- foorex2day

Central Bank Selling

<div align="justify">This <a href="http://www.ft.com/cms/s/0/f565b702-949a-11dd-953e-000077b07658.html?nclick_check=1">FT.com article</a> (you will need to register to read it) says "central banks have all but stopped lending gold to commercial and investment banks and other participants in the precious metals market". This has caused lease rates to rise/forward rates to drop as noted by <a href="http://silveraxis.com/todayinsilver/2008/10/08/gold-and-silver-basis-falling/">SilverAxis</a>. I think it is a bit late for central banks to start worrying about counterparty risk. I have been corresponding with someone who has been watching the markets and gold over the past 20 years and their view after analysing different reported data sets is that central banks are holding closer to 10,000 tonnes than 30,000 tonnes (and this guy knows his data). I haven’t reviewed his analysis to confirm those numbers, but it makes sense to me as if asked I would have guessed that the legimate market for precious metal borrowing (ie manufacturers) is no where near the amount that is lent out, therefore the balance must have be lent to bullion banks for ultimate use in financing short sales and other gold derivatives. With gold interest rates around 2%, the carry trade doesn’t look that good anymore. I find it interesting that some gold advocates get hot and bothered about central bank lending/selling. I don’t see the problem. So what if central banks sell their last 10,000t into the market in an attempt to support those banks with either proprietary short positions or who have lend to others who are short without good collateral to cover that exposure. This will supress the price, allowing individuals to buy a cheap prices. Then that part of central bank lending which has been short sold has to be bought back (a short is a future buyer, just as a long is a future seller). If that is not possible, then the lucky ones are those to whom it was short sold. The end result will be gold in the hands of individuals and what I call “the decades long privatisation of gold” will be complete. As per <a href="http://www.professorfekete.com/articles/AEFMonEcon102Lecture1.pdf">Professor Fekete</a>, the power over the money “supply” will then be in the hands of the average person, where it should be: "Since gold coins served as bank reserves under the gold standard, by withdrawing their deposits and converting their notes into gold coins savers could force the banks to contract outstanding credit. ... Not only did it have the ballot paper, the electorate also had the gold coin with which to vote. And vote it did, on every business day. If it did not like the credit policies of the banks and the government the whip, gold hoarding, was at hand." Surely this current crisis has shown that individuals couldn’t be any worse than central banks in managing a country's money supply/credit/interest?</div>

This FT.com article (you will need to register to read it) says "central banks have all but stopped lending gold to commercial and inv...

A Message to Congress

Steve Keen's Oz Debtwatch

<div align="justify">http://www.debtdeflation.com/blogs/ subtitled: Analysing Australia’s 45 Year Obsession with Debt, a new addition to blogs I'm following after seeing him on the 7:30 report. Choice quotes: "As the experience and the memory of the Great Depression receded, academic economics produced a hybrid of Keynes’s macroeconomic ideas grafted on top of Neoclassical microeconomics that they called “the Keynesian-Neoclassical Synthesis”. Unfortunately, the ideas were incompatible–and over time, wherever there was a conflict, academic economics rejected the Keynesian graft, rather than the underlying Neoclassical microeconomics. After fifty years of this, Keynes’s ideas were completely ejected from the economic mainstream, the Neoclassical belief that the economy is self-correcting became dominant once more, and economists trained in this belief came to dominate Treasuries and Central Banks around the world. They ignored levels of private debt, championed deregulation of finance, and virtually encouraged asset price speculation. Now we have twice as much debt as caused the Great Depression, and inflation so low that, were it not for unprecented factors (the rise of China, global warming and peak oil), deflation would almost be a certainty. Having thus unlearnt the real lessons of the Great Depression, the economics profession may yet make us relive it." "I can be pro-inflation and anti-gold at the same time because I have supreme confidence in the ability of our economic managers to FAIL to cause inflation. So I actually expect deflation in the future, in which case the money price of gold may well fall (though it will surely fall less than other commodities). However, I could be gazumped by global warming and peak oil, which could cause the inflationary surge that our economic managers will finally realise is needed, but not know how to consciously cause. There is also the slim possibility that truly over the top increases in fiat money could trigger a hyperinflation. So given those two possibilities, I’m not anti-gold; it depresses me to say that I have actually started considering whether I might put some of my money into gold. But I would still prefer to remain in both bank deposits and my super fund’s so-called cash accounts."</div>

http://www.debtdeflation.com/blogs/ subtitled: Analysing Australia’s 45 Year Obsession with Debt, a new addition to blogs I'm following ...

ANOTHER (QUOTES!) II

Congress, Remonetize Gold (and Silver) NOW and Save America From a Terrible Fate

Premiums & GLD

<div align="justify">I found this comment to this <a href="http://silveraxis.com/todayinsilver/2008/10/05/retail-market-survey/">SilverAxis blog</a> of interest: Is CEF’s “sizable” premium (9% at the moment), really all that high for a verifiable vaulted proxy for real metal (assuming it is), when there is a 45% premium on Silver Eagles and a 14% premium on a 100 oz bars deliverable from Tulving? The premium on the <a href="http://www.centralfund.com/Nav%20Form.htm">Central Fund of Canada</a> is interesting compared to GLD, which consistently seems to get questions about whether it really has the gold behind each share. GLD does not trade with such a premium, and sure its open ended nature ensures it closely matches the spot wholesale price, but are not the premiums on CEF and retail physical indicators of the market's assessment of the "safety" of such ways of holding gold relative to other methods like GLD? Of course the market is a voting machine, not a weighing machine so the premium may just indicate mood rather than real risk. While not having anything more to rely on but GLD's assurances that it has the gold, personally, I consider that since it was created and sponsored by the World Gold Council, which is owned by gold miners (who want the price to go up), that they would not be involved in an ETF that wasn't talking physical off the market (which is ultimately the best way to make the price go up).</div>

I found this comment to this SilverAxis blog of interest: Is CEF’s “sizable” premium (9% at the moment), really all that high for a verifia...

FUD Update

<div align="justify">In the <a href="http://goldchat.blogspot.com/2008/08/fud-fear-uncertainty-doubt.html">FUD blog </a>of 31 August, I suggested two scenarios. I was leaning more towards scenario 2, which was that Mints/Refineries would gear up in “a few months” (fact is industry bar production in sizable quantity is not like turning on a tap) and meet retail demand. With the credit crisis becoming hot topic since then, scenario 1 (retail market going nuts) is happening quicker than I expected. Manufacturers will respond to this, but it will take time. But, if the retail shortage continues and starts to register on the general public's mind, combined with uncertainty about banks and holding cash, the fact is that after years of poor gold prices in the 1990s, as a whole the industry does not have the capacity to meet the sort of volumes that would from mass market/general public interest in coins and bars. Premiums above spot (and spot means, by definition, the price for wholesale 1000 oz silver and 400 oz gold bar) will increase dramatically as a result. Scenario 1b then becomes a possibility. See this <a href="http://silveraxis.com/todayinsilver/2008/10/05/retail-market-survey/">SilverAxis blog </a>for some comment on the retail market situation. I would also recommend this other <a href="http://silveraxis.com/todayinsilver/2008/10/04/the-fed-is-bankrupt-update-on-the-helicopter/">blog</a> from SilverAxis on the US Monetary Base.</div>

In the FUD blog of 31 August, I suggested two scenarios. I was leaning more towards scenario 2, which was that Mints/Refineries would gear u...

FreeGold is not "a" Solution, it is the ONLY Solution

FreeGold is like a Giant Sponge that could Clean Up This Mess

Inflation, Deflation, Snails and 30 Days

TARP ver. 2.0 to the Rescue?

Public interest in private actions

<div align="justify">In the complexity of modern commerce it should be recognised that there is no such thing as a "self-regarding" or a private action. ... Every industrial action, however detailed in character, however secretly conducted, has a public import, and necessarily affects the actions and interests of innumerable persons. Indeed it is often precisely in the knowledge of those matters regarded as most private, and most carefully secreted, that the public interest chiefly lies. Yet so firmly rooted in the business mind is the individualistic conception of industry, that any idea of a public development of those important private facts upon which the credit of a particular firm is based, would appear to destroy the very foundation of the commercial fabric. But, although in the game of commerce a single firm which played its hand openly while others kept theirs well concealed might suffer failure, it is quite evident that the whole community interested in the game would gain immensely if all the hands were on the table. Many, if not most, of the great disasters of modern commercial societies are attributable precisely to the fact that the credit of great business firms, which is pre-eminently an affair of public interest, is regarded as purely private before the crash. The Evolution of Modern Capitalism: A Study of Machine Production by John A Hobson, published 1906</div>

In the complexity of modern commerce it should be recognised that there is no such thing as a "self-regarding" or a private action...

Connecting the Dots

Nibbling at the Edges of the Power Structure

<div align="justify">For reading material on the plane to Sydney on my recent holiday, I printed out Antal Fekete’s series of <a href="http://www.professorfekete.com/articles.asp">Monetary Economics</a> lectures. Illuminating. During my holiday, I also got involved in a <a href="https://www.kitcomm.com/showthread.php?t=23196">discussion</a> on the Kitco forum about the silver shortage. On my return, sitting in my study, Antal’s work and the discussion got me thinking about what motivates those in the "gold community". Scanning my bookcases my eye fell on two books: one I have read - Paul Hawken’s The Ecology of Commerce (1993) – and one I have only skimmed but been meaning to read - Lewis Mumford’s The Myth of the Machine: The Pentagon of Power (1970). What these two books share with Antal’s work is a strong moral sense, specifically that there is something wrong with the way society works, and a focus on making it better. The best gold advocates (I prefer this term instead of “goldbugs”, which implies emotional irrationality) I feel have this moral element to their work. It takes the form of a belief that fiat currencies, which lack any limits, are detrimental to society. This concept of limits also appears in Paul’s, Lewis’ and Antal’s work. For Paul, economics needs to take account of, and operate within, the ecological limits of the planet: “the commercial systems of the future must be more like biological systems – self-sustaining, non-wasteful, self-regenerating.” Population and production cannot continue to grow forever, to do so means they take on the characteristics of something else that has no limits on its growth – cancer. Lewis’ book deals with the dehumanisation of modern technological society and the aggregation of power. He advocates “a displacement of the mechanical world picture with an organic world picture.” His use of biological/organic systems as a model for a sustainable society is something he shares in common with Paul. What I find interesting about organic systems is that they are self-regulating, self-limiting. This I think is ultimately what Antal’s work on a gold-based monetary system is about – using gold as a monetary control mechanism. Why is this important? Lewis notes “... the increasing translation of both political and economic power into purely abstract quantitative terms: mainly, terms of money. Physical power, applied to coerce other human beings, reaches natural limits at an early stage: if one applies too much, the victim dies. ... But when human functions are converted into abstract, uniform units, ultimately units of energy or money, there are no limits to the amount of power that can be seized, converted, and stored. The peculiarity of money is that it knows no biological limits or ecological restrictions.” In this analysis, then, if there is no control over abstract money, then there is no control over power accumulation. Lewis goes on to conclude that the power complex’s “... final goal is quantitative abstraction – money or its etherialized and potentially limitless equivalent, credit. The latter, like the ‘faith’ of the <a href="http://www.classicreader.com/book/1782/18/">Musical Banks in Erewhon</a>, is at bottom only a pious belief that the system will continue indefinitely to work.” A key aspect of Antal’s work is the power that physical gold money gives the consumer, the average person, over the monetary system. Without the ability to redeem gold, without the ability to hoard gold, there can be no control on power: “When a currency is redeemable in standard gold coins, any individual disturbed by the behaviour of the government or banks can attempt to protect himself by presenting for redemption such paper currency as he may command. It is this power of individuals that holds, or tends to hold, banks and government in check.” Lewis also makes another interesting observation about the resemblance between the pleasure centre in the brain and the power complex’s obsession with profit and “indifference to other human needs, norms, and goals”. He cites a study where electrodes were inserted into the pleasure centre in laboratory monkeys and control of the current, which stimulated the pleasure centre, was given to the monkeys. What occurred was that the monkeys would continuously press the current regulator, regardless of any other physiological need, even to the point of starvation. He concludes that “the power complex seems to operate on the same principle. The magical electronic stimulus is money” and that both “recognize no quantitative limits ... the abstraction replaces the concrete reality, and therefore those who seek to increase it never know when they have had enough.” Antal’s insistence on the use of physical gold in the monetary system removes the abstraction, provides the quantitative limit. If “money has proved the most dangerous of modern man’s hallucinogens” according to Lewis, then Antal is suggesting we need to go cold turkey (or is that gold turkey). Being a practical person, while reading Antal’s work I kept thinking how to turn the theory into practice. The problem is more than one of mechanics, is it one of politics, of public perception. Also, considering the entrenched position of those who benefit from the existing system, how to effect change that will threaten them. Lewis has something interesting to say on this: “... there is so little prospect of overcoming the defects of the power system by any attack that employs mass organization and mass efforts at persuasion; for these mass methods support the very system they attack. The changes that have so far been effective, and that give promise of further success, are those that have been initiated by animated individual minds, small groups, and local communities nibbling at the edges of the power structure by breaking routines and defying regulations. Such an attack seeks, not to capture the citadel of power, but to withdraw from it and quietly paralyse it. Once such initiatives become widespread, as they at last show signs of becoming, it will restore power and confident authority to its proper source: the human personality and the small face-to-face community.”</div><div align="justify"> I cannot think of a better description than “animated individual minds ... nibbling at the edges of the power structure” for what gold advocates are all about.</div>

For reading material on the plane to Sydney on my recent holiday, I printed out Antal Fekete’s series of Monetary Economics lectures. Illum...

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