gold versus paper and the keynes experiment

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Wed, May 9, 2012 - 5:50pm bbacq
victorthecleaner
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bbacq,

I remain unconvinced that the Euro can replace it, nor should we accept it even if it could. We need to kill off the insane notion of fiat currencies and central banking.

You know my position. I am not a political activist. I am not trying to tell people what to do. I am trying to figure out what will happen. In my opinion, what will happen is that fiat paper will continue to be used for transactions, but that gold will be used as a long term store of value that is independent of the transactional fiat.

Such a system is effectively in place in many Asian countries today, and the Euro zone was set up in such a way that it can adapt to this system without being destroyed (the dollar system will have extreme difficulties in contrast). Now once international trade is cleared in gold, even if some (Rickards' dream) would reintroduce a new gold standard, this gold standard would be unsustainable and would soon be undermined by international trade and capital flows. So the present "Asian system" which separates medium of exchange (fiat) from store of value (physical gold) will eventually win. Given that the Euro zone is *the* global trade hub, and they have indicated they will make the same choice, this process will be a lot quicker than many can imagine.

The US trade deficit was created by the transition of the USD to fiat from having been previously been gold-backed.

I'd like to turn this statement upside down: The United States had a big and insatiable government (Johnson and Nixon administrations) engaged in outrageously expensive military adventures. This government was elected by the people and they chose to cut the link with gold in order to pursue the big government agenda. (I am not saying I agree with this policy choice, but this is how it happened)

By the way, do you know why they terminated the gold backing rather than devaluing the dollar? Read what Sheikh Ahmed Zaki Yamani writes (Saudi oil minister during the 1970s):

https://www.guardian.co.uk/business/2001/jan/14/globalrecession.oilandpe...

https://www.bi-me.com/main.php?c=3&cg=4&t=1&id=48966

This confirms 'Another':

7/19/98 ANOTHER (THOUGHTS!)

[...] The Middle East nations, in particular, have shown their reserves to be much greater than ever thought possible. These “new/ larger” reserves have come to be known about, only in the last eight years. It was the “possible existence” of this oil that created much fear in the American Capitol, prior to the 1970s. In that time, it was known that the Western economy was growing on low priced energy. This growth would soon consume all “local / domestic” reserves that, in turn, would bring much dependence on low cost Middle East oil. The reserves in this region were, and now even more so, are the lowest cost to produce in the world. As all oil was sold in dollars, and US$s were then, still somewhat attached to gold, the ME producers had “no need” to raise prices! The political forces in the West needed much higher oil prices to “stimulate exploration” to avoid the “strategic problem” of “all oil supply from one region”. Make no mistake, there is enough oil reserves in the ME to supply “all world” for “many grandchildren”! It was in this time that the events created by the “politics of dollar currency”, allowed the decision to remove the gold backing from the US$. This move, broke the “gold bond to oil”, and created a need for more dollars per barrel of ME oil. The oil producers, as expected, did create “Beirut Resolution titled XXI. 122″!

Partial reprint from report by others:

Shortly after the gold window was closed in August 1971, OPEC called an emergency meeting with U.S. and other nations’ finance ministers in Beirut. The result of the meeting was the Beirut Resolution titled XXI. 122. It called for adjustments to OPEC’s crude oil pricing whenever the dollar had been devalued. The resolution called for OPEC’s price adjustments to be triggered whether or not dollar devaluation was caused by government action or by market forces. If the dollar lost purchasing power, OPEC could raise its prices.

[...] this was the beginning of a move by dollar advocates to raise this commodity price by inflating the “world reserve currency”. As an “also”, the ME was shown to be and caused to be “unstable” for dependence for oil production. Not all nations agreed with this move. The French and Germans did not, and by 1980, Europe was working with the BIS to implement a new "reserve currency". They did long for a "money" that would resolve "Beirut XXI" and allow for the purchase of low cost reserves, not the high US$ cost "world oil supply" , of perceived strategic importance to America alone.

The "new Euro" did take much longer to create, and the Gulf War did create a crisis of payment for oil. In this time, early 1990s, the currency of gold was brought "into use" as a "temporary" partial payment until the Euro could be presented. A paper gold market, of sufficient size, was created, that as such, it could hide discount payments to a few producers for oil. Today, if these claims on paper were converted into bids for physical, it would take all of the "tradable gold" in existence! It was this "leverage" that forced the Euro makers into gold. Gold backing for the Euro would not be enough! Only "exchange reserves of gold" would allow oil priced in Euros. We move to this end today. Tomorrow will see ME oil in good supply for a new trading block of nations.

and

Date: Sat Apr 04 1998 19:55
ANOTHER (THOUGHTS!) ID#60253:

[...]
But, in the same time frame, all central banks did sell gold to all persons, even the US. All treasuries held gold and dollars as reserves. To what end did the world financial system gain with the dollar off gold backing, and then allowed to “dirty float” against all currencies? Would the world not have been better off to find gold revalued to, say $300 and then begin a “dirty float”? Noone would have lost, and the inflation would have , at best, not have been worse!

Truly, I tell the reason for this action. The US oil companies knew that the cheap reserves were found. The governments knew this also. The only low cost oil reserves in the world at this time were in the Middle East, and their cost to find and produce was very low. It was known, that, in time, ALL oil would come from this land. As much higher US dollar prices were needed to allow exploration and production of other reserves, worldwide. But, how to get crude prices, up, when the Gulf States were OK to pump and produce in exchange for “gold backed dollars”? I will not name the gentlemen that brought this thinking to the surface in that era, but it was discussed. It was known that oil liked gold. It was known that “local oil” would be used up without higher prices. What if, the US dollar was taken off the gold standard, and gold was managed “upward” to say, $208 per ounce? The dynamics of the market would force oil to rise and allow for much needed capital to search for the higher priced oil that was known to exist! The producers would find shelter in gold even as the price of oil was increased in terms of a now “non gold dollar”! Price inflation would rise, but gold and oil would also increase. The dollar would continue to be used as the only payment for oil, and in doing so replace gold as the backing for this “reserve currency”. All would be fair.

The war in 1973 and the Iran problem did make markets “overshoot”, but all did work to the correct end. The result was “a needed higher price for a commodity that was, as reserves, in much over supply by the wrong countries”! It was known that the public would never have accepted this “proposition” as fair. To this end, we have come.

And it is from this end, that the gold markets are managed for today!
[...]

The situation will be no different if the world accepts a fiat Euro.

The key here is that the Euro zone was set up in such a way that they have a balanced trade account. So there is no excess amount of Euros leaving their zone that would cause this effect.

Even if it was, the store of value will eventually be gold, i.e. any Euros that will eventually be exported will be immediately sent back and continue to circulate. The Euro zone is set up in such a way that it solves the Triffin Dilemma. The dollar will probably die from it.

Victor

Wed, May 9, 2012 - 6:27pm
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Gold Backing

I think they (U.S.) eliminated the gold backing so that they didn't have to pony up real gold any longer to France and other countries who had figured out they better get their business settled with the U.S. in gold while they still could.

And I also believe more importantly that it allowed the Federal reserve to go nuts with the money printing and it also allowed the Treasury to sell an incredible amount of UST's from recycled petro-dollars from Saudi Arabia and other OPEC members. Those USD petro-dollars are what lubricate the world imho. That might be coming to an end but until it doesn't it still controls many things. Gold will take over at some point in some type of implied gold and silver backed system. I think it's far too early to guess how this plays out but that's the fun part about opinion. Were about to witness a slight unraveling of history in regard to the EU and the Euro

The Euro is eventually going to fracture badly and it might take awhile for it to stabilize and figure out who will remain in it. Greece looks to be the starter domino.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Here's something from Engdahl (FWE) about the petro-dollar and the 1970's US gold backing that Nixon did away with.

**************************************************************************

Officially, one of the mandates of the Fed is to maintain the stability and value of the U.S. dollar. But one of the real results of the Fed seems to be the continued devaluation of the U.S. dollar in a quite remarkable fashion – which accelerated since the 1970s. Why so?

FWE: Simply because that was to the benefit of Wall Street. After the break of the link with gold in 1971, which I’ve mentioned earlier, the group around David Rockefeller, then at Chase Manhattan Bank, the family bank, realized that they had an incredible capability in their hands with a floating currency and the fact that the U.S. was the sole military superpower outside the Soviet Union. The fiat dollars that were being printed by the U.S. ultimately drove this devaluation worldwide over this period – I think there’s been a 2900 per cent inflation—that is, a two thousand nine hundred percent increase of the quantity of dollars circulating in the world economy since August 1971, according to the last data that I have seen, and in the twenty years before that it was something like 56 per cent increase of dollar reserves worldwide, so naturally that was a period of relative stable inflation or non-inflation really, and then after the break you had this highly inflationary period.

Well, what certain people around Paul Volcker and others figured out is that the debt was their best asset – best that was for the banks, for the private banks, not for the nation, but for the private banks. So as long as U.S. debt is rated triple A, and, absolutely essential: so long as the US dollar remains the reserve currency of trade and in central bank reserves worldwide, then the United States essentially can export its inflation as it did to Japan in the 80′s, now today to China, to the European Union and to the rest of the world. In effect, the dollar surplus lands have no choice with their surplus dollars, but to buy U.S. Treasury debt – to finance America’s wars around the world, whether it’s in Iraq directed against China’s ultimate interests or Russia’s ultimate interests, or any of the U.S. wars. Those are in a sense being financed by the dollar accumulations in the central banks of Asia and elsewhere around the world. So it’s a diabolical and quite clever scheme that they have realized: They could do that after the decoupling of the dollar from gold in 1971.

Ever since the early 1970s the dollar has been essentially backed by oil.

FWE: Well, that’s what I’ve called it. In my book “Century of War” I talk about the Petrodollar. This is something that has been misunderstood by some writers of late; they think that the dollar is still today a Petrodollar. Oil is the largest dollar traded commodity in the world economy bar none, that’s very clear. But today the dollar, I would say, is a currency that is backed not so much by petroleum prices priced in dollars, but more by F-16 fighter jets and Abrams tanks, in other words by raw US and NATO military might. It’s getting down to the basic essentials of power here since the beginning of the Bush administration. Bush and Cheney were brought in by the elites in order to take off the velvet glove and show the iron fist to the world, because more and more things were getting out of control of an American hegemony or American sole superpower situation with the emergence of China, Russia and different things going on in the European Union.

Let’s say then the dollar was backed essentially by oil....

https://www.theundergroundinvestor.com/2011/03/a-history-of-rigged-fraud...

An epic lack of foresight, accuracy and rationale... https://www.tfmetalsreport.com/comment/170246#comment-170246

Wed, May 9, 2012 - 6:51pm ¤
victorthecleaner
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IndigoStar7

I think your source also suffers from getting the teams wrong. But that's life. If you have a preconceived world-view about who you claim is the villain and who is the hero, and you bend all the incoming facts in such a way as to fit into this world-view, you will again and again be surprised by the actions that happen in the real world.

Watch James Turk or the main thread at Zero-Hedge for real-time examples. The actions in the real world are more and more at odds with their 'predictions'. It will most likely become worse, and it may eventually wipe out many whom these self-proclaimed internet heroes pretend to protect. And this is no surprise at all because they have a fixed black-and-white scheme through which they see the world which happens to be skewed so seriously that they are blind to the main thread of political action that is taking place.

Victor

Wed, May 9, 2012 - 7:41pm
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Hi Victor

Could you elaborate on what these heroes are missing politically.

Wed, May 9, 2012 - 8:37pm
The Body
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More and more and more questions

I think it is unfortunate Victor has been kind of ostracized from the main forum; I would like to post this question there for others to chime in on but I’m afraid of starting another troll shit-storm. So anyhow, I am interested in vtc’s responses to these questions & anyone else who cares to offer up some knowledge. The jury is out for me on a lot of things and whether I come to agree with his point of view or not, the wo(man) most certainly has an educated opinion that is worth hearing (if for no other reason than keeping the proverbial enemy close, for those in the community who utterly detest him…).

One of my hang-ups is that there is still physical gold available to the general public for $1,600/ounce. I can see the paper price manipulation argument but just cannot for the life of me figure out if global central banks are accumulating this stuff by the 10’s and 100’s of tons, if smart global savers are wising up to the medium of exchange versus store of wealth paradigm & are using physical gold to store their wealth, if oil producing nations are turning to gold as an alternate form of payment, how is there any left? Especially, how is there any left to be had if the central banks share your ultimate price target of 10,000+ USD/EUR?

Related to the question above, you have said you think that the price of gold may dip below $1,000 and possibly farther than that. I am assuming that when you say this, you are implying a physical price of $1,000 whereby ordinary people will be able to purchase it for that price, not some meaningless paper price that has long detached itself from the real physical price. You say that the Euro is the stabler fiat and that the USD will gradually devalue to nothing. In an environment like this, when the USD is dying, global savers are saving physical gold, central banks are preparing for the dollar death spiral by accumulating mass amounts of physical gold, how can this be?

The Body

Wed, May 9, 2012 - 9:00pm
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Body

Ostracized?

Victor is free to go where ever he wants to post and he knows it. Victor is actually being gracious by communicating these thoughts over here where someone else started a forum that wasn't even directed at him or for him.

I think we can let rest what seemed to have happened. The conversation is starting to get interesting.

Fwiw, Victor could probably start a thread if he wished and I bet it would be popular.

An epic lack of foresight, accuracy and rationale... https://www.tfmetalsreport.com/comment/170246#comment-170246

Thu, May 10, 2012 - 1:15am
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bacq at it...

In a better frame of mind now :-) Nice to see friends and family.

I never finished dealing with the first set of responses etc, but perhaps I'll go bottoms-up. In currency, our topic, bottoms-up works, whilst top-down does not ;-)

You know my position. I am not a political activist. I am not trying to tell people what to do. I am trying to figure out what will happen.

I don't know your position, Victor, I am trying to establish it (and you don't make it very easy!) although your responses to my questions 1 - 10 were quite complete, thanks.

My position is that am trying to discover the truth and share it with the world. I think that what happens depends both on what is true, and whether everybody knows the truth, or not, as well as other factors. I think the best happens when the most people know the truth. To a [paraphrased] position of:

"Give up, the central bankers win, you'll have to live with fiat in every country in the world, and hoarding gold is the best you can do to protect yourself"

I'd say first it's fairly defeatist, second, that that will only be yet another temporary situation, as the market will eventually reject it, and third, that it is important to understand the superior alternatives to that scenario. I agree it's possible, but it will suck, and the more people that understand that truth, the better off we all will be.

V: "Now once international trade is cleared in gold, even if some (Rickards' dream) would reintroduce a new gold standard, this gold standard would be unsustainable and would soon be undermined by international trade and capital flows."

Ah. I had thought that when you here wrote:

"The purpose of the Euro was first to insulate Europe against the fallout of the anticipated dollar crisis and second to provide a replacement currency that can be used to settle international trade [emphasis bbacq]."

that you were proposing the Euro as a reserve currency in which international trade would clear. You see my predicament in establishing your position? You can only have it one way, or suggest some evolutionary scenario, or waffle bafflegab.

bbacq: The US trade deficit was created by the transition of the USD to fiat from having been previously been gold-backed.

Victor: I'd like to turn this statement upside down...

You'd have to flip the US trade chart above at the same time to support your case...

The United States had a big and insatiable government (Johnson and Nixon administrations) engaged in outrageously expensive military adventures. This government was elected by the people and they chose to cut the link with gold in order to pursue the big government agenda.

I'm afraid that is laughingly naive, Victor, if you believe the average American chose to rape the world financially for forty years so that the inevitable failure of Bretton Woods would bring the global economy to its knees. I'm sure at the time, the government felt they "had no choice". They were wrong. They could have admitted failure, shut the wicket, returned the world to gold for international trade settlement, and either default on all foreign-owned dollars, or allow free return within the market, either of which would have tidied up the international part of the fiat problem, but both of which bore immediate consequence. The first and grandest can-kick of all: they did neither. Instead - was it the Bushes? - they cut some sweet deals with the Saudis and "supported" the USD by coercing the oil trade into dollars. Ah, there was opportunity lost, to nip the bankers in the bud. Er, in the large, sturdy branch, rather.

The truth is that the market chose its timing to call the US "allegedly gold-backed" bluff. Either the US shut their wicket, or they lost all their gold. They had over-printed. The choices that created the failure had long since been made, at Bretton Woods. Finally, yes, Victor, the choice remaining, on how to react, occurred as it did because the nasty MIGBC (military-industrial-government-banking-complex) you refer to, or EE (Evil Empire, as endearingly known here) had an agenda. The average American voter at the time knew about, let me think, none of this truth. I bear no grudge.

By the way, do you know why they terminated the gold backing rather than devaluing the dollar?

They are one and the same. Bafflegab about oil, and quotations from "Another" then follow. Then we have:

The situation will be no different if the world accepts a fiat Euro.

Italicized I assume for emphasis and not to indicate these are Another's words, as not indented, I must agree, if you mean that should we accept a fiat Euro as global reserve we are in for another ride just like with USD as reserve, and wind up here again, but much worse next time after YACK (yet another can-kick) by the EE. Can we now consider the Euro-as-global-reserve scenario dead, done, and agreed upon to be too stupid to consider, even by the EE?

The key here is that the Euro zone was set up in such a way that they have a balanced trade account. So there is no excess amount of Euros leaving their zone that would cause this effect.

AACK! You are going in circles. As soon as a national fiat currency is used as a global reserve, the chart I posted above results. US was trade-balanced before fiat. Been there, done that, no more fiat-Ts, please. Situation no different, as you said immediately above. Governments and banks cannot be trusted to make the right decisions, as you point out above that. Gold will be used to transact international trade, you pointed out before that.

Even if it was, the store of value will eventually be gold, i.e. any Euros that will eventually be exported will be immediately sent back and continue to circulate. The Euro zone is set up in such a way that it solves the Triffin Dilemma. The dollar will probably die from it.

Bafflegab again! Even if what was what? Either gold is used to settle international trade, or not, and you have contradicted yourself on that and need to clear it up first. Euros, should they take a stab at being global reserve don't get "sent back" home. Typically, being currency, they are used to buy things. The Triffin Dilemma is inherent to national fiat as global reserve. It cannot be solved. Yes, they pooched the dollar.

Wow. The market exists, Victor, and it is ruthless and dogged in its pursuit of truth. The WP page on Triffin has a decent summary of some of the YACKs and their failures.

I think it bears pointing out that the Triffin Dilemma is a conflict in monetary policy. The right answer is to not have monetary policy.

Kill fiat and central banking before it kills you. Literally.

I'm going to get back to what I was doing, as there may have been some stuff I missed before being distracted.

Thu, May 10, 2012 - 5:41am
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bacq again...

Victor wrote: [bbacq] please reread what I wrote before item (1).

I did. Repeating or rereading bafflegab doesn't make it true, or any clearer.

Of course, when I say "value gold higher", this means value in real terms. Also, if two countries have a fixed gold backing for their currencies, this does not mean that their domestic price levels or labour costs are the same in terms of gold.

Is there some kind of "unreal value" that you think I believe in? The value of gold is just its value, though it may have different prices in different currencies, during eras when we are stupid enough to try and create currencies that are not gold-backed.

With this in mind, it should make sense. If you want full details, take a look at my

https://victorthecleaner.wordpress.com/2012/02/22/currency-wars-why-the-u...

which gives you examples of how the arbitrage mechanism works.

It doesn't. I don't, but I did, and it doesn't-squared.

It still doesn't make sense. I don't mean that I can't make sense of it, what I mean is that it doesn't make sense.

I don't know what is written in "Currency Wars" to which you refer at that link, but if Rickards was stupid enough to propose another centrally-managed gold-backed USD, and "revaluation" and such, I am disappointed. I may have to read it. Your arguments at that link fall apart when one considers a competitive-market-based gold-backed US dollar, ie the end of the Fed. Redeemability and gold-par exchange rate is ensured by market competition in such a system and your argument collapses.

bbacq: This particular division of function is not required to produce a high gold price as measured in a currency.

Victor: Wrong. For the following reason. People will always be able to borrow the medium of exchange. If the medium of exchange is gold, this gold will be undervalued simply because there is gold denominated credit.

Wrong. For the following reason, perhaps. In your example, introduce F, Frederico the foreigner, an Italian Lamborghini merchant, who trades in a different currency. If the gold/Lamborghini ratio in Simpleville goes up because of local debt, he floods the Simpleville market with Lamborghinis from his lower g/L market until prices are at parity. Ish. There are costs to trade, so it's not exact.

I think it would be helpful in your writing to not refer to the "gold price" or "the value of gold" in the context of gold-backed currency discussion, but its inverse, "domestic price levels". Your argument re-stated is that domestic price levels increase as a function of the quantity of local gold-backed currency. A deep-dive into the validity of the quantity theory of money is on my to-do list, but Frederico should give us all something to noodle on. I believe it may be the case that, as with any good in a market, provided supply and demand for money are aligned, its "price" doesn't change, and that domestic price levels are not a function of supply only, but of net supply/demand imbalance.

So you get the highest possible gold price if there is no debt denominated in a weight of gold.

I think I might finally be getting the hang of this. Translation: In a gold-backed currency regime, domestic prices are lowest when there is no debt. Ok, maaybe.

If you separate medium of exchange from store of value, you achieve precisely this.

Huh? Victor. If we apply your scenario in Simpleville everyone has their savings tucked under their mattress in gold, and there are no deposits in Bob's bank to be leveraged up into a workable currency. If there is to be debt, there must also be savings, capital of some kind. Are you suggesting that Bob print a bunch of paper and distribute it to people somehow? Leveraged off his giant capital base of one dollar? Do we introduce Greg the Government who sells bondages to Bob? Why would anyone want Bob's paper? I think pretty soon, as the electricity shuts down and food becomes scarce, that Bob is going to come begging for some gold to be deposited in his bank.

Or, more sinister, perhaps you are suggesting that as the electricity shuts down and food becomes scarce the people come begging to Bob and give him as much gold as he says he needs to run his fiat currency, just so that they can eat again, because they are all too stupid to open their own gold-backed banks. Oh please save us, Bob-the-banker!

I always ask "what would a market think" when thinking about economics.

Then people started coining gold and corrupted the system. The problem is that coining gold mixes the asset (physical gold) with the debt (if you give me the coin, i.e. the token for the debt, then I owe you a bag of flour). The result is that gold the wealth was undervalued in terms of gold the (token of) debt.

No. Coinage provided standard weights and simplified trade. At least until debased. Stop saying "undervalued". What nonsense.

And since the token (the gold coin) and the promise to deliver a token (gold denominated debt) have the same price by decree, but vastly different risks, it makes sense to hoard the token and to trade the debt.

No. A market-based competitive gold-backed currency reduces this risk to near-zero by putting out of business a55holes that don't pay their debts.

Anyway, with deposit insurance and/or central banks and/or increasing hoards of savings, the discrepancy between the asset (the coin) and the debt (the promise to deliver a coin) only gets bigger, the gold is more undervalued, and when the system fails, then it fails on a grand scale

No. The system fails when disincentives to committing fraud are not presented through market forces.

Note that most developing countries have already advanced from coining gold to separating gold (the wealth) from paper money (the token for an IOU).

I am saddened to report they have advanced even further, to the point of separating gold (the wealth) from people, who now have IOUs.

If people run out of tokens, no problem, they can be printed. No issue with failure to deliver tokens. People can concentrate on delivering the flour and the eggs. And even if they print tokens, hey, the individual token becomes worth a little less, but who cares. The real wealth is in gold (the asset).

That sounds so sinister, it speaks for itself.

Back to the future!

I sure hope not.

The fathers of the Euro must have figured this out at some point in the mid 1970s.

Scheming buggers.

The point is that "gold the wealth asset" is worth a lot (!!!!) more than today's OTC currency market for gold shows (this is where unallocated gold, the promise to deliver allocated gold, is traded). We are talking about a different order of magnitude, say, one ounce of gold is the average gross annual family income in the U.S., or something like that.

It will be restoration of the monetary role that will increase gold's value relative to other goods. I think you may be a bit high.

So revaluation of gold will work because this is where gold belongs.

No, revaluation of gold in various currencies will occur as the market dictates. New currencies may be proposed. Governments may continue to force fiat on their citizens.

The other issue is that you can engage in a currency war.

Why would one want to. They are destructive.

For example, the ECB can print Euros and buy gold and thereby get an advantage in international trade.

Not for long. Piper gets payed. Always. The market says so. Debasing sucks.

A funny point is that they can prevent the U.S. from going back to a gold standard with a fixed gold price.

No. Unproven. Counter-example has been provided.

The U.S. would either have to shut down international trade and capital flows or they would keep losing gold.

They just need to default on all the funny-money, and start again, without a central bank. Whooops! Booboo. So sorry. Then, you are right, they'll lose gold until they get their fiscal and trade acts together, or sell their country. That's what happens in a market.

So "back to the future" has already been insitutionalized.

Whaa? bbacq to bed or I'll soon be institutionalized.

Thu, May 10, 2012 - 10:48am
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@the body: Victor

The problem with having this discussion on the front page, Body, is that, as you can see above, containing the amount of verbal diarrhea that results requires a very large diaper, and it seeps out the edges anyway, and people might get infected from it. Victor, I apologize for characterizing it that way, but sometimes I wonder if your mental economy is running on fiat for transactions, as your locution seems inflated. I am still waiting for the gold nuggets you have been saving to emerge from the sh!t. It is possible there are some, I just haven't found any yet.

Body:

I can see the paper price manipulation argument but just cannot for the life of me figure out if global central banks are accumulating this stuff by the 10’s and 100’s of tons, if smart global savers are wising up to the medium of exchange versus store of wealth paradigm & are using physical gold to store their wealth, if oil producing nations are turning to gold as an alternate form of payment, how is there any left? Especially, how is there any left to be had if the central banks share your ultimate price target of 10,000+ USD/EUR?

I have no idea how much gold the central banks have, other than my own, which has basically none, as you can see from their public balance sheet. The ECB balance sheet lists their gold holds as "gold and gold receivables" so you can be certain that the quantity the are in physical possession of is less than the total, to the exact amount that they have leased or otherwise encumbered their gold. Nowhere in this masterpiece of obfuscation that rivals that found here is the term "gold receivable" defined, or the breakdown between "gold" and "gold receivables" spelled out. So we don't know, and they want it that way. The market determines the price of gold when it is forced to operate in a fiat regime, Body.

In an environment like this, when the USD is dying, global savers are saving physical gold, central banks are preparing for the dollar death spiral by accumulating mass amounts of physical gold, how can [paper price separate from physical price]?

It can't be, for very long. When it gets close to doing so, I believe it is referred to as commercial signal failure and if it happens in gold (and perhaps silver also) the banks are dead.

Trade fiat for physical, please, for your and my children's sake.

Thu, May 10, 2012 - 11:40am
bbacq
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@victor

If you have a preconceived world-view about who you claim is the villain and who is the hero, and you bend all the incoming facts in such a way as to fit into this world-view, you will again and again be surprised by the actions that happen in the real world

I know of few or no regulars here that fit that characterization, Victor. I do however know of many, myself included, who, by diligent research and sound reason have correctly determined who are the villains and who the heroes. In which camp do you place yourself, Victor? The only thing that surprises me is the sheer volume of villain-sh!t out there, and how long it is taking to clean up the baby's bottom.

Victor, I think it would be useful in developing your understanding if you studied up on Austrian economics, the inescapable logic of which seems to escape you. You seem unfamiliar with the arguments. Starting from this link, you can go back up to the top and get informed easily by listening to Russ Roberts have delightful conversation with his guests in his podcasts, or read the original works in the library.

Any Austrians out there familiar with the literature on what is said within of the quantity theory of money?

Victor, do you read sh!t as well as spew it? There is some awfully good sh!t out there to be read. Lots o' nuggets and pearls of wisdom to be found, and the filtering function is so much less messy with Austrian economics as the gold/sh!t ratio is so much higher.

The actions in the real world are more and more at odds with their 'predictions'.

When we deny nature the feedback-mechanisms that ensure stability, and empower small cadres with enormous power things get very unpredictable indeed. I refer you (a-freaking-gain! Refute it!) to Wenzel's speech to the fed link above, or read anything by Nassim Nicholas Taleb, or listen to Russ Roberts interview Nassim here. The way to restore predictability to it maximum is to return "control" of money back to the market.

"self-proclaimed internet heroes"

No. You proclaimed them to be heroes.

they have a fixed black-and-white scheme through which they see the world

Yes. Most of us refer to this colour-scheme as "truth" and "falsehood", the latter alternatively referred to as "lies", "disinformation" or "honest confusion".

...blind to the main thread of political action that is taking place

You seem unwilling to accept that the era of political control over the global economy is ending. Once it is over, things will get stable and predictable again. Trade will balance (it has to), unproductive people and countries will get poorer, and productive people and countries will get richer. It is the political denial of that simple state of affairs that has led to unpredictability.

Thu, May 10, 2012 - 11:46am
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@victor

Buried in the full diaper above is a key question:

In your separated-function monetary scenario, who capitalizes the banks, how, and why? Savings are in gold, and buried in PVC in the back yard. So, where does the capital come from to run the economy?

Take off the blinders, Victor. See the market in all its glory.

Thu, May 10, 2012 - 6:30pm
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bbacq, IS7, vtc

Yeah, I regret the unconstructive criticism I offered up about this thread - I can see how this discussion might not be entirely popular on the main board. Personally I am enjoying it, but I see your points.

I really feel like things are going to change an awful lot here in America in my lifetime. No idea when. Not really sure exactly what this change is going to look like and how my personal day to day life will be affected, but I do think that decisions and life choices I make now are critical; much more critical than say, 15 years ago. It feels like making poor decisions now could lead to very, very hard-to-fix outcomes down the road. I mean, not 5 years ago, would I ever in a million years have even dreamt of liquidating my retirement account at work; I am starting to think about that. That is a scary thing and a life changing one. Decisions... so important to make correct ones...

bbacq, I am with you about the Austrian School. I have been a fan of Lew Rockwell and the guys at the Mises Institute for a long time. I am an Atlas Shrugger through and through. I detest the concept of central banking and government currency. I think money should operate freely and competitively.

I guess I feel pretty strongly I know what is right and just. I am confident I know how things should work. It's just that it seems like very little actually does work that way. Everything is upside down. Cause and effect no longer seem to jive.

I think knowing what's right and just these days is as important as trying to figure what is actually going to happen and there is a very strong likelihood they will not be one in the same.

I believe that is why I find people like Victor's ideas interesting. They challenge my biases; for me keeping an open mind to these ideas is a defense against falling into a groupthink quagmire. Whether I wind up agreeing with them or not does not really matter in this process; in the end I just want to be as informed as possible to make good decisions.

But anyhow, enough rambling. Thanks, all, for the discussion.

Tue, May 22, 2012 - 3:48pm
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@The body

The most important thing is to NOT focus on trying to predict within this system, but to understand that the system itself is what is broken and making everything so unpredictable.

If complexity and competition is allowed to exist, things can to some extent (not much) be predicted.

I enjoy discussion with folk like Victor, but I am distressed when people get cynical and distressed about it.

All we need to do is to ridicule those who falsely believe they rule.

Then they rule no longer.

It worked for Ghandi and a billion Indians.

The Internet changes everything.

PS: Moderator Jane, why was it fine for this thread to exist in the "Welcome Wagon" forum until discussion began in earnest?

Turd, I think that a discussion of gold, money and the end of the Keynesian experiment does in fact belong in the welcome wagon.

Wed, Nov 14, 2012 - 11:20am
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@Xty

Before I continues this, and because you have given me a lot to read, do you mind if I respond in kind and give you some background reading to do first too?

Hope not.

https://www.usagold.com/halloffame.html

The first five part post by aristotle at least. ;)

And perhaps this if you like reading. :P

https://www.usagold.com/halldiscussion.html

Wed, Nov 14, 2012 - 1:04pm
S Roche
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A suggestion...

Wed, Nov 14, 2012 - 1:13pm
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I'm sure it does, but I don't

I'm sure it does, but I don't care to correct it.

Wed, Nov 14, 2012 - 1:42pm
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I do like reading but

sorry. I have had this one out. I have read too much FOFOA stuff, and argued these points too often. I have a very good understanding of economics and money. But this argument never ends - and it just eats up the main page. Coercion is necessary to force people to use a fiat currency. If there were freely competing currencies, however, governments and bankers would find it much harder to fleece the population, so they outlaw them. But gold just continues to function as a currency, and the bankers' banker, the BIS, uses gold to balance all currencies. I.e., it is the ultimate currency, and the level of denial is astounding, when this is so patently obvious.

"You can't breathe dead hippo waking, sleeping, and eating, and at the same time keep your precarious grip on existence." Conrad, Heart of Darkness

Wed, Nov 14, 2012 - 2:55pm George Clooney
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@Xty

I agree on the coercion part. The fact they have to pass laws to force people to use "their" currency for all transactions says a lot. The other thing I don't see coming from the freegold camp is a real explanation of why that system allows for inflation. Inflation is theft of wealth so if freegold allows for any inflation, it's a failed system for the masses and a boon for the bankers. They always like to come back with "but gold is floating against all currencies so no one country will print too much". Well, the CB's are all printing right now so what's to stop them from all printing at once? They're already doing it so they would do it in a freegold system as well. I asked the fool about it but apparently he doesn't want to give a real answer but then I really don't see his posts anymore so maybe he did and no one else brought it up.

This freegold thing is a cult. A following of someone that won't reveal who they are or what their background or credentials are yet they blindly believe everything the guy says, no matter how many holes are pointed out. As long as there is fiat and it's controlled by the central banks (bankers of any form) or a government, there will be devaluation and theft of wealth. Bbcq has done a good job of exposing a lot of these things. The 2 things I think are the real root of the problem are fractional reserve banking and the use of fiat. I'd actually rather see competing currencies that are backed by gold or something and not controlled by any govt or bank.

Wed, Nov 14, 2012 - 3:10pm
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@Xty

Do you mind perhaps if we change the nature of this discussion? I was thinking of a more informal conversation. Do you mind if I ask some questions, just so I could have some idea of what your position is, and perhaps see where our perspectives differ, and if it would be possible to share mine.

How about we start with some easy stuff.

Given your open dislike of a inflationary money system. What are your thoughts of a deflationary money system, such as the Gold Standard prevalent in the 1800's?

Ps. We view it as the ultimate wealth reserve, but in terms of conceptual meaning, this is perhaps just semantics. Perhaps we can agree it is teh ultimate something. :P

Wed, Nov 14, 2012 - 3:52pm
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The deflationary 1800's made the US a world power

IMO:

Andrew Jackson's successful shutdown of Biddle's bank (and survival of the assassination attempt from TPTB) made the US so prosperous that TPTB incited a civil war to slow US down and got their foot in the door again with Lincoln borrowing from banks.

Lincoln was assassinated because he discovered the government could print money instead of borrowing it and TPTB didn't want that sort of thinking to continue. (one striking parallel with JFK)

When Americans discovered silver was money and got too prosperous a Rothschild came to the US to stop that from happening..the crime of 1873.

In summary, I believe deflation was good for the USA from its founding until the establishment of the Fed.