuer; they are valued by the users, and its exchange rate with freegold (that's gold free of gold denominated credit, better known as paper gold) is the public, objective, market supplied valuation of every currency. Any new currency needs to operate better for its users than whatever they are using currently in order to be adopted, right? That's the hurdle for any challenging currency to overcome. Contemporary fiat currencies are well entrenched with large and highly efficient infrastructure, systems and familiarity in their favour.
When currency is being valued this way who issues the currency is no longer relevant. All that is relevant is how much value the market assigns it, and how stable that value is over time.
2) There is nothing to stop anyone trading any asset for any other with another willing party. The reason gold would not often be exchanged for a chicken is simply a practical obstacle: if one chicken is equal in value in the free market to roughly one ten thousandth of a troy ounce of gold, how will you subdivide, measure and agree upon that amount of gold? We could trade gold directly for more valuable items, such as businesses or real estate, but there are going to be more practical ways to trade smaller everyday things. I would be happy to trade my chicken for five dollars for example, if I knew that the market would trade me one ten thousandth of a troy ounce of gold for five dollars.
The bottom line is that you say fiat currency and fractional reserve banking are unfair and dishonest, and are used as tools by those that control them with which to take from others.
I contend that the cause of the problem is not fiat and FRB per se, but that people store value (i.e., save) in the medium of exchange, and that this one thing enables fiat and FRB to be used to misappropriate those savings.
We are all on the same team here in that we all want a level playing field. I'm just saying that the cause of the problem lies just a little deeper and is actually quite a bit simpler than you are acknowledging.
Nuinut, thank you for that civil and thoughtful response.
I will be the first to admit that I do not fully understand the Freegold hypothesis, as much as I have read on it (mostly from FOFOA's own blog), and that my objections to it may simply be the result of misunderstanding.
Another point on which I am not clear here: when Freegolders discuss "fiat currency", are they REALLY talking about pure, unbacked fiat currency (which is truly the only kind)? What about circulating, gold-backed paper currency --- does or would such money fall under what is considered "fiat" in the discussions on Freegold? While I admit I would prefer to see a pure PM coin physical monetary system myself, where and how would gold (or silver, or platinum)-backed paper currency fit into the Freegold scenario?
Today there is no such thing as a "circulating, gold-backed paper currency" to my knowledge.
The nearest equivalent would be a pre 1933 US dollar, right?
Very true. I brought it up only as a hypothetical, free-market monetary possibility, for those who would refuse to use a fiat currency, but who would not want to use actual physical gold metal as their pocket money.
OK, that's no problem. You are describing what we could call a "non-specie gold standard"; a specie gold standard being one in which only gold coin (specie) is acceptable currency; a non-specie GS differing in that representative notes for gold would also be aceptable currency (on a full reserve/one to one basis). Just trying to agree on our definitions here to avoid misunderstanding, not rewrite or rename history.
Let's leave that concept on the table, but put it to the side for the time being. We can pull it back over and see how it stacks up in comparison at any time. It is definitely an option that the market could select. It is as you say a 'hypothetical, free-market monetary possibility'.
To answer your previous question which was:
Yes.
I would say let's ditch the word "fiat" altogether, and just talk about medium of exchange (MoE or just plain "currency"). At the end of the day, any currency (even a gold specie one) is backed only by what the free market is willing to exchange for it, right? You are correct, in that conversation regarding freegold is discussing what you are calling pure unbacked currency.
I have a question for you: what "backs" gold?
akak said:
If a currency is exchangable for actual physical gold metal in the market at a relatively stable rate, why does it matter whether the currency is "fiat" or not?
Please note I am not trying to be difficult with these questions, only endeavouring to understand your perspective.
Well, Nuinut, the US dollar (and pretty much every other world currency, aside maybe from the one used in North Korea) is exchangable TODAY for gold in the marketplace, but that does nothing to stablize the dollar, or the whole rotten monetary system built around it, does it?
Just let me add that I am fully cognizant that ANY gold-backed currency, even a supposedly 100% gold-backed currency, is almost automatically fraught with problems, as one must trust the issuing authority to have or to maintain that backing. That is why my personal preference, in an ideal world, would be a 100% specie system, but not limited to gold (allowing silver and maybe platinum and palladium into the mix as well). Although I will state that I would not envision nor advocate in any such system the foolish and impossible bimetalism or trimetalism of the 18th and 19th centuries, which were just examples of price-fixing (one metal against the other) that is always doomed to fail. A freely-floating two or three metal system is, however, easily imaginable, especially in the world of today.
Agreed, but is this caused by the nature of the dollar or the nature of TODAY's gold marketplace (the one in which paper gold trades at par with physical)?
EDIT: I suggest we continue at the bottom of the thread as we are running out of room up here. I'll look for your reply or make my next one down there.
FURTHER EDIT: I have continued at the bottom of the thread, starting from this comment: 2863636
akak and nuinut,
Allow me to interject with a note of appreciation for the example in your courteous and thoughtful discussion.
Thank you, i_fly.
Nuinut has always been the consummate gentleman in this forum (something which I will readily admit I have not always been), and I am only giving him his due by treating him (and the other posters) with the respect that he fully deserves.
I have no hardened opinion on the matter, but a very good read.
"Mama always had a way of explaining things so I.. could.. understand.. them."
Well done.
I have no hardened opinion either, just a best current theory consistent with my perceptions.
FOFOA could have written this article... but it would be longer.
In fact, he has written it and it is longer.
FOFOA is essential reading for gold savers regardless of the writing style.
This will be one of the most important articles to appear on ZH this year. To understand Triffin is to understand the reason we are where we are in the CFG. To understand Triffin's dillema is at least halfway to understanding why we are going where we are going. Fofoa is a perfectionist. His length is required to make sure all ambiguity is removed from the essay. I'm not sure there is a more efficient way to tell the tale.
Preciesly. Should he do a half-assed job the nit-pickers would flock to the comments section and attempt to discredit the theory, e.g. dlmaniac here. Presupposed ideas would prevail and frustrate those who simply come to learn.
HAHAHA, this is the funniest comment I've read so far.
In the science reserach field they do two things when proposing a theory:1) They do not assume they are right. 2) They are ready to be questioned.
It's those two things keeping their work scientific and serious. If you cannot stand the questions then don't propose a theory.
FOFOA is verbal diarrhea to the Nth degree in a Twitter age. If FOFOA the thinks Freegold is a panacea, then somewhere in that pile, someone probably placed a cart before several horses. However, the individual ideal solution varies for US, the BRICS, the Emerging Markets, Europe, and even within the individual European nations.
There are two issues underlying the Triffen Dilemma which Americans perpetually ignore the ramifications of.
The first is the status of the USD as global reserve currency, which can actually be revoked with or without the consent of the US government. I've seen wildly varied analysis, but lets take the simplest example, a 50% reduction in the value of USD. How many Americans could afford to continue their current relatively luxurious existence if nationwide gasoline prices went to $8 per gallon and prices at WalMart doubled overnight?
The second is the US balance of payments. If the US were adopt (or be forced into) any sort of monetary system where the supply of money was actually backed by some form of tangible asset, then wealth would be drained from the US to feed its addiction to energy and foreign produced goods.
Closing the gold window wasn't a "solution" to the Triffen Dilemma, but it did change the rules of the central planning game, and gave deliberate rise to Globalization. Before the US goes down the yellow brick road, it needs to get its ducks in row and become at least become self-sufficient, or the path leads straight to economic hell.
You might just as well have said "I don't get it."
I don't say this to be rude; I say it because I don't sense that you've read, thought about nor understand these concepts very deeply.
No, you wont be rich this way, this bacteria uses Gold Chloride which is a toxic by product of gold production. So you need Gold to get Gold Chloride.
But it may help to clean the environment from toxins...
Just one slight problem. You need gold chloride to start with. Got that? GOLD chloride.
DavidC
Yes to you both...the article was "crap". I just thought it was funny on the one level, you guys pointed out the other levels quite well.
You can't have gold chloride without gold first.
Absolutely! Just always under your own lock and key. NEVER in yet another company's vault, under their lock and key (regardless of what fraudulent claims their website and brochures make). For when Physical Gold's inevitable revaluation makes it's true worth known beyond BIS walls and into public market space, I challenge any of you to get those company shitbags to cough up a single ounce to those foolish enough to have bought their lying sales-patter. You truly expect those corporate twats to hand over an asset that will, in hair-scorchingly short order, have undergone a 4000% ish appreciation in public value? Yeah, right! Many criminals legitimize their immorality and thefts by pinning all blame on the stupidity of thier victims.
Just be smart. Don't entrust a single gram of your Phys Gold to anyone else, least of all these vampiric companies. Seen who heads GBI? You'll never guess where he learned his trade.. yes, of course, GS!
Ok, Hermes has left the building...
Very much end of the road in regards to this.
Watch "End of the Road" on netflix. Well, everyone here knows the dollars doomed, but great for the uninitiated.
THE SIMPSONS - Homer Votes 2012
Homer owns phyzz.
Walmart will be only for riches.
The problem with this analysis, I think, is the loss of the US market would be more damaging than any benefitss gained by a replacement currency -- and it would have to inflate just like the dollar. There is a crap load of debt out there resting on the dollar that goes poof when the dollar goes poof.
Not when US import purchases slow down the exent that the "benefit" of dealing in Bennie Bux dissapears and all that's left is the risk.
We're not there yet - but I'm guessing that this will be the mechanism by which we experience hyperinflaiton in the USD.
Classic mexican standoff
It becomes less of an issue when the citizens of the creditor nations decide they want some of those things they've been making for us over the years. Once that happens the transfer can be rather swift.
If I'm a creditor and I have enough gold I might not care as much about what a debtor owes me if I can get the advantage of having the world's reserve currency in exchange.
The Chinese (and most other trade surplus nation) billionaires don't actually want their peons to earn more though ...
Billionares care about billions of (profit) dollars, whether a billion is made with 1000 sales each with a $1,000,000 margin, or 1,000,000 sales each with a $1000 margin is irrelevant. However, the latter tends to be the mark of the more mature company. If they have to pay the workers more, it doesn't matter as long as they believe they will achieve the latter result.
Fasinating Topic...............FreeGold Bitches.............
I'll take "Gold, Silver, Copper, and Lead Is The Answer " FOR $500, Alex !
No more Jeopardy for this player.
I hate it when the Tippercanoe does it right in the middle of the river on the way home, though.
All my Precious, swimming with the fishes !
Damm.
"it would by necessity be at a much higher price to function in that reserve role."
Why? The current huge foreign exchange reserves are a function of the trade imbalances with mostly the US ... if those imbalances disappear and the US pushes the reset button (hyperinflation) why would similarly large reserves have to return? As you say, fiat would almost certainly still be used internally so there would be no need for fractional backing of the monetary base.
'You incidentally edited out: "as aptly noted by blogger FOFOA" from original source. How quaint!'
You missed editing out this reference though "We can all walk in the footsteps of the giants, as a Friend and mentor is apt to say." :P
And noted by Eric Janszen at iTulip.com before FOFOA picked it up from him.
xP
I'm fairly certain that that is not where he picked it up from. I should add that there are no original Thoughts over at FOFOA at all; after all it's simply a tribute blog to the thoughts of Another and his friend.
Links are always nice though. :)
The FOFOA people who want to destroy Europe for a Idea..........
Give me a break............
Have you seen Europe Lately ?
I remember when Ireland had a semi - national currency and it used resourses far more efficiently back then....
The Market state is a destroyer of worlds.
Never a fan of the nation state model of control but the modern market state with the Euro at its centre is the 9th circle of hell for sure.
The truely Absurd Nissan Qashqai
http://en.wikipedia.org/wiki/Nissan_Qashqai
is the number 2 top selling “car” model in Ireland so far this year with 3,256 units sold (2,611 Jan -Sep Y2011)
Who the hell is buying these capital & fuel intensive cars ?
Back in the early 80s irish depression people were buying cheap 1 litre petrol cars…..
The BMW fucking 3 was the top selling car in Ireland this september...........need I say more ?
We have lost 30 %+ of our oil consumption and BMW3 is the top selling car....
That would never happen withen a national currency framework.
Ditto for the closure of Greek railways...........its oil balance has not moved in 3 years while its capital account is being destroyed to push its current account into surplus so that the non productive financial centres can remain in deficit.
What a monetary system you have got there Motley Fool.
Hey DoC
I see the euro at present as a fish slowly suffocating out of water. Let's hope it's thrown back into the ocean soon. The suffering is truly hell, as you stated.
DoC
you have been to fofoa's site and you should know that the site does not advocate...it only observes. We see the Euro as a prototype of a currency that marks gold to market. Is this calling for the downfall of the people? No it is seeing a possibility for Liberty in a new way. Be honest Dork. We understand the frustrations of a population suffering under a bureuacracy. Your currency is however nicely designed and that may be a saving grace.
Its not my currency
Full fiat currencies withen national boundaries (as opposed to bank credit money systems) and using Gold to clear international trade is my preference.
Most of yee guys speak with no historical context and simply do not know how evil the Venetian banking system truely is.
There is a folk memory in Ireland & Scotland of when last they tried to impose a nation state model of control on us back in the 1600 & 1700s.
The Market state is not much different in its execution.
www.youtube.com/watch?v=ryozM8twDUI
I don't follow FOFOA so I can't say with certainty. But the date stamps on the articles certainly provide a basis for someone to go find out.
Triffin's Dilemma is too obscure a topic to just randomly pop up from several different authors. Someone was first to bring it up and point out the present-day relevance, and the other guys writing about it all got the idea from the guy who was first.
I haven't researched this enough to say with certainty who was first to write about Triffin, but I'd be willing to bet it was iTulip's Janszen. If someone cares enough to try to disprove my assertion, go ahead and get the article dates from all the various sites and let's see who got what idea from whom.
xP
The Triffen Dilemma is hardly an obscure topic. It is fundamental to understanding the USSA's central planning model and the rise of Globalization. Its relevance to solving the current global melancholy dwarfs the significance of the mythical and deceased PetroDollar. Hell, I've referenced it dozens of times here in the last year or so, the last time being only four days ago.
Yea what's up with that? He's always a good read.
What's up with someone editing out (without disclosing the fact) the attribution to FOFOA from the original article is that FOFOA, while enunciating how and why gold will be revalued much higher as a simple monetary necessity, deftly explains why silver won't be.
No doubt you can join the dots. Who do you think clicks all the ads?
So even at ZH the material is "groomed" to subtly manipulate the audience, either by Tyler or by the original authors before submission.
EDIT: the article was edited by ZH after it was submitted.
It's been edited for the audience, which speaks volumes.
How does ZH then differ from the MSM?
Yeah...These Tylers are a jealous lot, who don't want to give atribute where it is due.
As a backstory, the dollar was actually pegged to Silver initially, as part of the Coinage act of 1792. The "Crime of '73' as it became known, de-monetized Silver, and the U.S. went on a gold standard by 1900.
Interestingly, the banking establishment looked at Silver with about as much disdain as many do the endless fiat print-fest going on today. Trying to maintain a bi-metallic money standard proved impossible, as the arbs figured out how to game the system as one metal or another became more valuable relative to face value.
The problem arises when the ratio of gold to silver varies - a never ending issue since the founding of the US. There was a shortage of both in the US in its wearly years - hence the paper currency issued by the Colonies (though it worked when proportional to the level of economic activity). The hyperinflation of the Continental Dollar during the rrevolution led to limiting government to coining gold and silver but much of that in the new US went overseas to pay for imports. The discovery of gold in California changed the fundamentals - with masive finds of silver in Nevada further complicating things after the inflation during the CIvil War (common in wartime but exacerbated by the issuance of Greenbacks).
The free silver crowd backed silver because at the time silver was INFLATIONARY. Nevada finds vastly expanded the supply of silver. Farmers and others in debt fsavored a monetary regime that was inflationary. Their debts went DOWN in real value while their product went 'up' in value. Banks - the holders of debt - did not like this. Hence the change to a gold only standard. The financial establishment succeeded in making gold the standard (because guess who had most of the gold). Gold is and has been the money of the truly wealthy while silver served the masses. God forbid the masses gain some advantage over those running the financial establishment by dint of the money they used.
What a bunch of pansies...the dollar is only doomed if you are consecrating your children's future to a life of horror. There's nothing wrong with the dollar that building a few factories here won't cure. Gold is a fool's game; gold is for fools. So is silver. The United States of America backs the US dollar. I'll take that bet any day of the week, and if any country doesn't want payment in US dollars, screw 'em.
Rush Limbaugh today was whining on and on about Romney. When the Republicans decide to put up a true conservative, rather than a Bain ruin-people's-lives raider, when the Republicans put up a true Christian (I am one) rather than a follower of a pedophilliac and polygamist, who sought to gerrymander land via a cult for profit (now called Utah and Idaho), then I'll vote Republican again. Until then, It's Oboma and kiss my hinnie.
Oh, bout that gold and silver...it is a fool's game. It was used when there was no political stability; rather than buying gold and silver , you should be working towards solidifying this country by ending all immigration. We done full up.
You do realize gold and silver are just another ponzi and you're hoping you aren't the one that will be holding the bag...thanks but I'll choose other investments, ones that build the country, and I'll do it for my children's future.
You do realize gold and silver are just another ponzi and you're hoping you aren't the one that will be holding the bag...thanks but I'll choose other investments, ones that build the country, and I'll do it for my children's future.
These are very commendable sentiments and I really wish more people thought as you do. It would mean more gold and silver for me! Holding the bag containing the gold and silver is a dirty job, but someone has got to do it.
You thing holding bags of it is a dirty job? Why don't you try stacking it for hours at a time? Your hands get all shiny and your back hurts and you get that metallic taste in your mouth...and all for what? Just so you can sit back in your metal folding chair in your sod bunker in the backyard and sip on your lemonade staring at rack after rack of gleaming yellow and silver bars stacked 4 ft high on pallets as far as your 25 watt single bulb lamp will shine.
!!Wake up!! time to go to work at the mine!!! FEMA mining camp # 7 rules!!!
Dumbass.
Come back when you understand the difference between savings and investment.
Oh forgot to add, bout that china thing: It is no coincidence that QE1 coincided with China and the rest of the world backing off demand for US treasury debt.
China is as done as if there was a fork stuck in her. For instance, China has no clean water; China still has a primarily rural labor force; China's one child policy has ruined the bonds that made the business environment work in China (which has always been that one works through family links) so it's said that in twenty years, China will be a completely different country. Of course, one might say that is because China's abortion rate of females is so high that they are at a very bizarre (first time in history?) no-women-for-the-men point...anyone care to speculate on How That Turns Out? I wouldn't invest a single penny in China, not one.
If you're going to invest, invest in factories because we are going to need them..:)
There is another large problem with this analysis. The author asks how you can run trade deficits for 37 years. Trade deficits are a fiction. There are no trade deficits. What one country gets in products the other country gets in currency. Japan sends us cars and we send them FRN's. Which would you really rather have? In any case, the trade is always even. There is no deficit and GDP calculations have a large error in using them.
Trade deficits that go only one direction can cause a currency problem. If we always end up with a trade deficit, say with Japan they will eventually hold a whole lot of currency, even as we hold a lot of their stuff. Dollars could run out. However, Japan will generally reinvest those dollars or buy other things with them. Since the dollar is used worldwide they are quite liquid and easy to trade for other currencies and other "stuff".
Do not worry about trade deficits. Worry about national deficits and unsound money policies.
That's rather simplistic, and only holds up as long as someone, somewhere else, is willing to accept your paper in acceptable quantities for the goods desired. At this point America has printed and exported so many dollars that the rest of the world is happy and well equipped to compete with Americans for gasoline at $4 per gallon.
No oil, no iCrap- America breaks, Americans die.
That is actually part of my point. You trade goods for paper. Without counterfeiting the rest of the world cannot produce new dollars which gives us a competitive advantage for the oil or anything denominated in dollars. They can only get more by giving us more real stuff. It is a nice deal for America.
Welcome to end-stage Dutch Disease.
Dutch Disease begins when a large influx of unearned wealth (e.g. a new oil field) causes a nation's currency to rise in value. This makes imported goods cheaper than domestic manufacturing, so the nation's industry declines. No problem, the government can just spread the wealth around, because the Laffer Curve only applies to earned wealth. Spent on food, education, health care, housing, high-speed rail, and green energy, this free money creates millions of “service sector” jobs for a workforce that no longer produces tradable goods.
Then the oil field runs dry, or in our case, the world loses faith in the Almighty Dollar, and there's no more easy money to subsidize those service jobs. We easily forgot how to make goods for export; now it will be much harder to get those jobs back, short of conquering the world and forcing them to buy our products at gunpoint.
did this guy factor the military industrial complex into his equations?
But if the US can destroy the worlds economy first...........
The US has mainly although not all internal supply lines.........Asia and Europe however........
Example A : Taiwan
Taiwan looks much like a Asian Ireland – once the darling of international capital , now not so much , becoming politically isolated etc etc….
Its energy balance looks terrible (2009)
http://www.iea.org/stats/pdf_graphs/TWTPES.pdf
with only limited domestic Nuke production for the most part
Since then its oil consumption has tanked…..down 7.5% in one year from 1,028TBD in Y2010 to 951 TBD in Y2011
“Taipei, Oct. 5, 2012 (CENS)–The Asian Development Bank (ADB) has recently halved its economic growth forecast for Taiwan this year to 1.7% from 3.4% predicted in April and slashed the corresponding figure for 2013 to 3.8% from 4.6%”
Its gas consumption (LNG growth) is up by a big amount since 2009 keeping the place afloat
Y2009 : 10.2 MToe
Y2010 : 12.7 MToe
Y2011 : 14.0 mtoe (10.1% growth Y2010 -2011)
But the IEA has issued a very loud LNG warning by its standards
“For LNG, a web of vulnerability” – No Shit Sherlocks
http://www.iea.org/
How could you create and sanction such a vulnerable system unless you wish to destroy it ?
It seems such a bitter and sad country with no colour……
This video of their new high speed train is very 1984ish with a blank grey slate hanging over this non place.
http://www.youtube.com/watch?v=CBHJt2ZzuQ4
You are a financial prodigy. I think (Edwald Nowatny) has first dibs on that crown!
His pony pal ( Draghi) in tow~
sounds as if young tigers can grow old in this world. Thanks to PAx Americana it grew and then it aged; like any surrogate that does not survive on its own legs. Now Big brother looms in that background where ancient name is middle kingdom.
What's the GDP v GNP prediction?
CPC has significant overseas assets and production, so Tawian has its own little evil petrodollar recycling scheme, which fucks the little guy just the same, but the dollars at least roll to the State-Owned-Enterprise, instead of some other State.
Alchemy is no big deal. I turn paper into gold and silver all the time.
You lost, I mean (I) barfed , when "lost dollars" , were discussed.
Mistake in the article above, about our great Belgian economist Robert Triffin (1911-1993)
Joe Yasinski writes:
« As of today if any nation wants to buy oil, the lifeblood of the global economy, they pay in dollars. »
That has not been true for a while, especially as regards the Asian nations, very significantly China, Russia, Iran and India. They have set up alternative payment schemes for oil to avoid both the dollar and the SWIFT international bank payment system, which the US stupidly convinced to get involved in the Iran sanctions, and now there is a whole non-dollar payment system ready for the whole rest of the world.
As Jim Willie writes in his recent article, 'Death Knells for the US Dollar', speaking of how China is already offering to sell oil for renminbi (yuan) internationally, and this is fully backed by the world's largest oil producer, Russia:
« ... Russia has promised to meet all requests for crude oil made by China, with settlement in Yuan and Ruble currencies ... »
http://news.goldseek.com/GoldenJackass/1348689600.php
An ungrateful world has been manipulated by Americas Ponzi to their benefit in spite of themselves ! The Ponzi has served us well and has accomplished it's purpose of financing the Pax Americana ! Just like the Marshall plan had to end .... America now can take the training wheels off the world's lesser peoples and let them assume their place in the world ! America will still lead the world .... but the world will start to pay it's own way as we evolve to a better place with sound money based on Gold and Silver ! I declare the FED, the dollar, American benevolent hegemony to have been a magnificent success .... and the future is brighter for our enlightened leadership for the last one hundred years ! The FED should be recognized with a grand centennial celebration in 2013 as we enter the future full of American can do optimism ! If not for the FED and American husbandry .... the world would be in an unspeakable age of darkness right now ! Monedas 1929
Tyler(s) read FOFOA, Monedas read Million Dollar Bonus and in a country whose entire political system was built to prevent it -- a black man has been elected president.
Next, Au and oil will flow the same direction.
You're secretly MDB_ and Ananonymous aren't you.
lol, the "ungrateful" is priceless. Good one.
More to the core of this article : I remember Keynes, who else!, proposed a solution to the Triffin Dilemma before it became one...at BW inception in 1944. It was called Bancor. It would have avoided the US reserve conundrum right from day 1.
But Pax Americana would have lost its OTHER weapon of mass "construction" or "destruction", depending on which side of the political aisle you be.
BW and Keynes believed in world governance mechanism, at least to avoid the mayhem of nation state hubris! (Witnessed in WW1 & WW2).
FDR and KEynes believed in world peace. The Cold War and PAx Americana unfurl destroyed that.
SO to Bancor or not to Bancor...stays the existential dilemma; like to be or not...All pure gold and silver; as any self respecting dilemma should be!
Brilliant article! +1000
Seems like using Bitcoin as reserve currency solves this.
Even the CFR references his book:
http://www.cfr.org/financial-crises/dangerous-us-government-debt/p22408
so as a central bank you rax entities on theyr yearly usd holdings, say %10. thqat should clear out any USD pretty quixck
gold lease rate for 1 year 0.4245%
better than a bank account
If well-managed, relatively "free" countries want to increase their gold reserves, just set a price in gold for an entry visa leading to permanant residency.
They could have modifiers based on language, age, skills etc. Plug in the numbers into the formula of your country of interest, drop your payment at a local consulate, then off to wherever you can afford.
I know freedom isn't free, but it would be interesting to know the going rate.
If you have to ask, you can't afford it.
Freedom is realised by taking responsibility, thus one doesn't acquire it so much as stops giving it away.