On reflection

Consumer prices are not a global constant, but a reflection of the current state within each economy.

When an economy flags, consumer demand is tepid and, conversely, boom brings high demand.

Given they are managed with the goal of price stability, currencies also measure economic state.

Objective comparison of economic state (via currency proxies) requires a universal unit of account.

In the real world: consumer goods demand changes; currency values adjust; gold remains constant.

You may say gold demand changes, and I'd agree. That is a reflection of demand for other things.


^{Protect me from what I want}

Default?

US Constitution, 14th Amendment, Section 4: The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

The issue for the US government is not whether it can and will repay its current debts, which it absolutely must according to the Constitution as we see above, but only whether or not it can continue to increase its level of indebtedness without sacrificing the exchange value of its currency.

US government default, in nominal terms, is out of the question. It would be illegal.

55,000 dollars

For years, Freegolders have maintained "gold will reach 55,000 dollars in todays dollars".

What has not been said is "gold will reach 55,000 dollars".

Taking the CRB index as a (somewhat imperfect, but sufficient for our purposes here) proxy for the representation of what "todays dollar" is valued at — how much "real stuff" it can buy in the real (non-financial) economy — on any given day in the course of the last three years, the data charts like this:

What's my cost of living today?

i.e.: on this day three years ago, the dollar was valued at 1/330^th or so of a CRB basket. Today we can see that the dollar is valued at 1/280^th or so of a CRB basket.

Taking this view, of the CRB basket being a baseline of "real value" that we can measure things by to get an objective real world valuation of them, we can spin our view of the world upside down and see what the value of "todays dollar" was on each day of the last three years:

What's my dollar worth today?

Many people see the prices of "things" fluctuating in terms of a stable dollar that prices them all. We, however, can choose to see, as here, that after all it is really the value of a dollar that fluctuates — this is merely a matter of ones chosen perspective.

We can also look at the real world value of "todays gold" on each of those days:

What's my gold worth today?

What this shows us is that, yes, gold not only fluctuates in terms of its dollar price, but also in terms of its real world value… its purchasing power in terms of "other stuff" (rather than dollars). But, I hope you will agree with my assessment, the fluctuation is not wild over the years. In fact, if we happen to compare gold's purchasing power today with its purchasing power three years ago… it turns out to be broadly the same. You may at this point decide to go back and review the "What's my dollar worth today?" chart, above. If so, perhaps you were surprised, or maybe not, to realise that it turns out the same is not true for the dollar — its purchasing power today is such that it will buy more than it would three years ago… either in terms of gold or in terms of "stuff". Perhaps this is no surprise though, given, as we just established, gold's purchasing power has been essentially stable over the period… even as the world and his wife has watched the price of gold tumble.

Go dollar! No wonder "nobody wants gold", eh? But, getting back to the point of this post for now, rather than dwell on the fact that there has been deflation, despite all of Ben Bernanke's best efforts at making sure IT doesn't happen here…

What about "gold will reach 55,000 dollars in todays dollars"? Well, I think we can all agree that, according to the publicly available data as charted above, three years ago $1 would have bought roughly the same amount of gold as it would today. And three years ago that same amount of gold would have roughly the same amount of purchasing power in terms of CRB baskets that it would today. If physical gold trading were to break free of derivatives, to go through a reset in its perceived value due to derivatives failing to deliver physical gold to anyone and everyone who demands it, today… to the equivalent purchasing power of "$55,000 just before Christmas in 2011"… the third chart above, plotted on Monday when the closing data was in, may have to look quite a lot more akin to something like… this?

Happy Holidays?
Depends how you're positioned right now.

… The only problem being, the data in this chart is from the market for gold derivatives. The value of which will be going the opposite way. Oops!

Perhaps this helps clarify for some that Freegolders are not trying to put a specific future dollar price on physical gold, but rather attempting to convey the magnitude of the revaluation, in real terms, that gold must go through as it breaks free of derivative trading.

When the predominantly-derivative gold market of today will fail to deliver as promised, who knows? We may indeed be all long dead… or, just perhaps, it may be sooner than that.

Hard Money Socialism

I'm periodically quizzed about 'Hard Money Socialism'.

1) "What is a 'Hard Money Socialist'?"

Someone who wants to save in currency, and to have the real value of those savings protected by society. (Socialising their risk.)

2) "Freegolders advocate saving in gold. Doesn't that make them 'Hard Money Socialists'?"

You are free to save in any way you choose. Freegolders do not believe gold is money. Does this answer your question?


^{We apologise for this interruption to your scheduled viewing.
Normal service will now be resumed.}

The problem is persistent imbalance of trade

Isn't it simple?

There is persistent trade imbalance, by design, today.

If the trade surplus countries choose not to perpetuate this imbalance by merely accumulating ever more credits that they will not redeem for useful goods and services, because after all they are persistently running trade surpluses, then they can choose to instead simply redeem the credits for something useless but real today instead. This act would immediately address the balance of payments issue, directly through the current account. It would also give the trade deficit countries pause for thought, if they have to go back to parting with something real.

So why aren't any of the trade surplus countries doing just this today? That is the real question, and I suspect you would find the answer has little to do with the stock of money.


^{What? Me no more free stuff?
What? Me fewer jobs?}

Melancholia

"Shit!"? Or "get off the pot!"?

The suspense is painful… like being trapped in some kind of interminable Vulcan Death Grip, or something…

• Western paper traders won't bid up the paper (spot unallocated, GLD shares, futures, forwards, options, XAUUSD longs, swaps, leases, whatever) gold $price, while their technical analysis tells them gold's in a bear market and headed for the S bend (or even just circling the bowl).
• Others buy physical, and they much prefer to do that on price weakness… but if the strength seems sustained then they seem to buy a little anyway, perhaps grudgingly, but certainly less so (at least by weight, if not $cost).
• The mines can't feed more physical through the system reserves stream, while the $price is too weak and their costs to bring to market haven't fallen at least as hard.

So we either need to see:

• something to make the paper traders think "gold" has escaped from the bear, so that (a) the Eastern physical buyers drain less weight from the system reserves, and (b) the miners can increase the physical coming through the market (i.e.: to see the quiet run on the fractionally-reserved gold banking system's reserves stopped, even reversed).

or

• the physical system reserves will finally fall below a critical level, and the system will break when the next call comes for allocation or delivery. 

Ultimately, either the price "goes up enough from here" to keep the wheels on the present system, meaning the physical bullion and paper derivative prices of gold continue trading in lock step because the markets perceive them as fungible, or the wheels fall off because the physical reserves, underpinning confidence in the fungibility across all these various products, were stripped out at bargain basement prices by unsophisticated-but-savvy value seekers. Leaving, quite obviously to all, only the prospect of cash settlement for all of these paper derivative products… yes, including fully-paid-up spot unallocated credits in the bullion bankers' books and XAUwhatever longs in the, somewhat huge, forex market.

Will the market then proceed to bid up the price of these paper derivative products, in lock step with the price of physical bullion? Or are they more likely to avoid the foul-smelling paper that they find trying to make its way back through the S bend, while instead embracing the real deal?

<sup>Hey! … Freegold team sucks!!

… yeah, whatever…</sup>

New Gold Dream

Gold is not "financial capital", because it is not money but a tradable asset.

It is also not a "capital good", because it is not significantly part of the means of production.

It is, however, a durable physical wealth asset that can be readily traded for financial capital, which can be used to procure capital goods (or consumption items… or gold!).

If gold were routinely demanded to settle current account imbalances, and was traded free of "fiat gold" (a creditised financial anacronism, left over after the bygone international financial system of yesteryear) and were priced accordingly, this 'Freegold' would significantly reduce the necessity to attract capital account surpluses (for trade deficit countries to go ever-deeper into debt to trade surplus countries).

Balance in global trade would be restored.


^{Happy happy happy!}

Occupy This!

             The revolution begins within, comrade!

Nobody is forced to use Wall Street's (The City's, etc, etc) products and services.

You don't have to keep a fat stack of "cash in the bank", that those evil Banksters can gamble with.

You don't need to put on your credit cards a load of pointless stuff you don't need and can't afford.

Everyone is not required to go to university and amass huge, life-sucking debts in the process.

It is not necessary for you to take on a massive mortgage that you will perhaps never be able to repay.

All of these things are choices we all have to make, as individuals. They are not mandatory checkboxes in the margin of your life story, which some corporate or public [busy] body demands that you must fill in, on pain of death, or imprisonment, or y'know, maybe just a wedgie… a Chinese burn… or a stern and disapproving look?

What is the Occupy movement today really all about? Is it about relieving Joe & Josephine Average of the requirement to make these kind of life choices and deal with the consequences that may ensue?

An example…

Sick of the banks getting bailed out when they make a mistake? Great, me too! So, let's stop the bank bail-outs.

But, wait a minute… how about those bail-ins, with innocent bank depositors like you'n'me losing our money? So unfair! Yes, that kind of thing is much more fun while it's happening to someone else (but especially those evil bankers of course).

Maybe your bank made a mistake with its bets… but that's not your problem — it's theirs! You didn't place any bet on anything, you didn't make any bad choices that went wrong for you. Right? ;-)

^{Be the change you want to see. Throw yourself down the well. Or… just take your head out of your ass.}

OMG teh government is coming to take our money!!

I disagree with those claiming "evil government will take our bank deposits!!".

I think instead there simply isn't enough money in the system to cover the amount of assets (bank liabilities… "deposits") that will at some point get called. The banks will not receive a government bail-out again, but savers (those with deposit balances above the insured limit) getting bailed-in.

That isn't the government doing anything -- it is the government not doing something! IMO ol' Marty (among others) has scrambled his noodle in his bid to blame government for every problem that comes along.

The government will this time simply not be available when the call comes to provide offseting assets (UST bonds) to the Central Bank, in order to enable the creation of that lovely moar money for the banks… so they can turn around and make good on all their promises to "depositors".

This is credibility deflation. Of over-leveraged retail banks. Savers have given the banks too much credit.

It is to say "the link between retail banks and the nation State will be severed". (smile)



^{Bank deposit credit balances are not "money".
This is analogous to "spot gold" credits not being gold.}

No regrets?

^{Time will tell}

T'ai shang hsia

Great rising and falling—       People only know it exists. Next they see and praise. Soon they fear. Finally they despise. Without fundamental trust There is no trust at all. Be careful in valuing words. When the work is done,       Everyone says We just acted naturally.

^{Future. Present. Option. Mandatory. Promise. Broken.}

Why I struggle with Freefiat™

The trouble with any fiat currency system is, by definition, the holders of credits in the system are owed something later by someone — which, unavoidably, implies somewhere in the system a corresponding debt must be owed. If all will primarily hoard currency credits as savings, someone or another must be in an awful lot of debt.


^{Who will owe us?}

It just doesn't really sound much different to today?

magic [maj-ik]

noun

1. the art of producing illusions as entertainment by the use of sleight of hand, deceptive devices, etc.; legerdemain; conjuring: to pull a rabbit out of a hat by magic.
2. the art of producing a desired effect or result through the use of incantation or various other techniques that presumably assure human control of supernatural agencies or the forces of nature. Compare contagious magic, imitative magic, sympathetic magic.
3. the use of this art: Magic, it was believed, could enable the magicians to spend money that someone else also believed they held at the same time.
4. the effects produced: the illusion of great wealth.
5. power or influence exerted through this art: global dictatorship.

^{Deficits don't matter!}

The emancipation of GOLD

In life, all things have an inverse. Good is a derivative of bad; beautiful of ugly; hard of soft; light of dark.

Without the presence of a competing measure, a relative benchmark, it is impossible to properly appreciate anything.

The current quoted gold price is a function of supply and demand in the market for gold-denominated credit. Today you can buy gold-the-reserve-asset-in-strictly-limited-supply, for approximately the same $price demand places on its derivative… infinitely-available gold-denominated-credit from the nice people of the COMEX and LBMA.

The anomaly is a lack of distinction between the asset and its credit derivative - they are treated as equivalents by all but a few market participants. Gold owed is considered equivalent to gold owned.

Debt is the same as equity?

As the underlying asset reserve base is progressively drained from the current pricing system, this perception of equivalency cannot continue indefinitely. At the point of divergence, physical gold will finally be free to find its own distinct equilibrium price in the market… with gold-denominated credit also free to find its own. Beyond this point of divergence, it may become apparent to all that derivatives cannot really perform as hoped. Demand for them may wane. Prices in the two markets may cease to be approximately equivalent.

Physical gold may return to being properly appreciated as the prime wealth reserve asset that it always was. Gold-denominated credit may no longer be worth the paper it's written on.


^{Are you sitting comfortably?}

The future of gold?

Nobody can tell you what gold will be worth; it has no "intrinsic value".

Its value is arbitrary, floating on the whims of collective human emotion.

Nobody can tell you, today, with any degree of certainty, more than... all that glitters is not gold.


^{How's your weathervane?}

I can haz conspiracy?

Trying to control the world?
I see you won't succeed.

T'ien hsia shen ch'i
The world is a spiritual vessel
And cannot be controlled.

Those who control, fail.
Those who grasp, lose.

Some go forth, some are led,
Some weep, some blow flutes,
Some become strong, some superfluous,
Some oppress, some are destroyed.

Therefore the Sage
   Casts off extremes,
   Casts off excess,
   Casts off extravagance.


^{OMG!! The evil, all-powerful elitez, and their liberty-crushing Jackboots!!}

So … don't enable them?
Nobody has to give them what they want.

Just say no to temptation. It's probably not good for you.
Think.

The inevitability of change

With every unit of fiat currency, by its very nature, being an "IOU"… The Rich (at this point, anyone with a positive and non-contracting net worth) holding ever-growing piles, necessitates everyone else to increasingly be in debt to them.

It is inevitable that we must proceed, under the $IMFS paradigm, from "the 50%"… to "the 10%"… to "the 1%"… to "the 0.001%"… to…

It seems to me like "the 99.99%" have already decided it won't get as far as that though?

So if the 1% have a brain — and one would hope they must have, if they were able to take everything from everyone else without them even realising until quite recently… what would it say about the rest of us if even they don't! — they will have already been working on an alternative game we can all start to play together shortly. (Perhaps even for quite a long time? ;) )

Would anything else make sense at this point?

Cyprus Street

^{I know — let's set ourselves up as an offshore banking centre!} Good luck.

What's in your head?

Recognise beauty and ugliness is born.
Recognise good and evil is born.

Is and isn't produce each other.

Hard depends on easy,
Long is tested by short,
High is determined by low,
Sound is harmonised by voice,
After is followed by before.

Therefore the Sage is devoted to non-action,
Moves without teaching,
Creates ten thousand things without instruction,
Lives but does not own,
Acts but does not presume,
Accomplishes without taking credit.

When no credit is taken,
Accomplishment endures.

Ku yu wu ksiang sheng - Lao Tzu