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EJ
10-13-11, 12:10 PM
Essential Trends - Part I-A: Gold in an Era of Global Monetary System Regime Change



http://www.itulip.com/images2/iTulipTrendsFramework.png



This six part series explores the five of the major macro-economic trends of our time. Each part covers one major trend, then we pull them all together in Part VI.

Monetary Regime Change, American Debt Deflation, and Peak Cheap Oil are updates to previous analysis and are already familiar concepts to long time readers, although they will be explained in this new series simply to help new readers to quickly grasp the concepts.

The Great Wall of Money expands previous analysis of China's unsustainable economy into a more fully formed theory of the Chinese economy. A key element is the idea that the distinction between the balance sheets of China's commercial banks and its central bank are so blurred that they may be considered from a monetary policy viewpoint as a single, gigantic balance sheet. The implication is that while the crash we forecast back in October 2010 to occur in Q4 2011 is proceeding as expected, it is unlikely to be the end of the road for the Chinese system.

Euro Zone Fracture is a new concept for us. It develops the theory that weaker countries that have always been a poor fit within the euro zone structure will be thrown off, like children from a Merry-go-Round when it spins too fast to allow the weaker players to keep their grip, but the system will hold together overall with the euro re-enforced to be more of a true currency rather than a super currency peg.

The approach taken in the analysis is to frame each trend between two forces that are the key processes drivers. In the case of Euro Zone Fracture the force of increased federalization on one side opposes the force of increased tribalism on the other, with credit committee negotiation complexity and time constraints the greatest impediment to resolution. In the case of American Debt Deflation the political strength of special interests to maintain the flow of payments to repay bubble era debt opposes the political tension created by high unemployment and weak economic growth that deflation causes. By framing each trend process between two opposing forces, all five can be combined in ways that allow us to explore their interaction and propose likely outcome scenarios and impacts on asset classes on a time line. We attempt to keep this all simple enough that readers don't get lost in the language and minutia.

The processes underlying each trend are in some crucial way limited. Each will force dramatic change through crisis, some sooner than later. This is what makes these particular five trends so important. For example, the Peak Cheap Oil trend process is limited by the finite supply of oil that can be produced at a cost that does not tax the global economy into negative growth. The American Debt Deflation trend process is limited by the electoral system, despite the appearance that it leaves voters with no choices.

The diagram above depicts the five major trend change processes. The diagram also corresponds to the organization of the New iTulip that we now hope to launch later this month. We expect each part of this series to come out roughly every two weeks. In addition there will be more frequent short updates, getting back to the original concept of my original Quick Comment and Urgent Message (http://www.itulip.com/urgentmessage.htm) going back to 1998, when I was blogging before there were blogs. It is there where I will comment on my experiences on a panel at a black tie fund raiser at the Nixon Library (http://www.thenorrisgroup.com/blog/news/eric-janszen-joins-the-i-survived-real-estate-panel-october-14th/) tomorrow in Yorba Linda, California with Doug Duncan, chief economist for Fannie Mae; Debra Still, chairman elect of the Mortgage Bankers Association; and my old friend Sean O’Toole, president of Foreclosure Radar. The following week I attend an invitation-only conference at the Federal Reserve Bank of Boston "The Long-Term Effects of The Great Recession" (http://www.bostonfed.org/economic/conf/LTE2011/agenda.htm) where Bernanke gives the keynote and will post comments on that as well.

Monetary Regime Change is depicted in the diagram above as a meta-trend at the center as it both influences all others and is influenced by them. It is here that we logically begin the series.

Gold in an Era of Global Monetary System Regime Change


http://www.itulip.com/images2/goldvaultgold.jpg
Photo Credit: Alyce Taylor, 2008

I’m in a conference room in Cambridge, Massachusetts this summer with a friend who runs a venture capital firm. We get to talking about gold.

He tells me, “I might invest in gold if anyone can tell me what it is.”

It wasn’t the time or place for me to launch into my idea of the meaning of gold in our time, that gold is a stand-by alternative currency for international contract settlement if and when the U.S. Treasury dollar system finishes breaking down.

I’m immediately confronted with the uncomfortable truth that I cannot name a single article for my friend to read that simply and plainly explains why, among investments in technology company stocks, commodity ETFs, TIPS, municipal bonds, REITs, and myriad financial instruments that track the economy and hedge risk, the element AU, atomic number 79 on the periodic table -- metal -- belongs in the investment portfolio of a sane and reasonable person in the year 2011.

Isn’t gold ever so 1879?

Since 2001 when I decided to enter the gold market as an investor I have published dozens of articles about gold, but none of these were intended as a gold investing primer. They are engagements in the battle for the hearts and minds of the world’s investors who remain disproportionately enamored of the cleverly and ubiquitously marketed magical properties of equities. My motives for engaging this fight will become clear as you read on.

The struggle was dominated then, ten years ago, by doctrinaire gold fanatics. Back then they were talking to themselves. Gold was dismissed and forgotten as irrelevant by mainstream investors, and the media that catered to them was busy helping Wall Street convey the speculative fervor of a credulous investing public from the wreckage of the collapsed stock market bubble to a nascent housing bubble. The unfeigned were whipped up into a frenzy of get-rich-quick housing speculation fervor from 2002 to 2006. The object was to drive demand for billions of dollars of mortgage-backed securities sales, to generate fees for Wall Street firms.

Gold did not make the pages of the Wall Street Journal and the New York Times until five years after steady gold price increases made gold newsworthy again. But the articles did not investigate the causes of a curiously persistent and steady rise in gold prices after decades in the doldrums. Instead, readers were treated to the repetition of a short, concise, and easily absorbed gold-is-a-bad-investment script.

Until recently in order to get an article or editorial on gold published in a mainstream periodical it needed to include the following checklist of arguments against owning gold:


Gold does not earn interest as bonds do.
Gold performs poorly as a long-term investment versus stocks and residential real estate.
Gold prices are highly volatile.
Gold is a dangerous bubble about to pop

Then, in 2008, two years after the housing bubble peaked, the rigged market for securities that backed U.S. home mortgages and other debt collapsed, taking down the U.S. financial system, then the global financial system, and finally the global economy. The full repercussions of this series of events have yet to be felt.


http://www.itulip.com/images2/ASBvsFinancialStressQ12001-Q32011wtmk.png

These events were subsequently papered over with the obfuscatory label Global Financial Crisis, as if the crisis appeared furtively like a ship running aground in a dense fog rather than conspicuously like an orphanage exploding after the janitor flicked his lit cigarette downstairs into the hidden fireworks factory in the basement.

The crisis proceeded along an easily traced chain of causation originating from a readily identifiable source: a profoundly corrupt regulatory apparatus that America's paid-off Fourth Estate let run amok for years, selling debt securities that put the entire financial system at risk. The dangers of Credit Risk Pollution (http://www.itulip.com/riskpollution.htm) produced by these securities was evident in 2006, in plenty of time to prevent the financial system wreckage that occurred years later.

Here on iTulip we refuse to play along and use the term Global Financial Crisis. The American Financial Crisis, or AFC, originated in the U.S. then spread to the rest of the world -- and still dogs it. One cannot grasp the meaning behind gold's rise since 2001 without first acknowledging that the conditions of the American political economy which gave rise to the AFC are driving gold prices higher.

Drivers of Global Monetary Regime Change

In the wake of the AFC, gold prices surged but not for the reasons that Nouriel Roubini, George Soros, and others claimed on the pages of the WSJ and the NYT at the time. The surge was not a consequence of retail investors panicking out of stocks and bonds into gold. In fact, the gold price plunged in the heat of the liquidity panic early in the AFC as retail buyers and hedge funds sold gold to raise cash. The price rise that followed the AFC reflected a new stage in global monetary regime change which began in 2001.

In theory, the world’s major reserve currency used in international trade need not be backed by a commodity such as gold as it was from the 1840s until 1971 when U.S. Treasury bond became the world’s monetary reserve asset, and the U.S. dollar the unit of that reserve.

If a single nation among all nations meets the following criteria, it can issue the world’s reserve currency and be trusted to maintain the value of that currency if it meets at least these three criteria:
1. World’s largest GDP and tax receipts to match to back its promises
2. World’s most liquid and transparent bond market
3. World’s most trusted and disciplined Central Bank with respect to maintaining low inflation and ensuring financial market stability
My choice of the phrase “World’s most” rather than some absolute measure conveys the reality that with respect to maintaining the authority to issue the world’s reserve currency credibility is relative.

The bond market need not be perfectly liquid and transparent nor the central bank perfectly trustworthy and disciplined, only that these be significantly more in evidence for the country issuing a reserve currency than for the other members of the monetary system who are parties to it.

The technology bubble was, in my opinion, the firing gun that communicated to other participants of the global monetary system that systemic and possibly venal corruption had infected the world’s reserve currency issuer.

Foreign institutional and official market participants began to respond rationally to evidence that in addition to the fact that the U.S. no longer held a dominant share of global output, U.S. leaders and institutions were taking on the unseemly character traits and behavior of their own.

They began to think, “If I want to put my money into a corrupt and unreliable banking and financial system, I can keep it here at home. I don’t need to bother with the U.S.” Paradoxically, at the same time, in countries such as Brazil, technocrats trained at U.S. universities were applying the very U.S. principles of market transparency and efficiency that the U.S. was abandoning.

As the global monetary system based on U.S. Treasury bonds does not have an official Plan B should the system fail, the unofficial Plan B has always been gold. At least that was my theory back in 2001. In 2001, with the crash of the stock market bubble the U.S. began to lose its legitimacy as the world’s reserve currency issuer and gold prices began to rise.

Global investor epiphany

In 2009 the AFC accelerated the global investor awareness of this new, more unseemly character of the American political economy.

Gold as fallback reserve currency was to my mind in 2001 the only rational argument available to explain why central banks continued to hold more than 20% of all of the gold ever produced in history as reserve assets 30 years after gold was officially de-linked from the global monetary system.

Readers who have been following along with my theory of gold since 2001 were not surprised to find that starting in Q2 2009, in the wake of the AFC, global central banks became net buyers of gold for the first time since after WWII.


http://www.itulip.com/images2/USGDPvsWorldGDPQ11980-Q22011wtmk.png
How much longer can the tail of the global economy wag the global money system dog?
The U.S. no longer dominates the world economy as it did when the global currency arrangement was created.


This brings us back to the matter of mainstream media coverage of gold. Starting in 2009, the anti-gold checklist disappeared from articles in the mainstream media about gold.

After the AFC, imploring investors to avoid gold for checklist reasons was no longer credible.

With interest rates pushed to near zero to reflate the economy after the crash, no one cares that gold does not earn interest.

The AFC made the public intensely aware that the stock market in inflation-adjusted terms has declined by double digits over the past decade while gold increased five-fold, steadily, year after year, demolishing the argument that gold always performs worse than stocks over the long term.

Stock market volatility between 2001 and 2009 was so extreme it made gold price movements look tedious.

It also became painfully clear that faith in the single family home as a foolproof investment had collapsed along with the housing bubble.

Today, newcomers to the gold market who look to the pages of the Wall Street Journal and the New York Times for insight into the meaning of gold are no longer accosted with a stream of anti-gold propaganda but are still treated to the occasional article warning that gold is a dangerous bubble, yet even instances of these dubious warnings grow rare as it dawns on the public mind that the bi-annually predicted impending gold bubble collapse has failed to materialize for more than five years.

That still leaves a tangle of confusing motives and viewpoints charged with emotion. Gold may not be magnetic, but it attracts passionate opinion as no other asset class can.

Politics of Gold

Pity the neophyte as he or she first enters the world of gold as a financial asset. The newcomer thinks of gold as a rare, soft, beautiful yellow metal used in jewelry to embellish souls or in electronic circuits to protect parts against corrosion. Enter the brawling gold investment forum and suddenly gold takes on a thousand colors.

To the true believers gold is at once a symbol of righteousness and honesty, a beacon of light to lead a lost people from the badlands of government-made money, a solid moral anchor for a errant relativist culture, and a personal financial life raft to float the family homestead in a tsunami tide of economic destruction when the inevitable Day of Reckoning arrives.

The true believers have a name. They are called gold bugs.

On the other side of the argument are equally ardent gold detractors, many of whom vilify gold as fervently as true believers glorify it. The vehemence of their arguments against investing in gold belies the self-doubt that arises from not knowing how to answer the question: “Why did I remain in the stock market and keep faith in a conspicuously manipulated financial system for so long? Why have gold prices gone up every year since 2001 while stocks fell? Why didn’t I buy gold when the price was lower?”

The silent self-flagellation that occupies millions of prospective gold investors is unjustified. To a far greater extent than they may be willing to accept, the misinformed condition of the American investors’ mind with respect to gold investment, which condition led to the decisions they made, is not entirely their fault.

Discussion of gold as an investment has become a crazed team sport divided between passionate fanatics and correspondingly vehement detractors, with an irritable audience of mainstream investors in the stands scratching their heads, wondering what all of the fuss is about.

In their defense, the mainstream business media struggles to find credible, independent sources of gold market knowledge. The views of the most knowledgeable are the most suspect for being the least dispassionate.

Who but a Dodger’s fan can cite each player’s record of assists, double plays, and errors, and who but a gold bug can cite the last time gold prices previously spiked and fell on a percentage basis as much as between August 1 to September 30, 2011 and why?

Perversely this credibility gap means that the less you know about gold, the more trusted you are as a dispassionate source. In fact, in order to qualify as a true gold expert you need to know nothing about it whatsoever.

That leaves the hapless retail buyer left to read the opinions of either the fanatical or the benighted. Each provides a belief-specific awareness filter on the facts.

For example, a gold bug will tell you that gold was illegal for Americans to own from 1933 until 1974, which is true, but then he will spin this into a tale of government goons cracking open safe deposit boxes to confiscate gold. The fact is that that the law was so weak that it was enforced only once in 40 years, and that single case was dismissed.

The truth of the episode of the gold's 41 years as contraband is more interesting than the conspiracy theories. The majority of gold investors, who become known as gold hoarders whenever the government needs it, turned in gold voluntarily before the May 1, 1933 legal deadline set by FDR’s order. They did so for largely patriotic reasons, to help rescue the economy that had been in a deflationary death spiral for three years under the non-leadership of Herbert Hoover.

Sixty-five years later, in the depths of the Asian Currency Crisis in 1998, without force of law millions of Koreans scraped together more than a billion dollars worth of gold jewelry, coins and other personal items to give to the government voluntarily to be melted down to shore up the central bank's reserves. To put this egalitarian behavior into context, thousands of Korean college students had to go home to their families in Seoul that year from the U.S. because the won had so depreciated that savings in domestic bank accounts could not cover tuition. City parks filled with the unemployed when only months before unemployment was largely unknown. It was a classic Sudden Stop event (see Headed for a Sudden Stop, 2008 (http://www.itulip.com/forums/showthread.php/5403-Headed-for-a-Sudden-Stop)). The populace rallied in the nation’s time of need, turning in gold to shore up the system for the greater good.

This nuanced interpretation of gold's function in a currency crisis is critical to get right because it suggests how the latest episode in the life of gold as a monetary asset is most likely to end. Rather than by government confiscation as gold fanatics warn, I have argued since 2001 that the most probable endgame is for global monetary crisis to force the U.S. to re-open the gold window, a concept I explain in detail later, with gold turned in by U.S. citizens voluntarily to increase U.S. holdings from 8,133 tons today to enough to truly back the full faith and credit of the U.S. Treasury.

Gold as Protection Against the Causes and Effects of Global Monetary Regime Change

My investigation into gold starting in 1998 and culminating in 2001 with a major purchase focused on an anomaly of central banks and national treasuries: they publicly proclaimed gold irrelevant while they continued to hold in excess of 20% of all of the gold ever produced. Not only that, but the distribution of gold reserves struck me as geopolitically telling.


http://www.itulip.com/images2/WorldGoldHoldingsQ32011wtmk.png

The United States with 8,134 tonnes has by far the largest gold reserves, followed by Germany at 3,401, the IMF at 2,814, Italy at 2,452, and France at 2,435. Altogether the world's governments own 30,407 tonnes. Thirty thousand tonnes struck me as rather a lot of anything for governments to own that they collectively profess has no value or purpose. The question, then, was what value and purpose does gold still have in government vaults? Answer that question, I told myself, and I can forecast where gold prices are going to go.

One way to approach the question is to investigate how gold got into the government vaults in the first place. It didn't appear out of thin air. The history was undoubtedly long and complex, but at the heart of it were principles that hold throughout the ages.

Essential Trends - Part I-B: Gold in an Era of Global Monetary System Regime Change

The history of our modern world is written in the gold reserves holdings chart above. I will not attempt to cover all of the ebbs and flows of gold reserves of 35 nations between 1845, through the global financial crisis of the 1860s, WWI, and WWII. The obvious point that this chart makes is that the U.S. has since the end of WWI held far more gold than any other country. Also, measures to collect gold from U.S. citizens were highly effective at expanding national reserves.


http://www.itulip.com/images2/nationalgoldreserves1845-1945wtmk.png

The second largest national gold reserves during this period were held in the vaults of The Bank of France. If you take the U.S. out of the picture, gold reserves over the same period looks like this, with France dominance beginning in the 1860s until the 1890s when the Bank of Russia kept up with French gold reserves until the Russian Revolution. (Continued... $ubscription (http://www.itulip.com/forums/showthread.php/20639-Essential-Trends-Part-I-B-Gold-in-an-Era-of-Global-Monetary-System-Regime-Change-Eric-Janszen?p=211857#post211857))


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c1ue
10-13-11, 01:34 PM
Rather than by government confiscation as gold fanatics warn, I have argued since 2001 that the most probable endgame is for global monetary crisis to force the U.S. to re-open the gold window, a concept I explain in detail later, with gold turned in by U.S. citizens voluntarily to increase U.S. holdings from 8,133 tons today to enough to truly back the full faith and credit that the U.S. Treasury.

This is a really strong statement, one which I do not agree with.

If the US economic profile were that of 1950, or even 1964, this would be very possible, even likely.

However, the lower and middle classes' gold has long been sold off to meet ever burgeoning FIRE depredation.

The remaining holders are either wealthy in the international sense - thus without particular rationale for contributing their gold to a given nation, or are institutional and even less likely to do so (hedge funds, pension funds, etc).

I also greatly question the drawing of parallels between South Korea - a nation which is extremely culturally and racially homogeneous - vs. the United States which is neither.

Not that what you note cannot happen, but there are clear differences in behavior between say, France and China vs. what happened with the Austro Hungarian empire, Yugoslavia, with the Soviet Union being a combination of both.

Raz
10-13-11, 01:49 PM
This is a really strong statement, one which I do not agree with.

If the US economic profile were that of 1950, or even 1964, this would be very possible, even likely.

However, the lower and middle classes' gold has long been sold off to meet ever burgeoning FIRE depredation.

The remaining holders are either wealthy in the international sense - thus without particular rationale for contributing their gold to a given nation, or are institutional and even less likely to do so (hedge funds, pension funds, etc).

I also greatly question the drawing of parallels between South Korea - a nation which is extremely culturally and racially homogeneous - vs. the United States which is neither.

Not that what you note cannot happen, but there are clear differences in behavior between say, France and China vs. what happened with the Austro Hungarian empire, Yugoslavia, with the Soviet Union being a combination of both.

I'm with c1ue on this, especially the comparison of the "United" States with countries such as South Korea - or Norway, Sweden, etc.

At one time we had a [mostly] common culture, but no more. Post-Modernism has effectively destroyed even a moral consensus among the American people as regarding the beginning of human life, marriage, national security, etc., among other points.

Personal peace and affluence has replaced almost every other common priority. It used to mean that as long as I have a good job and a nice neighborhood then to hell with the rest of the world. Now I fear it has come to mean that as long as I'm okay, to hell with the people one block over!

Without ever rising standards of living what is there to "hold the center" in our country? Just look at the mental and moral midgets in positions of power within the RepubliCrat party - it's enough to engender despair.

jpatter666
10-13-11, 01:56 PM
I disagree. The people tend to come together in time of crisis -- I'm seeing the first stirrings of such behavior now.

gnk
10-13-11, 02:03 PM
I agree with you jpatter.... one only needs to look at the runup to the Iraq war to see how quickly the population can be "homogenized" over a single issue.

Remember folks, what EJ writes about takes place in a world that most people, today, can not fully recognize or imagine. The times will be very trying; despair and fear are great at bringing people together.

edit - add:

I can see a day when it will be extremely unpatriotic to own gold, let alone to wear gold. Rappers - take note!

jpatter666
10-13-11, 02:12 PM
I agree with you jpatter.... one only needs to look at the runup to the Iraq war to see how quickly the population can be "homogenized" over a single issue.

Remember folks, what EJ writes about takes place in a world that most people, today, can not fully recognize or imagine. The times will be very trying; despair and fear are great at bringing people together.

edit - add:

I can see a day when it will be extremely unpatriotic to own gold, let alone to wear gold. Rappers - take note!

I can just picture the peak....Mr T ads.

"I pity da fool who hoards gold....." ;-)

FRED
10-13-11, 02:33 PM
This is a really strong statement, one which I do not agree with.

If the US economic profile were that of 1950, or even 1964, this would be very possible, even likely.

However, the lower and middle classes' gold has long been sold off to meet ever burgeoning FIRE depredation.

The remaining holders are either wealthy in the international sense - thus without particular rationale for contributing their gold to a given nation, or are institutional and even less likely to do so (hedge funds, pension funds, etc).

I also greatly question the drawing of parallels between South Korea - a nation which is extremely culturally and racially homogeneous - vs. the United States which is neither.

Not that what you note cannot happen, but there are clear differences in behavior between say, France and China vs. what happened with the Austro Hungarian empire, Yugoslavia, with the Soviet Union being a combination of both.

EJ writes in from the road:


It's a common misconception that FDR's order was aimed at lower and middle class gold owners. Most of the gold held by U.S. Citizens was held by the top 5% net worth group. The law was intended to motivate bank managers to not collude with important clients to get the client's gold out of the country. The "cash for gold" crowd has indeed already been cleaned out, judging by the falloff in advertising, but they will not be the targets of any future anti gold hoarding propaganda campaign.

It's also easy to underestimate the effectiveness of these campaigns. The ease with which the invasion of Iraq was sold is indicative.

sishya
10-13-11, 03:26 PM
EJ,

I agree with EJ that U.S. will re-open the gold window, but when that happens the paper Gold market(LBMA/COMEX)
will not exist. At this time the price of Gold paper futures/ETF will trade at zero(because irredeemable by Govt "force Major") while Gold price
will be unknown for a short period of time. miners will be taxed highly so that they can only make a small markup profit, because in effect they
are producing wealth reserve.

The problem is US citizens don't own much Gold to help this window.



The technology bubble was, in my opinion, the firing gun that communicated to other participants of the global monetary system
that systemic and possibly venal corruption had infected the world’s reserve currency issuer.

I disagree the start of price rise in Gold in 2001 is attributable to the Technology bubble burst.
I think it was the for the simple reason that the paper Gold market started to take serious hits, for which
I think Prime minister Brown sold Gold to help the paper Gold market.

I take ANOTHER from gold trail seriously and his assertion that Gold bids for dollars and not the other
way around ie if a Gold holder(trade surplus country or other saver ?) does not want to convert his Gold(or surplus trade value) to dollar - the dollar is finished.

I think after 1980 savers(surplus countries/Oil producers) had choice - save in Gold or save in Dollar.
saving in Gold will crash the system and dollar was OK then, so they moved their savings to dollar bonds thus
preventing inflation in USA.

Low priced paper Gold is traded for low priced oil, with physical Gold from paper futures being redeemed by
only the oil producers(kissinger/saudi deal ?). This apple cart was turned when asians started to buy big directly from South African miners
around year 1998.

This change in 1998 and together with the exponential increase in US debt, the time
for Gold just arrived. I think this is the reason. what we are seeing is the slow motion crash of the paper
Gold market. The last time the London Gold pool collapsed in March 1968 because we were in fixed Gold standard and they
could not raise the price when confidence in US debt started eroding.

ViC78
10-13-11, 04:07 PM
As the global monetary system based on U.S. Treasury bonds does not have an official Plan B should the system fail, the unofficial Plan B has always been gold. At least that was my theory back in 2001. In 2001, with the crash of the stock market bubble the U.S. began to lose its legitimacy as the world’s reserve currency issuer and gold prices began to rise.


In light of this statement, how do you explain the fall in treasury yields from 2001 onwards and the selling of gold by foreign central banks until 2009. I mean, if the unofficial plan B was gold, why would there be any selling of Gold by Central banks?

rogermexico
10-13-11, 05:30 PM
This is a really strong statement, one which I do not agree with.

If the US economic profile were that of 1950, or even 1964, this would be very possible, even likely.

However, the lower and middle classes' gold has long been sold off to meet ever burgeoning FIRE depredation.

The remaining holders are either wealthy in the international sense - thus without particular rationale for contributing their gold to a given nation, or are institutional and even less likely to do so (hedge funds, pension funds, etc).

I also greatly question the drawing of parallels between South Korea - a nation which is extremely culturally and racially homogeneous - vs. the United States which is neither.

Not that what you note cannot happen, but there are clear differences in behavior between say, France and China vs. what happened with the Austro Hungarian empire, Yugoslavia, with the Soviet Union being a combination of both.

I can't speak directly for EJ, but I do not think when he says "gold turned in voluntarily by US citizens" he is thinking of the gold being donated so much as exchanged for currency - purchased by the government.

This is exactly what happened in '33 in the US. No one was donating their gold or literally having in stolen from them. They were given currency in exchange - the gold was purchased by the government.

To the point of there being no one to turn in gold but institutions or the wealthy, well, that is same-old same-old as well. Most of the gold turned in in '33 came from the wealthy. One sign of this is that they printed FRNs in denominations as high as $500 and $1000 expressly for the purpose of making it easier to exchange paper currency for all the gold.

It won't be grandma bringing in necklaces to melt down, it will be the wealthy and institutions taking currency in exchange for gold that will be used to bolster reserves for the "new dollar".

We we all "turn in" our gold quite voluntarily if we have not already sold it, because we will get new currency that is de-facto backed by the very same gold.

I make the bold prediction here that the event may even be tax free, as the period of potential gold vilification will not have just passed, but indeed have been reversed. Only holders of gold who don't take advantage of the exchange offer will be hit with potentially confiscatory taxes.

sishya
10-13-11, 05:35 PM
I make the bold prediction here that the event may even be tax free, as the period of potential gold vilification will not have just passed, but indeed have been reversed. Only holders of gold who don't take advantage of the exchange offer will be hit with potentially confiscatory taxes.

I second that. it may be either less taxed than even capital gains tax (like a transaction tax) or tax free. I even expect people holding Gold to be the main holders of capital at that timeframe.

I even expect the US Govt to support high price of Gold at that time so that outstanding debt to producer countries can be settled in very little Gold.

sishya
10-13-11, 05:43 PM
In light of this statement, how do you explain the fall in treasury yields from 2001 onwards and the selling of gold by foreign central banks until 2009. I mean, if the unofficial plan B was gold, why would there be any selling of Gold by Central banks?

If Switzerland, France etc had not sold their Gold, the paper market would have crashed along with the dollar based monetary system, which would have been a "sudden stop".
Take the ECB, they started with their reserves being 30% Gold and 70% dollar holdings. Now it is 65% Gold and 35% dollar. They all want a gradual phase out of Dollar and not a
sudden stop. Hence they are all slowly buying now, maybe gathering speed ?

renewable
10-13-11, 06:41 PM
increase U.S. holdings from 8,133 tons today to enough to truly back the full faith and credit that the U.S. Treasury.

I'm surprised to see that the iTulip position appears to be that the US' claimed gold holdings are accurately & completely accounted for.

It seems likely that at least some of this gold has been 'leased' into the real market and now hangs around the necks of Asian brides?

Chris Coles
10-13-11, 06:46 PM
I simply do not believe that we can be certain of anything during this period of instability; my powder is dry, I intend to keep it that way..

jpatter666
10-13-11, 07:17 PM
I'm surprised to see that the iTulip position appears to be that the US' claimed gold holdings are accurately & completely accounted for.

It seems likely that at least some of this gold has been 'leased' into the real market and now hangs around the necks of Asian brides?

Doubtful IMO. Even if there are paper claims, in the end possession is 9/10s of the law.

ViC78
10-13-11, 07:19 PM
If Switzerland, France etc had not sold their Gold, the paper market would have crashed along with the dollar based monetary system, which would have been a "sudden stop".


What is your basis for this assertion? I have never seen EJ making a distinction between "paper" and physical gold. In fact, I am not even sure what you mean by "paper" market and would appreciate a non tinfoil hat explanation.

aaron
10-13-11, 07:28 PM
I would sell my gold to the government for the right price.

shiny!
10-13-11, 07:52 PM
I would sell my gold to the government for the right price.

Only if there was a reformed government that lived within its means, plus a trend towards economic stability.

doom&gloom
10-13-11, 08:16 PM
I disagree. The people tend to come together in time of crisis -- I'm seeing the first stirrings of such behavior now.

I know ONE waqy the government will get people to turn in their gold for funny munny -- NO cap gains taxes upon it! Even I would take that deal, and immediately buy a buttload of farmland.

Andreuccio
10-13-11, 09:18 PM
What is your basis for this assertion? I have never seen EJ making a distinction between "paper" and physical gold. In fact, I am not even sure what you mean by "paper" market and would appreciate a non tinfoil hat explanation.

I don't know about the assertion or the basis for it, but paper refers to gold funds you can buy and sell like a stock, whereas physical refers to holding actual physical gold in the form of bars or coins.

A few years ago ASH and others did some research into the charters of some of the gold funds. IIRC, GTU (all gold) and CEF (which holds both gold and silver) actually hold the gold (and silver) they represent, but it's more squishy with a fund like GLD, which might or might not actually have enough gold to cover the outstanding shares.

There was a lot of discussion, again a few years ago, about the relative merits of paper vs. physical and how each might behave in different situations.

ViC78
10-13-11, 09:37 PM
A few years ago ASH and others did some research into the charters of some of the gold funds. IIRC, GTU (all gold) and CEF (which holds both gold and silver) actually hold the gold (and silver) they represent, but it's more squishy with a fund like GLD, which might or might not actually have enough gold to cover the outstanding shares.

Okay, I am aware of these funds and in fact hold a substantial amount (for me) of GTU. Of these GLD seems the only suspect one, but it was started in 2004. Sishya claimed that the central banks were selling gold in 2001 onwards to prevent the paper market from collapsing. I am not sure what this means at all. In absence of a clear explanation, I think it kind of puts a wrench in EJ's theory that gold was plan B.

doom&gloom
10-13-11, 09:49 PM
I'm with c1ue on this, especially the comparison of the "United" States with countries such as South Korea - or Norway, Sweden, etc.

At one time we had a [mostly] common culture, but no more. Post-Modernism has effectively destroyed even a moral consensus among the American people as regarding the beginning of human life, marriage, national security, etc., among other points.

Personal peace and affluence has replaced almost every other common priority. It used to mean that as long as I have a good job and a nice neighborhood then to hell with the rest of the world. Now I fear it has come to mean that as long as I'm okay, to hell with the people one block over!

Without ever rising standards of living what is there to "hold the center" in our country? Just look at the mental and moral midgets in positions of power within the RepubliCrat party - it's enough to engender despair.



http://www.traderview.com/Global_Insights.cfm

Todays' date (Oct 13) Part 2 interview with Bert Dohman where they all discuss gold, silver, oil and c1ue's "favorite investment" farmland as stores of value.

jpatter666
10-13-11, 10:10 PM
I don't know about the assertion or the basis for it, but paper refers to gold funds you can buy and sell like a stock, whereas physical refers to holding actual physical gold in the form of bars or coins.

A few years ago ASH and others did some research into the charters of some of the gold funds. IIRC, GTU (all gold) and CEF (which holds both gold and silver) actually hold the gold (and silver) they represent, but it's more squishy with a fund like GLD, which might or might not actually have enough gold to cover the outstanding shares.

There was a lot of discussion, again a few years ago, about the relative merits of paper vs. physical and how each might behave in different situations.

To me, "paper" PMs = unallocated. i.e., there is nothing to really point to or prove that this particular piece of gold is exclusively yours. This is one of the main arguments against paper gold -- that there may actually be multiple claimants to it.

As I see it, there are varying levels of security. From least to most:

Funds such as GLD/SLV -- there is much argument as to whether they actually have the gold/silver they claim as opposed to warrants or options (it would have to be a LOT but they are the most liquid funds and as such, several members such as myself use them for trading)
GTU/CEF -- allocated, but do not allow (to my knowledge) redemption. Watch the NAV here.
Funds that allow for redemption such as Sprott Gold. Again, can have high NAV
PM specialty sites such as GoldMoney/BullionVault
Physical (in my hand)

I personally have allocations across nearly all of these.

If I've got this wrong, I'm sure someone will correct!

DSpencer
10-14-11, 12:58 AM
Does anyone have data on how much gold is owned by US citizens? What about other key countries?

sishya
10-14-11, 11:54 AM
What is your basis for this assertion? I have never seen EJ making a distinction between "paper" and physical gold. In fact, I am not even sure what you mean by "paper" market and would appreciate a non tinfoil hat explanation.

FWIW

- Central banks lease Gold. Why do they do it ? to suppress gold price and get a profit on the leased Gold.
- Why suppress Gold price - Gibson paradox by Larry summers, to control CB bond interest rates better and create demand for currencies.
- These leased Gold does not mean Gold moves out of CB's but rather they are a promise by CB to provide Bullion Banks
with Gold if required. ie when a large percent of Gold futures are redeemed by futures buyers. Only in
emergency like in 1998,they will sell Gold(Brown Bottom)
- LBMA/COMEX involve Gold volumes exceeding ayear of mine production. 99% of people who buy a future dated contract
settle in dollar at the end irrespective of price. only 1% of Gold voulme is settled in physical Gold.
- The parties which supply bullion are Bullion Banks and miners. But most physical transaction is outside the LBMA/COMEX.
ie transaction between miners and buyers(Bullion banks, Jewellers).
- Physical transaction price are now following the paper price. If the paper price had not risen since 2000, there
would have been a collapse in paper markets and no physical buyers/sellers would have followed that paper price.
- Govts with bullion banks are mostly net short paper Gold which gives them an incentive to provide large amounts of
paper Gold, which they can cover by driving the price down so long as physical buyers follow the paper price and
only 1% of people demand physical.
- Govt suppressing Gold price is not tin foil material. They have been openly admitted by Paul Volker, Greenspan, Larry summers...etc.



http://fofoa.blogspot.com/2009/02/gold-price-suppression-explained.html

c1ue
10-14-11, 12:29 PM
It's a common misconception that FDR's order was aimed at lower and middle class gold owners. Most of the gold held by U.S. Citizens was held by the top 5% net worth group. The law was intended to motivate bank managers to not collude with important clients to get the client's gold out of the country. The "cash for gold" crowd has indeed already been cleaned out, judging by the falloff in advertising, but they will not be the targets of any future anti gold hoarding propaganda campaign.

It's also easy to underestimate the effectiveness of these campaigns. The ease with which the invasion of Iraq was sold is indicative.

I am a little unclear on what is being said here.

Is it that the wealthy who own the gold are not international and thus will voluntarily turn their gold in to recapitalize the US dollar?

Or is it that government machinations leading into the W. Bush Iraq war (I presume, as opposed to Bush Sr. Iraq war) will engender a popular support movement to recapitalize the US dollar via voluntary gold donations?

Or both?

I would posit that the elite today are far different than in 1933. Travel is much easier, as is being international. While certainly there was some extent of 'Atlanticism' in the United States in 1933, at the same time the vast majority of the US population including its elites were very much inward facing.

I also am very unclear as to how successful a 'WMD' propaganda campaign will work on elites. The failure of the Iraq campaign both in terms of even medium term information control as well as outcome bodes poorly for another attempt.

Lastly I am very pessimistic, given the decades long examples of self interested behavior at the expense of the whole on the part of the elites, that somehow this long standing pattern of behavior will suddenly transform into a willingness to take risks and make significant personal sacrifices in order to reverse the ongoing economic and political trend.

As has been noted by many others:

Where is the Pecora commission of today?

Not only do we not have a Ferdinand Pecora with full government support exposing FIRE abuses such that legislation could be proposed to correct such abuses, or even a Resolution Trust Corporation plus FIRREA, we have instead a Congress which meekly stood by while clearly criminal ratings agencies asserted that their multi-billion dollar ratings were merely "free speech".

The Ferdinand Pecora of our time, Dr. Elizabeth Warren, rather than being recognized and supported is instead shuffled off to fight a scion of FIRE with her bare hands.

Where is the Marriner Eccles of today?

Instead of a sober evaluation of the economic situation with a prescription for a restarting of the flow of the economy based on resuscitation of its base, we have instead a series of Ayn Randian Federal Reserve chairs whose primary training appears to be lowering interest rates exactly like monkeys with one crack dispensing lever before them.

Where is the FDR of today?

Instead of a scion of the elites who turned populist in order to effect massive changes, we have a window dressing President who has done nothing promised to the voters, but has accomplished everything that can be asked for by donors.

And more worrisome: who is standing in the wings who has any credibility or capability to accomplish will need to be done?

FRED
10-14-11, 02:00 PM
EJ writes in:


I am a little unclear on what is being said here.

[QUOTE]Is it that the wealthy who own the gold are not international and thus will voluntarily turn their gold in to recapitalize the US dollar?

Yes. The 1933 law only applied to US citizens. At the time, the politics of rich versus poor in Europe was shaping into movements that made FDR's offer to the wealthy look like a good deal, to take a haircut on the value of gold holdings when exchanged for FRNs.


Or is it that government machinations leading into the W. Bush Iraq war (I presume, as opposed to Bush Sr. Iraq war) will engender a popular support movement to recapitalize the US dollar via voluntary gold donations?

Or both?

You are taking the point literally. You first have to imagine a future in the US that is more like the conditions that occurred in Korea in 1998. The propaganda campaign will focus on assigning blame to deflect it from the true culprits and identify scapegoats. In the heat of crisis the masses will accept it blindly.


I would posit that the elite today are far different than in 1933. Travel is much easier, as is being international. While certainly there was some extent of 'Atlanticism' in the United States in 1933, at the same time the vast majority of the US population including its elites were very much inward facing.

I also am very unclear as to how successful a 'WMD' propaganda campaign will work on elites. The failure of the Iraq campaign both in terms of even medium term information control as well as outcome bodes poorly for another attempt.

A well executed propaganda campaign that appeals to patriotism in crisis will erase in hours a lifetime of Internationalism.


Lastly I am very pessimistic, given the decades long examples of self interested behavior at the expense of the whole on the part of the elites, that somehow this long standing pattern of behavior will suddenly transform into a willingness to take risks and make significant personal sacrifices in order to reverse the ongoing economic and political trend.

Elites as the target of popular anger will be used to motivate high net worth gold owners, whether they are members of the elite or not, to turn in gold for the greater good.



You can see this taking shape already. What is Warren Buffett's purpose in making public pronouncements that he is under-taxed other than a move to build a reputation with the masses as one of the "good rich" to deflect popular anger that we see today away from himself?



As has been noted by many others:

Where is the Pecora commission of today?

Not only do we not have a Ferdinand Pecora with full government support exposing FIRE abuses such that legislation could be proposed to correct such abuses, or even a Resolution Trust Corporation plus FIRREA, we have instead a Congress which meekly stood by while clearly criminal ratings agencies asserted that their multi-billion dollar ratings were merely "free speech".

The Ferdinand Pecora of our time, Dr. Elizabeth Warren, rather than being recognized and supported is instead shuffled off to fight a scion of FIRE with her bare hands.

Where is the Marriner Eccles of today?

Instead of a sober evaluation of the economic situation with a prescription for a restarting of the flow of the economy based on resuscitation of its base, we have instead a series of Ayn Randian Federal Reserve chairs whose primary training appears to be lowering interest rates exactly like monkeys with one crack dispensing lever before them.

Where is the FDR of today?

Instead of a scion of the elites who turned populist in order to effect massive changes, we have a window dressing President who has done nothing promised to the voters, but has accomplished everything that can be asked for by donors.

And more worrisome: who is standing in the wings who has any credibility or capability to accomplish will need to be done?

These are all fair questions. I can tell you that from numerous personal conversations with both Bill Black and Elizabeth Warren that they conflate FIRE Economy abuses of power to abuse of power by the wealthy in general, regardless of how that wealth was earned. I have done my best to get them to see the difference but to no avail.

They do have a soft spot for technology entrepreneurs, particularly those who support liberal causes, but deep in their souls is a grinding animosity toward capitalists that I presume was learned at Mother's or Father's knee. It was for me. I had to unlearn it through the experience of running two companies and being responsible for both employees, who comprise the value of a business, and the shareholders who make the enterprise possible by supplying capital.

This is why the phrase "socialist entrepreneur" is an oxymoron.

I believe that the cure for socialism is to give socialists the responsibility of making payroll.

We may yet get the commissions you list. We have not so far because reflation was too effective, at least compared to the inaction from 1930 to 1933 that created the political conditions for formation of those commissions.

The diffuse and unqualified anger and passion of the Occupy Wall Street Protesters is a harbinger of what is to come. As Eric Hoffer noted in his seminal book on mass movements:

All mass movements avail themselves of action as a means of unification. The conflicts a mass movement seeks and incites serve not only to down its enemies but also to strip its followers of their distinct individuality and render them more soluble in the collective medium.
-- Eric Hoffer

I doubt if the oppressed ever fight for freedom. They fight for pride and for power -- power to oppress others. The oppressed want above all to imitate their oppressors; they want to retaliate.
-- Eric Hoffer, The True Believer (1951)

When our individual interests and prospects do not seem worth living for, we are in desperate need for something apart from us to live for. All forms of dedication, devotion, loyalty and self-surrender are in essence a desperate clinging to something which might give worth and meaning to our lives.
-- Eric Hoffer, The True Believer (1951)

Passionate hatred can give meaning and purpose to an empty life. Thus people haunted by the purposelessness of their lives try to find a new content not only by dedicating themselves to a holy cause but also by nursing a fanatical grievance. A mass movement offers them unlimited opportunities for both.
-- Eric Hoffer

I have long warned here on iTulip that a new era of unreason would be upon us once the bubble era ended. The ingredients and antecedents for a destructive and violent mass movement are extant: a large population of uneducated citizens who have been humiliated by financial losses from two government-backed bubbles that enriched a minority, plus the added insult to injury of long-term unemployment that grinds a sense of meaning and self-worth into despair. Along comes social media to accelerate the process. History is full of such unfortunate coincidences.

FRED
10-14-11, 02:15 PM
Doubtful IMO. Even if there are paper claims, in the end possession is 9/10s of the law.

This is the official iTulip position on leasing of Treasury gold:

Given America's historical unilateralism with respect to foreign gold obligations, in a crisis, who would you rather be, a foreign holder of a paper claim against US Treasury gold or the US government with the gold in the vault?

jpatter666
10-14-11, 02:32 PM
This is the official iTulip position on leasing of Treasury gold:

Given America's historical unilateralism with respect to foreign gold obligations, in a crisis, who would you rather be, a foreign holder of a paper claim against US Treasury gold or the US government with the gold in the vault?

Yep. Because.....

1 ) You're going to attack to world's preeminent superpower to "get" your gold? Uh....no. Even if you *did* get it, now you've the Goldfinger dilemma.
2 ) Even if the law was on your side -- laws can be changed -- and you can bet your last gold piece that under those (crisis) circumstances, they would be

thriftyandboringinohio
10-14-11, 02:39 PM
EJ writes in:


...1933 ... At the time, the politics of rich versus poor in Europe was shaping into movements that made FDR's offer to the wealthy look like a good deal, to take a haircut on the value of gold holdings when exchanged for FRNs...

I have seen opinion that the term "new deal" really applied to the very rich, not to the average person. The "new deal" for the American elite was to give up part of their wealth to avoid hanging by the neck from a lamp post, as was happening in Europe under the communist and socialist movements of the day.

jpatter666
10-14-11, 03:18 PM
I have seen opinion that the term "new deal" really applied to the very rich, not to the average person. The "new deal" for the American elite was to give up part of their wealth to avoid hanging by the neck from a lamp post, as was happening in Europe under the communist and socialist movements of the day.

Recently read "People's History of the United States" which while biased (the author is very open about this and clearly states that he's OK with that given nearly every other US history is biased coming from the other direction).

One of his basic tenets is that nearly all "reform" in the US was when TPTB felt the noose tightening, they allowed "reforms" in order to keep as much power as they could while giving away as little as possible.

The book makes for *very* interesting reading.

c1ue
10-14-11, 04:01 PM
Yes. The 1933 law only applied to US citizens. At the time, the politics of rich versus poor in Europe was shaping into movements that made FDR's offer to the wealthy look like a good deal, to take a haircut on the value of gold holdings when exchanged for FRNs.

Thank you, and EJ, for the clarification.

I think it is safe to say that the situation today in Europe is significantly different than in 1933. For one thing, there is not the specter of Communism embodied in an actual nation.


You are taking the point literally. You first have to imagine a future in the US that is more like the conditions that occurred in Korea in 1998. The propaganda campaign will focus on assigning blame to deflect it from the true culprits and identify scapegoats. In the heat of crisis the masses will accept it blindly.

...

A well executed propaganda campaign that appeals to patriotism in crisis will erase in hours a lifetime of Internationalism.

I understand what is being said; I cannot say that I agree with it.

If anything the wealthy internationalists have been far more skilled in their use of proxies: witness the entire Tea Party movement and its Koch-ean underpinning.

The success of the Iraq (W version) campaign is as much due to the influence of 9/11 as it was any particular skill by the federal government. Certainly the WMD meme did not hold up very well over time at all.


What is Warren Buffett's purpose in making public pronouncements that he is under-taxed other than a move to build a reputation with the masses as one of the "good rich" to deflect popular anger that we see today away from himself?

I would note that Warren Buffett was saying that taxation was unfair long before our current situation. He first mentioned the dichotomy at least in 2006 and I believe very possibly before that:

http://www.nytimes.com/2006/11/26/business/yourmoney/26every.html

The criticism does hold true for any number of other 'summer soldiers' though.

I apologize for the Ben Stinker reference in advance...

Another (non Ben S) related reference, this time in 2005:

http://www.cnn.com/2005/US/05/10/buffett/index.html


These are all fair questions. I can tell you that from numerous personal conversations with both Bill Black and Elizabeth Warren that they conflate FIRE Economy abuses of power to abuse of power by the wealthy in general, regardless of how that wealth was earned. I have done my best to get them to see the difference but to no avail.

Indeed, I do actually agree that most of the potential reformers we see today are indelibly touched by their political leaning.

Mr. Black in particular often undertakes massive gyrations in trying to assign our present situation to the Republicans; it is with great difficulty that he seems to be learning that the rogues are on both sides of the aisle.


We may yet get the commissions you list. We have not so far because reflation was too effective, at least compared to the inaction from 1930 to 1933 that created the political conditions for formation of those commissions.

Perhaps so, and I do hope so.

I personally very much doubt it though, because unlike the Great Depression the federal government was not itself one of the instruments preventing reform.

Again and again in this latest episode of boom & bust, the machinery of the federal government has been used to peel back legislation based on lessons learned and to undercut regulatory supervision.

While in general I have zero sympathy for "Starve the Beast" and the like, at the same time it is quite true that government (or lack thereof) is a huge factor in our present situation.

So perhaps we can be united in hoping "the worse, the better", because it seems neither Fred, EJ, nor myself believe reform will occur without sufficient misery to engender true change.

Then again, sometimes the gem shatters instead of getting faceted.

LazyBoy
10-14-11, 05:10 PM
We we all "turn in" our gold quite voluntarily if we have not already sold it, because we will get new currency that is de-facto backed by the very same gold.

So? That gold will also have to back a much larger amount of existing, currently un-backed currency. Wouldn't that make it advantageous to keep it? (In the "voluntary" scenario.)

Did you mean"new" currency as in New Dollars each worth N Old Dollars?

Anybody know how much US currency is out there? (Including electronic, I guess.)

LazyBoy
10-14-11, 05:16 PM
EJ writes in:

You first have to imagine a future in the US that is more like the conditions that occurred in Korea in 1998. The propaganda campaign will focus on assigning blame to deflect it from the true culprits and identify scapegoats. In the heat of crisis the masses will accept it blindly.


With respect, it might help to paint a picture of this future before telling us the societal impact.

gnk
10-14-11, 05:55 PM
With respect, it might help to paint a picture of this future before telling us the societal impact.

With all due respect, if you have been following EJ's articles in the past - such a future should not be that difficult to imagine.

cjppjc
10-14-11, 09:09 PM
EJ writes in:

[QUOTE=c1ue;211942]I am a little unclear on what is being said here.



Yes. The 1933 law only applied to US citizens. At the time, the politics of rich versus poor in Europe was shaping into movements that made FDR's offer to the wealthy look like a good deal, to take a haircut on the value of gold holdings when exchanged for FRNs.



You are taking the point literally. You first have to imagine a future in the US that is more like the conditions that occurred in Korea in 1998. The propaganda campaign will focus on assigning blame to deflect it from the true culprits and identify scapegoats. In the heat of crisis the masses will accept it blindly.



A well executed propaganda campaign that appeals to patriotism in crisis will erase in hours a lifetime of Internationalism.



Elites as the target of popular anger will be used to motivate high net worth gold owners, whether they are members of the elite or not, to turn in gold for the greater good.



You can see this taking shape already. What is Warren Buffett's purpose in making public pronouncements that he is under-taxed other than a move to build a reputation with the masses as one of the "good rich" to deflect popular anger that we see today away from himself?



These are all fair questions. I can tell you that from numerous personal conversations with both Bill Black and Elizabeth Warren that they conflate FIRE Economy abuses of power to abuse of power by the wealthy in general, regardless of how that wealth was earned. I have done my best to get them to see the difference but to no avail.

They do have a soft spot for technology entrepreneurs, particularly those who support liberal causes, but deep in their souls is a grinding animosity toward capitalists that I presume was learned at Mother's or Father's knee. It was for me. I had to unlearn it through the experience of running two companies and being responsible for both employees, who comprise the value of a business, and the shareholders who make the enterprise possible by supplying capital.

This is why the phrase "socialist entrepreneur" is an oxymoron.

I believe that the cure for socialism is to give socialists the responsibility of making payroll.

We may yet get the commissions you list. We have not so far because reflation was too effective, at least compared to the inaction from 1930 to 1933 that created the political conditions for formation of those commissions.

The diffuse and unqualified anger and passion of the Occupy Wall Street Protesters is a harbinger of what is to come. As Eric Hoffer noted in his seminal book on mass movements:

All mass movements avail themselves of action as a means of unification. The conflicts a mass movement seeks and incites serve not only to down its enemies but also to strip its followers of their distinct individuality and render them more soluble in the collective medium.
-- Eric Hoffer

I doubt if the oppressed ever fight for freedom. They fight for pride and for power -- power to oppress others. The oppressed want above all to imitate their oppressors; they want to retaliate.
-- Eric Hoffer, The True Believer (1951)

When our individual interests and prospects do not seem worth living for, we are in desperate need for something apart from us to live for. All forms of dedication, devotion, loyalty and self-surrender are in essence a desperate clinging to something which might give worth and meaning to our lives.
-- Eric Hoffer, The True Believer (1951)

Passionate hatred can give meaning and purpose to an empty life. Thus people haunted by the purposelessness of their lives try to find a new content not only by dedicating themselves to a holy cause but also by nursing a fanatical grievance. A mass movement offers them unlimited opportunities for both.
-- Eric Hoffer

I have long warned here on iTulip that a new era of unreason would be upon us once the bubble era ended. The ingredients and antecedents for a destructive and violent mass movement are extant: a large population of uneducated citizens who have been humiliated by financial losses from two government-backed bubbles that enriched a minority, plus the added insult to injury of long-term unemployment that grinds a sense of meaning and self-worth into despair. Along comes social media to accelerate the process. History is full of such unfortunate coincidences.

It does seem EJ has moved on the Doomer Scale. I don't enjoy reading this.

doom&gloom
10-14-11, 11:52 PM
It does seem EJ has moved on the Doomer Scale. I don't enjoy reading this.

All the more reason to internationalize your assets where possible.

cjppjc
10-15-11, 12:02 AM
All the more reason to internationalize your assets where possible.

I have no assets to internationalize. Just thoughts to internalize.

leegs
10-15-11, 12:32 AM
I have no assets to internationalize. Just thoughts to internalize.

Awesome!

vt
10-15-11, 01:38 AM
FDR is the last type we need. Instead we need a clone of Harry Truman and Ronald Reagan.

Elizabeth Warren and Bill Black also are lost causes, as are their counterparts on the right.
As Shakespeare said: "A pox on both your houses"

rogermexico
10-15-11, 12:57 PM
So? That gold will also have to back a much larger amount of existing, currently un-backed currency. Wouldn't that make it advantageous to keep it? (In the "voluntary" scenario.)

The premise of the gold window reopening is that the US gov. will find it necessary to allow exchange of dollars internationally for gold in order to stabilize the value of the dollar and stop runaway inflation. How much it "backs" is irrelevant as far as an actual ratio as long the value of the dollar is now stable and the ratio remains the same. Once that happens, the reasons for holding gold, both in terms of protection against the event that has already occurred and the goal of seeking abnormal profits, will no longer be there.

The reason you and I will likely cooperate, if we have not sold the gold already, is that they will make it disadvantageous to hold it so that it can be added to the reserves that will back the dollar - the reserves that you are concerned will be too low relative to whatever metric of the money supply you want to use.


Did you mean"new" currency as in New Dollars each worth N Old Dollars?


I mean new in that any dollar now backed by gold internationally will be a new thing we have not seen since before 1971- whether it is paper printed in the late 90's that stops depreciating or whether it has some official name (which I doubt) the effect will be the same

cobben
10-15-11, 01:54 PM
EJ writes in:
A well executed propaganda campaign that appeals to patriotism in crisis will erase in hours a lifetime of Internationalism.


CA Fitts has made a case, nay was told decades a go by connected people (http://solari.com/blog/financial-coup-d%e2%80%99etat/), that "capital" had given up on the US and was moving out.

To China of course, though "where to" is not so important from the US perspective I suppose, though Armstrong seems to agree with China being the future financial focus and collecting point.

A few Swedish multinationals want to move headquarters to China (http://di.se/Artiklar/2011/10/12/247588/Sa-ska-svenska-verkstadsbolag-lyfta-i-Kina/) it seems, birds of a feather flock together and all that.

renewable
10-15-11, 06:49 PM
This is the official iTulip position on leasing of Treasury gold:

Given America's historical unilateralism with respect to foreign gold obligations, in a crisis, who would you rather be, a foreign holder of a paper claim against US Treasury gold or the US government with the gold in the vault?

I had understood that when gold is leased by a CB, physical gold actually leaves the CB.

It appears that the iTulip position is that when CBs lease gold, no physical gold leaves the bank, only paper?

If this is correct, why would anyone have any claim against US Treasury gold - i.e. if the Treasury has only leased paper gold to bullion banks, it remains the Treasury's gold anyway? There is no claim on it, as it has just been leased. Surely the only liability would be with the bullion banks?

raja
10-16-11, 12:23 PM
And more worrisome: who is standing in the wings who has any credibility or capability to accomplish will need to be done?

Eliot Spitzer?

bart
10-16-11, 04:51 PM
...
Anybody know how much US currency is out there? (Including electronic, I guess.)


Little clue what you mean by electronic currency, but total currency & coin is around $1.045T.

http://research.stlouisfed.org/fred2/series/WCURCIR

SalAndRichard
10-16-11, 05:50 PM
Yes, the world is becoming an idiocracy, so anyone who does something prudent and smart will be decried as "selfish", as a prelude to looting their wealth "for the common good".



I agree with you jpatter.... one only needs to look at the runup to the Iraq war to see how quickly the population can be "homogenized" over a single issue.

Remember folks, what EJ writes about takes place in a world that most people, today, can not fully recognize or imagine. The times will be very trying; despair and fear are great at bringing people together.



edit - add:

I can see a day when it will be extremely unpatriotic to own gold, let alone to wear gold. Rappers - take note!

metalman
10-16-11, 06:07 PM
Yes, the world is becoming an idiocracy, so anyone who does something prudent and smart will be decried as "selfish", as a prelude to looting their wealth "for the common good".


http://www.itulip.com/images2/cycleofhistory.png

Chris Coles
10-16-11, 06:41 PM
http://www.itulip.com/images2/cycleofhistory.png


There is a better way; it is called Free Enterprise.

labasta
10-17-11, 05:52 PM
I'm surprised to see that the iTulip position appears to be that the US' claimed gold holdings are accurately & completely accounted for.

It seems likely that at least some of this gold has been 'leased' into the real market and now hangs around the necks of Asian brides?

I agree with renewable here. I think the "controllers" of the financial system have been lying through their teeth. I bet you they don't have any gold of significance at all. We can't audit them so we will never know. They fact that they refuse to be audited raises a huge red flag and the stink of bullshit immediately wafts under peoples' nostrils.

My opinion is that the official "gold market" of the central banks is a game of smoke and mirrors.

I've no idea who really has all the gold. I don't think anybody here has.

labasta
10-17-11, 06:16 PM
It's also easy to underestimate the effectiveness of these campaigns. The ease with which the invasion of Iraq was sold is indicative.[/INDENT]




It's also easy to underestimate the effectiveness of these campaigns. The ease with which the invasion of Iraq was sold is indicative.[/INDENT]

Not anymore. Wasn't there a poll recently for the US what stated that two thirds of its citizenry do NOT trust their government.

You can actually thank 911 and the Iraqi/Afghan war for that.

I bet the government thought 911 was their greatest propaganda victory when really that event has woken most people up to their lies and deceit.

I was a sheep before 911 and believed everything I heard on the Tee Vee. Thanks to that even I now know and see that all "news" is propaganda selling some bullshit or another whether government policy (which is really the selling of armaments or pharma etc.) to the PR piece for some company whatever the size (especially in America after watching their TV for the first time last year while on a very eye opening trip to New York).

I now think the government lie at every opportunity and at every waking moment their brains start to engage.

They are a government of deceit and treachery and corruption only. They neither represent me nor anyone but those very few who have the most money.

They are our enemy an they are weak and they will fall.

This opinion is echoed with millions of people throughout the world and it is growing dramatically.

The last generation to believe unquestionably everything authority tells them is quite old now (70 years and over). They believe their authority always ha their best interest at heart. How many people think like that now? (a third of the population?) In the US it seems so.

Even in the most heavily brainwashed and controlled and racially divided country on the planet (if my trip to New York was anything to go by), the US citizens are waking up fast.

It won't be long now. And when the US people revolt (when most people have lost everything) - and they will - it will be a tsunami.

Regime change is coming.

bart
10-17-11, 06:45 PM
...
The last generation to believe unquestionably everything authority tells them is quite old now (70 years and over). They believe their authority always ha their best interest at heart. How many people think like that now? (a third of the population?) In the US it seems so.
...


For what its worth, during the American Revolution only about 45% of the colonists were in favor of it, with about 20% remaining loyal to Britain and the 35% remainder staying neutral.

jiimbergin
10-17-11, 08:07 PM
The last generation to believe unquestionably everything authority tells them is quite old now (70 years and over). They believe their authority always ha their best interest at heart. How many people think like that now? (a third of the population?) In the US it seems so.


Regime change is coming.

And I assure you many over 70 no longer believe unquestionably.

EJ
10-17-11, 10:26 PM
In light of this statement, how do you explain the fall in treasury yields from 2001 onwards and the selling of gold by foreign central banks until 2009. I mean, if the unofficial plan B was gold, why would there be any selling of Gold by Central banks?

The crisis stage of the process described as the Triffin Dilemma began in 2002.

In the 1960s economist Robert Triffin theorized that the country whose currency foreign nations wish to hold as a global reserve currency must be willing to supply the world with an extra supply of its currency to fulfil world demand for trade.

My theory is that in the instance of the real world case of the US$ Treasury reserve standard that at some point the total amount of foreign exchange outstanding becomes so large relative to the issuer's economic surplus that trade partners of the reserve currency issuer decide in near unison that the global supply of the currency is becoming excessive.

At the point of questioning the accumulated volume of global US$ reserves they begin to buy gold to hedge incremental purchases of US$ Treasury bonds in order to hedge the credit default risk that is part and parcel of this incremental global accumulation of US$ beyond some economic surplus threshold known to them.

To maintain the system and prevent failure, foreign central banks continue to buy more Treasury bonds. At the same time they buy gold to hedge the incremental default risk that this increase in Treasury holdings represents.

renewable
10-18-11, 02:38 AM
I agree with renewable here. I think the "controllers" of the financial system have been lying through their teeth. I bet you they don't have any gold of significance at all. We can't audit them so we will never know. They fact that they refuse to be audited raises a huge red flag and the stink of bullshit immediately wafts under peoples' nostrils.

My opinion is that the official "gold market" of the central banks is a game of smoke and mirrors.

I've no idea who really has all the gold. I don't think anybody here has.

It does concern me that the apparent location of US Treasury gold is a key part of iTulip's gold remonetisation thesis, yet iTulip seems unwilling to make any comment related to the question of whether the gold is actually there or not.

Sorry, but the following:

This is the official iTulip position on leasing of Treasury gold:

Given America's historical unilateralism with respect to foreign gold obligations, in a crisis, who would you rather be, a foreign holder of a paper claim against US Treasury gold or the US government with the gold in the vault?
Doesn't appear to make a great deal of sense; If the gold has only been leased in paper form, why would there be any claim against US Treasury gold at all?

gnk
10-18-11, 03:09 AM
The US holds gold - called "custodial gold" for many other nations. From what I have read, during the late stages of the Bretton Woods gold standard era, only France asked for physical gold to be delivered when redeeming US Dollars. Diplomatically speaking, it was a very awkward situation that I believe also precipitated the eventual closing of the gold window.

You have to remember that during the gold standard era, when Central Banks asked to redeem their surplus dollars for gold - the vast majority of the time it was merely a bookeeping entry - the gold never moved from US storage.

Knowing this - I don't understand how anyone can still doubt that the US has physically transferred most of its own gold to foreign nations - either for recent leasing purposes or prior redemption purposes under Bretton Woods - especially if the US still has physical possession of many other nations' gold.

I submit that the US has physical access to more sovereign gold, including its own, than any other nation on earth. And today, even Germany won't ask for delivery of its custodial gold. Why? It would spook the markets and affect Germany just the same as everyone else. Plus - Germany probably already knows the answer if it were to ask for its gold to be delivered to some US port for "pick up."

Has the US made foolish decisions in the past? Sure. But on this issue, I don't underestimate the US's (un)official policy on its gold. It has the ability to create ex nilio the world's reserve currency. Why would it ship out it's gold?

On this topic, the extreme gold bugs are getting a little too tinfoil, IMHO.

renewable
10-18-11, 03:28 AM
Ah, I see - so perhaps when Fred says:

This is the official iTulip position on leasing of Treasury gold:

Given America's historical unilateralism with respect to foreign gold obligations, in a crisis, who would you rather be, a foreign holder of a paper claim against US Treasury gold or the US government with the gold in the vault?

This might mean something like "An amount of US Treasury gold may have been physically sold into the market, but the US can just replace this with the custodial gold that it holds on behalf of other nations - after all, what can they do?"

:o

gnk
10-18-11, 03:47 AM
It doesn't need to replace it - if it never physically left the US. Think of it this way: There are three types of sovereign gold on US soil:

1) US Gold - 100% free and clear title - no leasing arrangement - no pending sale, nothing. Pure, unencumbered gold.

2) US Gold - that may have been leased.

3) Foreign gold held in Custody by the US.

(Keep in mind, the above is just conjecture - I don't have the actual figures - but this is how I describe the available categories of gold ownership - in a legal sense)


A leasing arrangement on US gold is the easiest to break. The US still has title to the gold - it's just unilaterally breaking the existing lease, the way a landlord can kick a tenant out. Of course, a sovereign country like the US doesn't have the same legal limitations a real estate landlord has. It makes its own laws.

"Buying" US stored custodial gold from foreign nations - gets a little more complicated. There's a reason I put the word "buying" in parentheses. It would be a unilateral "purchase." For example, the US would tell, say, Germany - we are buying your gold that we have held in custody since Bretton Woods. Here's your money. That's it. Diplomatically, this is difficult - but depending on the circumstances, it can still be a viable option.

Keep in mind, gold arrangements between different central banks and treasuries don't always involve the physical movement of gold. They are often merely book keeping entries.

gnk
10-18-11, 05:28 AM
I want to add one more point. If the US is not being completely honest about its gold - I would think the dishonesty is not that its gold holdings are depleted, but rather the opposite - that it has more gold than it states officially. Many countries are doing this now.

One only needs to see what China is doing. It is buying gold from its domestic production, yet not publicly updating its official gold reserves figures. The last time China released official figures, it nearly doubled them overnight.

Jim Rickards has recently traveled the Middle East. There was an interesting story he related, though I do not recall the country, or if he disclosed that country but he stated to an audience that the official reserves of this one country seemed low given the current global central bank drive into gold. When he said this, the audience members' expressions were telling. I guess one had to be there. It looks like many nations are being discreet about their gold ownership.

I see it this way - Whereas Central banks are slowly creating an ever-increasing floor for the price of gold, speculators are ever increasing gold's trading range - volatility. This should be irrelevant to those holding gold as insurance - long term. Central banks need gold to rise, as it is a measure of inflation and they need to devalue against gold either for paying off debts or to maintain a trade advantage - but they don't want gold to rise so fast that it represents a canary in the coal mine - a severe warning system - thus tipping the global financial system into disarray.

It's a catch-22.

It's the greatest hedge in the history of global finance, IMHO. We're not talking about hedging loans, or oil... we're talking about a hedge against the collapse of the entire global financial system as it works today.

c1ue
10-18-11, 09:12 AM
The US holds gold - called "custodial gold" for many other nations. From what I have read, during the late stages of the Bretton Woods gold standard era, only France asked for physical gold to be delivered when redeeming US Dollars. Diplomatically speaking, it was a very awkward situation that I believe also precipitated the eventual closing of the gold window.

How do you reconcile the above with Nixon taking the US out of Bretton Woods and the central bank gold standard?

How do you reconcile the above view with the US engineering the IMF reserves to become part of the US' gold reserves in the runup to Nixon's actions?

Both facts do not make any sense given the narrative you are attempting to lay down.

Perhaps you could provide links to the facts you are commenting on.

DSpencer
10-18-11, 09:52 AM
Rather than by government confiscation as gold fanatics warn, I have argued since 2001 that the most probable endgame is for global monetary crisis to force the U.S. to re-open the gold window, a concept I explain in detail later, with gold turned in by U.S. citizens voluntarily to increase U.S. holdings from 8,133 tons today to enough to truly back the full faith and credit of the U.S. Treasury.

EJ,

Can you provide any insight on the bolded part of your quote above? Specifically:

1. How much gold is enough?
2. How much gold do (or will) US citizens have?

EJ
10-18-11, 09:39 PM
EJ,

Can you provide any insight on the bolded part of your quote above? Specifically:

1. How much gold is enough?

I don't know. No one does. Calculations based on outstanding foreign obligations are useless because we can't know what the fractional value will be.


2. How much gold do (or will) US citizens have?

I have not seen any figures.

bart
10-19-11, 08:56 AM
I don't know. No one does. Calculations based on outstanding foreign obligations are useless because we can't know what the fractional value will be.


Agreed on not knowing, but useless seems a bit strong. The various calculations do provide at least a large ball park in which to judge others estimates or make one's own estimates or best guesses.


Here's another take on gold value:

http://www.nowandfutures.com/images/pain_misery_gold_naf.png

jpatter666
10-19-11, 09:45 AM
Hey bart -- interesting graph. Possible to show with inflation-adjusted gold price?

DSpencer
10-19-11, 10:01 AM
I don't know. No one does. Calculations based on outstanding foreign obligations are useless because we can't know what the fractional value will be.



I have not seen any figures.

Thank you.

I have tried to find data on how much was sold due to Executive order 6102. According to http://en.wikipedia.org/wiki/Executive_Order_6102:


Approximately 500 tonnes of gold were sold to the U.S. Treasury in 1933 at the rate of $20.67 per troy ounce.<sup class="reference" id="cite_ref-11">[12] (http://en.wikipedia.org/wiki/Executive_Order_6102#cite_note-11)</sup>The source is listed as:


^ (http://en.wikipedia.org/wiki/Executive_Order_6102#cite_ref-11) Time Magazine, Monday, Nov. 27, 1933.

I didn't have a subscription at that time though, so I can't verify.

I have no idea how to find out what people own now though. It seems like it would have to be very substantial to make it worth asking people to sell it to the treasury. Also they don't have the same way of just revaluing it, although maybe that's not needed.

bart
10-19-11, 01:17 PM
Hey bart -- interesting graph. Possible to show with inflation-adjusted gold price?

Good idea, see the new thin gold line. The 1980 top was just over $4,000.

jpatter666
10-19-11, 01:27 PM
Good idea, see the new thin gold line. The 1980 top was just over $4,000.

Yeeeeooowww....I thought I'd know the results, but to look at this, gold should moonshoot or the index should plunge.

Looks like the pot may boil over one way or the other -- soon.

Thanks for this.

photon555
10-20-11, 01:32 AM
EJ,

I agree with EJ that U.S. will re-open the gold window, but when that happens the paper Gold market(LBMA/COMEX)
will not exist. At this time the price of Gold paper futures/ETF will trade at zero(because irredeemable by Govt "force Major") while Gold price
will be unknown for a short period of time. miners will be taxed highly so that they can only make a small markup profit, because in effect they
are producing wealth reserve.

The problem is US citizens don't own much Gold to help this window.


I believe we may find out that there have always been secret "accords" or an executive order that would force a "voluntary" loaning of physical gold by the gold funds back to the central banks in exchange for government bonds. The government may force redemption of US bullion coins at face value: $50/oz. But then, I'm sure I'm not being devious enough to really understand how it will be "explained" by the MSM.

Polish_Silver
10-20-11, 08:50 AM
we can't know what the fractional value will be.


If the currency backing is less than 100%, wouldn't the system be vulnerable to a run on the currency?
If the currency is not freely convertible to gold, who would trust it?
If backing is < 100%, wouldn't
the issuer print money and gradually lower the ratio?

The government wants seignorage, which only comes if the ratio < 100%.
But is seignorage really a good thing?

LazyBoy
10-21-11, 07:54 AM
Little clue what you mean by electronic currency, but total currency & coin is around $1.045T.

http://research.stlouisfed.org/fred2/series/WCURCIR

I was referring to the whole "debt is money thing" -- bank loans "creating money" that's not even backed by physical money, let alone gold. How do you back a currency with gold when that is happening?

I know that "currency" typically means "physical". But does that mean the 1' and 0's in my bank accounts would not be backed?

doom&gloom
10-22-11, 02:02 PM
I believe we may find out that there have always been secret "accords" or an executive order that would force a "voluntary" loaning of physical gold by the gold funds back to the central banks in exchange for government bonds. The government may force redemption of US bullion coins at face value: $50/oz. But then, I'm sure I'm not being devious enough to really understand how it will be "explained" by the MSM.

Or you may get to keep your gold, but the tax rate could be 50% or more on sales, wiping out any real gains against inflation.

shiny!
10-22-11, 02:51 PM
Or you may get to keep your gold, but the tax rate could be 50% or more on sales, wiping out any real gains against inflation.

I think that's a far more likely scenario than confiscation.

astonas
10-22-11, 06:22 PM
I think that's a far more likely scenario than confiscation.

Agreed. A key consideration in my logic is that even if it is legally simple to confiscate US-denominated bullion still traceably located within US borders, doing so would ignore those who held gold in the form of bars, Krugerrands, or other national denominations, as well as those who held coins in a less-than traceable form (safe-deposit boxes, etc.) or overseas. Setting aside arguments of legality, it simply wouldn't achieve the likely objectives of confiscation, even if that were desirable.

ken
12-12-11, 05:09 AM
Ron Paul?