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2012 Compendium

Table of Contents
Open Forum .............................................................................................................................................. 4 Yonder ...thur be DRAGONS!! .................................................................................................................6 The Gold Must Flow ............................................................................................................................... 1 The Studeb!"er #$$e%t .............................................................................................................................& '!rt( )*"e +t,s MTM T*me ...................................................................................................................... &Gl*mps*n. the /ere!$ter ..........................................................................................................................0& Superor.!n*sm Open Forum ................................................................................................................... 41 +nd*!,s Gold ............................................................................................................................................. 1 Yo 2!rren 34 (ou !re so OG! ................................................................................................................. 1Tod!(,s 56uote7un6uote8 9Gold9 ............................................................................................................. :0 S!;*n.s < =!p*t!l Theor( Open Forum ..................................................................................................-0 Sush* +sl!nd S!;ers S!.! 7 '!rt & ............................................................................................................>4 3!ll o$ Tw*ne Open Forum ......................................................................................................................>6 '!.e 1

'e!" #?orb*t!nt 'r*;*le.e ......................................................................................................................1 1 Open Forum .......................................................................................................................................... 1&6 +n$l!t*on or /(per*n$l!t*on@ .................................................................................................................. 104 G)D T!l" =ont*nued .............................................................................................................................11> 3lond*e,s A*ew ...................................................................................................................................... 1:4 The Debtors !nd the S!;ers & 1& ......................................................................................................... 1:: +nter;*ew ............................................................................................................................................... 1>F!ll!%*es B 1. '!per Gold *s Cust l*"e '!per An(th*n. ........................................................................... & 4 De$$ < 3lond*e,s Open Forum ............................................................................................................... & A p*%ture worth ! thous!nd words .........................................................................................................&1 M!%ro$ree.old,nom*%s ...........................................................................................................................&11 Four! ......................................................................................................................................................&&1 Gold ho!rder d*es !lone 7 R+' 2!lter S!m!s"o Dr. ............................................................................... &0 Deuts%he 3!n" e?pl!*ns wh( we ho!rd .old ........................................................................................ &04 Th*n" l*"e ! G*!nt ................................................................................................................................. &0An Amer*%!n /orror Stor( ....................................................................................................................&61 Mone(ness &E Mone( *s =red*t ............................................................................................................. &6Re.ul!r Forum Ar%h*;es 1>>-7& 1 .....................................................................................................0 0 Ar.uments A.!*nst Free.old .................................................................................................................0 : 2h!t *s Gold@ ........................................................................................................................................01 AFT#R 5T/OFG/TS!8 ....................................................................................................................... 0&4 =ountdown to & 10 Open Forum ..........................................................................................................0&6

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Saturday, January 28, 2012


Open Forum

A $ew people h!;e reported problems !%%ess*n. the se%ond p!.e o$ %omments4 so here,s ! new thre!d $or new %omments. Th*s l*n" should .et (ou to the &nd p!.e o$ the l!st thre!dE $o$o!.blo.spot.%omG& 1&G 1G(onder7thur7be7dr!.ons.html@%omment'!.eH& Some o$ (ou onl( re!d %omments *n the popup w*ndow4 but (ou %!n !lso re!d them r*.ht under the post. +$ (ou %l*%" on the n!me o$ the post !t the top4 here,s where th!t p!.e & l*n" !ppe!rs !t the bottom on%e the number o$ %omments re!%hes & 1E

S*n%erel(4 FOFOA 'S. /ere *s the l*n" to the se%ond p!.e o$ %omments on th*s thre!dE httpEGG$o$o!.blo.spot.%omG& 1&G 1Gopen7$orum.html@%omment'!.eH&

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+ see we,re on p!.e 0 now. To .et there4 Cust %h!n.e the two to ! three *n (our browser b!r *$ (ou st*ll %!n,t see the l*n"s !t the bottom. Or tr( ! d*$$erent browser. httpEGG$o$o!.blo.spot.%omG& 1&G 1Gopen7$orum.html@%omment'!.eH0

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Monday, January 23, 2012


Yonder ...thur be DRAGO S!!

!"#$%&'()*+,- >>.>>> ./012345 6789,:;<=>?@A

3elow *s ! $un l*ttle =h*nese New Ye!r .uest post b( S*r Top!I4 !"! One 3!d Adder 5!lthou.h he seems to be prett( .ood !t m!th to me8. Dust ! l*ttle 9$ood $or thou.ht9 !s he s!(s...

> BC- e;en*n. Yanan Road, Shanxi Road intersection, north-south and east-west traffic to each other and lack of traffic police to ease, crossing continued congestion. Post intern reporter Wang Ju Liang Yang deep to figure

"he Shan#ha$ "ran%portat$on Sy%tem & an ana'o#y b( O3A +n =h*n! there .ener!ll( e?*sts ! $eel*n. o$ the presen%e o$ J!uthor*t(K. +n !lmost !ll %!ses th*s *s re!ssur*n. $or the ;*s*tor Lnot so howe;er on the streets o$ the %*t*es. There4 %h!os seems to rule L!nd *t would be ! br!;e4 n!( $ool*sh JwesternerK who would e;en %ontempl!te .ett*n. beh*nd the wheel w*thout spend*n. ! lot o$ t*me to $*rst stud( !nd !bsorb the Jlo%!lK w!(. A$ter the *n*t*!l sho%"4 the tr!$$*% %h!os be.*ns to t!"e on ! sembl!n%e o$ order !s one re!l*ses there !re ;er( $ew !%%*dents e;*dent !nd l!r.el( the onl( obstru%t*on to the 5!lbe*t slow8 tr!$$*% $low4 *s the o%%!s*on!l bre!"down.

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Seem*n.l(4 the Jse%retK to n!;*.!t*n. (our w!( *n Sh!n.h!* tr!$$*% *s to 6u*%"l( de;elop !n underst!nd*n. o$ 5!8 the user4 5b8 the s*.n!ll*n. L!nd l!stl( 5%8 the l!w. The =h*nese motor*st4 b*"e7r*der !nd pedestr*!n !ll !ppe!r to h!;e wh!t + re.!rd !s ! h*.hl( de;eloped Jrespe%tK $or one7!nother. Th*s4 !bo;e !ll else *s the "e( to m!*nt!*n*n. ! smooth $low o$ tr!$$*% !nd .ett*n. to where (ou need to be. 2here;er the(Mre *nst!lled4 the ub*6u*tous Tr!$$*% )*.hts !re essent*!ll( used to %omplement th*s le;el o$ *nd*;*du!l respe%t whereE 7 GR##N me!ns GO 5%!ut*ousl(8 L!nd R#D me!ns STO' L!nd GO 5sl*.htl( more %!ut*ousl(8 There !re $ew 5*$ ANY8 2!l" B DonMt 2!l"s L!nd +Mm (et to $*.ure out wh!t AM3#R me!ns N78 The e;er7present J!uthor*t(K4 when !ppl*ed to tr!$$*% m!n!.ement4 !ppe!rs to be tre!ted w*th ! %ert!*n le;el o$ d*srespe%t Lnot ne%ess!r*l( %ontempt4 !pp!rentl( someth*n. more !"*n to J+Mm !lr*.ht D!%"! B weMll m!n!.e *t !mon.st oursel;esK. JM!n!.ementK !ppro!%h to the Sh!n.h!* Tr!$$*% S(stem du7Cour !nd + m*.ht !dd to l*$e *n .ener!l *n =h*n! Lto !ll *ntents4 !ppe!rs to be ! %!se o$ Jlet7*t7beK. M( !pprehens*on *n =h*nese tr!$$*% *s !lso %ompounded b( the $!%t th!t +Mm used to dr*;*n. on the R*.ht75%orre%t N78 h!nd s*de o$ ! ;eh*%le! +t *s worth !lso ment*on*n. here th!t tr(*n. to .r!sp the e?ponent*!l *n%re!se o$ motor ;eh*%le upt!"e *n Sh!n.h!* L!nd =h*n! *n .ener!l4 now !nd *nto the $uture4 %ompletel( bo..les th*s l!(m!nMs m*nd. So Lon !rr*;!l !t Sh!n.h!* !*rport (ou .et ! =!b !nd e?per*en%e !ll th*s w*th trep*d!t*on $rom the p!ssen.er se!t !s (ou me!nder *nto town 1 or & hours !w!( 5on ! .ood d!(8

Sh!n.h!* t!?* dri er !" includes a registration nu#$er %%%,&'( where the lower the nu#$er the #ore earlier the dri er was registered. )ne colleagues opined that he would get out of taxi where the registration was recent * currentl+ around ,xx,xxx, si#pl+ $ecause the dri er would need help understanding directions. -he higher nu#$er of stars denote $etter .ualit+ of ser ice, and to so#e extent whether or not the dri er is likel+ to understand so#e /nglish.

At the other end o$ the Sh!n.h!* Tr!nsport!t*on spe%trum L!lbe*t sep!r!te to *t4 *s the M!.7)e; Tr!*n. Go*n. $rom the outs"*rts o$ the =*t( to the A*rport4 th*s st!te7o$7the7!rt ser;*%e del*;ers (ou *n %om$ort '!.e :

!nd on7t*me !t speeds ne;er be$ore !tt!*ned $or m!ss7tr!ns*t tr!;el JonK #!rth. A trul( un*6ue e?per*en%e 7 !s (ou hurtle !t 401"ph to or $rom the A*rport. The th*n. !%tu!ll( b!%"s o$$ to 0- "Ms to p!ss the one %om*n. the other w!( Lwwwoosh Lthe( p!ss e!%h other *n .:se%s L e?h*l!r!t*n. stu$$!

+t w!s so enthr!ll*n. !t the t*me we e?per*en%ed *t4 we ended up h!;*n. se;er!l J.oesK. 2h!t ! %ontr!st L=*t( B A*rport L& odd hours *n tr!$$*% Lor se;er!l m*nutes ;*! M!.7)e;. The( bu*lt *t L!nd the people %!me B well not 6u*te *n numbers to .u!r!ntee the sust!*n!b*l*t( o$ the th*n. e%onom*%!ll(4 but %ome the( d*d. +t .oes nowhere4 *tMs too %ostl( to bu*ld4 t*%"ets !re too e?pens*;e4 were %ommon %ompl!*nts but4 bel*e;e (ou me4 *t ser;es *ts purpose !dm*r!bl(. A%%ord*n.l(4 the( pl!n to e?tend th*s ser;*%e to the %*t(7%entre L!nd + underst!nd the(Mre *nst!ll*n. ! s*m*l!r lon.er one $rom Sh!n.h!* to ! ne*.hbour*n. =*t( !s + t(pe. 5'rob!bl( be $*n*shed !nd h!;e *t oper!t*on!l b( the t*me + .et th*s posted N78

2e %!n loo" !t the STS !s des%r*bed !bo;e !s !n !n!lo.( $or wh!t m*.ht end up de;elop*n. !s ! Glob!l F*n!n%*!l S(stem %ourtes( o$ our Or*ent!l %ous*ns7*n7tr!de. +n Sh!n.h!* G =h*n!4 *$ the( were to !dopt !nd en$or%e s*m*l!r dr!%on*!n rules !nd re.ul!t*ons th!t .o;ern western tr!$$*% $low4 the S(stem would .r*nd to ! h!lt *n ! he!rtbe!t4 so to m!*nt!*n the *nte.r*t( o$ our !n!lo.(4 we %!n !ssume =h*n! en7m!sse $ollows Jlet7*t7beK pr*n%*ples *n !ll $!%ets o$ the*r !%t*;*t*es L!nd essent*!ll( + bel*e;e the( DO. +n th*s )!*sseI7$!*re So%*et( G S(stem4 Jrespe%tK both $or the *nd*;*du!l L!nd tr!ns!%t*ons between p!rt*es4 *s s!%ros!n%t. M!n!.ement essent*!ll( *s "ept to ! m*n*mum L!7l! the STS. '!.e -

2e %!n !lso %ons*der the M!.7)e; !s represent!t*;e o$ ! $un%t*on*n. Free7.old opt*on 7 *n%luded *n the S(stem but not ne%ess!r*l( p!rt o$ *t 7 where p!rt*%*p!nts %!n opt out o$ the S(stem *$ the( so des*re L be none the worst $or *t L!nd *n $!%t .!*n b( the e?per*en%e. Free7Gold then !%ts !s !n !rb*ter o$ the S(stem whereb( +F p!rt*%*p!nts be.*n to str!( too $!r $rom %ourteous *nter!%t*on !nd beh!;*our4 those potent*!ll( d*sen$r!n%h*sed s*mpl( mo;e to Gold. O$ %ourse the =!b dr*;ers !re represented *n th*s !n!lo.( b( the ;!r*ous F*n!n%*!l Ad;*sers4 A%%ount!nts et%. who would not ne%ess!r*l( bene$*t $*n!n%*!ll( b( po*nt*n. (ou to the M!.7)e; L!nd ult*m!tel( perh!ps would do so 6u*te relu%t!ntl(. Opt*n. out 5o$ the tr!$$*%8 !nd onto the M!.7)e; does !lso h!;e *ts l*m*t!t*ons !nd su*t!ble onl( $or the $ew B !s per Free7Gold L.but there *s 5!nd w*ll be8 !bsolutel( NO R+SO *n do*n. so !s the /um!n %ond*t*on ult*m!tel( .u!r!ntees !n upw!rd new7%urren%( e;!lu!t*on o$ R#A) Gold. =!n ! s*m*l!r J)!*sseI7$!*reK F*n!n%*!l S(stem e?*st 2+T/OFT !n es%!pe opt*on !7l! Free7Gold@ + re!ll( donMt th*n" so.

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"ue%day, January 1(, 2012


"he Go'd Mu%t F'o)

+n the l!st thre!d o$ %omments4 D!6sh*p !s"ed !bout the poss*b*l*t( o$ ! $uture Free.old t!?4 ! pun*t*;e t!? on .old me!nt to *nt*m*d!te re.ul!r $ol"s !nd steer them !w!( $rom .old4 !nd !lso to %!pture $or the %olle%t*;e !n( w*nd$!ll pro$*t %om*n. $rom ! .old re;!lu!t*on. D!6sh*p4 who .!;e me perm*ss*on to use h*s re!l n!me4 *s ! lon.7t*me re!der !nd supporter n!med De$$re( S%hr!me". De$$ h!s !n *nterest *n these 6uest*ons be%!use he de!ls *n r!re !nd ;!lu!ble h*stor*% tre!sures *n%lud*n. ! 1>01 Nobel 'r*Ie m!de $rom &0O .old. /ere *s h*s webs*te. De$$ *s %ert!*nl( not ! p!per bu. be%!use h*s s!;*n.s !re t*ed up *n these r!re !rt*$!%ts4 not *n ! 4 15"8. And *t turns out th!t mo;*n. $rom h!rd !ssets *nto bull*on *s ! tou.her %!l%ul!t*on th!n mo;*n. $rom p!per *nto .old. Re!ll( b*. mone( lo;es h!rd !ssets w*th num*sm!t*% !nd r!re ;!lue be%!use (ou %!n tr!nsport ! lot o$ ;!lue throu.h t*me !nd sp!%e *n ! mu%h sm!ller p!%"!.e th!n (ou %!n w*th pl!*n bull*on. Also4 b*ll*on!*res !renMt !s %on%erned w*th pro$*t*n. $rom re;!lu!t*on !s the( !re w*th s*mpl( preser;*n. wh!t the( !lre!d( h!;e.

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The %o*n !bo;e *s ! 3r!sher Doubloon wh*%h w!s re%entl( sold b( ! de!ler *n +r;*ne4 =!l*$orn*! $or P:.4 m*ll*on4 the most e?pens*;e pr*;!te %o*n s!le on re%ord. The .old %ontent o$ the %o*n *s worth !round P140 tod!(4 so th!t,s ! num*sm!t*% prem*um o$ !bout 1: 4 Q. And wh*le prem*ums won,t enCo( the w*nd$!ll re;!lu!t*on o$ the met!l4 the( w*ll l*"el( hold the*r present ;!lue 6u*te well4 preser;*n. !nd shuttl*n. pur%h!s*n. power *n ! ;er( sm!ll p!%"!.e. +m!.*ne4 (ou %ould $l( !n(where w*th th!t %o*n m*?ed *n w*th the sp!re %h!n.e *n (our po%"et. The po*nt *s th!t the 6uest*ons o$ t!?es !nd %on$*s%!t*on on pl!*n bull*on !re *mport!nt to someone who *s !lre!d( hold*n. h!rd !ssets !nd %ons*der*n. h*s opt*ons. And p!rt o$ De$$,s re!son*n. w!s th!t .old bull*on would be the most l*"el( met!l to be t!?ed 9pre%*sel( be%!use .old *s useless9 to the e%onom(. So + thou.ht th*s w!s !n *mport!nt enou.h top*% th!t +,d t!"e ! st!b !t !nswer*n. h*s 6uest*ons *n ! post4 so th!t e;er(one %!n bene$*t !nd d*s%uss these *ssues. /ere !re ! $ew e?%erpts $rom h*s 6uest*ons *n the pre;*ous thre!dE Jaqship said 0+ fear is that the+ will at so#e point #ess with what is left of the #iddle class, e.g. $+ i#posing a puniti e tax on gold sales -- to inti#idate regular folk fro# using gold to protect the#sel es fro# 1!. 0a+$e likewise on sales of sil er and platinu#, although to attack those largel+- industrial #etals #a+ $ring unaccepta$le i##ediate har# to real production in the econo#+. ----2i en that 3the Right People3 control polic+, what4s to stop the# fro# the prox+ confiscation of draconian tax rates in the 5S 6enforced upon all $ut the#sel es and their friends78 Precisel+ $ecause gold is 3useless3, such taxation of it wouldn4t put what4s left of the econo#+ at the sort of risk that such taxation of industrial #etals like sil er 6and #a+$e platinu#7 could cause. !f so, #o ing #uch capital i##ediatel+ post-9reegold into sil er #ight $e the wise course for '!.e 11

:#ericans. :# ! #issing so#ething8 ----"Once the USA sees capital escape..." assu#es that such escape will not $e $locked for all $ut 3the Right People3 6who would $e allowed to duck the harsh taxes an+wa+7. !tal+ has alread+ introduced draconian capital controls. -he !RS and "1S #a+ en;o+ working together to crush an+ gold etc. <lack 0arket that tries to e#erge. 0+ guess is that #uch of 5S polic+ in recent +ears is dri en $+ the ai# of the /lites to stealthil+ reduce the #asses to peonage, prefera$l+ without crashing the whole econo#+. !f this is right, sil er 6$ecause it is so used in industr+7 #a+ $e the onl+ safe ha en which the /lites #a+ hesitate to harshl+ tax. ----"the large gold holders will run the country. They won't make rules that hinder themsel es." ! fear the+ will indeed #ake such rules, $ut the+4ll arrange that the rules are onl+ enforced against shri#ps= ;ust as the+ ha e $een doing for the last %>? +ears, e.g. against s#all $rokerage houses 6#ost of who# ha e had to fold7. 6-his collapse of the 5S s+ste#4s rep for fair treat#ent has #uch to do with gold4s recent rise, according to folks like Jans@en.7 "... they'll !e more than happy to ta" sil er into o!li ion ## e"actly $!ecause$ it is necessary %or industry." )nl+ if the+4ll $e )A risking the utter collapse of an alread+ d+ing econo#+. ! #ust ad#it that the+ #a+ $e ;ust fine with that, $ut the+ #a+ flinch at that extre#e= the+ #a+ $e )A with what their handiwork will alread+ ha e done to enserf the #iddle class. ---/* D!6sh*p4 Th*s *s ! %ommon %on%ern4 th!t the h*.her the nom*n!l .!*n4 the h*.her the t!? th!t w*ll be le;*ed on th!t p!rt*%ul!r !sset. +t *s somet*mes %!lled ! 2*nd$!ll 'ro$*t,s T!?. The l!st t*me we h!d su%h ! t!? le;*ed *n the FS w!s *n 1>- on the o*l %omp!n*es. Th!t t!? w!s repe!led *n 1>-- !nd we h!;en,t h!d one s*n%e. The t!? w!s on produ%ers o$ o*l s*n%e the se%ond o*l %r*s*s o$ the 1>: s4 the +r!n*!n Re;olut*on4 reset the pr*%e o$ o*l $rom P11 *n e!rl( 1>:> to P0: *n 1>- . 'res*dent =!rter de%*ded to dere.ul!te domest*% o*l pr*%es !llow*n. the o*l %omp!n*es to *n%re!se produ%t*on !nd e!se the short!.e. 3ut *n return $or the dere.ul!t*on4 the .o;ernment de%*ded th!t the m!Cor*t( o$ the d*$$eren%e between produ%t*on %ost !nd pr*%e should be %!ptured b( the hun.r( %olle%t*;e. 3ut there !re ! %ouple o$ th*n.s to note here. F*rst o$ !ll *t w!s !%tu!ll( !n e?%*se t!? on domest*% o*l !nd not re!ll( ! pro$*ts t!?. And most *mport!ntl(4 *t w!s ! t!? on produ%ers. + $ull( e?pe%t su%h ! t!? on .old produ%ers on%e we see the w!( the Superor.!n*sm resets the pr*%e o$ .old $!r !bo;e the %ost o$ '!.e 1&

produ%t*on. 3ut to see wh( th*s w*ll NOT be the %!se $or pr*;!te .oldR.old wh*%h h!s !lre!d( been m*ned !nd *s now held *n pr*;!te ownersh*pR(ou must tr( to underst!nd why !nd %or what purpose the hum!n Superor.!n*sm *s re;!lu*n. ph(s*%!l .old. There is ! purpose $or h*.hl( ;!lued .old *n Free.old. +t h!s e;er(th*n. to do w*th the s!;ers 5net7 produ%ers8 *n the e%onom(4 !nd l*ttle to do w*th m*n*n. %omp!n*es. M*ners w*ll be%ome tools $or the st!te4 mu%h l*"e the pr*nt*n. press *s ! tool tod!(. Onl( the .old !lre!d( *n the h!nds o$ s!;ers w*ll be re;!lued to the bene$*t o$ pr*;!te p!rt*es. Gold *n the .round w*ll be ;*ewed mu%h l*"e o*l *n the .round *n 1>- . As *t %omes out o$ the .round most o$ the subst!nt*!l d*$$eren%e between produ%t*on %ost !nd pr*%e w*ll be %!ptured b( the hun.r( %olle%t*;e. 3ut be$ore we t!l" !bout w*nd$!ll t!?es on .old s!;*n.s4 there,s someth*n. (ou re!ll( need to underst!nd. "he Go'd Mu%t F'o) The bottom l*ne *s th!t pr*;!te .old needs to $low !s ! $ert*le member o$ the b!l!n%e o$ tr!de. There w*ll be no !d;!nt!.e $or the FSG to %on$*s%!te or t!? !bo;e7.round .old th*s t*me. Gold m!( be utterl( 9useless9 to the present debt7b!sed e%onom(4 but *t w*ll be !bsolutel( ;*t!l *n the Free.old e%onom(. 5/ere,s ! %omment + wrote l!st Apr*l !bout the *mport!n%e o$ pr*;!tel( held .old.8 Th*s seems *n%omprehens*ble when ;*ewed $rom w*th*n the %urrent p!r!d*.m wh*%h *s wh( (ou must tr( to put (oursel$ *n the ne?t one to see wh!t +,m t!l"*n. !bout. + %!n tr( to help (ou see wh!t + see. +t,s not e!s( to e?pl!*n4 but +,ll %ert!*nl( .*;e *t ! ;!l*!nt e$$ort on%e !.!*n. /ere,s the w!( to loo" !t *t. Tod!( the FS *s runn*n. ! tr!de de$*%*t o$ &1Q. 2e *mport P&.04T worth o$ .oods !nd ser;*%es but we onl( e?port P1.-4T $or ! de$*%*t o$ P1 3 or &1Q. 2h!t th*s me!ns *s th!t we p!( $or onl( :>Q o$ our *mports w*th .oods !nd ser;*%es *n return. The other &1Q we borrow !nd then %onsume. #;er( d!(4 e;er( month4 e;er( (e!r4 we !re borrow*n. !nd then %onsum*n. &1Q o$ our *mports. And e;en thou.h the pr*;!te se%tor h!s %ut b!%" on *ts %onsumpt*on s*n%e & -4 .o;ernment sponsored %onsumpt*on h!s *n%re!sed so the tot!l h!sn,t %h!n.ed mu%h. And &1Q *s !bout the !;er!.e $or the l!st 0 (e!rs. All those .oods !nd ser;*%es th!t we borrowed !nd %onsumed $or de%!des on end %!n ne;er be p!*d b!%". And the( ne;er will be p!*d b!%". Th*s *s ! %ert!*nt(. 3ut th!t doesn,t me!n *t w*ll %ont*nue. And th!t,s wh!t th*s p!r!d*.m sh*$t *s !ll !bout. Th!t,s wh( the Superor.!n*sm *s re;!lu*n. ph(s*%!l .old. So th!t the .old %!n $low !lon. w*th !ll the other .oods !nd ser;*%es *n p!(ment $or *mports. 2e do e?port .old e;en tod!(. FS .old e?ports $low pr*m!r*l( to )ondon4 Sw*tIerl!nd !nd +nd*! $or re!sons th!t should be !pp!rent. 3ut the w!( .old *s tr!ded on the m!r"ets tod!( ster*l*Ies *t *n terms o$ .lob!ll( moder!t*n. !nd re.ul!t*n. the del*%!te b!l!n%e o$ tr!de. Gold *s st*ll tr!ded *n terms o$ debt4 or p!per prom*ses o$ $uture .old. Gold debt. Th*s *s wh!t .oes out most o$ the t*me4 !nd !n( "*nd o$ *ntern!t*on!l debt onl( *n%re!ses *mb!l!n%es wh*le !%tu!ll( re;ers*n. the spur !nd br!"e $or%es ! ph(s*%!l7onl( .old m!r"et would otherw*se e?ert. +t,s "*nd o$ l*"e *$ (ou bu*lt ! %!r where the !%%eler!tor !nd br!"e ped!l $un%t*ons were re;ersed. +t would be re!ll( h!rd to dr*;e th!t %!r w*thout e;entu!ll( wre%"*n. *t *$ e;er( t*me (ou needed to br!"e (ou !%%eler!ted4 !nd when (ou needed to !%%eler!te (ou %!me to ! stop. +m!.*ne th!t Germ!n( *s sh*pp*n. more .oods to )ondon th!n *t *s .ett*n. *n return. So Germ!n( *s '!.e 10

support*n. )ondon,s tr!de de$*%*t *n the s!me w!( th!t =h*n! *s support*n. ours. Germ!n( *s lett*n. )ondon 9borrow9 e?tr! .oods !nd then %onsume them. +n e?%h!n.e4 let,s *m!.*ne th!t )ondon p!(s $or *ts tr!de de$*%*t w*th p!per .old4 Cust l*"e the FS p!(s =h*n! w*th FS Tre!sur( debt. Germ!n( w*ll st!rt st!%"*n. the p!per .old *n the s!me w!( th!t =h*n! st!%"s Tre!sur*es. The debt w*ll .row. The *mb!l!n%e w*ll .row. Noth*n. h!s !%tu!ll( $lowed oppos*te Germ!n(,s .oods !nd ser;*%es e?%ept debt. +$4 on the other h!nd4 ph(s*%!l .old $lowed $rom )ondon *nto Germ!n( !nd the pr*%e w!s h*.h enou.h th!t *t o$$set the tr!de de$*%*t4 then there would be no tr!de *mb!l!n%e. There would be no !%%umul!t*on o$ debt. #;er(th*n. would essent*!ll( be settled on ! %!sh b!s*s w*th no *ntern!t*on!l debt. 3ut *n order $or th*s to wor" *n re!l*t(4 the pr*%e o$ .old w*ll h!;e to be mu%h h*.her th!n *t *s tod!( be%!use there,s s*mpl( not enou.h .old to $low !t tod!(,s pr*%es *n order to $*ll the tr!de .!ps th!t !lre!d( e?*st. And here,s !nother *nterest*n. note. +t won,t m!tter *$ )ondon *s st*ll us*n. the pound or *$ the( sw*t%h to the euro. The .old st*ll b!l!n%es tr!de !s *t $lows. So no4 *t,s not ! $l!w o$ sh!r*n. the s!me %urren%( th!t the '++GS %!n,t b!l!n%e tr!de w*th others *n the euro,s %ore. +t,s ! $l!w o$ the %urrent s(stem wh*%h e?*sted lon. be$ore the euro w!s e;en born. 2*th*n the %urrent s(stem4 the euro does remo;e the poss*b*l*t( o$ lo%!l %urren%( %oll!pse !s !n !ltern!t*;e !dCustment me%h!n*sm4 but honestl(4 th!t,s p!rt o$ wh!t the( w!nted w*th the euro. The %urrent s(stem *s one o$ *rre;ers*ble debt7bu*ldup !nd .old7debt wh*%h ster*l*Ies the $low !nd pr*%e o$ .old. Spur and *ra+e On%e .old *s $low*n. !t ! h*.h enou.h pr*%e to b!l!n%e *ntern!t*on!l tr!de4 *t w*ll st!rt !%%umul!t*n. *n %ountr*es th!t run ! tr!de surplus e?%lud*n. .old 5*n%lud*n. .old4 tr!de w*ll b!l!n%e8. )*"ew*se4 *t w*ll st!rt d*s!ppe!r*n. $rom those %ountr*es runn*n. ! tr!de de$*%*t e?7.old 5e?%lud*n. .old8. Th*s *s how the spur !nd br!"e $or%es wor" on !n e%onom( *n Free.old. As the .old suppl( w*th*n ! 9de$*%*t e?7.old9 n!t*on dw*ndles 5th*n"E FSA84 e!%h p*e%e rem!*n*n. w*ll be%ome more !nd more de!r *n terms o$ other .oods !nd ser;*%es w*th*n th!t Ione. +n other words4 the pur%h!s*n. power o$ .old w*ll r*se *n the 9de$*%*t e?7.old9 Ione ;*s7S7;*s .oods !nd ser;*%es *n th!t Ione. )*"ew*se4 the pur%h!s*n. power o$ .old w*ll be.*n to $!ll *n the 9surplus e?7.old9 Ione 5th*n" Germ!n( or =h*n!8 ;ersus .oods !nd ser;*%es *n th!t Ione be%!use o$ the l!r.e !nd .row*n. !%%umul!t*on o$ .old. At th*s po*nt the l!r.e 6u!nt*t( o$ .old *n the 9surplus Ione9 w*ll h!;e ! lower pur%h!s*n. power !.!*nst .oods *n *ts own Ione4 but ! h*.her pur%h!s*n. power !bro!d *n the 9de$*%*t Ione9 !nd dem!nd $or *mported .oods w*ll .row wh*le e?ports w*ll st!rt to $!ll. Th*s .row*n. dem!nd $rom !bro!d w*ll be $elt *n the 9de$*%*t Ione9 !nd w*ll be met w*th new suppl(. )*"ew*se4 the $!ll*n. dem!nd $or *mports $rom the Ione w*th ! de%l*n*n. ;olume o$ .old w*ll be $elt *n the 9surplus Ione9 !nd be met w*th de%re!s*n. suppl(. +n%rement!ll(4 the 9surplus Ione9 w*ll slow produ%t*on !nd *n%re!se %onsumpt*on wh*le the 9de$*%*t Ione9 e?per*en%es the oppos*te e$$e%t. #?%lud*n. .old4 the b!l!n%e o$ tr!de w*ll sh*$t b!%" !nd .old w*ll st!rt to $low *n the other d*re%t*on. Not*%e4 ple!se4 th!t +,m not e;en t!l"*n. !bout the $low o$ %urren%( or pr*%e *n$l!t*onGde$l!t*on *n %urren%( terms. +n$l!t*on or de$l!t*on *n %urren%( terms %!n be h!ppen*n. *n e*ther Ione depend*n. on how the monet!r( !uthor*t( *s m!n!.*n. the %urren%(. 3ut wh!t m!tters *n terms o$ the re!l tr!de $low w*ll be the pur%h!s*n. power o$ Free.old 5not *n %urren%( terms4 but8 ;*s7S7;*s the rest o$ the tr!de $low '!.e 14

o$ .oods !nd ser;*%es. +$ (ou h!;e h*.h %urren%( *n$l!t*on *n the 9de$*%*t Ione9 be%!use the .o;ernment *s pr*nt*n. l*"e %r!I(4 the pr*%e o$ .old w*ll be r*s*n. e en faster than the pr*%e o$ .oods !nd ser;*%es. On the %ontr!r(4 *$ (ou h!;e h*.h *n$l!t*on *n the 9surplus Ione94 the pr*%e o$ .old w*ll be r*s*n. #ore slowl+ than the ='+4 e?ert*n. *ts br!"e $or%e on the e%onom( be%!use .old w*ll st*ll be $ound to h!;e *n%re!s*n. pur%h!s*n. power !bro!d !nd de%re!s*n. pur%h!s*n. power on .oods $rom *ts own Ione. +n other words4 .old w*ll be e?ported to other Iones where *ts pur%h!s*n. power *s h*.her4 spurr*n. those other Iones to produ%e more !nd putt*n. the br!"es on the o;erhe!ted e%onom( *n the 9surplus Ione9. Th*s $low w*ll %ont*nue re;ers*n. b!%" !nd $orth $ore;er4 !s *t should be4 be%!use there *s no su%h th*n. !s ! per$e%t e6u*l*br*um. And !.!*n4 + w!nt to dr!w (our !ttent*on to the $!%t th!t +,m de!l*n. onl( *n the ph(s*%!l pl!ne4 *.nor*n. the monet!r( pl!ne. Th*s *s wh!t Free.old does. And *t doesn,t m!tter *$ the 9surplus e?7.old9 !nd 9de$*%*t e?7.old9 Iones e!%h h!;e the*r own %urren%*es or *$ the( sh!re ! s*n.le %urren%(. +t st*ll wor"s the s!me w!(. S!;ers run the e%onom(. S!;ers !re the m!r.*n!l surplus7 produ%ers !nd %onsumers. 2hen the s!;ers st!rt s!;*n. more4 *t me!ns the e%onom( *s produ%*n. more. 2hen the s!;ers st!rt d*sho!rd*n. !nd %onsum*n.4 the e%onom( *s produ%*n. less ;*s7S7;*s *ts b!l!n%e o$ tr!de. Th*s *s the spur !nd br!"e $or%e o$ Free.old4 the *ntern!t*on!l dem!nd dr*;en b( the $lu%tu!t*n. pur%h!s*n. power o$ .old !s $elt b( the s!;ers4 re.!rdless o$ !n( tr!ns!%t*on!l %urren%( e$$e%ts w*th wh*%h the debtors m!( be t*n"er*n.. Now th!t +,;e .*;en (ou ! br*e$ des%r*pt*on o$ how Free.old w*ll wor" *n the ph(s*%!l pl!ne 5*t w*ll !lso e?ert $or%es on the monet!r( pl!ne4 but th!t,s ! b*. subCe%t $or !nother post84 let,s t!"e ! 6u*%" loo" !t how the present debt7b!sed s(stem4 the P+MFS4 d*$$ers *n th!t *t e?erts the e"act opposite spur !nd br!"e $or%es. +n the present s(stem *t *s debt th!t $lows to $*ll *n the s!me tr!de .!p th!t w*ll be $*lled b( ph(s*%!l .old *n Free.old. As + s!*d !bo;e4 the FS p!(s $or :>Q o$ *ts *mports w*th .oods !nd ser;*%es e?ports. 3ut the rem!*n*n. &1Q *t p!(s $or w*th debt th!t !%%umul!tes (e!r !$ter (e!r. The FS *s the 9de$*%*t Ione9 !nd *ts tr!d*n. p!rtners who !re !%%umul!t*n. FS debt !re the 9surplus Ione9. Our tr!d*n. p!rtners send us 1 Q .oods !nd ser;*%es !nd we send them b!%" :>Q .oods !nd ser;*%es plus &1Q FS doll!rs. The( then h!;e to do someth*n. w*th those doll!rs. 3ut the( !lre!d( h!;e more th!n P4 Tr*ll*on *n !%%umul!ted FS debt. So wh!t to do w*th those new doll!rs th!t "eep %om*n.@ +$ the( were to *ns*st on spend*n. those e?tr! doll!rs on more .oods !nd ser;*%es *n order to b!l!n%e tr!de4 the(,d s*mpl( dr*;e up the doll!r pr*%es o$ .oods !nd ser;*%es rel!t*;e to the*r own domest*% .oods !nd ser;*%es. +n the ph(s*%!l pl!ne $*n!l !n!l(s*s4 the(,d st*ll re%e*;e less b!%" $rom us th!n the( sent us4 !nd the(,d s*mult!neousl( %oll!pse the ;!lue o$ the*r P4 Tr*ll*on !%%umul!ted debt. So *nste!d4 the( lo!n those e?tr! doll!rs b!%" to us !t ! nom*n!l 5not re!l8 r!te o$ *nterest !nd then we use them 5!.!*n8 to bu( more o$ the*r .oods. So the more debt th!t $lows !s p!(ment *nto the 9surplus Ione9 e%onom(4 the more *t *s spurred to produ%e e;en more .oods $or the 9de$*%*t Ione9 to borrow. And the more 9de$*%*t .oods9 th!t $low *nto the de$*%*t Ione4 the more doll!rs th!t must be re%(%led !nd the more the 9de$*%*t Ione9 must %onsume4 wh*%h *s4 *n e$$e%t4 ! br!"e $or%e on the %onsumpt*on7b!sed e%onom(. The br!"e $or%e *s be*n. !ppl*ed to the 9de$*%*t Ione9 !nd the spur $or%e to the 9surplus Ione9. The oppos*te o$ Free.old.

'!.e 11

2hen debt $lows4 de$*%*ts !%%umul!te !nd .row re6u*r*n. more !%%umul!t*on !nd more debt. The net7 %onsumers !re *n%ent*;*Ied to net7%onsume more !nd more !nd the net7produ%ers to produ%e e;er more. There *s no !dCustment me%h!n*sm4 no n!tur!l .o;ernor. Th*s s*mpl( %ont*nues unt*l the whole th*n. %oll!pses. Th!t,s the onl( !dCustment me%h!n*smE per*od*% %oll!pse. Th!t,s the P+MFS. 5For more on the Free.old !dCustment me%h!n*sm4 se!r%h $or the word 9Gree%e9 *n these two posts !nd st!rt there.8 Stron# ,and% So th!t,s where the Superor.!n*sm *s t!"*n. us. 3ut be$ore + .et *nto the *ssues o$ ! w*nd$!ll pro$*ts t!? !nd %on$*s%!t*on under Free.old4 + w!nt to d*s%uss one more %on%ept4 the %on%ept o$ stron. h!nds .o*n. into Free.old. 2hen !n(one t!l"s !bout 9.old9 tod!(4 th!t word *dent*$*es ! whole p!nopl( o$ .old7rel!ted *n;estment opt*ons. The( *n%lude un!llo%!ted .old %red*ts4 $orw!rd %ontr!%ts $or $uture .old4 $utures %ontr!%ts $or tr!d*n.4 #TF sh!res4 .r!m7denom*n!ted s!;*n.s !%%ounts !nd e7mone( pl!t$orms4 m*n*n. %omp!n( sh!res4 e?plor!t*on %omp!n( sh!res4 %ert*$*%!tes4 opt*ons4 der*;!t*;es !nd more. There !re m!n( w!(s to *n;est *n th*s th*n. %!lled 9.old9 throu.h ;!r*ous %ounterp!rt*es tod!(. And *t *s the m!r"et *nterpl!( o$ !ll these ;!r*ous opt*ons4 mu%h more so th!n tr!ns!%t*ons *n !nd mo;ement o$ ph(s*%!l4 th!t determ*nes 9the pr*%e o$ .old9 !s *t *s w*del( re$eren%ed tod!(. Th*s *s wh!t we me!n when we s!( th!t tod!(,s 9pr*%e o$ .old9 *s not the pr*%e o$ ph(s*%!l. Yes4 (ou %!n st*ll bu( ph(s*%!l !t th!t pr*%e4 but *t *s the pr*%e o$ ! w*de r!n.e o$ produ%ts %l!*m*n. the n!me 9.old9 more so th!n *t *s the pr*%e o$ ! spe%*$*% met!l element. Th*s %on.lomer!t*on o$ m!n( tr!d!ble4 %ounterp!rt( opt*ons th!t purports to be p!rt o$ someth*n. %!lled 9.old9 *s stru..l*n. to st!( to.ether !s 9the pr*%e o$ .old9 r*ses. M!r"et m!;ens l*"e D*m S*n%l!*r h!;e lon. pred*%ted the !rr*;!l o$ ;*olent sw*n.s o$ m!.n*tude !s 9the pr*%e o$ .old9 b!ttles *ts w!( h*.her. And *t seems th*s bre!tht!"*n. ;ol!t*l*t( m!( be Cust !round the %orner tod!(. +n Cust the l!st 1& months we,;e seen 9the pr*%e o$ .old9 run $rom P1401 up to P14> !nd then b!%" down to P1410 . Not onl( th!t4 but 9.old9 shot up P4 *n Cust : wee"s dur*n. Dul( !nd Au.ust4 !nd then *t plun.ed P0 *n three wee"s. + wonder wh!t the ne?t run w*ll loo" l*"e. +$ *t $ollows the s!me per%ent!.es !s l!st (e!r4 we,ll h*t ! ;er( spe%*!l number th*s (e!r. #!%h t*me the pr*%e sw*n.s up !nd down l*"e th*s the 9.old9 tr!ders tr!de the*r w!( *n !nd out o$ the*r $!;or*te p!per .old pos*t*ons. 3ut the ph(s*%!l s*de *s slowl( wor"*n. *ts w!( *nto stron.er !nd stron.er h!nds w*th e!%h sw*n.. Stron. h!nds bu( the d*ps wh*le we!" h!nds !re sell*n. *n ! p!n*%. + he!rd ! stor( $rom ! de!ler re%entl( !bout ! poor s!p who,d bou.ht ! bun%h o$ #!.les $rom ! %omp!n( th!t !d;ert*ses on TA4 p!*d too h*.h o$ ! prem*um to %o;er !ll th!t e?pens*;e !d;ert*s*n.4 !nd he h!d !lso t!"en ph(s*%!l del*;er( wh*%h *s wh( + he!rd the stor(. On the l!st b*. plun.e *nto the P141 s he w!l"ed *nto th*s de!ler w*th h*s bo? o$ .old %o*ns4 he!d hun. low4 re!d( to %ut h*s 9losses9. Th!t,s ! we!" h!nd. Someone who doesn,t underst!nd wh!t he,s do*n. when he bu(s .old %o*ns. As +,;e noted be$ore4 when + st!rted th*s blo. b!%" *n & '!.e 16 -4 the h*.hest 9.old pr*%e9 pred*%t*ons + h!d

e;er en%ountered 5other th!n AGFOA8 were *n the r!n.e o$ P1461 to P&4 per oun%e. Th!t h!s ob;*ousl( %h!n.ed. Tod!( we re!d ! ;!r*et( o$ $uture pr*%e pred*%t*ons r!n.*n. $rom P14 on up to P1 4 per oun%e. 3ut the problem + see w*th m( $ellow h*.h pr*%e pro.nost*%!tors *s th!t the( don,t support those pr*%es w*th !n e?pl!n!t*on !s $und!ment!l !s Free.old. Th*s *s ! problem. Th!t spe%*!l number + s!*d we %ould h*t th*s (e!r4 *$ the trend doesn,t !%%eler!te !nd s*mpl( repe!ts4 *s P&4000. The low to h*.h *n the l!st 1& months m!t%hes ! r*se $rom tod!(,s pr*%e to !bout P&4000 *n the ne?t : or - months4 if we were to h!;e !n e?!%t repl!(. And the problem *s th!t P&4000 *s the *n$l!t*on7 !dCusted 5b!sed on o$$*%*!l *n$l!t*on8 pe!" $rom 1>- . Fa$r )arn$n# to a'' #o'd bu#% )ho don-t under%tand Free#o'd +,ll m!"e ! pred*%t*on r*.ht now. As we !ppro!%h !nd surp!ss P&40004 other h*.h pr*%e pred*%t*ons notw*thst!nd*n.4 (ou,ll re!d !rt*%les $rom !ll o$ (our $!;or*te .old bu. wr*ters m!"*n. the %omp!r*son w*th the 1>- pe!". And *$ the !s%ent *s !n(where !s ;ert*%!l !s *t w!s b!%" *n Dul( !nd Au.ust4 th!t %omp!r*son won,t be lost on ! s*n.le .old bu.. No one w!nts to m*ss the top l*"e so m!n( d*d b!%" then. So when *t st!rts to $!ll !$ter ! ;ert*%!l r*se4 !nd *t will $!ll4 no one w*ll be th*n"*n. !bout those other h*.h pr*%e pred*%t*ons. +nste!d4 the(,ll be th*n"*n. 9.et out now4 Cust *n %!se. + %!n bu( b!%" *n l!ter !nd m!"e ! pro$*t.9 Th*s .roup w*ll *n%lude !ll p!per .old tr!ders !s well !s ! .ood port*on o$ the 9ph(s*%!l9 .old bu. %ommun*t(. And be%!use o$ the 9spe%*!lness9 o$ th!t number4 P&40004 there won,t be !n( p!per .old bu(ers tr(*n. to %!t%h the "n*$e4 so *t w*ll $!ll h!rd. 'oss*bl( too h!rd. No one w!nts to be th!t .u( who bou.ht on the w!( down *n 1>- . Th*s %ould potent*!ll( be the $*n!l sh!"eout o$ we!" phy%$.a' h!nds4 be%!use there w*ll be plent( o$ stron. h!nds %!t%h*n. th!t ph(s*%!l e;en thou.h ph(s*%!l bu(*n. won,t stop the pr*%e $rom $!ll*n.. Fn$ortun!tel( $or ! $ew lon.7t*me .old bu.s4 the l!%" o$ ! $und!ment!l !nd $ound!t*on!l underst!nd*n. o$ ! mu%h h*.her ;!lue %ould see them l*6u*d!t*n. !t the worst poss*ble t*me *n !ll o$ h*stor(. And th!t would trul( be ! sh!me. At le!st + h!;e .*;en $!*r w!rn*n.. +,m not pred*%t*n. th!t th*s *s the w!( *t w*ll pl!( out. Onl( th!t *t %ould. And be*n. !w!re o$ th*s poss*b*l*t( h!s ;!lue *$ *t .*;es (ou stron. h!nds !t ! "e( po*nt *n t*me. "a/ "hat Go'd! Now we %!n t!l" !bout w*nd$!ll t!?es !nd %on$*s%!t*on 5rel!ted top*%s8. /ope$ull( (ou were !ble to !bsorb the !bo;e %on%epts. The hum!n Superor.!n*sm *s re;!lu*n. .old ;*s7S7;*s not %urren%(4 but e;er(th*n. else4 $or ! purposeE the .old must $low. A.!*n4 the Superor.!n*sm *s re;!lu*n. .old *n real4 not nom*n!l4 terms. 5+t *s !lso de;!lu*n. the FS doll!r *n re!l terms4 but th!t,s ! sep!r!te subCe%t $or ! ;!stl( d*$$erent post.8 And .o*n. *nto Free.old4 ph(s*%!l w*ll st!rt out *n the stron.est o$ h!nds4 me!n*n. people l*"e (ou !nd me who "now wh!t *t,s worth *n *ntern!t*on!l terms !nd G*!nts who don,t need to sell dur*n. subopt*m!l %ond*t*ons. 3ut be$ore + .et *nto t!?!t*on4 +,d l*"e to d*s%h!r.e the %on$*s%!t*on meme on%e !nd $or !ll. 'h(s*%!l %on$*s%!t*on onl( m!"es sense *$ (ou !re .o*n. to %on$*s%!te the .old !nd then& and only then& nom*n!ll( re;!lue *t (oursel$ hop*n. th!t (our %urren%( *s stron. enou.h th!t ! nom*n!l re;!lu!t*on !%tu!ll( del*;ers (ou ! re!l w*nd$!ll 5seeE 1>048. 3ut !s + s!*d e!rl*er4 the hum!n Superor.!n*sm *s '!.e 1:

re;!lu*n. .old th*s t*me4 not FDR or the FSG. So t!?!t*on *s the onl( opt*on. Th!t s!*d4 + would not le!;e m( .old where *t4 or m( %!p*t!l .!*n4 %ould e!s*l( be !utom!t*%!ll( !bsorbed dur*n. ! short7l*;ed .o;ernment m*sstep4 wh*%h *s wh( + re%ommend person!l possess*on or !t le!st the %losest th*n. to *t. The $*rst th*n. (ou need to underst!nd *s th!t the +RS t!?es nom*n!l .!*ns onl(. +t does not t!? re!l .!*ns. +t *s !s bl*nd to re!l .!*ns !s *t *s to re!l losses. The t!? l!w would h!;e to be %ompletel( !b!ndoned !nd rewr*tten $rom s%r!t%h *n order to t!? re!l .!*ns. Th*s *s not .o*n. to h!ppen. So let,s m!"e !n !ssumpt*on !nd see where *t le!ds. )et,s !ssume th!t the Free.old re;!lu!t*on h!s o%%urred !nd the FSG h!s de%*ded to *mpose ! > Q w*nd$!ll pro$*ts t!? on *ts %*t*Iens who ho!rded ph(s*%!l .old throu.h the tr!ns*t*on. 2h!t w*ll be the %onse6uen%es o$ th*s !%t*on !nd who w*ll be hurt@ Now4 be%!use the FS *s bl*nd to re!l .!*ns4 (ou,d h!;e to sell (our .old !t the new Free.old pr*%e *n order to m!"e ! t!?!ble nom*n!l .!*n. Fnt*l (ou sell4 (ou st*ll h!;e the s!me th*n. (ou h!d be$ore the re;!lu!t*on4 ! s*n.le .old %o*n. For !ll the( "now (ou,ll h!n. onto th!t .old !nd the pr*%e w*ll on%e !.!*n $!ll !nd (ou,ll st*ll Cust h!;e one .old %o*n worth mu%h less. Or m!(be (ou,ll lose *t *n ! bo!t*n. !%%*dent4 or *t w*ll be stolen4 !nd (ou,ll h!;e no .!*n. The onl( .!*n the +RS re%o.n*Ies *s nom*n!l .!*ns. 5/ere,s ! %omment + wrote b!%" *n & 1 on $uture .old t!?es.8 '!rt o$ our prem*se *n th*s e?er%*se *s th!t Free.old h!s !rr*;ed4 !lon. w*th e;er(th*n. th!t %omes w*th *t. So e;en thou.h the FSG h!s m*sstepped !nd put on ! > Q .old t!?4 the rest o$ the world h!s not !nd *s now enCo(*n. ! te%hn*%!ll( b!l!n%ed tr!de $low !lon. w*th the re!ppe!r!n%e o$ D!%6ues Rue$$,s 9$or%e$ul but unobtrus*;e m!ster4 who .o;erns unseen !nd (et *s ne;er d*sobe(ed.9 )et,s *.nore h(per*n$l!t*on $or now !nd t!l" *n %onst!nt doll!rs. Gold now h!s the pur%h!s*n. power o$ P114 *n & 1& %onst!nt doll!rs. Your .!*n per oun%e *s rou.hl( P1041 !nd the .o;ernment w!nts > Q o$ th!t mone(4 or P4-411 le!;*n. (ou w*th onl( P64-1 worth o$ pur%h!s*n. power $or e;er( %o*n (ou %hoose to sell. Me!nwh*le4 those stron. h!nds *n other Free.old %ountr*es h!;e P114 *n pur%h!s*n. power $or e!%h %o*n the( %hoose to sell. Stron. h!nds *n the FSA h!;e P64-1 *n %onst!nt doll!r pur%h!s*n. power. Stron. h!nds *n the RO2 5rest o$ the world8 h!;e P114 *n pur%h!s*n. power. The .old must $low4 but w*ll *t $low $rom the FSA !s mu%h !s $rom other de$*%*t %ountr*es under these %ond*t*ons@ +$ *t does $low4 *t w*ll st*ll $low !%ross *ntern!t*on!l borders !t the new Free.old ;!lue !nd ;*t!l .oods !nd ser;*%es w*ll $low b!%" *nto the FS. 3ut onl( 1&.1Q o$ the pur%h!s*n. power o$ th!t .old w*ll .o to the person w*th the %ho*%e o$ 9to $low or not to $low9 wh*le -:.1Q .oes to the FSG. T!? l!ws !lw!(s %h!n.e4 !nd th*s *s ! $!%t th!t w*ll !lso be $!%tored *nto the de%*s*on 9to sell or not to sell9 th!t stron. h!nds *n the FS w*ll $!%e. Another $!%tor *s bl!%" m!r"et !rb*tr!.e. A stron. h!nd *n the FS won,t h!;e to en.!.e *n smu..l*n. .old out o$ the %ountr( h*msel$ *n order to .!*n more pur%h!s*n. power th!n P64-1 . 2*th P4-411 per oun%e *n potent*!l bl!%" m!r"et pro$*t 5th!t,s P1.1 b*ll*on per smu..led tonne84 *t,s not h!rd to *m!.*ne ! ;*br!nt bl!%" m!r"et th!t would .l!dl( p!( (ou tw*%e (our P64-1 o$$ the boo"s. So *$ the .old *n pr*;!te h!nds *n the FS doesn4t $low *n su$$*%*ent !mounts4 .*;en th!t FS debt h!s been d*s%red*ted throu.h the Free.old ph!se tr!ns*t*on4 the .o;ernment w*ll h!;e no %ho*%e but to '!.e 1-

%ont*nue pr*nt*n. mone( *n *ts ;!*n !ttempt to support the FS tr!de de$*%*t !nd *ts own st!tus 6uo !s Fn%le Su.!r to the people. And *n ! l!st7d*t%h e$$ort to support *ts own $!*l*n. %urren%(4 *t w*ll h!;e to sh*p Fort Ono? .old o;erse!s. FOA ment*oned someth*n. !bout th*sE 3Bthe 5S will find itself shipping e er higher priced gold to defend an e er lower aluation of dollar exchange rates.3 +n th*s s%en!r*o4 the need to %ont*nue pr*nt*n. *n the $!%e o$ !n on.o*n. %urren%( %oll!pse w*ll obl*ter!te !n( m*n*s%ule .!*n th!t %omes $rom the $ew shr*mps who !%tu!ll( de%*de to sell the*r .old *n !n unt*mel( w!( !nd p!( the t!?. The FS h!s pre%*ous l*ttle .old *n pr*;!te h!nds !s *t *s. And *t w*ll need th!t pr*;!te .old to $low. +t needs (ou to sell (our .old to (our de!ler so (our de!ler %!n e?port *t to our tr!d*n. p!rtners. Th!t,s how tr!de $lows w*ll resume under the new p!r!d*.m4 w*th s!;ers choosing to let the*r .old $low be%!use o$ the !m!I*n. pur%h!s*n. power *t del*;ers. And w*th *ntern!t*on!l tr!de $low*n. !.!*n4 the .o;ernment w*ll h!;e mu%h more e%onom*% !%t*;*t( to t!? th!n *t d*d when *t tr*ed to t!? re!l %!p*t!l *n *ts purest $orm b!sed on the s*ll( not*on th!t the hun.r( %olle%t*;e deser;es ! w*nd$!ll n*ne t*mes .re!ter th!n the .old *n;estors who "ept .old *ns*de the Ione throu.h ! turbulent tr!ns*t*on. The bottom l*ne here *s th!t + do not "now *$ the FSG w*ll tr( to t!? the w*nd$!ll pro$*t th!t %omes $rom Free.old. 2h!t + do "now *s th!t4 *$ the( do4 *t won,t l!st ;er( lon.. And on%e !.!*n4 be*n. !w!re o$ th*s poss*b*l*t( h!s ;!lue *$ *t .*;es (ou stron. h!nds !t ! "e( po*nt *n t*me. S*n%erel(4 FOFOA

'!.e 1>

0edne%day, January 11, 2012


"he Studeba+er 122e.t

One o$ m( resolut*ons $or & 1& *s to spend some t*me $*nd*n. new w!(s to *ntrodu%e .old7res*st!nt p!perbu.s to the power$ul !r.uments $or bu(*n. !nd hold*n. ph(s*%!l .old r*.ht now. 3ut + ne;er w!nt !n(one to *n;est *n !n(th*n. b!sed merel( on ! re%ommend!t*on. + w!nt them to underst!nd the re!sons $or the pur%h!se themsel;es. 'e!%e o$ m*nd %!n onl( %ome $rom w*th*n4 !nd th!t,s wh!t underst!nd*n. %!n pro;*de. Th*s *s tr*%"( .round $or me be%!use +,m not ! .old !%t*;*st. The purpose o$ th*s blo. *s st!ted !t the top. +t *s ! tr*bute to Another !nd FOA. +,m not here to %on;ert the unw*ll*n.. +,m not here to proCe%t m( thou.hts !nd dr!w *n the m!sses. 3ut !t the s!me t*me4 + do w!nt to sh!re wh!t +,;e le!rned w*th lo;ed ones. And $rom the em!*l + re%e*;e4 so do ! lot o$ other people. Th!t s!*d4 (ou %!n,t Cust !ppro!%h the unw*ll*n. w*th stor*es o$ de%!de7old !non(mous *nternet person!l*t*es. So th*s *s m( $*rst $or!( *nto the $rustr!t*n. world o$ the .old7res*st!nt p!perbu.. 2*th (our help4 + hope to bu*ld ! pr*mer on the .old thes*s e?pl!*n*n. 9wh( .old4 !nd wh( now49 to those who "now noth*n. !bout The Gold Tr!*l th!t brou.ht us here. Th*s post *s m( $*rst b!b( step. As most o$ (ou !lre!d( "now4 (ou don,t .et !n( o$ the usu!l h!rd mone(4 .old st!nd!rd or .old bu. !r.uments $rom me. + do not pred*%t ! return to the .old st!nd!rd4 +,m not opposed to $*!t %urren%( or %entr!l b!n"*n. !nd + don,t th*n" the world *s .o*n. to end. 2h!t (ou do .et *s m( e?pl!n!t*on o$ the %h!n.es th!t !re un$old*n. r*.ht now *n the *ntern!t*on!l monet!r( !nd $*n!n%*!l s(stem4 !nd how the( %ould !$$e%t (our s!;*n.s. Th!t l!st p!rt *s *mport!nt. /ow %h!n.es *n the monet!r( !nd $*n!n%*!l s(stem %ould !$$e%t (our s!;*n.s. 2h!t are (our s!;*n.s@ And wh( do we s!;e the w!( we do tod!(@ /!s *t !lw!(s been th*s w!(@ Are there un*;ers!l do,s !nd don,ts when *t %omes to s!;*n. $or the $uture or $or ! r!*n( d!(@ Do s(stems e;er %h!n.e or *mplode4 er!s*n. people,s s!;*n.s@ +s *t e;er $!*r to s!( 9th*s t*me *t,s d*$$erent9@ '!.e &

These !re *nterest*n. 6uest*ons to th*n" !bout. And now th!t +,m th*n"*n. !bout *t4 does !n(one e;en s!;e !n(more@ +$ (ou,;e .ot ! hundred .r!nd s*tt*n. *n ! b!n" =D or s!;*n.s !%%ount someone w*ll l*"el( tell (ou th!t (ou should *n;est *t or else (ou,re w!st*n. mone(. So (ou *n;est *t *n wh!t4 mutu!l $unds !nd bonds@ +n th!t %!se there w*ll be people th!t w*ll s!( (ou should be !%t*;el( tr!d*n.4 be%!use (ou,re st*ll le!;*n. potent*!ll( r*%h pro$*ts on the t!ble. /!;e (ou not*%ed how m!n( people th*n" the( !re tr!ders !nd *n;estors these d!(s@ And w*th !ll the opt*ons to *n;est *n !nd tr!de out there4 who %!n bl!me them@ 3ut *n re!l*t( the( !re not tr!ders or *n;estors. The( !re do%tors4 l!w(ers4 bus*nessmenL !nd s!;ers. 2h!t we %!ll *n;est*n. tod!( *s more l*"e spe%ul!t*n.. So wh( do we 9s!;e9 the w!( we do tod!(4 b( spe%ul!t*n. on th*n.s we "now so l*ttle !bout@ + h!d !n em!*l e?%h!n.e o;er the hol*d!(s w*th ! re!der who w!s home ;*s*t*n. h*s p!rents. /e,s $rustr!ted be%!use he,s been tr(*n. to t!l" to them !bout .old $or !t le!st ! (e!r now. /ere,s wh!t he wr*tesE 3! had to $ite #+ tongue last night $ecause #+ parents told #e of the results of their trip to a financial ad iser. 0+ dad has o er a #illion in his retire#ent account. -hanks to this ad iser the+ went to, %C( of that is going into low-+ielding 0uni-$onds, the other half is going into so#e #ixed fund that #+ parents reall+ ha e no idea what it is. ! asked a$out gold and apparentl+ the ad iser said it was 3too olatile3, so @ero goes into that. 2reatD3 +,m .uess*n. th*s *s prett( %ommon4 be%!use + re%e*;ed !n em!*l $rom !nother re!der4 !lso dur*n. the hol*d!(s4 th!t s!*d !lmost the s!me th*n. !bout h*s mother,s s!;*n.sE mostl( .o;ernment bonds !nd no .old th!n"s to ! $*n!n%*!l !d;*sor,s !d;*%e. +s (our l*$e,s s!;*n.s so tr*;*!l th!t (ou w*ll put *t somewhere b!sed on ! mere re%ommend!t*on@ Do (ou $eel no need to underst!nd4 no respons*b*l*t( to person!ll( prote%t the $ru*ts o$ (our own l*$e@ +,ll tell (ou one th*n.4 *t w!sn,t !lw!(s done th*s w!(. A s!;er *s d*$$erent $rom !n *n;estor or ! tr!derGspe%ul!tor. A s!;er *s one who e!rns h*s %!p*t!l do*n. wh!te;er *t *s he does4 !nd then !*ms to preser;e th!t pur%h!s*n. power unt*l he needs *t l!ter. +n;estors !nd tr!ders !*m to e!rn more %!p*t!l b( putt*n. the*r !lre!d(7e!rned %!p*t!l !t r*s" *n one w!( or !nother. Th*s t!"es ! %ert!*n !mount o$ spe%*!l*I!t*on !nd $o%us. 3ut th*s d*$$eren%e *s ! b*. top*% $or !nother post. And !n(w!(4 *t doesn,t m!tter so mu%h *n terms o$ the .old thes*s $or tod!(. Tod!( the s(stem *s *n tr!ns*t*on4 so (ou %!n throw (our *de!s !bout these d*$$eren%es out the w*ndow. There *s no s!$e med*um $or s*mple preser;!t*on o$ pur%h!s*n. power when the ent*re s(stem sh*$ts $rom the old norm!l to the new norm!l. 2hen s(stems *mplode4 the s!$est pl!%e to be p!(s o$$ b*. t*me! +n h*nds*.ht4 the sto%" m!r"et 5represented b( the DD+A8 would h!;e been ! .re!t *n;estment or spe%ul!t*on $rom the 1>: s unt*l & . S*n%e & *t h!s .one nowhereE

'!.e &1

)*"ew*se4 bonds would h!;e been ! .re!t tr!de $rom !bout 1>-1 unt*l now. As +,;e noted be$ore4 (ou m!"e %!p*t!l .!*ns *n bonds wh*le *nterest r!tes !re $!ll*n.. The re!l pros "now !ll !bout th*s. And $rom 1>-1 to present4 *nterest r!tes $ell $rom & Q to Q. Fl*pp*n. the *nterest r!te %h!rt ups*de down shows how the bond "*n. 3*ll Gross o$ '+M=O tr!ded h*s w!( *nto ! person!l P&.& b*ll*on $ortune o;er the l!st 0 (e!rsE

3ut m!r"ets do %h!n.e. 2*th the sto%" m!r"et now $l!t !nd bond (*elds !t Iero4 the m!r"et *s !bout to %h!n.e !.!*n. Those o$ (ou w*th $*n!n%*!l !d;*sors putt*n. (our mone( *nto bonds should p!( !ttent*on. +$ (ou don,t bel*e;e me4 how !bout the bond "*n. h*msel$4 3*ll Gross@ /ere,s wh!t he wrote Cust l!st wee" 5m( emph!s*s8E 1ow #an+ wa+s can +ou sa+ Eit's di%%erent this time() -heres Ea$nor#al,F Esu$nor#al,F Eparanor#alF and of course Enew nor#al.FB !nterest rates were lowered and assets securiti@ed to the point where they could go no %urther and in the after#ath of Leh#an (>>& #arkets su$stituted so ereign for pri ate credit until it appears that that trend can go no %urther either. Gow we are left with *ero#!ound yields and creditors that trust no one and er+ few countries. The %inancial markets are slowly imploding * dele ering * $ecause theres too #uch paper and too little trust. +ood!ye ,Old -ormal&) stand!y to rede%ine ,-ew -ormal&) and welcome to ./0.'s ,paranormal.F '!.e &&

3*ll *s ! b*ll*on!*re h*msel$. And he !lso m!n!.es more th!n ! tr*ll*on doll!rs o$ other people,s mone(4 *n%lud*n. m*ll*ons o$ ret*rement s!;ers4 publ*% !nd pr*;!te pens*on pl!ns4 edu%!t*on!l *nst*tut*ons4 %entr!l b!n"s4 $ound!t*ons !nd endowments4 !mon. others. So (ou %!n be prett( sure he doesn,t use words l*"e 9*mplod*n.9 l*.htl(. Remember4 +,m t!l"*n. !bout 9how %h!n.es *n the monet!r( !nd $*n!n%*!l s(stem could !$$e%t (our s!;*n.s.9 + don,t w!nt (ou to bu( !n(th*n. on m( 5or !n(one else,s8 re%ommend!t*on. + w!nt (ou 9to underst!nd the re!sons $or the *n;estment yoursel%.9 And + !s"ed4 9do s(stems e;er %h!n.e or *mplode49 !nd 9*s *t e;er $!*r to s!( th*s t*me *s d*$$erent@9 2ell4 (ou Cust he!rd ! m!*nstre!m b*ll*on!*re bond $und m!n!.er !nswer 9(es9 !nd 9(es.9 +n $!%t4 h*stor( *s %ho%" $ull o$ stor*es !bout $*n!n%*!l !nd monet!r( %r*ses !nd %h!n.e4 !nd there *s ! p!rt o$ these stor*es th!t o$ten .ets onl( ! one7l*ne ment*on4 bur*ed *n between the des%r*pt*ons o$ the %h!os !nd the subse6uent resolut*on. Th!t l*ne usu!ll( re!ds someth*n. l*"e th*sE 9M!n( elderl( *n;estors lost the*r l*$e s!;*n.s.9 Th!t l*ne *s $rom !n !%tu!l Amer*%!n stor(. /ere,s !nother oneE 9TGroup &U .ot lump sum p!(ments th!t rou.hl( e6u!ted to 11Q o$ the !%tu!r*!l ;!lue o$ the*r Ts!;*n.sU. Group 0L .ot noth*n..9 So wh( bu( .old@ 2h( bu( only d*s%rete %o*ns !nd un!mb*.uous b!rs o$ ph(s*%!l .old@ And wh( r*.ht now@ A h*stor*%!l perspe%t*;e *s ne%ess!r( $or understanding the !nswers to these 6uest*ons. =r*s*s resolut*ons !lw!(s *n;ol;e the s!%r*$*%e o$ someone. And th!t someone *s usu!ll( the s!;ers. 3ut there !re !lw!(s w*nners !nd losers. De;!lu!t*ons pl!( out l*"e ! sees!w. There *s ! $or%e 5the %r*s*s de;!lu!t*on84 ! $ul%rum 5wh!t *s be*n. de;!lued !.!*nst84 !nd ! lo!d 5the bene$*%*!r( or the w*nner8.

+ th*n" *$ we !re .o*n. to tr( !nd t!l" !bout .old w*th .old7res*st!nt s!;ers4 we $*rst need to th*n" !bout wh( the( s!;e *n the w!( th!t the( do tod!(4 pretend*n. to be *n;estors !nd tr!ders4 !nd how *t w!sn,t !lw!(s th*s w!(. "he Studeba+er 122e.t Most o$ (ou re!d*n. th*s *n the F.S. prob!bl( h!;e some sort o$ !n *nd*;*du!l ret*rement !%%ount. M!(be (ou h!;e ! Tr!d*t*on!l +RA4 or ! Roth +RA4 ! S#' +RA4 S*mple +RA4 ! 4 15"8 pl!n4 or e;en ! Sel$7D*re%ted +RA. Or m!(be (ou don,t h!;e (our s!;*n.s t*ed up *n ! t!? !d;!nt!.ed !%%ount but (ou st*ll *n;est *n the s!me w!(4 rel(*n. on the !d;*%e o$ !n R+A4 ! re.*stered *n;estment !d;*sor. '!.e &0

+$ th*s *s (ou4 then (ou prob!bl( !lso h!;e ! d*;ers*$*ed m*? o$ sto%"s4 bonds !nd %!sh or %!sh e6u*;!lents. 'erh!ps (ou e;en h!;e some non7doll!r *n;estments4 $ore*.n sto%"s4 %ommod*t( pos*t*ons or $!n%( R#+Ts. M!(be (ou,;e .ot ! l*ttle *n the te%h se%tor4 ! l*ttle *n the b!n"*n. se%tor4 some *n the ener.( se%tor !nd the rest *n mutu!l $unds. 3ut h!;e (ou e;er stopped to wonder wh( th*s *s the w!( we s!;e tod!(@ 2!s *t !lw!(s th*s w!(@ No4 *t w!sn,t.

The 1>: s were ! p*;ot!l de%!de o$ %h!n.e *n so m!n( w!(s. The : s were not onl( ! de%!de o$ h*.h *n$l!t*on4 *t w!s !lso the $*rst t*me the F.S. blew the l*d o$$ the *de! o$ ! 9perm!nent9 debt %e*l*n. b( *ntrodu%*n. the %on%ept o$ 9tempor!r(9 *n%re!ses 5l!ter m!de perm!nent8 !nd dr*;*n. F.S. debt *nto the PTr*ll*ons b( the end o$ the de%!de. +n 1>:>4 the /ouse o$ Represent!t*;es p!ssed ! rule to !utom!t*%!ll( r!*se the debt %e*l*n. when p!ss*n. ! bud.et4 w*thout the need $or ! sep!r!te ;ote on the debt %e*l*n. *tsel$. Th*s w!s Cust one o$ m!n( b*. %h!n.es th!t %!me out o$ the : s. The : s de%!de w!s !lso the p*;ot po*nt !t wh*%h the F.S. sw*t%hed $rom ! tr!de surplus to runn*n. ! perpetu!l tr!de de$*%*t. And *t w!s when we %h!n.ed $rom be*n. the world,s .re!test .oods produ%er *nto ! ser;*%e7dr*;en e%onom(. And *n 1>:4 =on.ress p!ssed ! b*ll wh*%h 'res*dent Ford s*.ned *nto l!w th!t $ore;er %h!n.ed the w!( we s!;e. A l!w th!t e;entu!ll( e?ploded *nto the %onstell!t*on o$ *n;estment opt*ons + Cust enumer!ted. Th!t b*ll w!s the #mplo(ee Ret*rement +n%ome Se%ur*t( A%t o$ 1>:44 or #R+SA. 3ut l*"e !ll o$ the s(stem*% %h!n.es th!t o%%urred *n the 1>: s4 the roots o$ #R+SA %!n be $ound *n the 1>6 s4 1>60 to be e?!%t. 3e$ore 1>:44 most people,s ret*rement s!;*n.s were *n the $orm o$ ! 9de$*ned bene$*t9 $rom the*r emplo(er. +$ (ou wor"ed $or ! %omp!n( unt*l ! spe%*$*ed !.e4 (ou were 9.u!r!nteed9 ! de$*ned4 nominal bene$*t $or the rest o$ (our l*$e. Th*s s(stem w!s s*m*l!r to the pens*on $unds used mostl( $or un*on wor"ers tod!(4 onl( b!%" then pens*ons weren,t Cust $or un*ons. The bottom l*ne w!s th!t the burden o$ s!;*n. $or ret*rement w!s on (our emplo(er4 not on (ou. As ! pens*oner4 the %om$ort o$ (our $uture ret*rement w!s *n the h!nds o$ ! s*n.le %ounterp!rt(4 (our emplo(er. 'ost7#R+SA4 most people put the*r hopes $or ret*rement *n the h!nds o$ ! more d*;ers*$*ed .roup o$ %ounterp!rt*es. 2*th ! s*n.le %ounterp!rt(4 de$!ult4 m*sm!n!.ement or $r!ud w!s !nd *s ! b*. r*s". Se%ond!r( r*s"s were the s(stem*% ones4 l*"e ! %urren%( %oll!pse4 be%!use *t w!s (our $enefit th!t w!s nom*n!ll( de$*ned. 'ost7#R+SA most %omp!n*es 5!nd *nd*;*du!ls8 sw*t%hed to pl!ns b!sed on emplo(ee contri$utions r!ther th!n de$*ned bene$*ts. '!.e &4

Th*s w!s ! dr!m!t*% sh*$t o$ burden. 3( the s*mple !dd*t*on o$ %ho*%e4 the burden o$ ret*rement s!;*n.s w!s sh*$ted $rom (our emplo(er to (ou. You now h!d not onl( the %ho*%e o$ how mu%h to %ontr*bute4 but !lso where to put (our s!;*n.s. 2*th the old s(stem4 the p!(o$$ w!s ! $*?ed4 nom*n!l prom*se. Throu.h #R+SA4 (our ret*rement *s no lon.er $*?ed !t ! %ert!*n number o$ doll!rs. +t now ;!r*es b!sed on the !mount (ou s!;e4 how (ou %hoose to *n;est *t4 !nd how the m!r"et ;!lues those *n;estments when *t %omes t*me $or (ou to ret*re. Th*s %!n be ! .ood th*n. or ! b!d th*n.4 depend*n. on wh!t h!ppens between now !nd (our ret*rement. +n m!n( %ountr*es other th!n the F.S.4 %ountr*es th!t e?per*en%ed ! %urren%( %oll!pse dur*n. the l!st %entur(4 *t w!s mostl( the pens*oners th!t were w*ped out. Ow*n. onl( ! $*?ed4 de$*ned number o$ %urren%( un*ts to ret*rees turned out to be ! bless*n. to pens*on $unds *n these %ountr*es. 'ens*oners %ould e!s*l( %ont*nue re%e*;*n. the*r prom*sed P&41 per month $ore;er4 e;en well !$ter the pr*%e o$ to*let p!per h!d r*sen !bo;e P1 4 per roll. 3ut .ett*n. b!%" to the roots o$ #R+SA *n 1>604 *t w!s m*sm!n!.ement !nd de$!ult th!t destro(ed the ret*rement hopes o$ m!n( people. The %oll!pse !nd ult*m!te l*6u*d!t*on o$ the Studeb!"er Automob*le =omp!n( w!s prett( orderl( on the sur$!%e. 'rodu%t*on l*nes were %onsol*d!ted4 then %losed4 then sold o$$ !nd ren!med. 3ut *t w!s the loss o$ Studeb!"er,s emplo(ee ret*rement $und th!t st!rted ! mo;ement tow!rd s(stem7w*de pens*on re$orm.

3( the t*me Studeb!"er %losed *ts South 3end pl!nt *n 1>604 *ts pens*on $und w!s so poorl( $unded th!t the e$$e%t o$ *ts de$!ult would re;erber!te $or the ne?t $*;e de%!des. O$ 64> Studeb!"er emplo(ees th!t h!d not (et ret*red or !t le!st re!%hed ret*rement !.e4 44 re%e*;ed onl( 11Q o$ wh!t w!s the !%tu!r*!l present ;!lue o$ the*r s!;*n.s4 !nd the other &4> .ot noth*n.. MF Glob!l !n(one@ So the Studeb!"er e$$e%t be%!me ! s(stem*% tr!ns*t*on sh*$t*n. both the burden o$ s!;*n. !nd the respons*b*l*t( o$ de%*s*on7m!"*n. onto the people themsel;es. And out o$ th*s tr!ns*t*on .rew the whole $*n!n%*!l ser;*%es *ndustr( !s well !s the $ull menu o$ *n;estment %ho*%es l*sted !bo;e. +n%*dent!ll(4 !nd spe!"*n. o$ MF Glob!l4 !nother %h*ld o$ the tr!ns*t*on!l : s !nd the Studeb!"er e$$e%t w!s the Se%ur*t*es +n;estor 'rote%t*on =orpor!t*on4 or S+'=. The S+'= prom*ses up to P1 4 *nsur!n%e $or *nd*;*du!l *n;estors !.!*nst bro"er7de!lers th!t .o b!n"rupt. Th!t *s4 unless ! loophole %!n be $ound. Fn$ortun!tel( $or MF Glob!l,s %ustomers4 the ;*br!nt '!.e &1

%ommod*t( $utures m!r"et %!me l!ter th!n the S+'= wh*%h w!s onl( wr*tten to %o;er $*n!n%*!l se%ur*t*es4 not $utures. So wh*le the 4 se%ur*t*es !%%ounts !t MF Glob!l were %o;ered b( *nsur!n%e4 the other 1 4 or so %ommod*t*es !%%ounts were le$t hop*n. the(,ll .et b!%" more th!n :&V on the doll!r. Oops. Oh4 !nd the =M# !lso decided not to b!%" the !%%ounts. +t seems noth*n. *s $or sure when *t %omes to %ounterp!rt*es.

"he Go'd "he%$% The !bo;e *s ! br*e$ des%r*pt*on o$ how the : s were ! de%!de o$ m!n( %h!n.es. And !lso how %h!n.es *n the : s led to the w!( we s!;e tod!(. Th*s *s *mport!nt to underst!nd be%!use + th*n" we !re *n the m*dst o$ !nother h*stor*% tr!ns*t*on per*od r*.ht now. + th*n" th*s present per*od w*ll be ;*ewed b( h*stor( !s $!r more d(n!m*% th!n the : s. And + th*n" the lessons le!rned $rom the e?per*en%e o$ the 1>: s w*ll ult*m!tel( pro;e to be ! poor .u*de $or $*n!n%*!ll( n!;*.!t*n. th*s tr!ns*t*on. The e;*den%e *s !lre!d( *n R ph(s*%!l .old *s 9 the lo!d49 set !nd le;ered $or re;!lu!t*on4 !s *n the *llustr!t*on !bo;e. The $ul%rum *s !ll other h!rd !ssets. And $*n!n%*!l se%ur*t*es o$ !ll t(pes4 the nom*n!l prom*ses o$ %ounterp!rt*es4 bonds4 %!sh !nd %!sh e6u*;!lents !re !ll ;ulner!ble to the de;!lu!t*on $or%e. +t,s ! three7p!rt d(n!m*% w*th h!rd !ssetsRthe m*ddle p!rtR!%t*n. !s the denom*n!tor $or both ! de;!lu!t*on o$ p!per prom*ses $rom %ounterp!rt*es !nd ! re;!lu!t*on o$ ph(s*%!l .old 5*t should be tell*n. th!t we need to 6u!l*$( su%h !n element!l word !s .old8 !nd ph(s*%!l .old onl(. And $rom m( #uro Gold post4 here,s the le;er *n e!rl( !%t*onE

The w!( people s!;e tod!( *s tr!%e!ble b!%" to the %oll!pse o$ the Studeb!"er pens*on $und !nd the re$orm mo;ement th!t $ollowed. +n *ts 1 (e!rs o$ m!"*n. !utomob*les4 Studeb!"er e?ploded *nto ! l!r.e !nd d*;ers*$*ed %omp!n( th!t4 b( 1>6 4 *n%luded ! m*ss*le !nd sp!%e te%hnolo.( d*;*s*on4 ! home '!.e &6

!nd o$$*%e !ppl*!n%e d*;*s*on4 ! tr!%tor d*;*s*on4 ! .ener!tor d*;*s*on4 ! re$r*.er!t*on d*;*s*on4 ! %hem*%!l d*;*s*on4 !nd e;en !n !*rl*ne d*;*s*on. 3ut w*th*n ! $ew (e!rs *t w!s %oll!psed4 %ondensed4 %onsol*d!ted4 l*6u*d!ted !nd %losed. And *n the pro%ess4 the emplo(ee s!;*n.s were er!sed. The s!;ers were s!%r*$*%ed. S*m*l!rl(4 the *n;estment l!nds%!pe th!t $ollowed h!s e?ploded *n superno;! $!sh*on (*eld*n. nom*n!l %red*ts th!t number l*"e the st!rs *n the he!;ens. Tod!(,s s!;ers h!;e .*;en the*r s!;*n.s to e;er( m!nner o$ %ounterp!rt( who went on ! spend*n. spree4 le!;*n. onl( the *llus*on o$ ! debt th!t *s too b*. to e;en be ser iced *n re!l terms. 2e h!;e spent the l!st 01 (e!rs e?plor*n. the M*l"( 2!( .!l!?( o$ *n;estment opt*ons4 pretend*n. to be *n;estors !nd tr!ders4 when !ll we re!ll( !re *s s!;ers w!*t*n.4 on%e !.!*n4 to be s!%r*$*%ed. +t seems to me th!t we !re now *n the %onsol*d!t*on ph!se o$ %h!n.e4 he!d*n. b!%" down to #!rth. And where (ou %hoose to l!nd4 to %onsol*d!te (our s!;*n.s4 h!s ne;er been more *mport!nt th!n *t *s tod!(. + bel*e;e we !re *n ! new tr!ns*t*on per*od th!t *s ne%ess!r(4 n!tur!l !nd *ne;*t!ble 5unstopp!ble8. And th!t *s wh( + don,t t!"e the 6u*?ot*% st!n%e o$ !n !%t*;*st4 $*.ht*n. to %h!n.e the world. The onl( !%t*on + !d;o%!te *s person!l !%t*on4 l*"e pur%h!s*n. power preser;!t*on !nd the person!l !%t*on o$ e?p!nd*n. (our underst!nd*n. be(ond the st!nd!rd do.m! (ou he!r e;er(where else. And $or those o$ (ou who !re !lso stru..l*n. throu.h the $rustr!t*n. world o$ the .old7res*st!nt p!perbu.4 +,m loo"*n. $or $eedb!%" so + %!n %ont*nue th*s proCe%t. 2h!t !nt*7.old !r.uments !re (ou runn*n. *nto these d!(s@ And !lso4 wh!t wor"ed $or (ou@ /!s !n(one h!d su%%ess *ntrodu%*n. ! 2estern p!perbu. to .old@ + thou.ht A*%tor,s %omment here4 on the perm!nent port$ol*o4 w!s ;er( .ood. Those !re the "*nds o$ sol*d !r.uments +,m loo"*n. $or. 'erh!ps4 to.ether4 we %!n %ome up w*th ! $ew more! S*n%erel(4 FOFOA

'!.e &:

"hur%day, January 3, 2012


4arty 5$+e 6t-% M"M "$me

'!.e &-

The #=3 publ*shed *ts 9Ye!r o$ the R'G9 (e!r7end 6u!rterl( re;!lu!t*on =onF*nSt!t (esterd!(4 !nd the trend %ont*nues. /ere !re the rele;!nt resultsE +n the wee" end*n. 0 De%ember & 11 the *n%re!se o$ #FR 0.6 b*ll*on *n .old !nd .old re%e*;!bles 5!sset *tem 18 re$le%ted 6u!rterl( re;!lu!t*on !dCustments4 !s well !s the s!le o$ .old %o*n b( one #uros(stem %entr!l b!n". 7uarter8end re9a'uat$on o2 the 1uro%y%tem:% a%%et% and '$ab$'$t$e% +n l*ne w*th the #uros(stemMs h!rmon*sed !%%ount*n. rules4 .old4 $ore*.n e?%h!n.e4 se%ur*t*es hold*n.s !nd $*n!n%*!l *nstruments o$ the #uros(stem !re re;!lued !t m!r"et r!tes !nd pr*%es !s !t the end o$ e!%h 6u!rter. The net *mp!%t o$ the re;!lu!t*on on e!%h b!l!n%e sheet *tem !s !t 01 De%ember & 11 *s shown *n the !dd*t*on!l %olumn JD*$$eren%e %omp!red w*th l!st wee" due to 6u!rter7end !dCustmentsK. The .old pr*%e !nd the pr*n%*p!l e?%h!n.e r!tes used $or the re;!lu!t*on o$ b!l!n%es were !s $ollowsE Go'd; 1<R 1,21=.8=> per 2$ne o?. <SD; 1.2@3@ per 1<R J4Y; 100.20 per 1<R Spe.$a' dra)$n# r$#ht%; 1<R 1.18=( per SDR

WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW S$debar As + noted here l!st Fr*d!(4 dur*n. the d!r" o$ Thursd!( n*.ht4 euro .old m(ster*ousl( le;*t!ted *tsel$ up ! whopp*n. X0&.-> $rom Thursd!(,s )ondon 'M $*? o$ X141-4.164 wh*%h would h!;e been ! d*s!ppo*nt*n. de%l*ne s*n%e the O%tober MTM '!rt( wh*%h m!r"ed .old !t X14& 6.0>. Th*s4 o$ %ourse4 be.s the 6uest*on 5on%e !.!*n8 th!t w!s *mpl*ed *n th*s post !s to how *mport!nt 9Sn!pshot D!(9 re!ll( *s to (oun. %entr!l b!n"ers. 5#;*den%e $rom Sept. ,1 !nd Apr*l ,11 seems to su..est th!t (e!r7end !nd '!.e &>

m*d7(e!r m*.ht be more *mport!nt th!n the other two 6u!rters.8 3ut th*s *s ne*ther here nor there wh*%h *s wh( + put *t *n ! s*ll( l*ttle s*deb!r. +t *s s*mpl( ! %ur*ous obser;!t*on. WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW S$debar A2 +t *s $unn( to see how p!thet*%!ll( l*ttle some *n the euro7s"ept*%!l med*! re!ll( underst!nd !bout the #uros(stem. /ere,s the 2!ll Street Dourn!l,s M!r"etw!t%h he!dl*ne rel!t*n. to (esterd!(,s MTM '!rt(E

#=3 b!l!n%e sheet .rows4 .old reser;es *n%re!se


The $l!w *n the he!dl*ne *s %ompounded *n the bod( o$ the !rt*%leE 3-he alue of the /uros+ste#4s gold and gold recei a$les holdings increased $+ /5R,.H $illion to reflect .uarterl+ re aluations as well as the sale o% gold to the 123 !y another euro#*one central !ank, the /I< said.3 F*rst o$ !ll4 th!t,s not wh!t the #=3 s!*d. Th*s reporter,s st!tement th!t one o$ the N=3s 5N!t*on!l =3s8 sold .old to the #=3 %!rr*es ob;*ous *mpl*%!t*ons wh*%h !re not onl( wron.4 but ;er( m*sle!d*n.. Someone *n #urope em!*led me l!st n*.ht !s"*n.E 3"id +ou notice that one /uropean I< sold gold to the /I<8 0+ guess is it was !tal+.3 Someone else posted th*s %omment on ! $orum !$ter re!d*n. th!t !rt*%leE 32old of a /uro@one I< sold to /I< ... !f ! a# not #istaken-correct #e if !4# wrong-this does not happen er+ often8 0ore gold on /I< $alance sheet in exchange for $u+out so ereign de$t perhaps ...83 /ere !re the problems w*th th!t !rt*%le. The #=3 *s s*mpl( the %ore o$ the #uros(stem. A%tu!ll(4 there !re two s(stems. The #S=3 or the ,#urope!n S(stem o$ =entr!l 3!n"s, wh*%h *s %ompr*sed o$ !ll the =3s *n the #F4 e;en those not us*n. the euro !s the*r %urren%(. And then there,s the #uros(stem wh*%h *s %ompr*sed o$ !ll the =3s us*n. the euro4 w*th the #=3 !t *ts oper!t*on!l %ore. The =onF*nSt!t4 put out wee"l( w*th 6u!rterl( MTM re;!lu!t*on4 *s the b!l!n%e sheet o$ the whole 1urosystem wh*%h *n%ludes !ll o$ the N=3s us*n. the euro. +t *s not the b!l!n%e sheet o$ the #=3. +$ (ou,d l*"e to see the #=3,s b!l!n%e sheet4 (ou %!n $*nd *t *n the Annu!l Report $or the #S=3 !nd the #uros(stem wh*%h *s publ*shed e;er( (e!r !t the end o$ the $*rst 6u!rter to be presented to the #urope!n =oun%*l4 '!rl*!ment !nd =omm*ss*on. +n l!st (e!r,s report4 wh*%h %!n be $ound here4 the #=3,s b!l!n%e sheet !ppe!rs on p!.e &14. The !%tu!l #=3 b!l!n%e sheet *n%ludes 1641&&4140 oun%es4 or 1 1.1 tonnes o$ .old wh*%h w!s ;!lued !t '!.e 0

X1:3 !s o$ De%ember 014 & 1 . Th!t .old %omes $rom the 9$ore*.n reser;e !sset9 %!p*t!l subs%r*pt*on to the #uros(stem b( the N=3,s o$ wh*%h !t le!st 11Q o$ the subs%r*pt*on $ee h!d to be *n .old. And the !mount o$ e!%h member %ountr(,s $ee *s b!sed on ! J%!p*t!l subs%r*pt*on "e(K wh*%h re$le%ts the respe%t*;e %ountr(Ms sh!re *n the tot!l popul!t*on !nd GD' o$ the #F. These two determ*n!nts 5popul!t*on !nd GD' sh!re8 h!;e e6u!l we*.ht*n.. The #=3 !dCusts the sh!res e;er( $*;e (e!rs !nd whene;er ! new %ountr( Co*ns the #F. The #=3 m!r"s *ts 1 1.1 tonnes o$ .old to the m!r"et pr*%e e!%h (e!r4 but the unre!l*Ied .!*n $rom the re;!lu!t*on .oes *nto ! spe%*!l 9Re;!lu!t*on A%%ount9 wh*%h *s %red*ted to the N=3,s !%%ord*n. to the subs%r*pt*on "e(. +n other words4 the N=3,s own the #=34 use *t !s the*r s(stem,s oper!t*on!l %ore4 !nd bene$*t d*re%tl( $rom the re;!lu!t*on o$ the*r sh!re o$ the #=3,s !ssets *n%lud*n. *ts .old. So hope$ull( (ou %!n see wh( *t m!"es no sense wh!tsoe;er th!t4 !s the M!r"etw!t%h !rt*%le s!(s4 ! euro7Ione %entr!l b!n" would sell .old to the #=3. And e;en *$ .old h!d been tr!ns$erred $rom !n N=3 to the #=34 *t wouldn,t show up !s ! %h!n.e on the %onsol*d!ted b!l!n%e sheet re$erred to *n th!t !rt*%le! Furthermore4 the !mount o$ .old B.o$n%B th!t one o$ the N=3s sold l!st wee" w!s !ll o$ X1 m*ll*on. 2h!t,s th!t4 -& %o*ns@ Most l*"el( *t w!s s*mpl( ! net s!le o$ .old %o*ns to the publ*%. F*n!ll(4 tr( ! Goo.le se!r%h o$ the $*rst p!rt o$ th!t M!r"etw!t%h he!dl*ne4 9#=3 b!l!n%e sheet .rows94 !nd (ou,ll see Cust how m!n( !n!l(sts !re *n%orre%tl( re$err*n. to the #uros(stem,s b!l!n%e sheet !s *$ *t belon.s to the #=3. And *$ (ou %!n,t 6u*te see how th*s seem*n.l(7*nno%uous *n%orre%t ;*ew *s detr*ment!l to the use$ulness o$ one,s !n!l(s*s4 Cust !s" Te?!n !n( 6uest*on (ou w!nt to !bout the #=3. 5CG" Te?!n N8 WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW S*n%erel(4 FOFOA

'!.e 01

Fr$day, February 3, 2012


G'$mp%$n# the ,erea2ter

2el%ome b!%"4 Ar*!! +$ (ou don,t "now AR+STOT)#4 th!t,s prob!bl( be%!use he too" ! br*e$ h*!tus o$ : (e!rs !nd 0 d!(s $rom post*n. %omments !bout Free.old. And th!t w!s !$ter 6 (e!rs o$ posts !nd %omments pr*or. So needless to s!(4 +,m T/R+))#D to h!;e h*m b!%"! Ar* wrote me !n em!*l the other d!( *n%lud*n. th*sE 9+n the me!nwh*le4 +,m h!pp( to note th!t 3*ll '!.e 0&

Gross h!s 5(et !.!*n8 stepped up to the %h!llen.e o$ %!rr(*n. some w!ter $or us tod!(. 3e.*ns $ol"s( !nd ends .olden. Now th!t,s wh!t + %!ll h!;*n. ! worth( w!terbo(5!8444 he be*n. m!n!.er o$ the l!r.est mutu!l $und on the pl!net 5*.e.4 '+M=O,s P&4& b*ll*on Tot!l Return bond $und8.9 /ere,s the 6uote w*th wh*%h 3*ll Gross be.*ns h*s l!test !nd .re!test4 )*$e !nd De!th 'ropos*t*onE 2here do we .o when we d*e@ 2e .o b!%" to where we %!me $rom And where w!s th!t@ + donMt "now4 + %!nMt remember Jirginia Woolf, E-he 1oursF 2*th th*s le!d7*n he dr!ws ! %omp!r*son between de!th !nd the here!$ter4 !nd the de!th o$ our $*n!n%*!l s(stem bu*lt upon the lend*n. o$ re!l s!;*n.s to debtors w*th wh!t %omes ne?t. /e .oes on to e?pl!*n4 9The tr!ns*t*on $rom ! le;er*n.4 !sset7*n$l!t*n. se%ul!r e%onom( to ! post bubble dele;er*n. er! m!( be !s d*$$*%ult $or one to *m!.*ne !s our dep!rture *nto the here!$ter.9 3ut !t le!st he .*;es *t ! shot w*th ! l*ttle help $rom A*r.*n*!4 end*n. w*th4 92here does %red*t .o when *t d*es@ +t .oes b!%" to where *t %!me $rom.9 Now4 wh*le + %!n,t help (ou ;er( mu%h w*th the pe!rl( .!tes4 + %!n *ndeed help (ou *m!.*ne the monet!r( !nd $*n!n%*!l here!$ter. +t m!tters l*ttle to me *$ (ou bel*e;e me or not4 be%!use + st*ll th*n" there *s ;!lue *n sh!r*n. th*s ;*s*on e*ther w!(. Someone 5who *n%*dent!ll( n!med h*s b!nd Th*rd #(e 3l*nd8 on%e rem!r"ed4 9+ don,t re!ll( bel*e;e *n %r(st!l b!lls4 but + respond to the need $or them.9 And so now +,ll dust o$$ m( own ;er( spe%*!l %r(st!l b!ll w*th ! w*n" !nd ! nod to ! $ew o$ (ou who underst!nd th*s need. + do re%ommend re!d*n. 3*ll,s ent*re p*e%e !s he l!(s *t out n*%el( how h*tt*n. the Iero7le;el $loor *n FSD *nterest r!tes *s *ne;*t!bl( le!d*n. to ! 9l*6u*d*t( tr!p9 $or e!rned s!;*n.s. +t sounds to me l*"e the *nes%!p!ble .r!;*t!t*on!l pull o$ ! bl!%" hole s*n.ul!r*t( th!t4 perh!ps4 %re!tes s*m*l!r d*$$*%ult( *n tr(*n. to see throu.h to the other s*de. 3*ll Gross *s *n the bus*ness o$ help*n. s!;ers lend the*r s!;*n.s to debtors throu.h the use o$ bonds. And he h!s done ;er( well *n th*s bus*ness4 wh*%h *s wh( he *s !%utel( tuned *n to the *mpl*%!t*ons o$ Iero *nterest. 2*th Iero *nterest4 (ou %!n,t e!rn ! (*eld or ! %!p*t!l .!*n !s (ou %!n when *nterest r!tes !re h*.h !nd $!ll*n.. And so there *s no re!son $or s!;ers to lend mone( to debtors $or the lon.er terms ne%ess!r( *n order to run !n e%onom(. +n $!%t4 *t *s terr*bl( r*s"( $or s!;ers to do so *n ! Iero r!te en;*ronment. "he e) orma' There *s no 9$*!t m!n!.ement9 solut*on $or the problem 3*ll des%r*bes. The s!;ers s*mpl( %!nnot lend the*r s!;*n.s to debtors !n(more *n ! w!( th!t *s bene$*%*!l to both the e%onom( !nd the s!;ers. #;en the O*n. o$ the bonds h*msel$ *s sound*n. th*s !l!rm. 3ut there,s !nother trend *n th*s new norm!l th!t should be e;en more !l!rm*n. to s!;ers st*ll hold*n. lon.er d!ted debt. 2hene;er !nd where;er push %omes to sho;e4 the s!;ers w*ll be !nd are be*n. $or%ed to t!"e losses wh*le the s(stem prote%ts *tsel$ on ! nom*n!l b!s*s. Dust loo" hereE

'!.e 00

Ob!m! to Fse 'ens*on Funds o$ Ord*n!r( Amer*%!ns to '!( $or 3!n" Mort.!.e 9Settlement9 3KPLre ious leaks ha e indicated that the $ulk of the supposed settle#ent would co#e not in actual #onies paid $+ the $anks 6the cash portion has $een ru#ored at under MN $illion7 $ut in credits gi en for #ortgage #odifications for principal #odifications. -here are nu#erous reasons wh+ that stinks. -he $iggest is that ser icers will $e a$le to count #odif+ing first #ortgages that were securiti*ed toward the total. Since one of the cardinal rules of finance is to use other people's money rather than +our own, this pro ision irtuall+ guarantees that in estor#owned mortgages will !e the ones to !e restructured. Wh+ is this a $ad idea8 -he $anks are G)- re.uired to write down the second #ortgages that the+ ha e on their $ooks. -his re erses the contractual hierarch+ that ;unior lienholders take losses $efore senior lenders. So this deal a#ounts to a transfer fro# pension funds and other fixed inco#e in estors to the $anks, at the :d#inistrations instigation.3 'le!se !llow me to tr!nsl!te. +$ (ou or (our pens*on $und bou.ht !n( "*nd o$ $*?ed7*n%ome se%ur*t*es 5!lso "nown !s bonds84 (ou lo!ned some o$ (our s!;*n.s to debtors. 'r*;!te debt *s %re!ted b( b!n"s e?p!nd*n. the*r b!l!n%e sheets. Some o$ *t rem!*ns on the b!n" b!l!n%e sheet !nd some o$ *t *s sold to s!;ers l*"e (ou. Se%ur*t*Ied !nd so;ere*.nGpubl*% debt *s the P+MFS pro?( $or .old. 3ut when the debt de$!ults4 the s!;ers t!"e the loss. The s(stem w*ll be prote%ted !t !ll %osts. +t m!( m!"e (ou !n.r(4 but th!t,s Cust the w!( *t *s !nd !lw!(s h!s been. So *t !ppe!rs th!t the s(stem w*ll wr*te down the debt held b( s!;ers be$ore th!t held b( the b!n"s *n th*s %!se4 to prote%t the s(stem. 2hen debt de$!ults4 SAA+NGS !re destro(ed be%!use debt *s the pro?( $or ! store o$ ;!lue *n the P+MFS. 2here;er poss*ble4 e!rned s!;*n.s w*ll be $or%ed to t!"e the losses $*rst. 3ut *$ too m!n( losses h!ppen !t on%e4 the( w*ll be so%*!l*Ied to prote%t the s(stem. The s(stem !lw!(s prote%ts *tsel$4 $*rst b( s!%r*$*%*n. the low h!n.*n. $ru*t4 then b( s!%r*$*%*n. the %urren%( *tsel$. +,m sure th!t b( now (ou h!;e !ll le!rned the two new buII7terms4 9the +SDA9 !nd 9the %red*t e;ent9. +$ not (ou %!n re!d !bout them here. 3!s*%!ll(4 ! .roup %ons*st*n. o$ b!n"ers h!s the Cob o$ de%*d*n. whether the b!n"s or the s!;ers w*ll t!"e the loss on Gree" debt. The de%" *s st!%"ed !.!*nst us where;er we turn. +,m not here to %!st Cud.ment on th*s s(stem*% *ne6u*t( between b!n"s !nd s!;ers. + h!;e lon. $ollowed *n FOA,s 5!nd AR+,s8 $ootsteps *n po*nt*n. out th!t th*s *s s*mpl( the w!( *t h!s !lw!(s been. Th!t,s ! prett( .ood re!son to not s!;e w*th*n the s(stem4 wouldn,t (ou s!(@ 2hen push %omes to sho;e4 the s(stem w*ll prote%t *tsel$ !nd $or%e losses onto the s!;ers. Flt*m!tel(4 *ne;*t!bl(4 tod!(,s doll!r w*ll lose so mu%h re!l ;!lue th!t *t w*ll s!;e the b!n"s nom*n!ll( wh*le putt*n. !ll s(stem*% losses onto e;er(one hold*n. doll!rs4 re.!rdless o$ the de$!ult o$ debtors. /ere,s ! 6uote $rom !n !rt*%le th!t %!u.ht m( e(e the other d!(E 3!ts tough for risk a erse sa ers $ut that is what 5S #onetar+ polic+ has $een a$outOforcing the# to $u+ risk, and higher returns. -hat polic+ is working $ut trillions of sa ings still sit in cash or $onds.3 Sa9er% are not $n9e%tor%, trader% or %pe.u'ator% Th*s l*ttle %on%ept *s someth*n. A)) 2esterners !re .o*n. to rele!rn one w!( or !nother. M!r" m( words r*.ht here !nd now. +n The Studeb!"er #$$e%t + wroteE

'!.e 04

3: sa er is different fro# an in estor or a traderCspeculator. : sa er is one who earns his capital doing whate er it is he does, and then ai#s to preser e that purchasing power until he needs it later. !n estors and traders ai# to earn #ore capital $+ putting their alread+-earned capital at risk in one wa+ or another. -his takes a certain a#ount of speciali@ation and focus. <ut this difference is a $ig topic for another post. :nd an+wa+, it doesn4t #atter so #uch in ter#s of the gold thesis for toda+. -oda+ the s+ste# is in transition, so +ou can throw +our ideas a$out these differences out the window. -here is no safe #ediu# for si#ple preser ation of purchasing power when the entire s+ste# shifts fro# the old nor#al to the new nor#al. When s+ste#s i#plode, the safest place to $e pa+s off $ig ti#eD3 Th!t se%ond p!r!.r!ph denotes the d*$$eren%e between st!s*s !nd pun%tu!t*on *n monet!r( e;olut*on. Tod!( we !re !ppro!%h*n. ! per*od o$ pun%tu!t*on4 but *n the here!$ter st!s*s we w*ll !ll underst!nd th!t s!;ers !re not *n;estors4 tr!ders or spe%ul!tors. + h!;e re$*ned m( best !d;*%e $or bu(*n. .old o;er the l!st $ew (e!rs. /ere *t *s4 6uoted $rom ! re%ent em!*l response + wrote to someone !s"*n. *$ h*s p!rents4 ser*ous s!;ers4 would do well to t!"e on !s mu%h debt !s poss*ble *n order to 9s!;e9 more ph(s*%!l .oldE 39irstl+, let #e sa+ that ! ne er reco##end an+one taking on de$t to $u+ gold. -hat is what speculators do and sa ers are generall+ not e.uipped with the necessar+ tools it takes to $e a successful speculator. -here are too #an+ potential pitfalls for sa ers to do so#ething like that. !n general, #+ ad ice is to get out of de$t and put at least NP of +our sa ings into ph+sical gold coins or $ars in +our possession 6or at least under +our i##ediate control7. ! $elie e that NP is a no-$rainer. You dont reall+ need to understand #uch a$out gold to go in NP. <ut ! wouldnt do it in an+ kind of paper gold or e en paper products clai#ing full ph+sical $acking. Paper gold is for ease in trading, not for sa ing. ! sa+ do it in ph+sical and NP will at least keep +ou whole co#e hell or high water. <e+ond that, ! sa+ $u+ onl+ as #uch gold as +our understanding allows. 9or #an+ who ha e read #+ $log for +ears, understanding has led the# to $e '>P to %>>P in ph+sical gold. !, #+self, a# er+ close to that. :nd ! know a few that ha e $een %>>P all in since the late '>s, with M#illions in ph+sical gold. <ut +ou dont do that unless +ou ha e co#plete understanding of what +ou are doing and wh+. )nl+ $u+ a percentage of gold e.ual to +our understanding. NP is a no-$rainer and an+thing less than NP is reckless pigheadedness with what4s happening toda+. -hats #+ $est ad ice.3 You see4 ! s!;er *s st*ll Cust ! s!;er4 e;en tod!(4 e;en when we !re *n the pun%tu!t*on ph!se. And th!t,s not ! put7down. The .re!test .*!nts *n the world !re s!;ers. 2hen we loo" !t wh!t *t *s to be ! =!p*t!l*st4 *t *s %ompletel( sep!r!te $rom the !%t o$ s!;*n.. The pr*m!r( de$*n*t*on o$ ! =!p*t!l*st *s one who h!s %!p*t!l *n;ested *n bus*ness. There *s ! d*$$eren%e between preser;*n. pur%h!s*n. power !nd tr(*n. to *n%re!se (our pur%h!s*n. power b( n!;*.!t*n. (our w!( throu.h r*s". As the 6uote !bo;e %orre%tl( des%r*bes s!;ers4 the( !re 9r*s" !;erse9. Th!t,s the ;er( de$*n*t*on o$ ! s!;er. An( de;*!t*on $rom $ull r*s"7!;ers*on !nd ! s!;er be%omes someth*n. elseN !n *n;estor4 ! tr!der or ! spe%ul!tor. M( po*nt *s th!t the he!der $or th*s se%t*on *s ! deep %on%ept4 ! t*meless truth4 ! l*ttle b*t o$ w*sdom $rom the !.es. S!;ers !re not *n;estors4 tr!ders or spe%ul!tors. And s*n%e th*s post *s !bout .l*mps*n. '!.e 01

the here!$ter4 .*;e me ! $ew m*nutes wh*le + %onsult m( %r(st!l b!ll. /ere,s some mus*% wh*le (ou w!*tL )eon!rd =ohen 7 The Future A2ter "he "ran%$t$on One o$ the th*n.s + h!;e $ound th!t people h!;e ! h!rd t*me .r!sp*n. *s th!t A)) s!;ers w*ll w!nt to be *n .old !$ter the tr!ns*t*on4 e;en thou.h *t won,t del*;er ANY re!l .!*ns l*"e we,;e h!d o;er the p!st de%!de. Th*s *s ! d*$$*%ult %on%ept to wr!p one,s he!d !round. 'eople seem to th*n" th!t the( !re *n .old onl( $or the b*. 0 7b!..er re;!lu!t*on !nd then the(,ll w!nt to $*nd someth*n. else *n wh*%h to put the*r l*ttle doll!r sold*ers to wor" e!rn*n. ! (*eld. #*ther th!t or the( *m!.*ne th!t Free.old w*ll be !n en;*ronment o$ perpetu!l re!l .!*ns $or .old holders. +t w*ll not. Free.old w*ll be s*mple pur%h!s*n. power preser;!t*on4 !nd (ou,ll lo;e *t! No .!*n4 but !lso no r*s" !nd no loss. Th!t,s wh!t s!;ers need !nd w!nt. And most o$ us !re s!;ers whether we !dm*t *t or not. Th*s *s ! re!ll( b*. *de! we need to %ontempl!te *$ we don,t w!nt to be run o;er *n the end. An( $*n!n%*!l !d;*sor *n tod!(,s P+MFS %!n e?pl!*n the re!son*n. beh*nd *n;est*n. *n $*?ed *n%ome se%ur*t*es !lso "nown !s bonds. The( !re $or r*s"7!;erse *n;estors loo"*n. $or ! %onst!nt !nd se%ure nom*n!l return on the*r *n;estment. +n theor(4 the s!$est bonds w*ll del*;er ! nom*n!l return e6u!l to the pur%h!s*n. power (our pr*n%*ple *n;estment loses to *n$l!t*on o;er t*me. So4 *n theor(4 the s!$est bonds !re supposed to do wh!t .old w*ll in fact do *n Free.old4 per$e%tl( preser;e (our pur%h!s*n. power o;er t*me. /ow %!n .old per$e%t the preser;!t*on o$ pur%h!s*n. power (ou !s"@ +t,s 6u*te s*mple re!ll(. +t w*ll %ome $rom ! .lob!l sh*$t *n per%ept*on !s to the ;er( re$eren%e po*nt $or pur%h!s*n. power. 2h!t *s the ben%hm!r" $or pur%h!s*n. power tod!(@ The 3*. M!%@ /!! Th*n" !bout th!t one !nd .et b!%" to me. +n the me!nt*me4 %he%" out m( post Re$eren%e 'o*nt Re;olut*on! So *n tod!(,s s(stem4 se%ur*t*Ied debt *s the w!( ;!r*ous tr!n%hes o$ debtors b*d s!;*n.s !w!( $rom the s!;ers. And o;er the three or $our de%!des *n wh*%h th*s h!s been the norm4 ! str!n.e %on%ept h!s .rown *nto ne!rl( un*;ers!l !%%ept!n%e. Th!t *s the *de! th!t s!;ers h!;e ! mor!l obl*.!t*on to so%*et( to lend the*r s!;*n.s to the debtors4 !nd th!t b( ho!rd*n. .old *nste!d4 (ou !re somehow depr*;*n. so%*et( o$ (our ;*t!l net7produ%t*on. An !bsolutel( r*d*%ulous4 b!ss7!%"w!rd not*on! =h!rl*e Mun.er s!*d *t th*s w!(E 3)h, ! don4t ha e the slightest interest in gold. ! like understanding what works and what doesn4t in hu#an s+ste#s. -o #e, that4s not optional. -hat4s a #oral o$ligation. !f +ou4re capa$le of understanding the world, +ou ha e a #oral o$ligation to $eco#e rational. :nd ! don4t see how +ou $eco#e rational hoarding gold. / en if it works, +ou4re a ;erk.3 To =h!rl*e + responded w*th th*sE 3So 0unger and the "ing$at are wrong wrong wrongD You4re a ;erk if +ou sa e in paper, ena$ling the destruction of Western Ii ili@ation. Rational people e er+where ha e a #oral o$ligation to $u+ )GLY '!.e 06

ph+sical gold with their sa ings. !f +ou4re capa$le of understanding the R/:L world, +ou ha e a #oral o$ligation to $eco#e rational. :nd ! don4t see how +ou $eco#e rational in esting in Iharlie 0unger4s paper. / en if it works, +ou4re a ;erk, ;ust like ol4 Ihuck.3 +m!.*ne + produ%ed 1 m*ll*on *'hones $or the m!r"etpl!%e. And throu.h th!t net7produ%t*on + w!s !ble to s!;e P1 b*ll*on. +$ + bu( .old w*th m( P1 b*ll*on r!ther th!n lend*n. *t4 !m + depr*;*n. the e%onom( o$ m( *'hones@ O$ %ourse not! /!;e + depr*;ed the e%onom( o$ m( !%%umul!ted pur%h!s*n. power@ Nope. + s*mpl( .!;e *t to !nother s!;er who w!s re!d( to end h*s %onsumpt*on de$erment. And4 !m!I*n.l(4 the %red*t mone( s(stem st*ll !llows the debtors to borrow pur%h!s*n. power to bu( m( *'hones. 3ut the best p!rt *s th!t ho!rd*n. .old does not depr*;e the e%onom( o$ anything. You %!n re!d more !bout th*s %on%ept !nd m( response to =h!rl*e M. *n m( post A 2*nner T!"es the Gold. *e2ore and A2ter M( lon.7t*me re!ders !re !w!re th!t4 be.*nn*n. w*th All '!per *s ST+)) ! short pos*t*on on .old *n M!r%h o$ , >4 + h!;e been re$*n*n. ! %on%eptu!l model o$ the P+MFS st!s*s !nd pun%tu!t*on per*ods b!sed on the *n;erted p(r!m*d de;eloped b( the de$l!t*on*st e%onom*st Dohn #?ter *n the 1>: s. #?ter put .old !t the bottom o$ the l*6u*d*t( p(r!m*d4 Cust below the doll!r. /e s!*d th!t .old w!s the most l*6u*d !sset. And *n the end4 he en;*s!.ed ! rush down the p(r!m*d to l*6u*d*t( *n wh*%h we would see the doll!r !nd .old r*se to.ether $or ! t*me. As G!r( North wrote *n & >4 9So $!r4 h*s theor( h!s (et to be tested. 2e h!;e not seen ! r*s*n. doll!r !nd ! r*s*n. pr*%e o$ .old.9 3ut + w*ll note th!t ANOT/#R wrote someth*n. *n 1>>: th!t seems to b!%" #?ter,s ;*ewE "ateQ Wed Go >N %''R (>Q,, A-OT415 6T4OU+4TS78 !"SH>(N,Q -he price of the #etal in currenc+ ter#s will $e #ade for all to see as it #o es .uickl+ upward for a er+ short period of ti#e 6 ,> da+s 7 . :fter that onl+ $lack #arket traders and third world noones will understand its priceD When is this going to happen8 ! ha e no idea. !s there an+thing to look for that will tell us when the pro$le#s ha e started8 At %irst the US9 and gold will go up together against all other assets7 +nterest*n.4 huh@ - months !$ter the 9All '!per9 post + wrote Gold *s 2e!lth *n wh*%h + bu*lt !n upr*.ht p(r!m*d under #?ter,s4 represent*n. the ph(s*%!l pl!ne o$ .oods !nd ser;*%es4 !nd $orm*n. ! "*nd o$ hour.l!ss sh!peE

'!.e 0:

1 months l!ter4 *n Dust Another /(per*n$l!t*on 'ost 7 '!rt 0 + used th*s model to *llustr!te the $low o$ %!p*t!l dur*n. ! %urren%( %oll!pseE

And now4 wh!t +,d l*"e to do *s to t!"e ! st!b !t model*n. wh!t th*s m*.ht loo" l*"e a2ter the tran%$t$on to Free.old. All model*n. up unt*l now h!s been be$ore !nd dur*n. tr!ns*t*on. 3ut presum!bl( th*n.s w*ll loo" ! l*ttle d*$$erent herea%ter4 don,t (ou th*n"@ =ost!t! !nd + h!;e been d*s%uss*n. where .old should .o *n the 9!$ter9 model $or ! wh*le now. Should *t be *n the monet!r( pl!ne or the ph(s*%!l pl!ne@ Should *t be p!r!llel but o$$ to the s*de o$ the %urren%(4 or wh!t@ 2h*le we h!;e not %ome to !n !.reement on the n*tt( .r*tt( det!*ls o$ the 9!$ter model94 +,d l*"e to put m( .ener!l thou.hts out there be%!use + th*n" th!t (ou w*ll $*nd them use$ul 5!nd m( %r(st!l b!ll s!(s so too8. So here,s the ;er( b!s*% be$ore !nd !$ter. + h!;e put .old up where the $*n!n%*!l s(stem %oll!psed *n the old P+MFS. 3ut don,t worr(4 +,m not .o*n. to le!;e *t thereE '!.e 0-

The pl!%ement o$ .old *n the 9be$ore9 re!ll( doesnMt m!tter $or our purposes r*.ht now. +t %ould be *n e*ther pl!ne or both. 3ut *n the 9!$ter9 *t h!s $*lled !nd repl!%ed the !ren! $ormerl( o%%up*ed b( der*;!t*;es4 se%ur*t*es !nd p!per tr!d*n. we!lth *n .ener!l 5se%ur*t*Ied debt8. So wh!tMs the purpose o$ th*s e?er%*se@ /ereMs wh!t +Mm th*n"*n.. #;er(one uses the bottom p(r!m*d4 both debtors !nd s!;ers. And e;er(one uses the %urren%( port*on o$ the monet!r( p(r!m*d. 3ut only the s!;ers ut*l*Ie the top port*on o$ the monet!r( p(r!m*d. The debtors !re no lon.er the %ounterp!rt( to the s!;ers so the( h!;e no bus*ness up there. The onl( w!( to .et up there *s to produ%e more th!n (ou %onsume so th!t (ou h!;e some e?%ess %!p*t!l w*th wh*%h to bu( .old. Then (ou !re ! s!;er. So *t loo"s someth*n. l*"e th*sE

5+$ (ou,d l*"e to see these *n $ull s*Ie4 r*.ht %l*%" on the *m!.e so (ou %!n open *t *n ! new t!b or w*ndow8

WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW S*de NoteE Yes4 + do re!l*Ie th!t there w*ll st*ll be *n;estors4 tr!ders !nd spe%ul!tors w*ll*n. to r*s" %!p*t!l *n se!r%h '!.e 0>

o$ ! (*eld4 e;en *n the here!$ter. 3ut on%e (ou %ome to terms w*th how mu%h o$ th!t *n;est*n. !nd tr!d*n. world o$ tod!( *s !%tu!ll( $*lled w*th s!;ers who th*n" th!t,s the onl( w!( to preser;e pur%h!s*n. power4 (ou,ll see Cust how t*n( b( %omp!r*son *t w*ll be !$ter the tr!ns*t*on. WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW 2e A)) e?*st *n the ph(s*%!l pl!ne. Th!tMs where we produ%e !nd %onsume. =urren%( $!%*l*t!tes the $low o$ ;!lue *n the ph(s*%!l pl!ne o$ produ%t*on !nd %onsumpt*on. Some %onsume !mounts e6u!l to the*r produ%t*on4 some %onsume more th!n the( produ%e4 !nd some %onsume less th!n the( produ%e. Onl( th*s l!st .roup ;entures !bo;e the %urren%( l*ne. The rest !ll e?*st %om$ort!bl( below *t. =urren%(Ms m!*n purpose *s to lubr*%!te the flow o$ ;!lue. GoldMs m!*n purpose *s to store or stockp*le ;!lue. Sto%" !nd $low. Gold !nd %urren%(. =urren%( w*ll !lso store ;!lue $or per*ods o$ t*me4 but th!t *s not *ts m!*n purpose. +$ %urren%( h!ppens to beh!;e !s ! tempor!r( store o$ ;!lue4 th!tMs onl( ! se%ond!r( e$$e%t %re!ted b( *ts su*t!b*l*t( to *ts pr*m!r( role. M*ses s!*d !s mu%h 5wh*%h *s *n m( /onest Mone( post8E M*sesE 0one+ is a #ediu# of exchange. !t is the #ost #arketa$le good which people ac.uire $ecause the+ want to offer it in later acts of interpersonal exchange. 0one+ is the thing which ser es as the generall+ accepted and co##onl+ used #ediu# of exchange. This is its only %unction. All the other %unctions which people ascri!e to money are merely particular aspects o% its primary and sole %unction& that o% a medium o% e"change. +tMs prob!bl( best to repl!%e M*ses, use o$ the term 9mone(9 w*th 9%urren%(9 $or the purpose o$ m( new model. +t %omes down to the whole sem!nt*% *ssue o$ whether Free.old *s :1monet*I*n. .old !s FOA s!*d4 or 51monet*I*n. *t !s Moldbu. s!(s. 'ot!to po7t!h7toe sem!nt*%s +MO. FOA,s demonet*I*n. re!ll( me!ns de7%urren%(7$(*n.4 or remo;*n. !n( sort o$ l*n" between .old !nd %urren%( th!t would %!use ! d*re%t %orrel!t*on between the*r pr*%es. Moldbu.,s remonet*I*n. me!ns .old mo;*n. $rom ! %ommod*t*Ied role *nto ! we!lth reser;e or store o$ ;!lue role4 wh*%h *s %ommonl( thou.ht to be one o$ the three $un%t*ons o$ 9mone(9 tod!( 5!lthou.h M*ses m*.ht d*s!.ree !s *n the !bo;e 6uote8. So th!t whole .old se%t*on o$ the top p(r!m*d *s l*"e !n e?%lus*;e %ountr( %lub $or s!;ers4 l*"e the men7 onl( %lubs o$ (ester(e!r4 where we s!;ers !ll s*t !round smo"*n. %*.!rs4 pr!%t*%*n. se%ret h!ndsh!"es !nd !.ree*n. th!t we,ll onl( bu( .old w*th the e?%ess le$t o;er $rom our net7produ%t*on !nd de$erred %onsumpt*on. And *$ there w!s !n !%tu!l %lub4 the s!;*n.s med*um %ould theoret*%!ll( be !n(th*n. we !.reed on4 l*"e b!seb!ll %!rds. 3ut be%!use thereMs not !n !%tu!l %lub nor ! se%ret h!ndsh!"e4 we rel( on the $o%!l po*nt !nd networ" e$$e%t pr*n%*ples to *dent*$( !nd opt*m*Ie th!t s*n.ul!r *tem. All .old tr!ns!%t*ons !re essent*!ll( $rom s!;er to s!;er. The debtors need not be *n;ol;ed nor %on%ern themsel;es w*th our e?%lus*;e %lub *nter!%t*ons. 2hen ! s!;er produ%es some e?%ess !nd le!;es *t on the pro;erb*!l t!ble !t the e%onom*% $!*r4 he bu(s .old $rom !nother s!;er 5e*ther *ns*de or outs*de o$ h*s Ione8 who h!s de%*ded to d*sho!rd some o$ h*s .old *n $!;or o$ %onsumpt*on. +t *s the %h!n.*n. pur%h!s*n. power o$ .old th!t determ*nes how mu%h .old 5b( we*.ht8 %h!n.es h!nds. 5'le!se re;*ew m( post The Debtors !nd the S!;ers *$ (ou !re un%le!r !bout m( no;el dem!r%!t*on.8 Debtors net7%onsume on ! sl*d*n. s%!le r!n.*n. $rom %onsum*n. e?!%tl( *n proport*on to the*r produ%t*on on down to %onsum*n. !s mu%h !s the( %!n .et !w!( w*th borrow*n.. So nett*n. *t out4 !ll net7e?ports $rom ! Ione %ome $rom the s!;ers. The debtors %onsume the*r own produ%t*on plus some o$ '!.e 4

the s!;ers, produ%t*on4 !nd *$ thereMs !n(th*n. le$t o;er *t *s e?ported. Th!tMs wh!t h!ppens *n the 9surplus e?7.old Ione9. Gold *s $low*n. *nto th!t Ione. So the debtor,s !%t*ons do h!;e !n *n$luen%e on the b!l!n%e o$ tr!de e;en thou.h the( donMt %ontr*bute to e?ports. 3ut when the debtors !re borrow*n. too mu%h %urren%( !nd %onsum*n. too mu%h *n the ph(s*%!l pl!ne4 there *s ! me%h!n*sm *n Free.old th!t ult*m!tel( slows them down. Th!t me%h!n*sm *s the pur%h!s*n. power o$ the %urren%(. 2hen the debtors !re %onsum*n. too mu%h the(,ll e?per*en%e pr*%e *n$l!t*on wh*%h w*ll $or%e them to %onsume less. So *t *s the pur%h!s*n. power o$ the %urren%( th!t re.ul!tes the debtors. 3ut %h!n.es *n the pur%h!s*n. power o$ .old w*th*n the e?%lus*;e s!;ers, %lub *s not l*n"ed to the me%h!n*sm wh*%h l*m*ts the debtors. The pur%h!s*n. power o$ .old %!n be r*s*n. or $!ll*n. re.!rdless o$ whether %urren%( pr*%es !re *n$l!t*n. or de$l!t*n. be%!use .old *s l*"e !n *sol!ted %*r%u*t. S!;ers %hoose to ho!rd or d*sho!rd 5produ%e more or %onsume more8 b!sed on the %h!n.*n. pur%h!s*n. power o$ .old4 not %urren%(. So the s!;ers, s!;*n.s *s %*r%ul!t*n. *n ! %losed %*r%u*t where *t %!n be e?per*en%*n. the s!me or oppos*te e$$e%ts !s the %urren%(. +t *s trul( !n es%!pe opt*on l*"e O3A,s M!.le;. So we %!n %ut .old o$$ o$ the p(r!m*d stru%ture *$ we w!nt to4 !nd we %!n put *t where;er we w!nt. 2e %!n st*%" *t b!%" *n the ph(s*%!l pl!ne s*n%e .old *s ph(s*%!l4 Cust l*"e b!seb!ll %!rds4 or we %!n set *t o$$ to the s*de4 or we %!n Cust *.nore *t !nd %ut *t o$$4 l*"e th*sE

2hereMs .old@ 2ho %!res@ +t *s ! %losed4 *sol!ted %*r%u*t $or the s!;ers onl(. Now 5!bo;e8 we !re de!l*n. w*th onl( the p!rts th!t *n;ol;e e ery!ody. And *t *s no surpr*se th!t the monet!r( pl!ne *s so rel!t*;el( sm!ll. At le!st *t *s no surpr*se here. A l*ttle %urren%( .oes ! lon. w!(. From GoldE The Flt*m!te 2e!lth Reser;e 5& >8E !#agine an island of %>> #en with a #one+ suppl+ of %,>>> sea shells. -hat4s %> sea shells for each #an. <ut o er the course of a +ear each #an on the island works and earns an annual salar+ of %>> sea shells. So the total econo#ic power of the island o er a +ear is %>,>>> sea shells. We could sa+ that the 2"P of the island is %>,>>> ss. We could also sa+ that the de#and for sea shells is %>,>>> o er the '!.e 41

period of one +ear and that de#and is #et $+ a suppl+ of onl+ %,>>> sea shells. Gow i#agine that ownership of a piece of real estate on this island costs a$out ( +ear4s salar+, and that there are enough pieces of land for each #an to either own or rent one. So each piece of propert+ #ight cost a$out (>> ss. -he entire island4s worth of residential real estate would $e in the $allpark of (>,>>> sea shells, twice the 2"P. Yet the #one+ suppl+ still re#ains at %,>>> sea shells and that li#ited suppl+ so#ehow #eets de#and. -he reason this works is $ecause sea shells are the currenc+. -he+ circulate and pass fro# hand to hand o er a short ti#efra#e. -his is called elocit+ and it has the exact sa#e effect on the alue of a single sea shell as does the si@e of the #one+ suppl+. )n our island %,>>> sea shells change hands %> ti#es per +ear creating an island 2"P of %>,>>> ss. !f the+ changed hands (> ti#es a +ear the 2"P would $e (>,>>> ss. )r if we dou$led the #one+ suppl+ to (,>>> sea shells that changed hands %> ti#es per +ear it would also +ield a (>,>>> ss 2"P. So elocit+ and #one+ suppl+ of the currenc+ ha e exactl+ the sa#e effect. So we %!n h!;e ! ph(s*%!l pl!ne whose tot!l net ;!lue *s mu%h .re!ter th!n the tot!l !mount o$ %!sh. Th!tMs be%!use 3-he pure concept of #one+ is our shared use of so#e th$n# as a reference point for expressing the relati e alue of all other things.3 56uote $rom Mone(ness4 ! must7re!d post +M/O!8 S!me .oes $or .old. All the .old %!n be worth m!n( mult*ples o$ !ll the %urren%(. There *s no need $or !n( %orrel!t*on. Gold 5*n s*Ie8 %*r%ul!tes slower th!n homes. +t %*r%ul!tes on ! .ener!t*on!l t*me s%!le. So the %urren%( denom*n!tes the ;!lue o$ e;er(th*n. else w*thout need*n. to h!;e !n( 6u!nt*t!t*;e %orrel!t*on w*th !ll th!t stu$$. =!n (ou *m!.*ne *$ there h!d to be P1 4 %!sh s*tt*n. *n ! ;!ult somewhere e!rm!r"ed spe%*$*%!ll( $or (our house *n order $or (our house to be worth P1 4 @ No4 o$ %ourse not! Your house *s worth P1 4 be%!use th!t,s *ts ;!lue rel!t*;e to other th*n.s w*th "nown pr*%es. So no) 'et-% ta'+ about the debtor%. 2h!t the( l*"e to do *s *ndenture themsel;es $or the $uture *n order to obt!*n pur%h!s*n. power *n the present. The( %!n onl( spend th!t pur%h!s*n. power on%e !nd then *t,s .one. +t h!s .one $rom them to someone who e!rned *t. So the ne?t person who spends th!t 9borrowed *nto e?*sten%e %urren%(9 *s someone who !lre!d( %ontr*buted to the e%onom( !nd e!rned *t. The borrower .ets to spend *t on%e !nd then he h!s to wor" *t o$$ b( %ontr*but*n. to the e%onom( o;er ! per*od o$ t*me. +n the pre;*ous se%t*on + told (ou th!t pr*%e *n$l!t*on w*ll be the !utom!t*% .o;ernor o$ !n( %onsumpt*on b*n.es undert!"en b( the debtors *n the here!$ter. 3ut wh*le pr*%e *n$l!t*on w*ll l*m*t the debtors, !b*l*t( to perpetu!ll( %onsume4 *t w*ll not !$$e%t the pur%h!s*n. power stored *n .old b( the s!;ers. +n $!%t4 m( %r(st!l b!ll *n$orms me th!t *t *s the s!;ers lend*n. the*r e?%ess produ%t*on d*re%tl( to the debtors th!t !llows $or the perpetu!l de$*%*ts we stru..le w*th tod!(. + th*n" th!t *$ we loo" %losel( !t how the debtors use the $*!t mone( s(stem w*th !nd w*thout the !ss*st!n%e o$ the s!;ers4 *t w*ll be%ome %le!r th!t we w*ll !ll be better o$$ w*th ! b*$ur%!ted monet!r( s(stem. And *t w*ll %ert!*nl( be %le!r th!t the s!;ers h!;e no bus*ness t!"*n. debtors on !s the %ounterp!rt( to the*r s!;*n.s.

'!.e 4&

+t would %ert!*nl( be m!ss*;el( *n$l!t*on!r( *$ we went $rom no debt to !ll o$ ! sudden e;er(one borrow*n. !t the s!me t*me. 3ut *n re!l*t(4 there *s someone wor"*n. o$$ h*s p!st debt whene;er ! new debtor .oes *nto new debt. O$ %ourse old debtors !nd new ones donMt pre%*sel( o$$set e!%h other4 but th!tMs o"!(4 be%!use .old s!;*n.s $*rst $lo!t !.!*nst the %urren%(4 !nd then the( !lso $lo!t *n the*r *sol!ted %*r%u*t o$ %ho*%es m!de b( s!;ers b!sed on the %h!n.*n. pur%h!s*n. power o$ .old 5not *ts %urren%( pr*%e4 but *ts pur%h!s*n. power8. So .old h!s "*nd o$ ! dou$le $lo!t. +t $lo!ts w*th the *n$l!t*onGde$l!t*on o$ e;er(th*n. else. And then *t !lso $lo!ts *n ! %losed %*r%u*t %ons*st*n. onl( o$ s!;ers 5!nd the*r 9ho!rdGd*sho!rd9 %ho*%es84 o$ whom the m!Cor*t( 5me!sured b( ;!lue stored8 !re *nter.ener!t*on!l .*!nts. Now th!t +,;e hope$ull( est!bl*shed th!t *n the here!$ter !8 9! l*ttle mone( 5%urren%(8 .oes ! lon. w!(9 !nd b8 the s!;ers !re su$$*%*entl( prote%ted !.!*nst !n( *n$l!t*on!r( m!(hem the debtors m!( %!use4 let,s Ioom *n on th!t sm!ll 9monet!r( pl!ne9 !nd th*n" !bout how *t wor"s.

+n ! $uture post + pl!n to del;e *nto the ;*t!l !nd del*%!te rel!t*onsh*p !nd b!l!n%e between b!se mone( !nd b!n" %red*t mone( !nd how *t !$$e%ts the ;!lue o$ our mone( *n terms o$ *ts !b*l*t( to lubr*%!te %ommer%e. 3ut $or now4 + h!;e ! %ouple o$ 6uest*ons $or (ou to ponder. +n th*n"*n. !bout the mone( suppl( 5%!sh !nd %red*t *n%lus*;e8 th!t *s !%tu!ll( *n the e%onom(4 would (ou %ount %!sh th!t *s st!%"ed up *ns*de !n ATM !s p!rt o$ th!t suppl(@ /ere,s ! h*ntE Th!t %!sh *s not *n the e%onom( unt*l someone w*thdr!ws *t $rom the ATM. +$ (ou %ount *t wh*le *t,s st*ll *ns*de the ATM then (ou !re double %ount*n. th!t mone(. +s *t ! pos*t*;e s*.n $or the $uture when there !re PTr*ll*ons *n s!;*n.s s*tt*n. *n %!sh !nd ne!r %!sh e6u*;!lents@ All th!t mone( must me!n we !re lo!ded4 r*.ht@ +t must me!n our %!sh doll!r *s stron. wh*%h *mpl*es the m!r"et th*n"s *t w*ll be th!t w!( *n the $uture4 r*.ht@ +$ PTr*ll*ons !re .ood4 wouldn,t PYu!dr*ll*ons4 PYu*nt*ll*ons or PSe?t*ll*ons be th!t mu%h better@ And w*th th*s thou.ht *n m*nd4 does ! r*s*n. !mount o$ s!;*n.s %rowd*n. *nto %!sh !nd ne!r7%!sh e6u*;!lents represent ! pos*t*;e or ne.!t*;e ;*ew o$ the $uture@ '!.e 40

Those super7low r!tes !t the short end o$ the (*eld %ur;e represent re!ll( b*. mone(4 too b*. $or FD+= prote%t*on4 th!t Cust w!nts to s!;e *tsel$. +t *s b*. mone( th!t4 l*"e 3*ll Gross s!(s4 *s $!r more %on%erned !bout the return o% mone( 5pur%h!s*n. power preser;!t*on8 th!n the return on mone( 5(*eld8. Th!t short end *s !n !w$ull( %rowded pl!%e *n the l!nd o$ Z+R' $ore;er !nd monet!r( e;olut*on4 espe%*!ll( when (ou %ons*der the t*me $!%tor. 5/GT O3A8 O$ %ourse4 wh!t + h!;e des%r*bed !bo;e *s ! s*mple model. The re!l*t( w*ll be ! b*t more %omple?. For *nst!n%e4 .old w*ll h!;e some %ompet*t*on !lthou.h *t w*ll be t*n( *n %omp!r*son to tod!(. Some .o;ernment debt w*ll l*"el( %ompete $or (our s!;*n.s. 3ut the FS .o;ernment4 $or e?!mple4 w*ll h!;e to %ompete Cust l*"e the Gree"s do tod!(. And we w*ll st*ll h!;e ! mu%h more l*m*ted menu o$ *n;estments !nd tr!d*n. opportun*t*es to lure (ou *nto putt*n. (our h!rd7e!rned s!;*n.s !t r*s". )*"e + s!*d !t the top4 + %!n,t help (ou mu%h w*th wh!t *t w*ll loo" l*"e !$ter (ou d*e. M( %r(st!l b!ll !*n,t th!t "*nd o$ %r(st!l b!ll. 3ut + can tell (ou th!t somewhere4 some w!(4 some d!( we w*ll !ll $*nd out. Fortun!tel( thou.h4 m( %r(st!l b!ll does wor" $or the monet!r( !nd $*n!n%*!l $uture. +t p!*nts ! n*%e4 %le!r p*%ture4 (et on t*m*n. *t,s st*ll ! l*ttle h!I(. 3ut one th*n. *t does m!"e per$e%tl( %le!r *s th!t *t,s Cust ! 6uest*on o$ t*me. S*n%erel(4 FOFOA

'!.e 44

"hur%day, February @, 2012


Superor#an$%m Open Forum

Th!n"s to And( O. $or send*n. me th*s !rt*%le wh*%h rem*nded h*m o$ m( )*$e *n the Ant F!rm post. From the !rt*%leE 3-he $ug societ+Q Scientists exca ate underground ant cit+ that 4ri als the 2reat Wall of Ihina4 with a la$+rinth of highwa+s KBL -he co##unit+ of ants * descri$ed as a Tsuperorganis# $ecause of the wa+ the+ coordinated the#sel es * carried out a 1erculean task $uilding their giant ho#e. KBL

'!.e 41

-he leaf-chewing creatures are understood to for# the second most comple" societies on 1arth a%ter our own.3 The !rt*%le *s !ll !bout the !m!I*n. 0 m*n. ;*deo below. 3ut !s ! 6u*%" *ntrodu%t*on4 here,s !n e?%erpt $rom m( postE

)*$e *n the Ant F!rm

D*d (ou e;er h!;e !n !nt $!rm when (ou were l*ttle@ An !nt $!rm m!"es the !nts, beh!;*or e!s*l( ;*s*ble !nd %ontroll!ble. The( !re *mpr*soned *n ! two7d*mens*on!l world *n wh*%h the*r de%*s*ons !re l*m*ted !nd the*r needs !re met b( (ou! The( %!n onl( .o s*de to s*de !nd up !nd down. And up usu!ll( le!ds them to the le!$ (ou dropped *nto the !nt $!rm $or the*r lun%h! 3ut *n the w*ld... Ants $orm h*.hl( or.!n*Ied %olon*es wh*%h m!( o%%up( l!r.e terr*tor*es !nd %ons*st o$ m*ll*ons o$ *nd*;*du!ls. These l!r.e %olon*es %ons*st mostl( o$ ster*le w*n.less $em!les $orm*n. %!stes o$ 9wor"ers94 9sold*ers94 or other spe%*!l*Ied .roups. Ne!rl( !ll !nt %olon*es !lso h!;e some $ert*le m!les %!lled 9drones9 !nd one or more $ert*le $em!les %!lled 96ueens9. The %olon*es !re somet*mes des%r*bed !s superor.!n*sms be%!use the !nts !ppe!r to oper!te !s ! un*$*ed ent*t(4 %olle%t*;el( wor"*n. to.ether to support the %olon(. 52*"*ped*!E Ant8 A superor.!n*sm *s !n or.!n*sm %ons*st*n. o$ m!n( or.!n*sms. Th*s *s usu!ll( me!nt to be ! so%*!l un*t o$ euso%*!l !n*m!ls4 where d*;*s*on o$ l!bor *s h*.hl( spe%*!l*Ied !nd where *nd*;*du!ls !re not !ble to sur;*;e b( themsel;es $or e?tended per*ods o$ t*me. Ants !re the best7"nown e?!mple. The te%hn*%!l de$*n*t*on o$ ! superor.!n*sm *s 9! %olle%t*on o$ !.ents wh*%h %!n !%t *n %on%ert to produ%e phenomen! .o;erned b( the %olle%t*;e49 phenomen! be*n. !n( !%t*;*t( 9the h*;e w!nts9 su%h !s !nts %olle%t*n. $ood or bees %hoos*n. ! new nest s*te.

'!.e 46

Superor.!n*sms e?h*b*t ! $orm o$ 9d*str*buted *ntell*.en%e49 ! s(stem *n wh*%h m!n( *nd*;*du!l !.ents w*th l*m*ted *ntell*.en%e !nd *n$orm!t*on !re !ble to pool resour%es to !%%ompl*sh ! .o!l be(ond the %!p!b*l*t*es o$ the *nd*;*du!ls. N*neteenth %entur( th*n"er /erbert Spen%er %o*ned the term super7or.!n*% to $o%us on so%*!l or.!n*I!t*on... S*m*l!rl(4 e%onom*st =!rl Men.er e?p!nded upon the e;olut*on!r( n!ture o$ mu%h so%*!l .rowth4 but w*thout e;er !b!ndon*n. methodolo.*%!l *nd*;*du!l*sm. M!n( so%*!l *nst*tut*ons !rose4 Men.er !r.ued4 not !s 9the result o$ so%*!ll( teleolo.*%!l %!uses4 but the un*ntended result o$ *nnumer!ble e$$orts o$ e%onom*% subCe%ts pursu*n. ,*nd*;*du!l, *nterests.9 52*"*ped*!E Superor.!n*sm8 Methodolo.*%!l *nd*;*du!l*sm does not *mpl( pol*t*%!l *nd*;*du!l*sm4 !lthou.h methodolo.*%!l *nd*;*du!l*sts l*"e Fr*edr*%h /!(e" !nd O!rl 'opper were opponents o$ %olle%t*;*sm. Det!%h*n. methodolo.*%!l *nd*;*du!l*sm $rom pol*t*%!l *nd*;*du!l*sm... *$ ! properl(7$un%t*on*n. %ommun*st re.*me were to !r*se4 *t too would h!;e to be so%*olo.*%!ll( understood on methodolo.*%!l *nd*;*du!l*st pr*n%*ples. 52*"*ped*!E Methodolo.*%!l +nd*;*du!l*sm8 /ope$ull( + d*dn,t lose (ou (et. + "now4 +,m supposed to be d*st*ll*n. not m*?*n.4 but + needed to dr!w the %onne%t*on between !nts !nd e%onom*%s. D*d (ou .et *t@ Ants !re dumb l*ttle %re!tures b( themsel;es. 3ut e;en !s dumb !s the( !re4 some !re more s"*lled !t smell*n. !nd $*nd*n. $ood wh*le others !re better !t $*.ht*n.4 !nd some others !re re!ll( stron.4 $or %!rr(*n. $ood b!%" to the %olon( $or lun%h.

And *n ! w*ld %olon( o$ !nts these *nd*;*du!ls end up '!.e 4:

spe%*!l*I*n. *n wh!t the( do best wh*%h le!ds to ! %olle%t*;e *ntell*.en%e $!r .re!ter th!n the *ntell*.en%e o$ !n( *nd*;*du!l !nt...

A*deoE G*!nt Ant /*ll #?%!;!ted


And wh*le we,re on th*s subCe%t4 here,s !nother must7re!dE J+4

'en%*lK Re;*s*ted
>

3( Sheldon R*%hm!n 'ubl*shedE 16 D!nu!r( &

)eon!rd Re!dMs %l!ss*% ess!(4 J+4 'en%*l4K wh*%h *s now 1 (e!rs old4 *s Custl( %elebr!ted !s the best short *ntrodu%t*on to the d*;*s*on o$ l!bor !nd undes*.ned order e;er wr*tten. Re!d s!w !n Je?tr!ord*n!r( m*r!%le L T*n theU the %on$*.ur!t*on o$ %re!t*;e hum!n ener.*esRm*ll*ons o$ t*n( "now7hows %on$*.ur!t*n. n!tur!ll( !nd spont!neousl( *n response to hum!n ne%ess*t( !nd des*re !nd *n the !bsen%e o$ !n( hum!n m!ster7m*nd*n.!K /*s subCe%t !nd *ts rel!t*on to $reedom !nd prosper*t( were %ert!*nl( worth %!ptur*n. *n su%h ! %le;er4 ple!s*n.4 !nd *llum*n!t*n. ess!(4 wh*%h *s wh( *t *s one o$ the best7"nown wor"s *n the popul!r $ree7 m!r"et l*ter!ture. 3ut thereMs !nother lesson *n J+4 'en%*lK th!t h!s been l!r.el( o;erloo"ed4 perh!ps b( Re!d h*msel$. J+4 'en%*lK *s !lso !n e?%ellent pr*mer *n the Austr*!n !ppro!%h to %!p*t!l theor(. +tMs worth loo"*n. !t Re!dMs ess!( *n th!t l*.ht. #!rl( on4 Re!dMs pen%*l des%r*bes h*s $!m*l( tree4 be.*nn*n. w*th the %ed!rs .rown *n northern =!l*$orn*! !nd Ore.on th!t pro;*de the wooden sl!ts. 3ut he doesnMt re!ll( st!rt w*th the trees. /e notes th!t turn*n. trees *nto pen%*ls re6u*res Js!ws !nd tru%"s !nd rope !nd the %ountless other .e!r used *n h!r;est*n. !nd %!rt*n. the %ed!r lo.s to the r!*lro!d s*d*n.4K !nd those th*n.s h!;e to be produ%ed be$ore ! pen%*l %!n be produ%ed. JTh*n" o$ !ll the persons !nd the numberless s"*lls th!t went *nto the*r $!br*%!t*onE the m*n*n. o$ ore4 the m!"*n. o$ steel !nd *ts re$*nement *nto s!ws4 !?es4 motorsN the .row*n. o$ hemp !nd br*n.*n. *t throu.h !ll the st!.es to he!;( !nd stron. ropeN the lo..*n. %!mps w*th the*r beds !nd mess h!lls4 the %oo"er( !nd the r!*s*n. o$ !ll the $oods. 2h(4 untold thous!nds o$ persons h!d ! h!nd *n e;er( %up o$ %o$$ee the lo..ers dr*n"!K 2h!t emer.es here *s wh!t Austr*!n e%onom*sts %!ll ! stru%ture o$ produ%t*on. Th*s stru%ture *s %h!r!%ter*Ied b( two %losel( rel!ted elementsE mult*ple st!.es 5d*st*n.u*shed b( the*r Jd*st!n%eK $rom the %onsumer8 !nd t*me. The pen%*l th!t e;entu!ll( emer.es !t the end o$ the pro%ess must $*rst pro%eed4 *n ;!r*ous st!tes o$ *n%ompleteness4 throu.h ! ser*es o$ st!t*ons !t wh*%h %omponents !re tr!ns$ormed *n w!(s %ons*stent w*th m!"*n. pen%*ls. The st!t*ons themsel;es h!;e to be prep!red throu.h e!rl*er st!.es o$ produ%t*on. Thus be$ore trees %!n be %ut down !nd turned *nto wooden sl!ts4 s!ws4 tru%"s4 rope4 r!*lro!d %!rs4 !nd other th*n.s must be produ%ed $*rst. 3e$ore steel %!n be used to m!"e s!ws4 tru%"s4 !nd r!*lro!d %!rs4 *ron ore must be m*ned !nd pro%essed. And so on. The s!me "*nd o$ des%r*pt*on %!n be pro;*ded $or e!%h %omponent o$ the pen%*lE the p!*nt4 the .r!ph*te4 the %ompound '!.e 4-

th!t %ompr*ses the er!ser4 the br!ss $errule th!t holds the er!ser. Tr!%*n. the pen%*lMs .ene!lo.( b!%" to *ron4 I*n%4 %opper4 !nd .r!ph*te m*nesN hemp pl!ntsN rubber treesN %!stor be!nsN !nd mu%h more demonstr!tes the Jround!boutnessK o$ produ%t*on4 the term o$ the e!rl( Austr*!n e%onom*st #u.en ;on 3[hm73!wer". Mu%h t*me !nd e$$ort !re spent not on m!"*n. pen%*ls but r!ther th*n.s th!t w*llBsooner or l!terBhelp to m!"e pen%*ls. 2*thout %entr!l d*re%t*on4 entrepreneurs set up produ%t*on th*s w!( be%!use more4 better4 !nd %he!per pen%*ls %!n be m!de more pro$*t!bl( th!n b( some more d*re%t pro%ess. 'r*%e =ommun*%!t*on Se;er!l th*n.s !re worth po*nt*n. out !bout the stru%ture o$ produ%t*on. F*rst4 wh*le no %entr!l pl!nner *s respons*ble $or pen%*l produ%t*on o;er!ll4 entrepreneurs !nd wor"ers !t e!%h st!.e do h!;e pl!ns !nd e?pe%t!t*ons4 wh*%h the( str*;e to %oord*n!te w*th one !nother !%ross st!.es !nd t*me per*ods. The "e( to %oord*n!t*on *s the pr*%e s(stem. +$ thereMs ! br!ss short!.e4 r*s*n. pr*%es w*ll %ommun*%!te th!t *n$orm!t*on to the $errule !nd pen%*l m!"ers. The downstre!m entrepreneurs w*ll h!;e to !dCust the*r pl!ns *n response to the new %ond*t*onsBs!(4 b( $*nd*n. ! subst*tute m!ter*!l. The dem!nd $or ! subst*tute m!ter*!l w*ll *n turn set !ppropr*!te pro%esses *n mot*on !s entrepreneurs re!%t. +n the re!l world o$ d*se6u*l*br*um4 %h!n.e *s the rule4 so pl!ns !re !lw!(s under.o*n. re;*s*onL =ont*nue re!d*n.

'!.e 4>

Monday, February 13, 2012


6nd$a-% Go'd

)!st n*.ht =3S, 6 M*nutes !*red ! .re!t se.ment on +nd*!,s pen%h!nt $or bu(*n. .old. +,;e wr*tten ! $ew thou.hts below4 but $*rst w!t%h the se.mentE

A*deo ote% F*rst4 here !re ! $ew notes + too" $rom the ;*deoE 1.& b*ll*on people *n +nd*!. 1 m*ll*on wedd*n.s e!%h (e!r *n +nd*!. /!l$ o$ the .old bou.ht *n +nd*! *s Cewelr( $or wedd*n.s. +n +nd*!4 ! $!m*l( w*thout .old *s !n 9*n%omplete $!m*l(.9 +nd*!n households s!;e !bout 0 Q o$ the*r *n%ome %omp!red to Amer*%!ns who s!;e !bout 1Q. The tr!d*t*on th!t ! br*de,s p!rents w*ll .*;e her .old *s ! $*n!n%*!l burden to some $!m*l*es. Gold *s so *mport!nt to the l*;es o$ +nd*!ns th!t the poor %!n now .et $*n!n%*n. $or *t.
'!.e 1

The 2orld Gold =oun%*l *s $unded b( ! .roup o$ m*n*n. %omp!n*es. +ts represent!t*;e *n +nd*! %re!ted the pro.r!m to help +nd*!,s poor bu( .old. YE /ow %!n (ou be both $ru.!l !nd %onser;!t*;e (et be w*ll*n. to spend thous!nds o$ doll!rs on .old@ AE 2hen +nd*!ns bu( .old4 the( don,t th*n" the(,re spend*n. mone(. +n the*r m*nds4 th!t *s ! s!;*n.s. Th!t pur%h!se o$ .old *s .o*n. to (our s!;*n.s !%%ount. +t,s not !n e?pense4 *t,s !n *n;estment. +nd*!ns bel*e;e the pr*%e o$ .old w*ll %ont*nue r*s*n.. +t *s *mposs*ble to tell !n +nd*!n %onsumer th!t the pr*%e o$ .old w*ll $!ll4 be%!use the bel*e$ th!t .old w*ll %ont*nue r*s*n. *s b!%"ed b( *ts p!st per$orm!n%e. Ob%er9at$on% To .*;e (ou !n *de! o$ wh( +nd*!ns m*.ht ;*ew .old,s p!st per$orm!n%e d*$$erentl( th!n we do4 here !re two .old %h!rts %o;er*n. the s!me per*od4 1>:17& 4. The $*rst *s *n doll!rs !nd the se%ond *s *n rupees.

'!.e 11

Gold *n +nd*! *s #ore th!n Cust ! store o$ ;!lue. Gold *s ! ;*s*ble st!tus s(mbol o$ su%h %ultur!l *mport!n%e th!t dem!nd $or *t !pp!rentl( e?%eeds net7produ%t*on 5s!;*n.s8. Some !re e;en w*ll*n. to borrow mone( to loo" l*"e Mr. T4 !nd the m*n*n. *ndustr( supports th*s. To put th*s *n perspe%t*;e on !n !..re.!ted b!s*s4 +nd*! *s *mport*n. !round P043 *n ph+sical .old wh*le runn*n. ! P11 3 o;er!ll tr!de de$*%*t. And the tr!de de$*%*t *s st*ll .row*n.4 proCe%ted to re!%h m!(be P16 3 th*s (e!r. +nd*! .old *mport b*ll m!( tou%h P1 New Delh*4 Mon Feb 6 & 1& bn

The report s!*d th!t !t these le;els4 9.old *mports !re ! hu.e burden on the b!l!n%e o$ p!(ments !nd !%%entu!tes the %urrent !%%ount de$*%*t9. TLU A%%ord*n. to R3+4 the %urrent !%%ount de$*%*t *s ! %!use o$ %on%ern be%!use o$ *nel!st*% .old !nd o*l dem!nd4 *t s!*d. 2*th the .o;ernment *n%re!s*n. *mport !nd e?%*se dut*es on .old !nd s*l;er4 both %ommod*t*es !re set to %ost more. Term*n. the %urrent .old *mport !s hu.e burden on the b!l!n%e o$ p!(ments4 the %h!mber h!s ur.ed the .o;ernment to en%our!.e $orm!l $*n!n%*!l *nstruments to m!"e the *n;estment more produ%t*;e. 9+nd*!,s .old *mports !re unsust!*n!ble !nd the .o;ernment should en%our!.e %h!nnel*s*n. s!;*n.s *n $orm!l $*n!n%*!l *nstruments to *n%re!se produ%t*;e %!p!%*t( o$ the e%onom(49 *t s!*d. +t s!*d e$$orts must be m!de to *ntrodu%e more $*n!n%*!l s!;*n. *nstruments !nd e?tens*;e edu%!t*on %!mp!*.ns should be undert!"en 7 p!rt*%ul!rl( *n rur!l !re!s 7 to m*n*m*se propens*t( tow!rds .old.

'!.e 1&

The report s!*d th!t post o$$*%es should be used to sell su%h .o;ernment .u!r!nteed *nstruments to e?tend the*r re!%h throu.hout the %ountr(. 3e*n. the l!r.est *mporter o$ .old *n the world4 +nd*! !%%ounts $or ne!rl( one7th*rd o$ the !nnu!l dem!nd w*th *mport b*ll r*s*n. $rom FSD 4.1 b*ll*on *n & 17 & to FSD 00.- b*ll*on *n & 1 7114 *t s!*d.

Rupee !ppre%*!tes $or 6th %onse%ut*;e d!( on r*s*n. *n$lows4 more .!*ns seen Reuters D!n 1>4 & 1& The m!*n *ssue $or the rupee h!s been the $*n!n%*n. o$ *ts e?tern!l obl*.!t*ons4 *n%lud*n. the tr!de de$*%*t4 s!*d D!n*el /u*4 sen*or $ore*.n e?%h!n.e str!te.*st !t /S3= *n /on. Oon.. TLU +nd*!,s tr!de .!p w*dened to P40.> b*ll*on *n the September 6u!rter $rom P0: b*ll*on ! (e!r e!rl*er4 wh*le the %urrent !%%ount de$*%*t w!s l*ttle %h!n.ed !t P16.> b*ll*on. TLU +nd*! *s the b*..est %onsumer o$ bull*on !nd the met!l4 !lon. w*th %rude o*l4 $orms ! m!Cor %hun" o$ the %ountr(,s m!ss*;e *mport b*ll. Fore*.n *nst*tut*on!l *n;estors bou.ht !bout P0 b*ll*on o$ +nd*!n debt !nd mo;ed P-14 m*ll*on *nto sh!res s*n%e the new (e!r be.!n4 d!t! $rom the m!r"et re.ul!tor showed on 2ednesd!(.

+nd*! Tr!de De$*%*t 2*dens !s +mport Growth Outp!%es #?ports Febru!r( >4 & 1&4 >E1> AM #ST +nd*!Ms tr!de de$*%*t w*dened to ! three7month h*.h *n D!nu!r( !s *mport .rowth outp!%ed the %l*mb *n e?ports4 the top bure!u%r!t *n the %ommer%e m*n*str( s!*d. TLU A tr!de .!p Ohull!r s!*d m!( re!%h P16 b*ll*on *n the %urrent $*n!n%*!l (e!r thre!tens to re;*;e pressure on the rupee !$ter *t tumbled the most *n As*! l!st (e!r.

+nd*! $!%*n. ser*ous b!l!n%e o$ tr!de problem > De%4 & 11 N#2 D#)/+E +nd*! *s $!%*n. ! ser*ous b!l!n%e o$ tr!de problem4 Tr!de Se%ret!r( R!hul '!.e 10

Ohull!r s!*d on Fr*d!(4 !s e?port $*.ures so $!r *n the %urrent $*s%!l (e!r h!;e been o;erest*m!ted b( P> b*ll*on. +nd*!,s tr!de de$*%*t $or the & 11G1& $*s%!l (e!r *s seen *n the r!n.e o$ P111 b*ll*on to P16 b*ll*on4 he s!*d +s *t poss*ble to bu( too much gold@ +nterest*n. 6uest*on4 huh@ +t seems th!t !ll the .old bu(*n. *n +nd*! *s %ontr*but*n. to ! b!l!n%e o$ p!(ments problem4 ! %urrent !%%ount de$*%*t4 !nd ! %urren%( o;er;!lu!t*on problem. No wonder the( r!*sed the *mport dut( on .old! 2h!t,s *nterest*n. !bout th*s s*tu!t*on *s th!t +nd*! h!d ! b!l!n%e o$ p!(ments problem b!%" *n 1>>1 w*th s*m*l!r s(mptoms. Th*s *s Cust some $ood $or thou.ht !nd d*s%uss*on4 but *t,s !lso 6u*te ! .old stor(! From 2*"*ped*!E

1>>1 +nd*! e%onom*% %r*s*s


3( 1>-14 +nd*! h!d st!rted h!;*n. b!l!n%e o$ p!(ments problems. 3( the end o$ 1>> 4 *t w!s *n ! ser*ous e%onom*% %r*s*s. The .o;ernment w!s %lose to de$!ult4 *ts %entr!l b!n" h!d re$used new %red*t !nd $ore*.n e?%h!n.e reser;es h!d redu%ed to su%h ! po*nt th!t +nd*! %ould b!rel( $*n!n%e three wee"sM worth o$ *mports. +nd*! h!d to !*rl*$t *ts .old reser;es to pled.e *t w*th +ntern!t*on!l Monet!r( Fund 5+MF8 $or ! lo!n. The %r*s*s w!s %!used b( %urren%( o;er;!lu!t*onN the %urrent !%%ount de$*%*t !nd *n;estor %on$*den%e pl!(ed s*.n*$*%!nt role *n the sh!rp e?%h!n.e r!te depre%*!t*on.T&U T0U T4U T1U The e%onom*% %r*s*s w!s pr*m!r*l( due to the l!r.e !nd .row*n. $*s%!l *mb!l!n%es o;er the 1>- s. Dur*n. m*d e*.ht*es4 +nd*! st!rted h!;*n. b!l!n%e o$ p!(ments problems. 're%*p*t!ted b( the Gul$ 2!r4 +nd*!Ms o*l *mport b*ll swelled4 e?ports slumped4 %red*t dr*ed up !nd *n;estors too" the*r mone( out. +n m*d71>>14 +nd*!,s e?%h!n.e r!te w!s subCe%ted to ! se;ere !dCustment. Th*s e;ent be.!n w*th ! sl*de *n the ;!lue o$ the +nd*!n rupee le!d*n. up to m*d71>>1. The !uthor*t*es !t the Reser;e 3!n" o$ +nd*! too" p!rt*!l !%t*on4 de$end*n. the %urren%( b( e?pend*n. *ntern!t*on!l reser;es !nd slow*n. the de%l*ne *n ;!lue./owe;er4 *n m*d71>>14 w*th $ore*.n reser;es ne!rl( depleted4 the +nd*!n .o;ernment perm*tted ! sh!rp depre%*!t*on th!t too" pl!%e *n two steps w*th*n three d!(s 5Dul( 1 !nd Dul( 04 1>>18 !.!*nst m!Cor %urren%*es.T&U 2*th +nd*!Ms $ore*.n e?%h!n.e reser;es !t P1.& b*ll*on *n D!nu!r( 1>>1T:UT-UT>U !nd depleted b( h!l$ b( Dune4T>U b!rel( enou.h to l!st $or rou.hl( 0 wee"s o$ essent*!l *mports4T-UT1 U +nd*! w!s onl( wee"s w!( $rom de$!ult*n. on *ts e?tern!l b!l!n%e o$ p!(ment obl*.!t*ons.T-UT>U The %!ret!"er .o;ernment *n +nd*! he!ded b( 'r*me M*n*ster =h!ndr! Se"h!r S*n.h,s *mmed*!te response w!s to se%ure !n emer.en%( lo!n o$ P&.& b*ll*onT11UT1&U $rom the +ntern!t*on!l Monet!r( Fund b( pled.*n. 6: tons o$ +nd*!,s .old reser;es !s %oll!ter!l.T1UT1&U The Reser;e 3!n" o$ +nd*! h!d to !*rl*$t 4: tons o$ .old to the 3!n" o$ #n.l!ndT6UT:U !nd & tons o$ .old to the Fn*on 3!n" o$ '!.e 14

Sw*tIerl!nd to r!*se P6 m*ll*on.T6UT:UT10U N!t*on!l sent*ments were outr!.ed !nd there w!s publ*% out%r( when *t w!s le!rned th!t the .o;ernment h!d pled.ed the %ountr(,s ent*re .old reser;es !.!*nst the lo!n.T6UT1 U +nterest*n.l(4 *t w!s l!ter re;e!led th!t the ;!n tr!nsport*n. the .old to the !*rport bro"e down on route !nd p!n*% $ollowed.T1U A %h!rtered pl!ne $err*ed the pre%*ous %!r.o to )ondon between &1 M!( !nd 01 M!( 1>>14 Colt*n. the %ountr( out o$ !n e%onom*% slumber.T6U The =h!ndr! She"h!r .o;ernment h!d %oll!psed ! $ew months !$ter h!;*n. !uthor*Ied the !*rl*$t.T6U The mo;e helped t*de o;er the b!l!n%e o$ p!(ment %r*s*s !nd "*%"7st!rted M!nmoh!n S*n.hMs e%onom*% re$orm pro%ess.T:U /ere,s the sour%e o$ th!t $un ;!n stor(E 9+ h!;e ! ;er( deep bel*e$ th!t =!b*net posts should be $*lled w*th pol*t*%*!ns unless the e%onom( *s *n ser*ous meltdown4 !s *t w!s *n 1>>14 when M!nmoh!n be%!me $*n!n%e m*n*ster49 he e?pl!*ned. 9Th!t w!s ! t*me when nobod( w!s .o*n. to .*;e +nd*! !n( mone(. 'eople $or.et th!t we h!d to p!wn our ent*re .old sto%". Norm!ll( when (ou h!;e .old sto%"4 the +ntern!t*on!l Monet!r( Fund !%%epts th!t th!t .old sto%" *s there4 !nd .*;es (ou mone( !.!*nst *t. +nd*! h!d to ph(s*%!ll( mo;e the .old sto%" out o$ +nd*!4 !bro!d. +,m *n$ormed4 b( ;er(4 ;er( rel*!ble sour%es4 th!t the ;!n t!"*n. the .old to the !*rport bro"e down4 !nd there w!s tot!l p!n*%.9 Des!* used th*s po*nt to *llustr!te how $!r +nd*! h!d %ome e%onom*%!ll( *n su%h ! short sp!n o$ t*me. Now4 he !r.ued4 +nd*! *s better prep!red to h!ndle e%onom*% downturns4 e;en ones !s se;ere !s the %urrent on.o*n. .lob!l $*n!n%*!l %r*s*s. And then4 o$ %ourse4 +nd*! bou.ht b!%" *ts 6: tonnes 5!nd then some8 $rom the +MF *n & +MF Sells Gold to +nd*!4 F*rst S!le *n N*ne Ye!rs No;ember 04 & > The +ntern!t*on!l Monet!r( Fund sold & metr*% tons o$ .old to the Reser;e 3!n" o$ +nd*! $or !bout P6.: b*ll*on4 *ts $*rst su%h s!le *n n*ne (e!rs. The tr!ns!%t*on4 e6u*;!lent to - per%ent o$ .lob!l !nnu!l m*ne produ%t*on4 *n;ol;ed d!*l( s!les $rom O%t. 1>70 !t m!r"et pr*%es !nd *s *n the pro%ess o$ be*n. settled4 the +MF s!*d *n ! st!tement (esterd!(. The !;er!.e pr*%e to +nd*!4 the b*..est %onsumer4 w!s !bout P14 41 !n oun%e4 !n +MF o$$*%*!l s!*d on ! %on$eren%e %!ll. Gold $or *mmed*!te del*;er( .!*ned .& per%ent. JThe $!ll *n the F.S. doll!r seems to be push*n. !ll the %entr!l b!n"s to stren.then the*r port$ol*o w*th .old4K s!*d N.R. 3h!numurth(4 pro$essor !t the N!t*on!l +nst*tute o$ 'ubl*% F*n!n%e !nd 'ol*%( *n New Delh*. JGold *s ! s!$e store o$ ;!lue %omp!red to the F.S. doll!r.K The +MF s!le !%%ounts $or !lmost h!l$ the 4 0.0 tons th!t the 2!sh*n.ton7b!sed lender *n September !.reed to sell !s p!rt o$ ! pl!n to shore up *ts $*n!n%es !nd lend !t redu%ed r!tes to low7*n%ome %ountr*es. As*!n n!t*ons4 wh*%h h!;e !m!ssed sto%"p*les o$ $ore*.n %urren%( reser;es s*n%e the 1>>- $*n!n%*!l %r*s*s4 h!;e shown *n%re!sed *nterest *n d*;ers*$(*n. out o$ F.S. !ssets !s the doll!r loses ;!lue !.!*nst other %urren%*es. '!.e 11 >E

TLU 'ro%eeds $rom the s!les !nd other +MF resour%es !s well !s *nd*;*du!l %ontr*butors would help p!( $or d*s%ounted *nterest r!tes on lo!ns to low7*n%ome %ountr*es4 the +MF s!*d *n Dul(. +t pl!ns to .r!nt !s mu%h !s P1: b*ll*on *n e?tr! lo!ns to poor n!t*ons throu.h & 14. The 4 0.0 tons the +MF !.reed to sell !mount to one7e*.hth o$ *ts sto%"p*le. JTh*s tr!ns!%t*on *s !n *mport!nt step tow!rd !%h*e;*n. the obCe%t*;es o$ the +MFMs l*m*ted .old s!les pro.r!m4 wh*%h !re to help put the $undMs $*n!n%es on ! sound lon.7term $oot*n. !nd en!ble us to step up mu%h7needed %on%ess*on lend*n. to the poorest %ountr*es4K +MF M!n!.*n. D*re%tor Dom*n*6ue Str!uss7 O!hn s!*d *n !n e7m!*led st!tement. Reser;e M!n!.ement The .old pur%h!se w!s done !s p!rt o$ Reser;e 3!n"Ms $ore*.n e?%h!n.e reser;es m!n!.ement oper!t*ons4 the %entr!l b!n" s!*d *n ! st!tement on *ts 2eb s*te tod!(. +nd*!Ms $ore*.n7e?%h!n.e reser;es !d;!n%ed P6-4 m*ll*on to P&-1.1 b*ll*on *n the wee" ended O%t. &04 the %entr!l b!n" s!*d O%t. 0 . Th!t *n%luded $ore*.n7%urren%( !ssets o$ P&6-.0 b*ll*on4 .old reser;es o$ P1 .0 b*ll*on !nd the spe%*!l dr!w*n. r*.hts w*th the +MF. JThere seems to be %onsensus !mon. the %entr!l b!n"s th!t *tMs better to %ut down on %urren%( hold*n.s !nd d*;ers*$( *nto !ssets l*"e .old4 wh*%h h!s ups*de potent*!l4K Or*shn! Redd(4 ! pre%*ous met!l !n!l(st !t 2!(&2e!lth =ommod*t*es ';t. s!*d *n Mumb!*. JThe Reser;e 3!n" o$ +nd*! .old pur%h!se *s ! %le!r re$le%t*on o$ th*s bel*e$.K Tod!( +nd*! h!s 11:.: tonnes o$ o$$*%*!l .old reser;es4 ;!lued !t more th!n P0 3. 3e$ore the & > +MF s!le *t h!d 01:.: tonnes. +nd*!,s tot!l $ore*.n e?%h!n.e reser;es now st!nd !t P&>634 r!n"*n. *t >th *n the world w*th =h*n! !t \1. A Fe) "hou#ht% +t o%%urs to me th!t +nd*!n s!;ers !re s!;*n. !t $ull %!p!%*t( !nd then someN %!ll *t the s!;*n.s r!te %e*l*n.. The problem *s th!t +nd*!ns l*"e ph(s*%!l .old. You don,t see mu%h p!per .old !t those wedd*n.s4 do (ou@ Gold dem!nd *s .ener!ll( *nel!st*% in currency terms be%!use *ts pr*m!r( use *s !s ! we!lth reser;e. Th*s *s *n %ontr!st to *ndustr*!l met!ls where dem!nd *s rel!t*;el( *nel!st*% *n we*.ht terms. +n other words4 .old $low b( ;olume should be obser;ed to de%l*ne !s the pr*%e r*ses wh*le .old $low b( ;!lue m*.ht rem!*n ste!d(. Yet +nd*!,s .old *nt!"e h!s r*sen $rom P4.13 *n & & to P00.-3 *n & 11. Th!t,s !n -&4Q r*se *n dem!nd in currency terms !t the s!me t*me !s the pr*%e o$ .old *n doll!rs rose onl( !round 6 Q. And th*s wh*le runn*n. ! tr!de de$*%*tE
+nd*!,s 3!l!n%e o$ Tr!de s*n%e & &

'!.e 16

Th*s h!s to be putt*n. tremendous pressure on !n(one wor"*n. to del!( Free.old4 !ssum*n. su%h !n e$$ort e;en e?*sts. + .uess *t,s ! .ood th*n. there !re onl( 1.& b*ll*on +nd*!ns. S*n%erel(4 FOFOA

'!.e 1:

Sunday, February 1@, 2012


Yo 0arren *, you are %o OG!

-ell #e wh+ are we, so $lind to see -hat the ones we hurt, are +ou and #e 7Art*s )eon +;e( Dr. 5!"! =ool*o8 +,d l*"e to s*n%erel( th!n" 2!rren 3u$$et $or so %le!rl( m!"*n. m!n( o$ the po*nts +,;e been tr(*n. to m!"e l!tel( *n h*s most7re%ent subm*ss*on to Fortune m!.!I*ne. +$ !n(one h!sn,t re!d *t (et4 *t,s %!lled ,2h( Sto%"s 3e!t Gold !nd 3onds, !nd (ou %!n re!d *t here. O$ %ourse4 w*th the O*n. o$ 3onds h*msel$ r*n.*n. the %los*n. bell on the bond m!r"et Cust l!st month4 +,m .uess*n. th!t 2!rren w!s !*m*n. !t .old more th!n !t bonds w*th th*s p*e%e. 3less h*s he!rt. Yo 2!rren 34 (ou,re so OG 5but (our !*m !*n,t 6u*te wh!t *t used to be8! Alr*.ht(then4 let,s Cust te!r *nto th*s Cu*%( %!r%!ss !nd h!;e us ! $e!st! 0arren *; +n;est*n. *s o$ten des%r*bed !s the pro%ess o$ l!(*n. out mone( now *n the e?pe%t!t*on o$ re%e*;*n. more mone( *n the $uture. At 3er"sh*re /!th!w!( 53ROA8 we t!"e ! more dem!nd*n. !ppro!%h4 de$*n*n. *n;est*n. !s the tr!ns$er to others o$ pur%h!s*n. power now w*th the re!soned e?pe%t!t*on o$ re%e*;*n. more pur%h!s*n. power 77 after taxes ha e $een paid on no#inal gains 77 *n the $uture. More su%%*n%tl(4 *n;est*n. *s $or.o*n. %onsumpt*on now *n order to h!;e the !b*l*t( to %onsume more !t ! l!ter d!te. +ndeed *t *s! And 9s!;*n.9 5unl*"e 2!rren,s 9*n;est*n.98 *s the $or.o*n. o$ %onsumpt*on now *n order to 'R#S#RA# th!t pur%h!s*n. power $or ! l!ter d!te. The d*$$eren%e between ! s!;er !nd !n *n;estor *s th!t s!;*n. *s the p!ss*;e !%t*;*t( o$ most people wh*le *n;est*n. re6u*res ! toler!n%e $or the r*s" o$ loss !nd !%t*;e4 spe%*!l*Ied "nowled.e !nd $o%us. As + wrote *n both Gl*mps*n. the /ere!$ter !nd The Studeb!"er #$$e%tE 3: sa er is different fro# an in estor or a traderCspeculator. : sa er is one who earns his capital doing whate er it is he does, and then ai#s to preser e that purchasing power until he needs it later. !n estors and traders ai# to earn #ore capital $+ putting their alread+-earned capital at risk in one '!.e 1-

wa+ or another. -his takes a certain a#ount of speciali@ation and focus.3 0arren *; From our de$*n*t*on there $lows !n *mport!nt %oroll!r(E The r*s"*ness o$ !n *n;estment *s not me!sured b( bet! 5! 2!ll Street term en%omp!ss*n. ;ol!t*l*t( !nd o$ten used *n me!sur*n. r*s"8 but r!ther b( the prob!b*l*t( 77 the reasoned prob!b*l*t( 77 o$ th!t *n;estment %!us*n. *ts owner ! loss o$ pur%h!s*n. power o;er h*s %ontempl!ted hold*n. per*od. Assets %!n $lu%tu!te .re!tl( *n pr*%e !nd not be r*s"( !s lon. !s the( !re re!son!bl( %ert!*n to del*;er *n%re!sed pur%h!s*n. power o;er the*r hold*n. per*od. And !s we w*ll see4 ! non$lu%tu!t*n. !sset %!n be l!den w*th r*s". Aer( .ood! Yes! R*s" *s the reasoned prob!b*l*t( th!t (ou w*ll lose pur%h!s*n. power o;er ! per*od o$ t*me. )*sten up *$ (ou h!ppen to be ! 3er"sh*re /!th!w!( *n;estor re!d*n. th*s. + h!;e been spend*n. the l!st three (e!rs wor"*n. out the reasoned pro!a!ility th!t (ou w*ll lose pur%h!s*n. power *n the ne!r $uture w*th (our 3ROA *n;estment. And o;er th!t s!me hold*n. per*od4 ph(s*%!l .old *n (our possess*on *s 9re!son!bl( %ert!*n9 to del*;er ! m!ss*;e *n%re!se *n pur%h!s*n. power. 2!rren *s %orre%t4 non$lu%tu!t*n. !ssets %!n be l!den w*th r*s" wh*le !t %ert!*n t*mes4 the ;er( s!$est !sset w*ll be re;!lued. A.!*n4 !s + wrote *n both Gl*mps*n. the /ere!$ter !nd The Studeb!"er #$$e%tE 3-oda+ the s+ste# is in transition, so +ou can throw +our ideas a$out these differences out the window. -here is no safe #ediu# for si#ple preser ation of purchasing power when the entire s+ste# shifts fro# the old nor#al to the new nor#al. When s+ste#s i#plode, the safest place to $e pa+s off $ig ti#eD3 0arren *; +n;estment poss*b*l*t*es !re both m!n( !nd ;!r*ed. There !re three m!Cor %!te.or*es4 howe;er4 !nd *t,s *mport!nt to underst!nd the %h!r!%ter*st*%s o$ e!%h. So let,s sur;e( the $*eld. +n;estments th!t !re denom*n!ted *n ! .*;en %urren%( *n%lude mone(7m!r"et $unds4 bonds4 mort.!.es4 b!n" depos*ts4 !nd other *nstruments. Most o$ these %urren%(7b!sed *n;estments !re thou.ht o$ !s 9s!$e.9 +n truth the( !re !mon. the most d!n.erous o$ !ssets. The*r bet! m!( be Iero4 but the*r r*s" *s hu.e. O;er the p!st %entur( these *nstruments h!;e destro(ed the pur%h!s*n. power o$ *n;estors *n m!n( %ountr*es4 e;en !s these holders %ont*nued to re%e*;e t*mel( p!(ments o$ *nterest !nd pr*n%*p!l. Th*s u.l( result4 moreo;er4 w*ll $ore;er re%ur. Go;ernments determ*ne the ult*m!te ;!lue o$ mone(4 !nd s(stem*% $or%es w*ll somet*mes %!use them to .r!;*t!te to pol*%*es th!t produ%e *n$l!t*on. From t*me to t*me su%h pol*%*es sp*n out o$ %ontrol. Y!(! 2!rren !nd + !.ree !.!*n! +n;estments denom*n!ted *n %urren%( m!( be nom*n!ll( s!$eR*$ (ou e?pe%t to h!;e ! m*ll*on doll!rs !$ter ! .*;en hold*n. per*od4 (ou 2+)) h!;e ! m*ll*on doll!rs !t th!t $uture t*me4 but (ou m!( onl( be !ble to pur%h!se ! s*n.le roll o$ to*let p!per w*th th!t m*ll*onRbut the*r r*s" *n re!l terms 5pur%h!s*n. power terms8 *s /FG#L espe%*!ll( tod!(! +t !lmost seems l*"e 2!rren h!s been re!d*n. some FOFOA. +n !n( %!se4 here !re ! $ew !ppl*%!ble posts th!t he m*.ht h!;e stud*edE Mone(ness '!.e 1>

De$l!t*on or /(per*n$l!t*on@ 3*. G!p *n Fnderst!nd*n. 2e!"ens De$l!t*on*st Ar.ument Dust Another /(per*n$l!t*on 'ost 7 '!rt 1 Dust Another /(per*n$l!t*on 'ost 7 '!rt & Dust Another /(per*n$l!t*on 'ost 7 '!rt 0 0arren *; #;en *n the F.S.4 where the w*sh $or ! st!ble %urren%( *s stron.4 the doll!r h!s $!llen ! st!..er*n. -6Q *n ;!lue s*n%e 1>614 when + too" o;er m!n!.ement o$ 3er"sh*re. +t t!"es no less th!n P: tod!( to bu( wh!t P1 d*d !t th!t t*me. =onse6uentl(4 ! t!?7$ree *nst*tut*on would h!;e needed 4.0Q *nterest !nnu!ll( $rom bond *n;estments o;er th!t per*od to s*mpl( m!*nt!*n *ts pur%h!s*n. power. +ts m!n!.ers would h!;e been "*dd*n. themsel;es *$ the( thou.ht o$ !n( port*on o$ th!t *nterest !s 9*n%ome.9 Yup! 2!rren,s been !round $or ! lon. t*me4 !lr*.ht. And *t Cust .oes to show how tou.h *t h!s been dur*n. our ent*re l*$et*me $or ! s!;er who s*mpl( w!nts to preser;e her pur%h!s*n. power. She h!s to %h!se ! 4.0Q (*eld e;er( (e!r Cust to st!( e;en! =r!I(4 *sn,t *t@ 2h!t *$ there w!s ! w!( to per$e%tl( preser;e (our pur%h!s*n. power o;er !n( t*me hor*Ion w*thout %h!s*n. ! (*eld@ To wh!t per%ent!.e o$ the popul!t*on do (ou th*n" th!t would !ppe!l@ 3etter (et4 to wh!t per%ent!.e o$ 2!rren 3,s %l*ents do (ou th*n" th!t would !ppe!l@ Dust s!(*n,4 wh!t *$@ 0arren *; For t!?p!(*n. *n;estors l*"e (ou !nd me4 the p*%ture h!s been $!r worse. Dur*n. the s!me 4:7(e!r per*od4 %ont*nuous roll*n. o$ F.S. Tre!sur( b*lls produ%ed 1.:Q !nnu!ll(. Th!t sounds s!t*s$!%tor(. 3ut *$ !n *nd*;*du!l *n;estor p!*d person!l *n%ome t!?es !t ! r!te !;er!.*n. &1Q4 th*s 1.:Q return would h!;e (*elded nothing *n the w!( o$ re!l *n%ome. Th*s *n;estor,s ;*s*ble *n%ome t!? would h!;e str*pped h*m o$ 1.4 po*nts o$ the st!ted (*eld4 !nd the *n;*s*ble *n$l!t*on t!? would h!;e de;oured the rem!*n*n. 4.0 po*nts. +t,s noteworth( th!t the *mpl*%*t *n$l!t*on 9t!?9 w!s more th!n tr*ple the e?pl*%*t *n%ome t!? th!t our *n;estor prob!bl( thou.ht o$ !s h*s m!*n burden. 9+n God 2e Trust9 m!( be *mpr*nted on our %urren%(4 but the h!nd th!t !%t*;!tes our .o;ernment,s pr*nt*n. press h!s been !ll too hum!n. 2ord. The one7t*me t!? on nom*n!l .!*ns *s b!d enou.h4 but the ;!n*sh*n. o$ s!;ers, pur%h!s*n. power throu.h *n$l!t*on *s the re!l "*ller o;er lon. t*me7$r!mes. 3ut wh( (ou .ott! %on$l!te the *ssues o$ re!l *n%ome $rom !n *n;estment !nd s*mpl( prote%t*n. one,s pur%h!s*n. power w*th the le!st r*s"4 OG@ +s th*s p!rt o$ (our .!me@ 2h( (es4 + d!re s!( + th*n" *t *s! 0arren *; /*.h *nterest r!tes4 o$ %ourse4 %!n %ompens!te pur%h!sers $or the *n$l!t*on r*s" the( $!%e w*th %urren%(7b!sed *n;estments 77 !nd *ndeed4 r!tes *n the e!rl( 1>- s d*d th!t Cob n*%el(. =urrent r!tes4 howe;er4 do not %ome %lose to o$$sett*n. the pur%h!s*n.7power r*s" th!t *n;estors !ssume. R*.ht now bonds should %ome w*th ! w!rn*n. l!bel. /oll!4 G! M!(be the w!rn*n. l!bel should re!d B Noth*n. !bout th*s bond4 p!%"!.*n. or %olor should be *nterpreted to me!n s!$er@ /ow ,bout th*s one $or 3er"sh*re /!th!w!( B S!;ers bew!re4 we w*ll tr( to do more th!n preser;e (our pur%h!s*n. power !t the r*s" o$ los*n. (our pur%h!s*n. power4 but e*ther w!(4 + w!s *n $*rst4 +,ll be out $*rst !nd + !lw!(s .et m( %ut@ '!.e 6

0arren *; Fnder tod!(,s %ond*t*ons4 there$ore4 + do not l*"e %urren%(7b!sed *n;estments. #;en so4 3er"sh*re holds s*.n*$*%!nt !mounts o$ them4 pr*m!r*l( o$ the short7term ;!r*et(. At 3er"sh*re the need $or !mple l*6u*d*t( o%%up*es %enter st!.e !nd w*ll ne;er be sl*.hted4 howe;er *n!de6u!te r!tes m!( be. A%%ommod!t*n. th*s need4 we pr*m!r*l( hold F.S. Tre!sur( b*lls4 the onl( *n;estment th!t %!n be %ounted on $or l*6u*d*t( under the most %h!ot*% o$ e%onom*% %ond*t*ons. Our wor"*n. le;el $or l*6u*d*t( *s P& b*ll*onN P1 b*ll*on *s our !bsolute m*n*mum. + w*ll onl( note here th!t4 !lthou.h the l*n" le!ds to d!t! !bout bonds4 2!rren spe%*$*%!ll( wrote !ills wh*%h usu!ll( me!ns ! dur!t*on o$ one4 three or s*? months. S*n%e there *s no FD+= prote%t*on $or %!sh !%%ounts w*th P& b*ll*on4 T7b*lls !re the .u!r!nteed %!sh e6u*;!lent. Th*s4 o$ %ourse4 br*n.s to m*nd O3A,s T*me7=urren%( Theor( re$eren%*n. the subIero7bound P+R] !s well !s m( %on;e(!n%e o$ h*s theor( o;er the (e!rs. 0arren *; 3e(ond the re6u*rements th!t l*6u*d*t( !nd re.ul!tors *mpose on us4 we w*ll pur%h!se %urren%(7rel!ted se%ur*t*es onl( *$ the( o$$er the poss*b*l*t( o$ unusu!l .!*n 77 e*ther be%!use ! p!rt*%ul!r %red*t *s m*spr*%ed4 !s %!n o%%ur *n per*od*% Cun"7bond deb!%les4 or be%!use r!tes r*se to ! le;el th!t o$$ers the poss*b*l*t( o$ re!l*I*n. subst!nt*!l %!p*t!l .!*ns on h*.h7.r!de bonds when r!tes $!ll. Thou.h we,;e e?plo*ted both opportun*t*es *n the p!st 77 !nd m!( do so !.!*n 77 we !re now 1- de.rees remo;ed $rom su%h prospe%ts. Tod!(4 ! wr( %omment th!t 2!ll Streeter Shelb( =ullom D!;*s m!de lon. !.o seems !ptE 93onds promoted !s o$$er*n. r*s"7$ree returns !re now pr*%ed to del*;er return7$ree r*s".9 Ah4 now here we st!rt .ett*n. ! .l*mpse o$ 2!rren,s !%tu!l .!me! Not*%e the word 9m*spr*%ed9 *n the !bo;e %!te.or(. Th*s *s ! "e( to 2!rren,s str!te.(4 wh*%h be.*ns to e?pose the re!son*n. beh*nd wh( he would %hoose to sh!re th*s p!rt o$ h*s sh!reholder newsletter w*th the .ener!l publ*%. + re!l*Ie he,s t!l"*n. !bout bonds here4 but th*s pr*n%*ple !ppl*es to sto%"s !s well 5!lthou.h not ne%ess!r*l( to .old8. 2!rren l*"es to bu( !nd sell th*n.s th!t !re 9m*spr*%ed9. Th!t *s4 he "nows better th!n the m!r"et the true ;!lue o$ th*n.s. And *$ the( !re 9m*spr*%ed9 he *s4 *n $!%t4 m!"*n. mone( o$$ o$ the m*st!"es o$ others *$ he turns out to be %orre%t. 3e!r *n m*nd th!t +,m not Cud.*n. h*m on th*s *ssue per se4 but s*mpl( e?pos*n. h*s .!me *n ! w!( th!t w!s most de$*n*tel( %on%e!led *n th*s l!test 9newsletter9. 2!rren4 l*"e h*s l*euten!nt =h!rl*e M4 w!nts (ou *n the s!me p!per he l*"es to bu( !nd sell so th!t he %!n %!p*t!l*Ie on (our 9m*spr*%*n.9 m*st!"es. As + wrote *n The A!lue o$ Gold4 pr*%e !nd ;!lue !re two d*$$erent th*n.s4 !nd th!t,s 2!rren 3,s .!meE 3Pro$a$l+ the #ost co##on #isconception is that price and alue are the sa#e thing. -he+ are not. -he+ are related $ut different. Price can $e precisel+ known, $ut true alue can onl+ $e esti#ated or guessed. :nd $ecause price changes, price is alwa+s wrong while true alue is alwa+s right, e en though it is unknown. So price and alue are alwa+s different. Jalue is alwa+s either higher or lower than price.3 2!rren w*ll tell (ou th!t *t,s not Cust !bout %!p*t!l .!*ns. 2!rren )OA#S (*elds4 be the( h*.h r!tes o$ *nterest or d*;*dends $rom sto%"s. 3ut the th*n. !bout %h!s*n. (*elds *s th!t the more people %h!s*n.4 '!.e 61

the lower the (*eld .oes4 !nd th!t,s when 2!rren str*"es. Th!t,s when th*n.s be%ome m*spr*%ed. +$ he w!s onl( !$ter (*elds4 he would not w!nt to let the world "now wh!t he,s do*n.. 3ut s*n%e he,s publ*sh*n. h*s dr*;e7b( on .old *n Fortune m!.!I*ne4 + %!n onl( !ssume he,s re!ll( !$ter the %!p*t!l .!*ns th!t w*ll %ome $rom the m*spr*%*n. th!t w*ll result $rom m*ll*ons o$ people $ollow*n. h*s 9!d;*%e9. 0arren *; The se%ond m!Cor %!te.or( o$ *n;estments *n;ol;es !ssets th!t w*ll ne;er produ%e !n(th*n.4 but th!t !re pur%h!sed *n the bu(er,s hope th!t someone else 77 who !lso "nows th!t the !ssets w*ll be $ore;er unprodu%t*;e 77 w*ll p!( more $or them *n the $uture. Tul*ps4 o$ !ll th*n.s4 br*e$l( be%!me ! $!;or*te o$ su%h bu(ers *n the 1:th %entur(. Th*s t(pe o$ *n;estment re6u*res !n e?p!nd*n. pool o$ bu(ers4 who4 *n turn4 !re ent*%ed be%!use the( bel*e;e the bu(*n. pool w*ll e?p!nd st*ll $urther. Owners !re not *nsp*red b( wh!t the !sset *tsel$ %!n produ%e 77 *t w*ll rem!*n l*$eless $ore;er 77 but r!ther b( the bel*e$ th!t others w*ll des*re *t e;en more !;*dl( *n the $uture. 2h!t 2!rren *s re$err*n. to here !re somet*mes %!lled 9h!rd !ssets9. The( !re dur!ble4 ph(s*%!l *tems th!t .ener!ll( hold the*r ;!lue well be%!use people !lw!(s seem to w!nt them. )*"e well7preser;ed %l!ss*% %!rs4 6u!l*t( !nt*6ue $urn*ture or r!re b!seb!ll %!rds4 h!rd !ssets do not .ener!te (*elds l*"e sto%"s !nd bonds. And so 2!rren *s *n;o"*n. the .re!ter $ool theor( w*th re.!rd to h!rd !ssets 5be$ore e;en re;e!l*n. to (ou the spe%*$*% one he,s t!r.et*n.8 to l!( the $ound!t*on th!t YOF !re the $ool *$ (ou th*n" these !re ! w*se w!( to store (our s!;*n.s. +n $!%t4 *$ (ou %l*%" on the .re!ter $ool l*n" !bo;e4 (ou,ll $*nd 2!rren,s n!me r*.ht there *n the l!st l*ne. You m*.ht !lso w!nt to %l*%" throu.h !nd re!d the Oe(nes*!n be!ut( %ontest pr*n%*ple o$ sto%" *n;est*n.. 2!rren tells us l!ter Cust wh!t be!ut*$ul sto%"s loo" l*"e. The( loo" l*"e =o%!7=ol! !nd See,s =!nd(. 3ut *$ too m!n( people %h!se those (*elds4 the( d*s!ppe!r !nd e;en .re!t sto%"s l*"e th!t %!n be%ome m*spr*%ed. And th!t4 m( $r*ends4 *s when OG sells! For e?!mple4 3er"sh*re Cust sold out o$ *ts ent*re pos*t*on *n #??onMob*l !$ter the pr*%e sur.ed 1:Q. 3er"sh*re !lso sold o$$ Dohnson < Dohnson !nd Or!$t sh!res. F*ne %omp!n*es w*th lots o$ e!rn*n.s4 so wh( sell@ As $or =o%!7=ol!4 th!t,s one o$ 3er"sh*re,s b*..est hold*n.s r*.ht now! Dust s!(*n,. 0arren *; The m!Cor !sset *n th*s %!te.or( *s .old4 %urrentl( ! hu.e $!;or*te o$ *n;estors who $e!r !lmost !ll other !ssets4 espe%*!ll( p!per mone( 5o$ whose ;!lue4 !s noted4 the( !re r*.ht to be $e!r$ul8. Gold4 howe;er4 h!s two s*.n*$*%!nt short%om*n.s4 be*n. ne*ther o$ mu%h use nor pro%re!t*;e. True4 .old h!s some *ndustr*!l !nd de%or!t*;e ut*l*t(4 but the dem!nd $or these purposes *s both l*m*ted !nd *n%!p!ble o$ so!"*n. up new produ%t*on. Me!nwh*le4 *$ (ou own one oun%e o$ .old $or !n etern*t(4 (ou w*ll st*ll own one oun%e !t *ts end. AM#N! Th!n" (ou brother. C62 you o)n one oun.e o2 #o'd 2or an etern$ty, you )$'' %t$'' o)n one oun.e at $t% end.C 2!rren,s words4 not m*ne. 3ut +,ll bet (ou th!t + w*ll be m*l"*n. th*s 6uote $or ! lon. t*me to %ome! Remember e!rl*er + !s"ed4 3What if there was a wa+ to perfectl+ preser e +our purchasing power o er an+ ti#e hori@on without chasing a +ield8 -o what percentage of the population do +ou think that would appeal83 2ell4 wh!t *$ ph(s*%!l .old4 th!t s*n.ul!r h!rd !sset th!t *s !lso held b( %entr!l b!n"s '!.e 6&

5pre%*sel( 3#=AFS# *t h!s the $ewest *ndustr*!l uses84 w!s on *ts w!( to be%om*n. the s*n.ul!r .lob!l re$eren%e po*nt $or pur%h!s*n. power4 *nste!d o$ the doll!r w*th e;er(one %h!s*n. ! 1.:Q !nnu!l (*eld m!"*n. *t h!rder !nd h!rder to %!t%h@ ";% you own one ounce o% gold %or an eternity& you will still own one ounce at its end." +n other words4 per$e%tl( preser;ed pur%h!s*n. power. See@ 'le!se re!d m( post Re$eren%e 'o*nt Re;olut*on $or more on th*s tr!ns*t*on that-% a'ready under)ay. /ere *s wh!t + !m su..est*n.. Th!t 2!rren 3u$$et *s the one4 re.!rdless o$ h*s protest!t*ons to the %ontr!r(4 who *s pr!%t*%*n. the .re!ter $ool theor( !nd the Oe(nes*!n be!ut( %ontest pr*n%*ple o$ *n;est*n. wh*le we4 m( $r*ends4 !re the ones who !re sm!rtl( $ront runn*n. the networ" e$$e%t 5!"! dem!nd7s*de e%onom*es o$ s%!le8 !nd the $o%!l po*nt tr!ns$orm!t*on o$ the b*..est th*n. *n ! thous!nd (e!rs. 0arren *; 2h!t mot*;!tes most .old pur%h!sers *s the*r bel*e$ th!t the r!n"s o$ the $e!r$ul w*ll .row. Dur*n. the p!st de%!de th!t bel*e$ h!s pro;ed %orre%t. 3e(ond th!t4 the r*s*n. pr*%e h!s on *ts own .ener!ted !dd*t*on!l bu(*n. enthus*!sm4 !ttr!%t*n. pur%h!sers who see the r*se !s ;!l*d!t*n. !n *n;estment thes*s. As 9b!ndw!.on9 *n;estors Co*n !n( p!rt(4 the( %re!te the*r own truth 77 for a while. On the %ontr!r(4 home(4 *t,s th!t the doll!r *s so o;er;!lued be%!use o$ the sheer we*.ht brou.ht on b( the $!%t th!t !ll doll!r 9we!lth9 h!s ! %ounterp!rt(4 !nd th!t those %ounterp!rt*es *n !..re.!te %!n,t 'OSS+3)Y per$orm to e?pe%t!t*ons *n re!l terms4 th!t ! m!ss*;e !dCustment *s not onl( *ne;*t!ble4 but lon. o;erdue. #A#RYT/+NG *s m*spr*%ed r*.ht now be%!use the doll!r *s so m!ss*;el( o;er;!lued !t present. And wh*le + %!n,t spe!" $or !ll .old *n;estors4 +,m not bu(*n. .old be%!use + th*n" the r!n"s w*ll .row. +n $!%t4 + th*n" the r!n"s w*ll A3ANDON 9.old9 !t the worst t*me *n !ll o$ h*stor(. As + wrote *n ! re%ent %omment4 9M( s%en!r*oL A)) T5A:15S dump A)) .old4 p!per4 ph(s*%!l4 wh!te;er4 *n m( s%en!r*o. +t h!s noth*n. to do w*th *ns*ders. +t h!s to do w*th tr!ders !nd we!" h!nds.9 3ut th!t,s ! d*$$*%ult %on%ept to wr!p (our he!d !round. +$ (ou,d l*"e to tr(4 + wrote !bout *t *n m( & 1 post4 The Shoesh*ne 3o(. The po*nt here *s th!t the true .old thes*s *s not 9the bel*e$ th!t the r!n"s o$ the $e!r$ul w*ll .row.9 Th!t *s s*mpl( 2!rren 3u$$et,s un$ortun!te m*sunderst!nd*n. o$ the .old thes*s. 0arren *; O;er the p!st 11 (e!rs4 both +nternet sto%"s !nd houses h!;e demonstr!ted the e?tr!ord*n!r( e?%esses th!t %!n be %re!ted b( %omb*n*n. !n *n*t*!ll( sens*ble thes*s w*th well7publ*%*Ied r*s*n. pr*%es. +n these bubbles4 !n !rm( o$ or*.*n!ll( s"ept*%!l *n;estors su%%umbed to the 9proo$9 del*;ered b( the m!r"et4 !nd the pool o$ bu(ers 77 $or ! t*me 77 e?p!nded su$$*%*entl( to "eep the b!ndw!.on roll*n.. 3ut bubbles blown l!r.e enou.h *ne;*t!bl( pop. And then the old pro;erb *s %on$*rmed on%e !.!*nE 92h!t the w*se m!n does *n the be.*nn*n.4 the $ool does *n the end.9 +t *s so *n%red*bl( str*"*n. to me th!t 9the best o$ the best49 the Or!%le o$ Om!h! h*msel$4 *s st*ll re%*t*n. these s!me t*red old !r.uments. +t s*mpl( de$*es lo.*% th!t 2!rren 3u$$et *s %omp!r*n. .old to the hous*n. !nd dot7%om bubbles to s!;e (ou out o$ the .oodness o$ h*s he!rt. +$ he doesn,t w!nt (ou en.!.*n. *n ! 9bubble94 *t,s onl( be%!use he w!sn,t there $*rst. +n $!%t4 there !re plent( o$ .old bu.s who !%tu!ll( T/+NO .old w*ll e;entu!ll( be ! bubble4 !nd th!t,s pre%*sel( wh( the(,re *n *t. 3ut not me. '!.e 60

More th!n two (e!rs !.o + debun"ed the r*d*%ulous !nd sh!llow %omp!r*son o$ .old to p!st bubbles *n GoldE The Flt*m!te Fn73ubbleE 3:nd since gold production cannot $e ra#ped up to #eet de#and like it can in $u$$licious ite#s, there is no reason for gold to fall $ack. 2old #ining does not de$ase gold in the sa#e wa+ that dollars, tulips, ho#es, "ot Io# !P)4s or go ern#ent $onds are de$ased through production. 0ine production is taken fro# known reser es that are alread+ alued, owned and traded, and all gold on the planet /arth is a fixed a#ount, the sa#e fixed a#ount it was a #illion +ears ago. :ll we do is #o e it around, like poker chips on a ta$le, to those sa ers that alue it the #ost. 9urther#ore, the price of gold is co#pletel+ ar$itrar+. -his #eans that gold can go as high as the people of /arth want to take it without /J/R exceeding o$;ecti e aluations $+ co##on #etrics like earnings, interest or the su# alue of its co#ponent ele#ents. 2old !S the ele#ent. !t cannot $e $roken down further, except perhaps $+ the L1I. )ne of the #ost co##on criticis#s of gold4s use as an in est#ent is that it cannot $e alued the wa+ stocks, $onds and real estate can. -he+ are all co##onl+ alued $+ their +ields, and gold has no +ield, therefore it cannot $e fairl+ alued, or so the argu#ent goes. <ut if we in ert this argu#ent then gold can ne er $e )J/R alued either, whilst those other things can, and are... in a $u$$leD -he price of gold is ar$itrar+, ergo, there is no such thing as a gold $u$$le.3 O$ %ourse th!t *s not the whole stor(4 *t,s onl( ! te!ser $rom the post. 3ut the po*nt *s th!t *$ 2!rren 3u$$et *s trul( !;o*d*n. .old be%!use he th*n"s *t,s ! bubble l*"e 'ets.%om or M*!m* %ondos4 (ou should re!ll( 6uest*on #A#RYT/+NG th!t %omes out o$ h*s mouth. Now + w*ll !dm*t th!t 'A'#R .old *s ! bubble4 but ph(s*%!l .old@ Ne;er! 0arren *; Tod!( the world,s .old sto%" *s !bout 1: 4 metr*% tons. +$ !ll o$ th*s .old were melded to.ether4 *t would $orm ! %ube o$ !bout 6- $eet per s*de. 5'*%ture *t $*tt*n. %om$ort!bl( w*th*n ! b!seb!ll *n$*eld.8 At P14:1 per oun%e 77 .old,s pr*%e !s + wr*te th*s 77 *ts ;!lue would be !bout P>.6 tr*ll*on. =!ll th*s %ube p*le A. )et,s now %re!te ! p*le 3 %ost*n. !n e6u!l !mount. For th!t4 we %ould bu( all F.S. %ropl!nd 54 m*ll*on !%res w*th output o$ !bout P& b*ll*on !nnu!ll(84 plus 16 #??on Mob*ls 5the world,s most pro$*t!ble %omp!n(4 one e!rn*n. more th!n P4 b*ll*on !nnu!ll(8. A$ter these pur%h!ses4 we would h!;e !bout P1 tr*ll*on le$t o;er $or w!l"*n.7!round mone( 5no sense $eel*n. str!pped !$ter th*s bu(*n. b*n.e8. =!n (ou *m!.*ne !n *n;estor w*th P>.6 tr*ll*on sele%t*n. p*le A o;er p*le 3@ No4 !nd ne*ther %!n + *m!.*ne ! s!;er w*th ! re.ul!r Cob4 ! l*$e to l*;e4 !n !;ers*on to r*s" !nd ! des*re to merel( preser;e h*s pur%h!s*n. power w!nt*n. to own ! bun%h o$ o*l !nd $!rm*n. %omp!n*es. 3es*des4 *$ #??on Mob*l *s so pro$*t!ble4 wh( d*d 2!rren Cust sell h*s ent*re st!"e *n *t@ =ould *t be th!t e;en pro$*t!ble %omp!n*es be%ome m*spr*%ed 5o;er;!lued8 when e;er(one *s %h!s*n. ! (*eld@ O"!( 2!rren4 %!n + *m!.*ne !n *n;estor w*th P>.6 tr*ll*on bu(*n. !ll the .old *n the world@ O$ %ourse '!.e 64

not. No %ho*%e %ould be more stup*d *$ su%h ! person %ould e?*st. As + h!;e wr*tten m!n( t*mes4 .old would be %ompletel( worthless *$ one person 5or e;en Cust ! $ew people8 owned *t !ll. Gold,s .re!test ;!lue %omes $rom *ts w*dest d*str*but*on !mon.st s!;ers4 !nd the .re!ter the ;!lue4 the more e$$*%*entl( .old per$orms *ts pr*m!r( $un%t*on. +t *s ! ;*rtuous !nd sel$7sust!*n*n. $eedb!%" loop. From Rel!t*;*t(E 2h!t *s 'h(s*%!l Gold R#A))Y 2orth@E 3)ne of the uni.ue characteristics of gold that sets it apart fro# co##odities is that its pri#ar+ use store of alue - has no weight or #ass re.uire#ents. !n co##odities, where industr+ is the pri#ar+ user, weight is critical. KBL )ne ounce Kof goldL could do ;ust as good of a ;o$ as %>> ounces. !n fact, one ounce would do a </--/R ;o$ than %>> ouncesD -he less gold it takes to store +our alue, the $etter it does its ;o$. -his particular Egold d+na#icF sets it apart fro# all co##odities. )ne ounce would store +our alue #ore efficientl+ and sta$l+ than %>> ounces $ecause :7 +our storage and securit+ costs would $e lower 6efficienc+7, and <7 if one ounce is worth M%>>,>>> then that infers gold is $eing alued $+ #an+ #ore people relati e to when it was M%,>>> per ounce. -his wider distri$ution $rings with it a #ore sta$le $ase of aluation and less relati e olatilit+ in price 6sta$ilit+7. Io#paring this Egold d+na#icF to an+ industrial or food co##odit+ we can see a stark difference. What co##odit+ could perfor# its ;o$ </--/R at a price %>>x higher than toda+8 Ian +ou na#e one83 And $rom ! %omment *n & >E

32old would not $e alua$le if one person owned all of it. !t is #ost alua$le in its widest distri$ution possi$le, the wealth reser e, which re.uires a #uch higher aluation than it has right now. : higher aluation deno#inated in hard assets, not ;ust fiat currenciesD3 And !nother %omment $rom & 1 E 3Just look at the <!S4 own gold actions. -heir owned gold hoard has shrunk fro# %'U tonnes to %(> tonnes o er the last H +ears, as has the entire /uros+ste#4s hoard o er the last decade 6fro# %(,NRH tonnes down to %>,&,, tonnes7. 0ost gold #o e#ents in /urope ha e either $een lateral reshuffling or dishoarding and encouraging citi@ens and other entities to start hoarding ph+sical gold the#sel es. ! ha e written this $efore... if +ou were Aing of the World with ,N,>>> tonnes of gold in a world of %H>,>>> tonnes, +ou would gladl+ - happil+ - reduce +our 3stash3 to %>,>>> tonnes if that reduction ca#e with a N>x re aluation. -r+ing to get :LL the gold into +our hoard is a fool4s strateg+.3 )*"e + s!*d4 2!rren4 bu(*n. !ll the .old *n the world would be !bout the dumbest th*n. su%h !n $n9e%tor %ould poss*bl( do4 "*nd! l*"e ! do%tor own*n. !n o*l %omp!n( !nd %!ll*n. *t s!;*n.s. 0arren *; 3e(ond the st!..er*n. ;!lu!t*on .*;en the e?*st*n. sto%" o$ .old4 %urrent pr*%es m!"e tod!(,s !nnu!l produ%t*on o$ .old %omm!nd !bout P16 b*ll*on. 3u(ers 77 whether '!.e 61

Cewelr( !nd *ndustr*!l users4 $r*.htened *nd*;*du!ls4 or spe%ul!tors 77 must %ont*nu!ll( !bsorb th*s !dd*t*on!l suppl( to merel( m!*nt!*n !n e6u*l*br*um !t present pr*%es. /!h!h!! 3,s worr*ed !bout who,s .onn! bu( up the !nnu!l ph(s*%!l .old produ%t*on@ /ow !bout who,s .onn! "eep bu(*n. the !nnu!l p!per produ%t*on be!r*n. dub*ous %ounterp!rt*es *n the upper le$t7h!nd %orner@ + th*n" *t,s 2!rren 3 who *s worr*ed !bout who,s .onn! "eep bu(*n. the stu$$ he's *nto. 2*th well o;er P1 T *n %!sh4 %!sh e6u*;!lents4 debt !nd e6u*t( *n;estments pos*n. !s s!;*n.s $or the r*s"7!;erse4 + th*n" *t,s more th!n s!$e to s!( th!t ANOT/#R h!d *t e?!%tl( r*.ht when he s!*d th!t the p!ltr( P16 b*ll*on $low o$ .old *s 5!nd h!s been $or ! lon. t*me8 %ornered. /e%"4 ne!rl( ! th*rd o$ th!t *s .o*n. to +nd*! !lone4 !nd the( !ren,t e;en one o$ the surplus n!t*ons l*"e S!ud* Ar!b*!4 Germ!n( or =h*n!! 0arren *; A %entur( $rom now the 4 m*ll*on !%res o$ $!rml!nd w*ll h!;e produ%ed st!..er*n. !mounts o$ %orn4 whe!t4 %otton4 !nd other %rops 77 !nd w*ll %ont*nue to produ%e th!t ;!lu!ble bount(4 wh!te;er the %urren%( m!( be. #??on Mob*l 5]OM8 w*ll prob!bl( h!;e del*;ered tr*ll*ons o$ doll!rs *n d*;*dends to *ts owners !nd w*ll !lso hold !ssets worth m!n( more tr*ll*ons 5!nd4 remember4 (ou .et 16 #??ons8. The 1: 4 tons o$ .old w*ll be un%h!n.ed *n s*Ie !nd st*ll *n%!p!ble o$ produ%*n. !n(th*n.. You %!n $ondle the %ube4 but *t w*ll not respond. Fondle the %ube@ Alr*.ht(then4 no more Mr. N*%e.u( here e*ther. On%e !.!*n4 2!rren4 wh( d*d (ou sell #??on *$ *t,s so .re!t !nd s!;*n. mone( *s !ll !bout d*;*dends !nd e!rn*n.s r!ther th!n t!"*n. 5O'M8 mone( $rom the .re!ter $ool@ 2h!t ! h(po%r*te! +s *t !lso poss*ble th!t %omp!n*es %!n be m*sm!n!.ed4 l*"e4 s!(4 3A=@ /ere !re ! $ew other 9.ood %omp!n*es9 th!t 3er"sh*re dumped s*n%e *t 53ROA8 too" ! 1 Q nose7d*;e *n & - 5!%tu!ll( l!te & : to e!rl( & >8E N*"e4 =om%!st4 )owes4 /ome Depot. And *n %!se (ou !re st*ll under the *llus*on th!t OG *s !ll !bout sol*d4 bene;olent !n!l(s*s r!ther th!n pol*t*%!l mon*es $or OG,s po%"et4 h*s %omp!n( *s st*ll the l!r.est sh!reholder *n 2ells F!r.o 5NYS#E 2F=8 !nd 9he h!s pr!%t*%!ll( bou.ht !t !n( %h!n%e he .ets.9 Noth*n. !.!*nst 2ells F!r.o 5+ h!;e !n !%%ount there8 but th*s4 %omb*ned w*th h*s dr*;e7b( !ss!ult on .old 5the h!rd !sset pre$erred b( those who !%tu!ll( produ%e stu$$8 should settle !n( deb!te !bout whether or not he %!rr*es ! b*!s *n h*s b!..!.e. 0arren *; Adm*ttedl(4 when people ! %entur( $rom now !re $e!r$ul4 *t,s l*"el( m!n( w*ll st*ll rush to .old. +,m %on$*dent4 howe;er4 th!t the P>.6 tr*ll*on %urrent ;!lu!t*on o$ p*le A w*ll %ompound o;er the %entur( !t ! r!te $!r *n$er*or to th!t !%h*e;ed b( p*le 3. 9'*le A9 does not %ompound. +t s*mpl( rem!*ns. Remember@ ";% you own one ounce o% gold %or an eternity& you will still own one ounce at its end." Th!t s!*d4 there,s no .u!r!ntee th!t p*le 3 w*ll be worth more th!n p*le A *n 1 (e!rs. A lot %!n h!ppen *n 1 (e!rs4 w!rs4 h(per*n$l!t*ons4 %omp!n*es .o b!n"ruptL +$ (ou were to be put *nto ! deep sleep %om!7l*"e st!te $or ! %entur(4 !nd (ou h!d tr*ll*ons *n we!lth4 wh*%h p*le would (ou p*%" to shuttle (our we!lth throu.h 1 (e!rs@ 0arren *; Our $*rst two %!te.or*es enCo( m!?*mum popul!r*t( !t pe!"s o$ $e!rE Terror '!.e 66

o;er e%onom*% %oll!pse dr*;es *nd*;*du!ls to %urren%(7b!sed !ssets4 most p!rt*%ul!rl( F.S. obl*.!t*ons4 !nd $e!r o$ %urren%( %oll!pse $osters mo;ement to ster*le !ssets su%h !s .old. 2e he!rd 9%!sh *s "*n.9 *n l!te & -4 Cust when %!sh should h!;e been deplo(ed r!ther th!n held. S*m*l!rl(4 we he!rd 9%!sh *s tr!sh9 *n the e!rl( 1>- s Cust when $*?ed7doll!r *n;estments were !t the*r most !ttr!%t*;e le;el *n memor(. On those o%%!s*ons4 *n;estors who re6u*red ! support*;e %rowd p!*d de!rl( $or th!t %om$ort. And $*n!ll(4 here,s the !r.ument th!t onl( /elen Oeller %ould bel*e;e4 th!t tod!(,s %ontr!r*!n *s st!(*n. !s $!r !w!( $rom .old !s poss*ble. #spe%*!ll( th!t ph(s*%!l .old. )oo" !t the l*nes to bu( .old !t the de!lers. The( wr!p !round the blo%". You %!n,t $*nd ! pl!%e to e!t these d!(s w*thout h!;*n. some dolt !t the ne?t t!ble t!l"*n. !bout .old. /e%"4 e;en the shoesh*ne bo( %!n tell (ou wh!t %o*ns !re best !nd where to bu(. +t,s ob;*ousl( ! bubble. Ye!h4 r*.ht. 0arren *; M( own pre$eren%e 77 !nd (ou "new th*s w!s %om*n. 77 *s our th*rd %!te.or(E *n;estment *n produ%t*;e !ssets4 whether bus*nesses4 $!rms4 or re!l est!te. +de!ll(4 these !ssets should h!;e the !b*l*t( *n *n$l!t*on!r( t*mes to del*;er output th!t w*ll ret!*n *ts pur%h!s*n.7power ;!lue wh*le re6u*r*n. ! m*n*mum o$ new %!p*t!l *n;estment. F!rms4 re!l est!te4 !nd m!n( bus*nesses su%h !s =o%!7=ol! 5OO84 +3M 5+3M84 !nd our own See,s =!nd( meet th!t double7b!rreled test. =ert!*n other %omp!n*es 77 th*n" o$ our re.ul!ted ut*l*t*es4 $or e?!mple 77 $!*l *t be%!use *n$l!t*on pl!%es he!;( %!p*t!l re6u*rements on them. To e!rn more4 the*r owners must *n;est more. #;en so4 these *n;estments w*ll rem!*n super*or to nonprodu%t*;e or %urren%(7b!sed !ssets. 3( super*or4 he me!ns th!t he ;*ews *n;est*n. !s super*or to s!;*n.. /e *s4 !$ter !ll4 !n e?tr!ord*n!r( *n;estor. 3ut most o$ h*s !ud*en%e *s4 *n $!%t4 m!de up o$ s!;ers. As $!r !s s!;*n.s .o4 $or the ne!r $uture 5*.e.4 the tr!ns*t*on per*od8 .old w*ll be $!r super*or to 2!rren,s *n;estments !s the tr!ns*t*on br*n.s R#A) .!*ns o$ tremendous ;!lue to those who hold the .oods. And *n the d*st!nt $uture4 ph(s*%!l .old w*ll be ! $!r super*or s!;*n.s med*um !s *t w*ll be the ;er( ben%hm!r" o$ pur%h!s*n. power e;er(where. +n th!t $uture4 own*n. %omp!n*es w*ll potent*!ll( br*n. (ou re!l returns where!s .old w*ll not. 3ut *t w*ll !lso %!rr( r*s"s !nd respons*b*l*t*es. And *$ (ou %!rr( .old $rom here *nto th!t $uture4 (ou w*ll be one o$ the $ortun!te $ew $!%ed w*th th!t %ho*%e. 0arren *; 2hether the %urren%( ! %entur( $rom now *s b!sed on .old4 se!shells4 sh!r" teeth4 or ! p*e%e o$ p!per 5!s tod!(84 people w*ll be w*ll*n. to e?%h!n.e ! %ouple o$ m*nutes o$ the*r d!*l( l!bor $or ! =o%!7=ol! or some See,s pe!nut br*ttle. +n the $uture the F.S. popul!t*on w*ll mo;e more .oods4 %onsume more $ood4 !nd re6u*re more l*;*n. sp!%e th!n *t does now. 'eople w*ll $ore;er e?%h!n.e wh!t the( produ%e $or wh!t others produ%e. Absolutel( true! +n $!%t4 th*s *s the Debtors < S!;ers Zone he *s des%r*b*n.. The p!rt o$ the p(r!m*ds o%%up*ed b( e;er(one!

'!.e 6:

2h!t,s m*ss*n. *n h*s des%r*pt*on *s wh!t the s!;ers w*ll tr!de !mon.st themsel;es to per$e%tl( preser;e the*r pur%h!s*n. power dur*n. per*ods o$ de$erred %onsumpt*on. Sure4 someone w*ll own !ll those %omp!n*es OG lo;es so mu%h. And l*"e + s!*d4 *$ (ou %!rr( some o$ th!t ph(s*%!l .old $rom here *nto th!t $uture4 *t m*.ht Cust be (ou! 0arren *; Our %ountr(,s bus*nesses w*ll %ont*nue to e$$*%*entl( del*;er .oods !nd ser;*%es w!nted b( our %*t*Iens. Met!phor*%!ll(4 these %ommer%*!l 9%ows9 w*ll l*;e $or %entur*es !nd .*;e e;er .re!ter 6u!nt*t*es o$ 9m*l"9 to boot. The*r ;!lue w*ll be determ*ned not b( the med*um o$ e?%h!n.e but r!ther b( the*r %!p!%*t( to del*;er m*l". 'ro%eeds $rom the s!le o$ the m*l" w*ll %ompound $or the owners o$ the %ows4 Cust !s the( d*d dur*n. the & th %entur( when the Dow *n%re!sed $rom 66 to 1144>: 5!nd p!*d lo!ds o$ d*;*dends !s well8. O$ %ourse the( w*ll4 2!rren! No one !t th*s blo. *s pred*%t*n. the %oll!pse o$ modern so%*et(. The .old thes*s d*s%ussed here *s !bout th!t wh*%h *s m*spr*%ed 5o;er;!lued or under;!lued8 %om*n. b!%" *n l*ne w*th re!l*t(. The doll!r *s o;er;!lued !nd ph(s*%!l .old *s under;!lued. + des%r*bed *t !s ! sees!w *n The Studeb!"er #$$e%tE 3"e aluations pla+ out like a seesaw. -here is a force 6the crisis de aluation7, a fulcru# 6what is $eing de alued against7, and a load 6the $eneficiar+ or the winner7.3

'!.e 6-

Th!t $ul%rum *s the ph(s*%!l pl!ne o$ .oods !nd ser;*%es *n !..re.!te. #;er(th*n. *s m*spr*%ed tod!(4 some th*n.s more th!n others. 3ut *$ we loo" !t how 2!rren,s $!;or*te *n;estments4 %omp!n( sto%"s4 %!rr*ed throu.h p!st de;!lu!t*ons4 we $*nd th!t wh*le the( ob;*ousl( do mu%h better th!n %urren%( or %urren%(7b!sed *n;estments l*"e bonds4 the( don,t do 6u*te !s well !s h!rd !ssets !nd the( don,t e;en preser;e pur%h!s*n. power. 'erh!ps *t,s be%!use !n o;er;!lued %urren%( !lso tends to o;er;!lue *ts e%onom(. /ere,s ! b*t $rom m( post Gree%e *s the 2ord on how 2!rren,s e6u*t*es m*.ht $!re dur*n. the %urren%( de;!lu!t*on he e?pe%tsE 93ut wh!t !bout the sto%" m!r"et@ Someone em!*led me s!(*n.4 3"uring a currenc+ crisis in the western world, we #a+ see a er+ powerful stock #arket rall+ as e.uities are a for# of real asset. <etter to own a piece of Procter and 2a#$le than a unit of currenc+ that can de alue .uickl+. Look to the :rgentina general e.uit+ #arket 0/RJ:L index during the peso crisis. !t shot up * although not as #uch as the ,Q% currenc+ de aluation.3 The wr*ter !nswered h*s own po*nt. The sto%" m!r"et shot up )#SS th!n the %urren%( de;!lued. So wh*le the sto%" m!r"et *n Ar.ent*n! per$ormed MF=/ better th!n debt $*?ed to the ;!lue o$ the %urren%(4 *t onl( %h!sed 7 !nd l!..ed 7 !%tu!l *n$l!t*on. 5A%tu!ll(4 short term h(per*n$l!t*on.8Th*s *s p!rtl( be%!use the e%onom( *s usu!ll( *n sh!mbles !t the t*me o$ ! %urren%( de;!lu!t*on. So wh*le (ou would e?pe%t re!l th*n.s l*"e re!l %omp!n*es to %ompens!te $or ! $!ll*n. %urren%(4 (ou must !lso we*.h *n !n( pre;*ous bubbl*n. th!t m*.ht de$l!te !nd !n( e%onom*% $!%tors th!t m*.ht redu%e %omp!n( pro$*ts. 3ut Ar.ent*n! *s st*ll ! .ood e?!mple $or us to loo" !t. +n D!nu!r( o$ & & the %urren%( de;!lued 0E1. At the s!me t*me the sto%" m!r"et rose *n response to the de;!lu!t*on !nd then st!(ed up 5be%!use the %urren%( st!(ed down8. 3ut wh!t *s *nterest*n. !bout Ar.ent*n! *s th!t Cust pr*or to the de;!lu!t*on4 *n De%ember o$ & 14 *n$l!t*on d*pped *nto ne.!t*;e terr*tor( 5de$l!t*on@8 !nd the sto%" m!r"et d*pped !s well. Then the( !lmost *mmed*!tel( e?ploded out o$ th*s he!d7$!"e *n !n une?pe%ted de;!lu!t*on. See the %h!rts. The $*rst *s the M#RAA) !nd the se%ond *s ='+E

'!.e 6>

/mm... loo" $!m*l*!r@ 3ottom l*neE The sto%" m!r"et4 be%!use *t represents e6u*t( not debt4 w*ll $!re mu%h better th!n the rest o$ the p!per world. 3ut the sto%" m!r"et does su$$er $rom d*lut*on4 m!n*pul!t*on !nd bubbles. #?pe%t the sto%" m!r"et to l!n.u*sh *n e%onom*% %h!os !s *t %h!ses re!l *n$l!t*on onl( to $!ll ! l*ttle short. 3ut .old *s d*$$erent. The s(stem desper!tel( needs ! %ounterwe*.ht4 !nd .old *s *t. The %ounter *s !lre!d( *n pl!%e4 onl( the we*.ht *s (et to %ome. And on%e we h!;e seen the reset *n .old !s *t per$orms *ts ph!se tr!ns*t*on $rom %ommod*t( to we!lth reser;e4 *t w*ll then %h!se 5h(per8*n$l!t*on !lon. w*th the rest o$ the 9non7doll!r9 world4 onl( *t w*ll be the ON# AND ON)Y T/+NG th!t w*ll be *mmune to the e%onom*% mess th!t w*ll st*ll need to be wor"ed out.9 So wh!t we %!n do *s to pl!%e 2!rren,s $!;s Cust to the le$t o$ the $ul%rum on the sees!w. The( won,t de;!lue mu%h *n re!l terms4 but the( !lso won,t $!re e;en !s well !s bor*n. old h!rd !ssets l*"e !nt*6ue $urn*ture 5+,m sure he,ll Cust lo e th*s one8E

'!.e :

0arren *; 3er"sh*re,s .o!l w*ll be to *n%re!se *ts ownersh*p o$ $*rst7%l!ss bus*nesses. Our $*rst %ho*%e w*ll be to own them *n the*r ent*ret( 77 but we w*ll !lso be owners b( w!( o$ hold*n. s*I!ble !mounts o$ m!r"et!ble sto%"s. + bel*e;e th!t o;er !n( e?tended per*od o$ t*me th*s %!te.or( o$ *n;est*n. w*ll pro;e to be the run!w!( w*nner !mon. the three we,;e e?!m*ned. More *mport!nt4 *t w*ll be b( $!r the s!$est. And thus ends 2!rren 3,s dr*;e7b( !ss!ult on .old. 2h!t do (ou th*n"@ D*d he h*t h*s t!r.et@ So )here $% 0arren .om$n# 2romD Tr( to *m!.*ne ! b*I!rro world where we s*mult!neousl( en%our!.e e;er(one to %onsume !s mu%h !s poss*ble throu.h debt 5be%!use4 ldo4 %onsumpt*on *s the en.*ne o$ the Amer*%!n e%onom(8 !nd !lso to s!;e th!t s!me debt throu.h #R+SA !nd 4 15"8s. 2h!t (ou end up w*th *s ! whole so%*et( o$ people de$err*n. %onsumpt*on 5s!;*n.8 on the one h!nd4 !nd pull*n. *nto the present th!t ;er( s!me $uture %onsumpt*on the( s!;ed on the other. You end up w*th underw!ter homeowners w*th ne.!t*;e net7 worths !nd hundreds o$ thous!nds s*tt*n. *n the*r 4 15"8 or +RA. 2*th e;er(one %h!s*n. ! (*eld4 be *t throu.h *nterest r!tes on %urren%( *n;estments or d*;*dends $rom e6u*t*es4 (ou e;entu!ll( dr*;e !ll those (*elds to Iero. )u%"*l( $or the 2!rren 3u$$ets o$ the world4 most o$ th!t 9s!;*n.s9 "nows no better th!n to $lo!t !round *n 2!rren,s world4 where 2!rren not onl( .ets h*s m!n!.ement %ut4 but he %!n !lso m!"e !m!I*n. %!p*t!l .!*ns !s those 9s!;*n.s9 slosh !round m*spr*%*n. one th*n. !$ter !nother. Now th*n" !bout th!t person4 let,s %!ll h*m 3ob4 w*th P& 1O *n debt !nd !lso ! P& O pens*on or +RA throu.h wor". +n essen%e4 he %ould be !lmost debt7$ree were *t not $or h*s 9s!;*n.s9. 3ut then *$ th!t were the %!se4 2!rren wouldn,t h!;e th!t P& O slosh*n. !round *n 2!rren,s world. Th*s *s4 o$ %ourse4 onl( ! ment!l e?er%*se *n how *n!ne 5or should + s!( *ns!ne@8 the 2estern $*n!n%*!l s(stem re!ll( *s. 2h*%h %!mp do (ou th*n" 3ob *s *n@ The Debtors or the S!;ers@ And wh!t would be the st!te o$ 2!rren,s %omp!n( ;!lu!t*ons were *t not $or !ll th*s !dd*t*on!l 9s!;*n.s9 slosh*n. !round@ /ow !bout the (*elds !;!*l!ble $or re!l s!;ers@ 'erh!ps there would be some (*elds to be $ound were *t not $or 3ob !nd h*s 9s!;*n.s9@ The po*nt *s th!t %omp!n*es !re not de $!%to .ood *n;estments Cust be%!use the( m!"e th*n.s. The( %!n be%ome o;er;!lued when %h!sed b( too mu%h mone( !nd th!t,s when 2!rren sells. 2!rren t!l"s ! .ood t!l" !bout %ompound*n. d*;*dends4 but wh!t he,s re!ll( !$ter *s (our mone(. #*ther (ou,re w*th h*m 5*n;est*n. *n 3ROA8 !nd he t!"es h*s %ut wh*le us*n. (our $*n!n%*!l we*.ht !s h*s own4 or (ou,re !.!*nst h*m out there on (our own. And then he,s loo"*n. $or !re!s where (ou,;e m*spr*%ed someth*n. so th!t he %!n bu( *t $rom (ou or sell *t to (ou. + %!n tell (ou wh*%h %!mp OG *s *n. /e,s *n the e!s( mone( %!mp 5the debtors8! /e,s *n debt to e!s( mone(E Warren <uffett is on S.uawk$ox right now defending the $ailout, which he wrote an op-ed a$out in toda+4s Gew York -i#es.

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-hen he dropped this line, which sounds like an exaggerationQ ";% the go ernment hadn't acted& ; would !e eating Thanksgi ing dinner at <c:onald's." 53us*ness +ns*der8 'erh!ps he w!sn,t e?!..er!t*n.E : good chunk of his fortune is dependent on taxpa+er largess. Were it not for go ern#ent $ailouts, for which <uffett lo$$ied hard, many o% his company's stock holdings would ha e !een wiped out. <erkshire 1athawa+, in which <uffett owns (R percent, according to a recent prox+ filing, has #ore than M(H $illion in ested in eight financial co#panies that ha e recei ed $ailout #one+B B!t takes re#arka$le chut@pah to lo$$+ for $ailouts, #ake trades seeking to profit fro# the#, and then co#plain that those doing so put +ou at a disad antage. /lsewhere in his letter he la#ents Eatrocious sales practicesF in the financial industr+, holding up <erkshire su$sidiar+ Ila+ton 1o#es as a #odel of lending rectitude. Ion enientl+, he neglects to #ention Wells 9argos toxic $ook of ho#e e.uit+ loans, :#erican /xpress exploding charge-offs, 2/ Iapitals awful $alance sheet, <ank of :#ericas disastrous ac.uisitions of Iountr+wide and 0errill L+nch, and 2old#an Sachs reckless trading practices. :nd what of 0ood+s, the credit-rating agenc+ that ena$led lending excesses <uffett critici@es, and in which hes held a #a;or stake for +ears8 Recentl+ <erkshire cut its stake to %H percent fro# (> percent. Pu$licl+, howe er, the )racle of )#aha has $een silent. 5Reuters8 So m!(be (ou !re st!rt*n. to see wh( Free.old *s not su%h ! wel%ome de;elopment $or !n OG l*"e 2!rren 3. 3ut don,t worr( too mu%h !bout 2!rren. /e,ll st*ll be ! mult*7b*ll*on!*re %ome Free.old. And *$ (ou $ollow h*m4 !t le!st (ou won,t be bro"e 5see the sees!w !bo;e8. + suppose there m*.ht e;en be someth*n. !ltru*st*% !bout le!;*n. the Free.old re;!lu!t*on w*nd$!ll $or others. 3ut th!t,s not 2!rren,s mot*;!t*on. 2!rren,s power %omes $rom "eep*n. !s mu%h o$ other people,s s!;*n.s !s poss*ble *n the sto%" m!r"et where he pl!(s. +t doesn,t m!tter *$ *t %omes *n throu.h h*s %omp!n( or on *ts own4 Cust th!t *t,s *n there. And th!t,s wh( he wrote th*s p*e%e tr!sh*n. .old. 3e%!use when (ou bu( ! tube o$ .old %o*ns !nd put *t *n (our so%" dr!wer4 *t,s out o$ OG,s re!%h. S*n%erel(4 FOFOA

'!.e :&

"hur%day, February 23, 2012


"oday-% EFuote8unFuoteG CGo'dC

There were ! $ew .re!t d*s%uss*ons .o*n. on *n the l!st thre!d !nd so + thou.ht +,d reCu;en!te *t w*th ! $resh %ount! #!rl( on *n the thre!d /!w"s1>>> 6uoted me !nd OG $rom Yo 2!rren 34 (ou !re so OG! !nd then !s"ed ! 6uest*onE =O=OA> 32old would not $e alua$le if one person owned all of it. !t is #ost alua$le in its widest distri$ution possi$le, the wealth reser e, which re.uires a #uch higher aluation than it has right now.3 3u%%et> 3-his t+pe of in est#ent re.uires an expanding pool of $u+ers, who, in turn, are enticed $ecause the+ $elie e the $u+ing pool will expand still further.3 4awks?@@@> 3Ian +ou $reak down the nuance $etween these two state#ents8 <ecause the+ sound like the+ are $oth sa+ing the sa#e thing to #e. Sorr+ for $eing dense if it4s reall+ o$ ious.3 /ere w!s m( repl(E /ello /!w"s4 Gre!t repl*es $rom M!?4 DR !nd others4 b( the w!(! +t,s not re!ll( ob;*ous4 but +,ll tr( to bre!" *t down e;en $urther $or (ou. As DR po*nted out4 pr*%e !nd ;!lue !re d*$$erent th*n.s. 'r*%e *s determ*ned !t the m!r.*n. Th*n" sto%" to $low r!t*os w*th the r!t*o !%t*n. !s ! .o;ernor on the pr*%e *n both d*re%t*ons. 2!rren,s sto%"s h!;e rel!t*;el( obCe%t*;e ;!lu!t*ons throu.h %ommon metr*%s l*"e e!rn*n.s4 oper!t*n. %!sh $low !nd the sum ;!lue o$ the*r %omponent p!rts. Th*s *s "*nd o$ l*"e the NAA $or G)D !nd '!.e :0

'/YS. +$ the pr*%e $!lls too $!r below th!t ;!lu!t*on 5*t *s under;!lued84 the sto%" to $low r!t*o w*ll r*se %onstr*%t*n. the !mount o$ $low 5suppl(8 !t the m!r.*n where pr*%e *s d*s%o;ered. +$ the pr*%e *s h*.her th!n the ;!lu!t*on 5*t *s o;er;!lued84 the r!t*o w*ll %oll!pse $lood*n. the m!r"et w*th sh!res. Now %omp!re th!t w*th .old wh*%h h!s no s*m*l!r obCe%t*;e ;!lu!t*on. O$ !ll the poss*ble 9unprodu%t*;e !ssets9 out there4 .old h!s the h*.hest sto%" to $low r!t*o be%!use o$ *ts un*6ue4 s*n.ul!r propert*es. To th*n" !bout *t s*mpl(4 pr*%e *s determ*ned !t the m!r.*nRthe $lowRwh*le ;!lue res*des pr*m!r*l( w*th the sto%"5holders8. Does th*s m!"e !n( sense@ ;% .old *s !s under;!lued !s + s!( *t *s4 then we should e?pe%t the sG$ r!t*o to e?plode4 %onstr*%t*n. the $low 5suppl(8 !t the m!r.*n. =!n (ou see how ;*ew*n. pr*%e !nd ;!lue $rom th*s !n.le puts the onus on the sto%" holders !t le!st !s mu%h !s on the pool o$ new bu(ers@ 9=orrel!t*on does not *mpl( %!us!t*on9 +n l*.ht o$ th*s new perspe%t*;e4 we %!n see th!t pr*%e %!n %on;er.e w*th ;!lue throu.h the !%t*ons o$ either the %urrent sto%" holders or the pool o$ new bu(ers. And when ;!lu!t*on *s o$ the rel!t*;el( obCe%t*;e ;!r*et(4 !s *t *s w*th OG,s sto%"s4 *t *s usu!ll( ! %omb*n!t*on o$ both. 3ut *n the %!se o$ .old4 where ;!lue *s ent*rel( subCe%t*;e4 th*s *s not ne%ess!r*l( the %!se. +n $!%t4 + would e;en propose to (ou th!t4 subCe%t*;el(4 those who !lre!d( possess the ph(s*%!l .old ;!lue *t h*.her th!n those who don,t (et hold *t. #r.o4 the e?plos*on o$ pr*%e to the le;el o$ ;!lue *s more l*"el( to be brou.ht !bout b( the e?*st*n. sto%" holders e?plod*n. the sto%" to $low r!t*o tow!rd *n$*n*t( $or ! per*od o$ t*me th!n b( ! st!mpede o$ p!n*%"ed s!;ers dr*;*n. the pr*%e h*.her !nd h*.her. =ontL &G4 ANOT/#RE 3People wondered how the ph+sical gold #arket could $e 3cornered3 when its currenc+ price wasn4t rising and no shortages were showing up8 -he I<s were $eco#ing the pri#ar+ suppliers $+ replacing openl+ held gold with I< certificates. -his action has helped keep gold $$%lowing$$ during a ti#e that trading would ha e locked up. 62old has alwa+s $een funn+ in that wa+. So #an+ people worldwide think of it as #one+, it tends to dr+ up Kto cease %lowingL as the price rises.7 Westerners should not $e too upset with the I<s actions, the+ are $u+ing +ou ti#eD3 MeE 32old would not $e alua$le if one person owned all of it. !t is #ost alua$le in its widest distri$ution possi$le, the wealth reser e, which re.uires a #uch higher aluation than it has right now.3 9Gold the we!lth reser;e9 me!ns A8 onl( ph(s*%!l .old4 !nd 38 *n *ts w*dest d*str*but*onL 3which re.uires a #uch higher aluation than it has right now.3 9=orrel!t*on does not *mpl( %!us!t*on.9 Gold *n *ts most ;!lu!ble role %orrel!tes w*th *t be*n. *n w*de d*str*but*on4 but *t *s not ne%ess!r*l( caused b( th!t. Are (ou st!rt*n. to see (et@ 'erh!ps .old,s $un%t*on!l %h!n.e w*ll cause *ts w*dest d*str*but*on4 not the other w!( !round. '!.e :4

Tod!(,s 9.old9 en%omp!sses m!n( other th*n.s. As" !n( *n;estor wh!t per%ent!.e the( h!;e *n .old !nd wh!te;er the( tell (ou w*ll l*"el( *n%lude m*n*n. sh!res4 G)D4 s*l;er4 m!(be some pl!t*num4 !nd poss*bl( not e;en ANY d*s%rete4 un!mb*.uous p*e%es o$ ph(s*%!l .old. Th*s *s !n *mport!nt %on%ept to .r!sp4 th!t 9.old9 tod!( *s ! b!st!rd*Ied term !nd the P'oG does not h!;e !n(th*n. to do w*th 9.old the we!lth reser;eRwh*%h me!ns ph(s*%!l .old onl(.9 'eople see the 9p!per .old m!r"et9 wor"*n. tod!( !nd so the( th*n" th!t *t %!n wor" !ll the w!( up. )*"e we,ll .o $rom P&4 to P04 to P44 !nd so on !ll the w!( up to P11O. The( th*n" th!t !s the pool o$ new bu(ers $lood *nto tod!(,s 9.old9 the shorts 5or the bull*on b!n"s8 w*ll s*mpl( h!;e to %o;er the*r e?posure !nd b*d $or !n( ph(s*%!l the( need unt*l the pr*%e .ets h*.h enou.h $or them to .et *t. +n m!n( w!(s tod!(,s 9.old9 does need !n e?p!nd*n. pool o$ bu(ers. 3ut here,s the m!*n d*$$eren%e between OG,s sto%"s !nd physical .old. From m( & 1 b!%"w!rd!t*on postE Do''ar% b$dd$n# on MSF" %to.+ %et the 9a'ue o2 that %to.+. 62 do''ar% are 2rant$.a''y b$dd$n# on MSF" Eh$#h 9e'o.$tyG, the %to.+ %+yro.+et%. 62 do''ar% %top b$dd$n# 2or MSF" a'' at on.e E'o) 9e'o.$tyG, the pr$.e 2a''% to ?ero. "h$% $% true 2or e9eryth$n# $n the )or'd $$e"cept gold$$. Go'd b$d% 2or do''ar%. 62 #o'd %top% b$dd$n# 2or do''ar% E'o) #o'd 9e'o.$tyG, the pr$.e E$n #o'dG o2 a do''ar 2a''% to ?ero. And $rom (et !nother !n.le we %!n put the onus on the e?*st*n. sto%" holders r!ther th!n ! pool o$ new bu(ers. =ontL 0G4 +n the post !bo;e (ou Cust he!rd OG t!l" !bout three m!Cor %!te.or*es o$ *n;estments wh*%h !re4 b!s*%!ll(4 sto%"s4 bonds !nd 9unprodu%t*;e !ssets9. Throu.h the s*n.ul!r propert*es o$ .old 5dur!b*l*t(4 $un.*b*l*t(4 d*;*s*b*l*t(4 l!%" o$ *ndustr*!l uses4 =3s h!;e *t4 et%L8 !lon. w*th the $o%!l po*nt pr*n%*ple4 we %!n .o !lon. w*th 2!rren !nd $o%us on onl( .old !s the th*rd m!Cor 9%ompet*tor9. Now *n Cust three wee"s +,;e wr*tten posts !bout both the O*n. o$ 3onds !nd the O*n. o$ Sto%"s d*ss*n. bonds. Th!t should tell (ou someth*n. !bout bonds4 no@ So let,s s!( *t,s m!*nl( between sto%"s !nd .old !t th*s po*nt. As + h!;e po*nted out4 sto%"s !re $or *n;estors !nd .old *s $or s!;ers. S!;ers outnumber *n;estors b( ! lon.shot4 !nd pre;*ousl( *t w!s bonds th!t d*d *t $or the s!;ers. So now we,;e .ot !ll these homeless s!;ers th!t w*ll need to %hoose between sto%"s !nd .old 5or else s*t t*.ht *n bonds w!*t*n. to be she!red l*"e e*ther the Gree" debt holders or Z*mb!bwe pens*oners8. Th*s bun%h *s N#A#R .o*n. to %hoose tod!(,s 9.old9 5the P'oG8 en m!sse. The( w*ll l*"el( end up spl*tt*n. the d*$$eren%e !nd .o*n. 1 G1 *n sto%"s !nd bonds 5or %!sh8 wh*le ! $ew put 1Q *n G)D. So wh!t + don4t $oresee *s ! st!mpede b( those homeless s!;ers *nto tod!(,s 9.old9. There m!( well be !nother m*n*7st!mpede l*"e we h!d *n Au.ust4 but *t w*ll d*spl!( m!n( %h!r!%ter*st*%s o$ ! bubble4 *n%lud*n. the ;ol!t*l*t( !nd the downs*de4 wh*%h s!;ers don,t l*"e. S!;ers !ren,t loo"*n. $or the ne?t '!.e :1

]]7b!..er !nd the( don,t l*"e bet!4 so the( !re ! h!rd sell $or both OG !nd the P'oG. S!;ers s*mpl( w!nt ! non$lu%tu!t*n. !ssetL pre$er!bl( *n re!l terms. So Free.old4 newl( st!b*l*Ied !t ! pl!te!u st!s*s o$ ^P11O *n %onst!nt doll!rs4 w*ll be ;er( !ppe!l*n. to them. Funn( to th*n" th!t the(,ll bu( .old en m!ss !t P11O but not wh*le *t,s onl( P1: 4 but he(4 %,est l! ;*e. As O*ndo$3lue wroteE 9#!rl( !dopters To$ the ne?t re$eren%e po*nt $or pur%h!s*n. powerU !re be*n. h!ndsomel( rew!rded.9 3ut on%e (ou re!l*Ie th!t .old,s h*.hest ;!lue !nd w*dest d*str*but*on !re %orrel!ted but not ne%ess!r*l( %!us!ll( rel!ted *n the ob;*ous d*re%t*on4 the 6uest*on then be%omes how we .et $rom here to there. As + s!*d 5be%!use ANOT/#R t!u.ht me84 CGo'd b$d% 2or do''ar%. 62 #o'd %top% b$dd$n# 2or do''ar% E'o) #o'd 9e'o.$tyG, the pr$.e E$n #o'dG o2 a do''ar 2a''% to ?ero. 9 So (ou see4 there doesn,t need to be ! st!mpede *nto tod!(,s 9.old9 $or re!l4 ph(s*%!l .old to be%ome 9pr*%eless9. ANOT/#R wrote4 CGo'd! 6t $% the on'y med$um that .urren.$e% do not Cmo9e thruC. 6t $% the on'y Money that .annot be 9a'ued by .urren.$e%. 6t $% #o'd that denom$nate% .urren.y. 6t $% to %ay C#o'd mo9e% thru paper .urren.$e%C.C So now +,m loo"*n. onl( !t ph(s*%!l .old __+N S+Z#__4 the "*nd o$ s*Ie th!t represents ent*t*es th!t "now 2/Y the( !re hold*n. .old 5*.e.4 not $or p!per pro$*ts8. And +,m wonder*n. when ph(s*%!l .old w*ll stop mo;*n. throu.h p!per %urren%*es4 !t le!st !t p!r*t( w*th tod!(,s 9.old94 the P'oG. And + th*n" th!t w*ll prob!bl( h!ppen when the P'oG .oes too low. O3A h!s ! ne!t theor( !bout th!t. )oo" !t 3u$$et,s p*e%e !bo;e. /e,s shunn*n. bonds but "eep*n. h*s %!sh *n b*lls. Th!t,s wh!t the s!;ers !re do*n. wh*le the( de%*de where to deplo( th!t %!sh. All the $*n!n%*!l !d;*sors !%ross the l!nd !re !d;*s*n. s!;ers to hold some %!sh4 be%!use the( Cust know there w*ll be some de!ls soon. And $or the re!ll( b*. mone(4 th!t me!ns T7b*lls4 Cust l*"e the P& 3 3er"sh*re *s hold*n.. And when ! tr!de .ets th!t %rowded *t %h!ses the (*eld r*.ht !w!(4 wh*%h *s wh( the T7b*lls !re he!d*n. to sub7Iero (*elds. =ontL 4G4 Th*s *s the rush out o$ $uture7d!ted debt *nto /ere<Now %!sh 5T7b*lls $or the re!ll( b*. PPP8. +t,s the b!n" run shoebo? under7m!ttress e$$e%t en m!sse. Th*s m!"es the doll!r loo" 5tempor!r*l(8 stron. !nd tod!(,s 9.old9 5the P'oG8 loo" we!" b( %omp!r*son4 .old bu. protest!t*ons notw*thst!nd*n.. So Cust *m!.*ne !nother 6u*%" run7up l*"e Dul(GAu.. to4 s!(4 P&4000 %orrel!t*n. w*th ! b*. sp*"e *n the FSD]G P+R] 5pr*%e8 !nd then ! %r!sh *n the P'oG down to ^P14 or lower. /ow h!ted would tod!(,s 9.old9 be b( the homeless s!;ers then@ Th!t,s some ser*ous bet!! So th!t,s wh( + s!*d *n the post4 3:LL T5A:15S du#p :LL gold, paper, ph+sical, whate er, in #+ scenario. !t has nothing to do with insiders. !t has to do with traders and weak hands.3 And !t the s!me t*meL be%!use the return *s surpr*s*n.l( sh*tt( !ll o$ ! suddenL Cphy%$.a' #o'd BB6 S6H1BB, the +$nd o2 %$?e that repre%ent% ent$t$e% that +no) 0,Y they are ho'd$n# #o'dC I C%top% b$dd$n# 2or do''ar% E'o) #o'd 9e'o.$tyG, the pr$.e E$n #o'dG o2 a do''ar 2a''% to ?ero.C Th*s *s when the sto%" to $low r!t*o e?plodes to *n$*n*t( !nd ph(s*%!l .old .oes *nto h*d*n.4 when the '!.e :6

pr*%e 5the P'oG !"! tod!(,s 9.old98 .ets too low to support p!r*t( between *t !nd 9.old the we!lth reser;e4 wh*%h me!ns ph(s*%!l .old onl(.9 FOA pred*%ted someth*n. l*"e th*s !s wellE =OA 6/AB0.B//C 0@>DE>.?<T # usagold.com msgF.A8 Gut your cards on the ta!le7 The current paper gold world will die 6!urn8 as its alue to users erodes& not increases7 Again& most e eryone in the Hestern +old !ug game is running with the !all in the wrong direction. So who is in danger o% !eing hurt as this un%olds( That's right& the Hestern paper gold long7 ;'m not talking a!out Iust the US market7 This is a!out the entire world gold market as we know it today. The real play will !e %or the ones that get out in %ront o% the mo e !y owning physical ;t seems e ery +old !ug sees only hal% the trade and has great %aith that contract law will %a or a short squee*e. Jet& none o% them see where it is the long that will !e dumping and %orcing the discount7 The po*nt *s4 there *s no pr*%e d*s%o;er( m!r"et $or 9.old the we!lth reser;e9 th!t could e;en re6u*re !n e?p!nd*n. pool o$ bu(ers. There,s onl( the sto%" to $low r!t*o o$ ph(s*%!l .old 5.old the we!lth reser;e8 !s ! t*n( %omponent p!rt o$ the w*de P'oG b!s"et4 tod!(,s 5b!st!rd*Ied8 9.old94 ! r!t*o wh*%h *s !lre!d( ;er( h*.h !nd stru..l*n. to "eep $rom .o*n. *n$*n*te 5p!r!bol*%8. TAn( sto%" w*th 9Iero9 $low h!s !n 9*n$*n*te9 sG$ r!t*o be%!use *n the $un%t*on rHsG$4 !s $ !ppro!%hes Iero4 r !ppro!%hes *n$*n*t(.U A r*s*n. P'oG 9stret%hes9 the e?*st*n. $low m!"*n. *t 9l!r.er9 *n %urren%( terms !nd "eep*n. *t $rom $!ll*n. to Iero. 3ut wh!t *$ the P'oG suddenl( d*ps below e;en the %ost o$ m*n*n. .old@ 2h!t *s th!t %ost tod!(@ On%e the $low o$ 9.old the we!lth reser;e9 5ph(s*%!l .old onl(8 *s %red*bl( reest!bl*shed !t the re;!lued Free.old pr*%e4 the s!;ers w*ll e!t *t up l*"e hot%!"es! #r.o4 9*ts w*dest d*str*but*on poss*ble.9 9=orrel!t*on does not *mpl( %!us!t*on.9 /ope th*s helps! S*n%erel(4 FOFOA Then ;*%torthe%le!ner wroteE FOFOA4 $!nt!st*%! 2h( don,t (ou m!"e th*s !n o$$*%*!l post*n.@ No problem4 A*%4 here (ou .o.

'!.e ::

2e !lso h!d ! new%omer show up w*th ! repost $rom the Gold St!nd!rd +nst*tute webs*te wh*%h "*%"ed o$$ ! n*%e d*s%uss*on !bout ;!r*ous h!rd mone( propos!ls !nd pres%r*pt*ons ;ersus emer.ent Free.old. The ne?t d!(4 A*%tor wrote !nother outst!nd*n. p*e%e on h*s own blo. %!lled =urren%( 2!rsE 2h( The Fn*ted St!tes =!nnot Return To A Gold St!nd!rd. +n *t he !ddresses one o$ the m!*n propos!ls *n D*m R*%"!rds, boo"4 =urren%( 2!rs.

A*%tor st!rts o$$ b( !s"*n. *$ R*%"!rds, propos!l *s e;en poss*ble4 !nd then !nswers h*s own 6uest*on w*th th*sE 3-he answer is Go. <ut wh+ not8 ...-he answer is that the existence of the /uro pre ents the 5nited States fro# returning to a gold standard.3 /ere !re ! $ew h*.hl*.hts4 but ple!se .o re!d A*%tor,s post *n *ts ent*ret(E R*%"!rds !d;ert*ses the return to the .old st!nd!rd *n p!rt*%ul!r w*th the %l!*m th!t the $*rst %ountr( th!t m!"es th*s step4 would .!*n ! %ons*der!ble *ntern!t*on!l !d;!nt!.e throu.h the .!*n *n %on$*den%e *n *ts %urren%(. The problem w*th th*s st!tement *s th!t the !d;!nt!.e o$ the $*rst !dopter *s no lon.er !;!*l!ble. The $*rst step w!s m!de !s e!rl( !s 1>>>4 !nd *t w!s done b( somebod( elseE b( the #uro 5X8. +t w!s !%%ompl*shed *n ! $!sh*on sl*.htl( more soph*st*%!ted th!n Cust ! pl!*n old7$!sh*oned b!%"*n. o$ the %urren%( w*th .old !t ! $*?ed e?%h!n.e r!teE The #uros(stem o$ =entr!l 3!n"s4 *.e. the #urope!n =entr!l 3!n" 5#=38 to.ether w*th the N!t*on!l =entr!l 3!n"s o$ the member %ountr*es o$ the #uro Ione4 !%%ount $or the*r .old reser;e !t the %urrent m!r"et pr*%e o$ .old *n X. TLU From these b!l!n%e sheets4 we %!n see th!t there *s no !d;!nt!.e o$ e!rl( !dopt*on th!t %ould be %!ptured b( the Fn*ted St!tes. The #uro Ione h!s !lre!d( !nt*%*p!ted th*s step4 !nd the #uro enCo(s !n e;en more robust .old b!%"*n.. +n $!%t4 !ll else be*n. e6u!l4 the %omp!r!t*;e !d;!nt!.e o$ the X o;er the FSP *n%re!ses w*th !n *n%re!s*n. pr*%e o$ .old. '!.e :-

TLU ` +n the Fn*ted St!tes4 !%%ord*n. to R*%"!rdsM propos!l4 the .o;ernment or the Feder!l Reser;e .u!r!ntees th!t one FSP %!n !lw!(s be redeemed $or 1G: o$ !n oun%e o$ .old. The "e( to th*s .u!r!ntee *s th!t the .o;ernment p!(s out the .old e;en *$ there *s no pr*;!te p!rt*%*p!nt *n the m!r"et who *s w*ll*n. to sell her or h*s .old $or th*s pr*%e. #;en *$ the $ree m!r"et ;!lues .old h*.her th!n FSP : per oun%e !t some po*nt *n the $uture4 the Fn*ted St!tes Go;ernment *s st*ll re6u*red to redeem one FSP $or 1G: oun%es o$ .old 5th*s *s the po*nt o$ h!;*n. ! .old st!nd!rd !$ter !ll8. /ow %le;er *s th!t@ TLU ` S*n%e the #=3 h!s ne;er %l!*med th!t the #uro were !s .ood !s .old4 the( need not redeem !n( #uros $or .old. +$ somebod( pur%h!ses .old w*th the*r #uros4 these #uros %ont*nue to %*r%ul!te. The #uro *s e?pl*%*tl( !d;ert*sed !s ! tr!ns!%t*on!l %urren%(4 but not !s ! store o$ ;!lue. Gold *s the store o$ ;!lue. Th*s *s Free Gold4 the sep!r!t*on o$ the store o$ ;!lue $rom the med*um o$ e?%h!n.e4 *.e. $rom the %red*t mone( th!t $orms the tr!ns!%t*on!l %urren%( 5!lso see Se%t*on : o$ The M!n( A!lues o$ Gold !nd FOFOAMs The )on. Ro!d to Free.old8. )et us $*n!ll( rem!r" th!t the pr*%e o$ FSP : per oun%e !s proposed b( R*%"!rds merel( ser;es !s !n e?!mple !nd th!t none o$ our !r.uments depends on th*s pre%*se $*.ure. The m!ter*!l presented *n th*s se%t*on w!s *nsp*red b( R*%"!rdsM boo" !nd b( %ontr!st*n. *t w*th FOFOAMs po*nt o$ ;*ew. See4 $or e?!mple4 #uro Gold4 '!rt( )*"e +tMs MTM T*me4 Re$eren%e 'o*nt Gold Fpd!te 1 !nd Re$eren%e 'o*nt Re;olut*on. TLU +n order to *llustr!te th*s e$$e%t4 let us !ssume th!t the o$$*%*!l FS .old pr*%e !nd the $ree m!r"et pr*%e *n #uros d*;er.e %ons*der!bl(. 2e est*m!te th!t the FSP !nd the X presentl( h!;e pur%h!s*n. power p!r*t( !t !n e?%h!n.e r!te o$ FSP 1.& per X 1. . As ! ;er( rou.h s*mpl*$*%!t*on4 let us s!( th!t one hour o$ l!bour %osts X 0 . *n the #uro Ione !nd4 !t p!r*t(4 *t %osts the s!me !mount *n the Fn*ted St!tesE FSP 06. . Also !t p!r*t(4 the o$$*%*!l FS .old pr*%e o$ FSP : per oun%e %orresponds to X 1-00 per oun%e. )et us $urther !ssume the $ree m!r"et pr*%e o$ .old *n the #uro Ione d*$$ers subst!nt*!ll(E X -:1 per oun%e. F*rstl(4 there *s the ob;*ous !rb*tr!.eE The sm!rt mone( *n the #uro Ione %!n s*mpl( t!"e X 1-004 e?%h!n.e them $or FSP : *n the $ore*.n e?%h!n.e m!r"et4 .o str!*.ht to the Feder!l Reser;e !nd redeem th*s sum $or one oun%e o$ .old wh*%h *s *mmed*!tel( sh*pped b!%" to #urope. There *s there$ore ! %ont*nuous $low o$ .old $rom the Fn*ted St!tes to #urope unless the %urren%( e?%h!n.e r!te !dCusts to PFS .- per X 1. . Th*s *s the e?%h!n.e r!te !t wh*%h the o$$*%*!l FS pr*%e o$ .old o$ FSP : per oun%e !.rees w*th the #urope!n $ree m!r"et pr*%e o$ X -:1 per oun%e. Althou.h th*s !dCustment o$ the e?%h!n.e r!te *ndeed el*m*n!tes the !rb*tr!.e opportun*t(4 *t does not stop the out$low o$ .old $rom the Fn*ted St!tes to #urope. The problem *s th!t the %urren%( e?%h!n.e r!te now de;*!tes $rom the pur%h!s*n. power p!r*t( o$ FSP 1.& per X 1. . At the no7.old7!rb*tr!.e '!.e :>

e?%h!n.e r!te o$ FSP .- per X 1. 4 one hour o$ #urope!n l!bour %!n be o$$ered *n the Fn*ted St!tes $or FSP &4. where!s Amer*%!n l!bour st*ll %osts FSP 06. per hour. The Fn*ted St!tes there$ore run !n *n%re!s*n. tr!de de$*%*t %omp!red w*th the #uro Ione. Fnder the proposed .old st!nd!rd4 the #urope!ns who *n*t*!ll( re%e*;e FSP $or the*r e?ports4 %!n *mmed*!tel( %!sh *n !nd redeem the*r FSP $or .old. The $low o$ .old $rom the Fn*ted St!tes to #urope there$ore pers*sts re.!rdless o$ the %urren%( e?%h!n.e r!te. +$ *t *s not ! %onse6uen%e o$ d*re%t pr*%e !rb*tr!.e4 then *t $ollows $rom !n *mb!l!n%e o$ the tr!de !%%ounts. +n e*ther %!se4 ph(s*%!l .old reser;es !re dr!*ned $rom the Fn*ted St!tes... TLU 2e see th!t the !rr!n.ement th!t *s now proposed b( R*%"!rds4 b!s*%!ll( used to e?*st dur*n. the 3retton 2oods per*od. +n the l!te 1>1 s4 the %red*t ;olume *n FS doll!rs w!s !lre!d( .row*n. so 6u*%"l( th!t the o$$*%*!l FS .old pr*%e !nd the $ree m!r"et pr*%e o$ .old outs*de the Fn*ted St!tes st!rted to d*;er.e. Althou.h the 2estern #urope!n !ll*es helped to st!b*l*Ie the .old st!nd!rd4 *t *ne;*t!bl( $!*led be%!use o$ the !rb*tr!.e !nd the tr!de *mb!l!n%es s"et%hed !bo;e. +$ ! .old st!nd!rd o$ th*s t(pe *s est!bl*shed !.!*n wh*le ! m!Cor tr!de blo%" openl( !d;ert*ses ! $ree m!r"et pr*%e o$ .old4 *t would prob!bl( %oll!pse e;en sooner th!n *t d*d *n the 1>6 s. +n 1>:14 the Fn*ted St!tes %hose to term*n!te the .old %on;ert*b*l*t( o$ the FS doll!r r!ther th!n to re;!lue .old *n FS doll!rs. 2e re$er to FOFOAMs +tMs the Flow4 Stup*d $or the re!son*n. th!t le!d to th*s de%*s*on. F*n!ll(4 ple!se see h*s On%e Fpon A T*me $or more det!*ls on the )ondon Gold 'ool. WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW S*de NoteE +n $!*rness to D*m4 R*%"!rdsGFOFOA re!der A6u*lus !s"ed D*m !t ! boo" s*.n*n. e;ent !bout ! $*?ed ;ersus $lo!t*n. .old pr*%e. 3e%!use A6u*lus "nows th!t +4 too4 !ppre%*!te D*m,s wor"4 he em!*led me the $ollow*n. reportE 3-he #ore interesting part is that ! had $een tr+ing to get hi# to gi e #e a straight answer on the notion 6fro# his $ook7 that once gold is re alued to 3the right price3 the 9ed would then step in and defend that price 6in a narrow range7. 1e had $een a oiding a straight answer for #onths, $ut ! finall+ got one +esterda+ while he was signing the $ook - in a short one on one con ersation. When ! asked hi# how he could seriousl+ $elie e that a fixed price could $e defended when dollars continue to $e issued and credit created, and how that would $e different fro# the old London 2old Pool, he s#iled and said, 3no, no, +ou see, the defended price would indeed ha e to change e er+ +ear or else it would not work.3 So, $asicall+, he4s still so#ewhere in the 3we can se#i-control3 the price with this 9ed-defense of an ad;usta$le price, as far as ! can tell.3 F'DAT#E Also see 3lond*e,s %omments r*.ht under the post. Th!n"s $or sh!r*n.4 3lond*e. WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW LThe #=34 howe;er4 wh*%h does not .u!r!ntee ! redempt*on o$ the #uro $or ! $*?ed we*.ht o$ .old4 '!.e -

%!n en.!.e *n ;!r*ous t(pes o$ Gold Open M!r"et Oper!t*ons. F*rstl(4 *n !bsen%e o$ ! l*6u*d m!r"et $or ph(s*%!l .old *n #uros4 the #=3 %!n !%t !s ! m!r"et m!"er !nd4 s!(4 b*d $or ! $*?ed we*.ht o$ .old !t X -:41 per oun%e !nd o$$er to sell ! $*?ed we*.ht !t X -:11. +$ the( b*d $or !nd o$$er more th!n 1 tonnes e!%h !t !n( t*me4 the( !re !ble to m!"e ! l*6u*d m!r"et $or ph(s*%!l .old *n #uros4 ! m!r"et *n wh*%h other %entr!l b!n"s %!n tr!de the 6u!nt*t*es th!t t(p*%!ll( !r*se *n the settlement o$ *ntern!t*on!l tr!de b!l!n%es. As soon !s *t turns out th!t there *s more we*.ht o$ .old sold th!n *t *s bou.ht 5or ;*%e ;ers!84 the #=3 !dCusts the b*d !nd o$$er pr*%es !%%ord*n.l(. Th*s !mounts to !ss*st*n. the pr*%e d*s%o;er( $or l!r.e 6u!nt*t*es o$ ph(s*%!l .old wh*le the reser;e o$ the #uros(stem rem!*ns essent*!ll( un%h!n.ed. )et us stress th!t !s o$ Febru!r( & 1&4 there e?*sts no l*6u*d pr*;!te m!r"et $or ph(s*%!l .old *n X *n wh*%h b*d !nd o$$er would be 6uoted $or tr!n%hes o$ 1 tonnes or more !t !n( t*me. +n $!%t4 th*s *s !pp!rentl( not e;en poss*ble *n the )ondon m!r"et *n wh*%h .old *s tr!ded *n FSPE Jame% G. R$.+ard%, Jurren.y 0ar%, pa#e 2=; +n ord*n!r( .old tr!d*n.4 ! l!r.e blo% tr!de o$ !s l*ttle !s ten tons would h!;e to be !rr!n.ed *n utmost se%re%( *n order not to send the m!r"et pr*%e throu.h the roo$ T...U Se%ondl(4 the #=3 %!n m!n!.e ! d*rt( $lo!t o$ the .old pr*%e *n order to smooth $lu%tu!t*ons *n the %urren%( e?%h!n.e r!tes4 *n order to *n$luen%e the domest*% pr*%e le;el4 or e;en *n order to !$$e%t the %ompet*t*;eness o$ .oods !nd ser;*%es $rom the #uro Ione *n the *ntern!t*on!l m!r"et. +$ the( e?p!nd the monet!r( b!se !nd pur%h!se .old *n the pr*;!te m!r"et4 the( lower the e?%h!n.e r!te o$ the #uro rel!t*;e to .old4 %re!t*n. domest*% %onsumer pr*%e *n$l!t*on !nd render*n. e?ports more %ompet*t*;e !nd *mports more e?pens*;e. =on;ersel(4 *$ the( sell ! p!rt o$ the*r .old reser;e !nd %!n%el the b!se mone( the( re%e*;e4 the( r!*se the e?%h!n.e r!te o$ the #uro rel!t*;e to .old4 redu%*n. %onsumer pr*%e *n$l!t*on !nd render*n. e?ports less %ompet*t*;e !nd *mports %he!per. +n p!rt*%ul!r4 *$ th*n.s e;er turned host*le4 $or e?!mple be%!use not onl( ! boo" !uthor but !lso some .o;ernment o$$*%*!ls st!rted t!l"*n. !bout a%on$*s%!t*n.M the .old owned b( $ore*.n %ountr*es4 the d*rt( $lo!t %ould be used *n order to term*n!te R*%"!rdsM e?per*ment w*th the new .old st!nd!rd *n the Fn*ted St!tes !t !n( t*me4 s*mpl( b( e?p!nd*n. the monet!r( b!se *n X !nd pur%h!s*n. ph(s*%!l .old *n the open m!r"et. Th*s oper!t*on *s !lw!(s poss*ble be%!use *t rel*es onl( on the !b*l*t( to e?p!nd the X mone( suppl(4 but does not re6u*re !n( e?*st*n. o$$*%*!l .old reser;e. +n $!%t4 !n( m!Cor %urren%( !re! or tr!de blo%" who e?ports enou.h .oods !nd ser;*%es $or wh*%h there e?*sts ! .lob!l dem!nd4 %!n m!"e th*s mo;e. So $!r4 none o$ them h!s. TLU +t should be %le!r $rom Se%t*ons & !nd 0 !bo;e th!t *t *s the h*.h pr*%e o$ .old *n terms o$ FSP or X th!t *nsp*res %on$*den%e *n these %urren%*es r!ther th!n the 6uest*on o$ whether the %urren%( un*t *s redeem!ble $or ! $*?ed we*.ht o$ .old. 5There *s one %!;e!t thou.hE !s lon. !s the FS .old reser;e *s owned b( the h*.hl( *ndebted .o;ernment r!ther th!n b( the Feder!l Reser;e4 *t w*ll ne;er *nsp*re the $ull poss*ble %on$*den%e.8 TLU '!.e -1

)et us summ!r*Ie wh!t *s the "e( po*nt o$ R*%"!rdsM propos!l to return to ! .old st!nd!rd !t ! subst!nt*!ll( h*.her pr*%e o$ .old *n FS doll!rs. +t *s not the *de! o$ the .old st!nd!rd th!t the %urren%( un*t would be b!%"ed b( ! $*?ed we*.ht o$ .old. Th*s would not be sust!*n!ble *n the lon. run4 !nd *t would e;entu!ll( $!*l $or the s!me re!sons $or wh*%h the )ondon Gold 'ool $!*led. +t *s r!ther the re;!lu!t*on o$ .old *n FS doll!r terms th!t *nsp*res %on$*den%e !nd th!t !ddresses m!n( o$ the present *ssues su%h !s re%!p*t!l*I*n. the b!n"*n. s(stem. 2e $*n!ll( re$er to FOFOAMs /ow *s th!t D*$$erent From Free.old $or !nother response to ! ;er( s*m*l!r 6uest*on. N*%e wor" on%e !.!*n4 A*%tor! As Ar* would s!(4 *t,s .ood to h!;e help %!rr(*n. th*s w!ter. 3bD S*n%erel(4 FOFOA

'!.e -&

Sunday, Mar.h 11, 2012

The monet!r( pl!ne *s onl( rele;!nt *nso$!r !s *t d*re%ts !nd $!%*l*t!tes the $low o$ the ph(s*%!l pl!ne. '!rt o$ wh!t p*sses people o$$ so mu%h !bout the P+MFS *s th!t *t seems to d*re%t !nd $!%*l*t!te the $low o$ m!ss*;e !mounts o$ %ool ph(s*%!l pl!ne stu$$ *nto the h!nds o$ those who %ontr*bute l*ttle more th!n twe!"*n. the monet!r( pl!ne *n the*r $!;or. 3ut we must remember th!t the( !re not produ%*n. the stu$$ th!t the( !re enCo(*n.. The( !re s*mpl( re%e*;*n. *t. +t *s the ph(s*%!l pl!ne th!t dr*;es the $low. +t *s the produ%ers th!t produ%e the stu$$. And *t *s the net7 produ%ers th!t produ%e enou.h e?tr! stu$$ th!t *t %!n !%%umul!te *n the possess*on o$ the monet!r( pl!ne m!n!.ers. +t *s the s!;ers th!t dr*;e the e%onom(. S!;ers !re net7produ%ers. Net7produ%ers !re s!;ers. + h!;e !nother b*. *de! post th!t +,m wor"*n. on4 but +,m $*nd*n. *t d*$$*%ult to m!"e pro.ress be%!use the stunn*n. re;el!t*on + !m tr(*n. to sh!re w*th (ou rests on so m!n( %ompl*%!ted $ound!t*ons. 2*thout .*;*n. too mu%h !w!(4 + .uess + %ould s!( *t w*ll be ! %ont*nu!t*on o$ some o$ the themes *ntrodu%ed *n Mone(ness. So + h!d th*s *de! th!t + %ould d*spense w*th some o$ m( d*$$*%ult( b( Cust putt*n. ! l*ttle b*t here *n !n open $orum. Re%!ll the stor( o$ 9+4 'en%*l9 $rom the Superor.!n*sm Open Forum. The Austr*!n,s t!u.ht us th!t 9%!p*t!l9 *s not merel( ! lump o$ some homo.eneous subst!n%e. +t *s ! %omple? stru%ture o$ ;!r*ous .oods used *n spe%*$*% %omb*n!t*ons to produ%e other .oods. =!p*t!l4 *n essen%e4 *s ! produ%t o$ the Superor.!n*sm. All else *s s*mpl( unsust!*n!ble m!l*n;estment. /ow lon. m!n!.ed m!l*n;estment %!n %ont*nue be$ore the whole superstru%ture %oll!pses seems to be the onl( re!l 6uest*on. R!ther th!n .ett*n. *nto who should be m!"*n. the de%*s*ons th!t le!d to %!p*t!l $orm!t*on !nd e%onom*% .rowth *n the ph(s*%!l pl!ne4 +,m more *nterested *n how rele;!nt the P+MFS *s to th!t pro%ess !t th*s po*nt. Does the P+MFS tr!nsm*t !n( pr*%e *n$orm!t*on th!t *s rele;!nt to the Superor.!n*sm !n(more@ The Superor.!n*sm *s ! robust %re!ture. +t %!n wor" !round ! b!dl( '!.e -0

m*sm!n!.ed superstru%ture !nd st*ll produ%e m!r;elous %re!t*ons. 3ut there %omes ! po*nt when the s*.n!ls tr!nsm*tted b( the s(stem be%ome so detr*ment!l to the Superor.!n*sm,s n!tur!l dr*;e tow!rd sust!*n!b*l*t( th!t *t must be !b!ndoned $or .ood. One o$ the $l!ws o$ the P+MFS *s th!t *t does ;*ew 9%!p*t!l9 !s ! homo.eneous lump. And be%!use *t *s ! monet!r( s(stem m!n!.ed b( net7%onsumers4 *t !ttempts to red*re%t !ll %!p*t!l to the %onsumpt*on end o$ the spe%trum4 where *t 5the P+MFS8 $eeds. 2hen (ou $*rst st!rt th*s pro%ess o$ %!p*t!l %onsumpt*on4 e;er(th*n. *s re!ll( n*%e. +m!.*ne th!t (ou de%*ded to 6u*t wor" tomorrow !nd st!rt l*6u*d!t*n. (our .old to (our he!rt,s %ontent. You %ould l*;e h*.h on the ho. $or ! wh*le! Th*s *s the P+MFS. 3ut *$ (ou th*n" *t throu.h $or ! m*nute4 (ou,ll re!l*Ie th!t the better l*$e *s e!%h d!(4 the sooner (ou,ll run out o$ .old. S!;ers dr*;e the e%onom(4 !nd the P+MFS %onsumes *t. And wh!t o$ *n;estment@ The P+MFS he!ps the .re!test rew!rds on those who *n;est *n %onsum!bles4 l*"e A'')4 r!ther th!n *n$r!stru%ture or h*.her order %!p*t!l .oods. The %on%epts + hope (ou,ll th*n" !bout !nd d*s%uss *n the %omments !re the ph(s*%!l pl!ne ;ersus the monet!r( pl!ne4 s!;*n.s !nd %!p*t!l. The ph(s*%!l pl!ne *s !ll th!t m!tters. The monet!r( pl!ne onl( e?*sts to !ss*st the Superor.!n*sm b( tr!nsm*tt*n. *n$orm!t*on throu.h pr*%es !nd lubr*%!t*n. the $low. S!;ers dr*;e e;er(th*n.. +$ the( !re s!;*n.4 the e%onom( w*ll e?p!nd 5sust!*n!bl( or unsust!*n!bl(8. +$ the( !re not s!;*n.4 the e%onom( w*ll %ontr!%t. The Superor.!n*sm,s n!tur!l dr*;e *s tow!rd e%onom*% sust!*n!b*l*t( wh*le the P+MFS *s ! ped!l7to7the7met!l %onsumpt*on b*n.e thr*ll r*de tow!rd e%onom*% %oll!pse. 3elow *s !n e?%erpt $rom Free.old Found!t*ons d*s%uss*n. %!p*t!l !nd s!;*n.s. Sorr( !bout the len.th o$ the e?%erpt4 but *$ (ou don,t l*"e lon. posts4 (ou,re prob!bl( !t the wron. blo.. A$ter th!t +,ll end th*s post w*th ! ne!t l*ttle *sl!nd !n!lo.( on the top*% o$ %!p*t!l %onsumpt*on4 or how to "*ll !n e%onom( *n st(le. #;er(bod( lo;es *sl!nd !n!lo.*es4 r*.ht@

Free.old Found!t*ons
Jap$ta' +,m not .o*n. to .o *nto .re!t det!*l on the %on%ept o$ %!p*t!l4 other th!n to .*;e (ou ! ment!l e?er%*se. 3e%!use the term 9%!p*t!l9 %!n be 6u*te %on$us*n. *n our modern p!perGele%tron*% world4 + w!nt (ou to *m!.*ne ! mu%h s*mpler hum!n %*;*l*I!t*on. +m!.*ne !n !n%*ent Gree" %*t(. All the bu*ld*n.s m!de o$ stone !nd mud4 the horse %!rts !nd !.r*%ultur!l tools4 the l*nens !nd s"*ns worn !s %loth*n.4 the "nowled.e b!se p!ssed down throu.h .ener!t*onsN !ll these %re!t*ons o$ m!n,s *ntelle%t were the %!p*t!l o$ the t*me. Now *m!.*ne the destru%t*on o$ %!p*t!l. +m!.*ne !n e!rth6u!"e or ;ol%!no th!t destro(s the $ru*ts o$ m!n( .ener!t*ons. Or ! pl!.ue or w!r4 perh!ps4 th!t destro(s the "nowled.e b!se. Th!t,s the loss o$ re!l we!lth (ou !re *m!.*n*n.. And *t *s th*s %(%le o$ %!p*t!l %re!t*on !nd destru%t*on th!t tells the stor( o$ m!n"*nd throu.hout m!n( %*;*l*I!t*ons. +n modern e%onom*%s4 the word 9%!p*t!l9 !%%ounts $or m!n( spe%*$*% th*n.s. 3ut + th*n" *t *s help$ul to %ons*der th*s word *n ! more b!s*%4 $und!ment!l w!(. Th*n" o$ *t *n terms o$ %!p*t!l %re!t*on4 %!p*t!l emplo(ment !nd %!p*t!l %onsumpt*on or destru%t*on. Modern e%onom*%s would not %!ll %onsum!bles '!.e -4

%!p*t!l4 wh*%h *s wh( + !m su..est*n. ! d*$$erent !ppro!%h to the word. 2hen we !re produ%t*;e4 *m!.*ne we !re %re!t*n. th*s th*n. %!lled %!p*t!l. 2e m!( $*.ure out ! w!( to turn someone else,s %!p*t!l4 %omb*ned w*th our own prowess4 *nto more %!p*t!l. Th*s would be the emplo(ment o$ %!p*t!l. And somet*mes we s*mpl( %onsume *t4 or use *t up. +$ + bu*ld ! house + h!;e %re!ted %!p*t!l. 3( own*n. !nd l*;*n. *n ! home4 + !m %onsum*n. th!t %!p*t!l slowl(. +$ + were to bu( ! spe%*!l*Ied tool !nd use *t to m!"e someth*n. new4 then + h!;e emplo(ed %!p*t!l to %re!te more %!p*t!l. +s th*s ;*ew o$ 9%!p*t!l9 %le!r4 or wooll(@ Sa9$n#% S!;*n.s !re the result o$ one,s produ%t*on be*n. .re!ter th!n h*s %onsumpt*on. S!;*n. *s the %on;ent*on $or de$err*n. the $ru*ts o$ %!p*t!l %re!t*onRe!rned %onsumpt*onRunt*l l!ter. S!;*n.s *s !lso the w!( we h!nd o$$ %!p*t!l to the ne?t person who w*ll use *t to %re!te more %!p*t!l. And when *t *s done r*.ht4 s!;*n. results *n the !%%umul!t*on o$ %!p*t!l throu.hout so%*et( !t l!r.e. 2hen *t *s done poorl(4 s!;*n. results *n the !..re.!te destru%t*on o$ %!p*t!l throu.h $r*;olous %onsumpt*on !nd m!l5b!d8*n;estment 5the m*s.u*ded emplo(ment o$ %!p*t!l8 result*n. *n unsust!*n!ble *n$r!stru%tures bu*lt on unst!ble le;ered $ound!t*ons. /ere,s where *t m!( .et ! b*t %ounter*ntu*t*;e. You m*.ht4 *$ (ou were =h!rl*e Mun.er4 th*n" th!t the best w!( to p!ss (our e!rned %!p*t!l on to !nother produ%er *s throu.h p!per. +$ (ou s!;e *n p!per notes then (ou !re lo!n*n. (our e!rned %!p*t!l to the ne?t produ%er *n l*ne4 r*.ht@ And *$ (ou bu( .old =h!rl*e s!(s (ou,re ! Cer"4 e;en *$ *t wor"s4 be%!use he th*n"s (ou !re pull*n. %!p*t!l out o$ the s(stem. 3ut !re (ou re!ll(@ + br*n. th*s up 5!nd ple!se w!t%h ! m*nute or so o$ th!t ;*deo st!rt*n. !t 1E 4E 18 be%!use *t *s the "e( to th*s d*s%uss*on !bout s!;*n.s. 2e should th*n" !bout the .lob!l e%onom( *n terms o$ produ%t*on !nd %onsumpt*on *n the ph(s*%!l re!lm !s opposed to the $*n!n%*!l or monet!r( re!lm4 wh!t + l*"e to %!ll the ph(s*%!l pl!ne ;ersus the monet!r( pl!ne. A 9net produ%er9 produ%es more %!p*t!l th!n he %onsumes. )*"ew*se4 ! 9net %onsumer9 %onsumes more th!n he produ%es. The .lob!l !..re.!te *s .ener!ll( net7neutr!l on th*s produ%t*on7 %onsumpt*on %ont*nuum. + s!( 9.ener!ll(9 be%!use there !re t*mes o$ e?p!ns*on !nd t*mes o$ %ontr!%t*on4 so t!"*n. t*me *nto !%%ount4 we !re 9.ener!ll(9 net7neutr!l 5or %lose to *t8 !s ! pl!net. At le!st th!t,s the w!( *t *s under the .lob!l doll!r reser;e st!nd!rd. On the n!t*on!l s%!le4 howe;er4 we !re !ll both blessed !nd %ursed b( the presen%e o$ .o;ernment. Go;ernments !re !lw!(s net %onsumers4 !s *t *s the*r ;er( Cob to red*str*bute p!rt o$ our pr*;!te s!;*n.s *nto the *n$r!stru%ture !nd se%ure en;*ronment th!t en!bles us to produ%e %!p*t!l *n the w!( th!t we do. Go;ernment,s Cob *s not to produ%e %!p*t!l4 but to en!ble !nd support the pr*;!te produ%t*on 5!nd !%%umul!t*on8 o$ %!p*t!l! 3e*n. su%h th!t hum!n so%*et( h!s e;ol;ed *n th*s w!(4 we pr*;!te %*t*Iens must4 *n !..re.!te4 be net produ%ers so th!t .o;ernment %!n net %onsume. And we be%ome net produ%ers b( s!;*n.. There$ore we en!ble !nd support our own $uture net produ%t*;*t( b( s!;*n. some o$ our p!st produ%t*on o$ %!p*t!l tod!(4 *n the $orm o$ s!;*n.s. The $*n!n%*!l s(stem *s re!ll( Cust the monet!r( pl!ne,s re%ord7"eeper o$ th*s ;*t!l pro%ess th!t !%tu!ll( t!"es pl!%e on the ph(s*%!l pl!ne. +n *ts modern *n%!rn!t*on4 the .lob!l $*n!n%*!l s(stem h!s !llowed $or '!.e -1

! str!n.e *ntern!t*on!l b!l!n%*n. !%t whereb( 5l*ter!ll(8 one whole s*de o$ the pl!net,s net produ%t*on h!s !llowed the other s*de to net7%onsume $or de%!des on end. 3ut th*s *s !n unsust!*n!ble !nom!l(4 !nd *t *s bes*de the po*nt o$ th*s d*s%uss*on. So ple!se push th*s .*!nt4 .lob!l *mb!l!n%e7eleph!nt *n the room o;er to the %orner wh*le we %ont*nue th*s d*s%uss*on !bout s!;*n.s. The 6uest*on we must !nswer here *sE +s =h!rl*e Mun.er r*.ht@ Are (ou ! .ood person onl( *$ (ou put (our s!;*n.s *nto p!per where *t %!n be e!s*l( red*str*buted4 !nd ! Cer" *$ (ou bu( .old4 depr*;*n. the p!per whores o$ (our s!;*n.s@ +s th*s the w!( *t wor"s *n re!l*t(@ Or *s th*s s*mpl( the s!les p*t%h o$ one w*th .re!t bets r*d*n. on the %ont*nued popul!r*t( o$ p!per s!;*n.s@ The .o;ernment %on$*s%!tes ! port*on o$ the ph(s*%!l %!p*t!l %re!ted *n the pr*;!te se%tor throu.h se;er!l me!ns. T!?!t*on *s one w!(4 $or%*n. (ou to "eep ! port*on o$ (our e!rn*n.s *n p!per so th!t *t %!n be e!s*l( tr!ns$erred to the .o;ernment !nd then used to bu( up %!p*t!l $rom the m!r"etpl!%e. Th*s $or%es (ou to le!;e some o$ (our produ%t*on *n the m!r"etpl!%e to be t!"en b( the .o;ernment4 pre;ent*n. (ou $rom %onsum*n. !n !mount e6u!l to (our produ%t*;e output. 'r*nt*n. mone(4 or *ts modern e6u*;!lent4 6u!nt*t!t*;e e!s*n.4 *s !nother w!( the .o;ernment %!n %on$*s%!te re!l %!p*t!l $rom the m!r"etpl!%e w*thout $*rst produ%*n. ! %ommensur!te !mount. Th*s method *n$l*%ts wh!t we %!ll 9the *n$l!t*on t!?.9 The 9;*%t*ms9 o$ th*s %on$*s%!t*on !re !n(one !nd e;er(one hold*n. 5!nd s!;*n.8 the %urren%( or !n( p!per !sset $*?ed to *t4 !nd the d!m!.es !re rel!t*;e to the !mount o$ %urren%( e!%h 9;*%t*m9 *s hold*n.. 3e%!use th*s $orm o$ %on$*s%!t*on *s spre!d so w*de !nd th*n4 *t *s mostl( not e;en not*%ed b( the pr*;!te se%tor. The l!st w!( the .o;ernment %on$*s%!tes %!p*t!l *s b( borrow*n. *t d*re%tl( $rom the net produ%ers *n the pr*;!te se%tor. 2hen (ou bu( FS bonds4 *t *s (ou th!t !re lo!n*n. (our e!rned %l!*ms on %!p*t!l to the .o;ernment. So we %!n see th!t the .o;ernment h!s plent( o$ w!(s to %re!te *ts own %l!*ms on %!p*t!l *n the m!r"etpl!%e w*thout $*rst produ%*n. ! %ommensur!te m!r"et %ontr*but*on 5be%!use .o;ernments !re !lw!(s net %onsumers8. +n $!%t4 the modern $*n!n%*!l s(stem h!s bestowed these s!me powers4 %re!t*n. m!r"et %l!*ms w*thout %ontr*but*on4 upon the pr*;!te se%tor !s well. +,m not t!l"*n. !bout pr*;!te b!n"s lo!n*n. mone( *nto e?*sten%e4 $or th*s pro%ess h!s no m!r"et %ontr*but*on $rom wh*%h to $eed. +t *s d*re%tl( pr*%e *n$l!t*on!r( unt*l the debtor m!"es ! m!r"et %ontr*but*on to wor" *t o$$. 2h!t +,m t!l"*n. !bout *s the pr*;!te se%tor,s !b*l*t( to sell unl*m*ted !mounts o$ th*s debt to the s!;ers4 $und*n. the m!r"etpl!%e %l!*ms to %onsumersGdebtors w*th re!l m!r"etpl!%e %!p*t!l 5%ontr*buted b( the s!;ers8. 'r*;!te b!n"s th!t would norm!ll( be %onstr!*ned b( the*r b!l!n%e sheets $or the*r own sur;*;!l %!n now o$$lo!d th!t %onstr!*nt onto the net produ%ers4 m!"*n. themsel;esRthe b!n"sRtot!ll( un%onstr!*ned. The b!n"*n. s(stem sells !ll "*nds o$ p!%"!.ed debt to net produ%ers4 the s!;ers. +t %re!tes th*s stu$$ !t w*ll to meet dem!nd. And *$ ne%ess!r(4 *t drums up new debtors one w!( or !nother to "eep th*s stu$$ $*n!n%*!ll( $unded. #;en %orpor!t*ons %!n d*lute the*r p!per sh!res to t!"e *n new %l!*ms $rom the s!;ers w*thout .*;*n. up ! %ommensur!te m!r"etpl!%e %ontr*but*on. Th*s *s the pro%ess o$ p!per s!;*n.s h(per*n$l!t*on. +t *s ! sel$7$eed*n.4 sel$7$ul$*ll*n.4 sel$7sust!*n*n.4 sel$7propell*n. s(stem th!t w*ll ult*m!tel( le!d to re!l pr*%e h(per*n$l!t*on. 2hen (ou produ%e %!p*t!l '!.e -6

!nd de%*de to le!;e *t *n the m!r"etpl!%e4 postpon*n. (our e!rned %onsumpt*on unt*l l!ter4 !nd (ou do so *n !n( p!per *n;estment4 (ou !re $eed*n. th*s pro%ess o$ %!p*t!l destru%t*on throu.h p!per s!;*n.s h(per*n$l!t*on. +$ (ou bu( .o;ernment debt (ou !re $eed*n.4 en!bl*n. the .rowth o$ .o;ernment be(ond *ts most b!s*% m!nd!te4 pro;*d*n. the *n$r!stru%ture !nd se%ure en;*ronment th!t en!bles us to produ%e %!p*t!l. And *$ (ou th*n" !n e?p!nd*n. .o;ernment *s .ood4 Cust bew!re th!t !ll .o;ernments !re stup*d! 3-he institution of go ern#ent was in ented to escape the $urden of $eing s#art. !ts funda#ental purpose is to take #one+ $+ force to e ade the #arket4s guidance to ha e the pri ilege of $eing stupid.3 R*%h!rd M!(bur( .oes on 5*n the l*n"ed ;*deo8 to s!( th!t pr*;!te or.!n*I!t*ons th!t pet*t*on .o;ernment $or spe%*!l prote%t*ons4 subs*d*es !nd *n%ent*;es !re !s"*n. $or the s!me pr*;*le.e. The( w!nt to be rel*e;ed o$ the burden o$ be*n. sm!rt. 5Not s*n%e the A.r*%ulture AdCustment A%t o$ 1>00 th!t p!*d $!rmers to destro( %rops dur*n. the Gre!t Depress*on *n !n !ttempt to r!*se the pr*%e o$ %rops4 h!s there been ! more ob;*ous e?!mple o$ .o;ernment,s propens*t( $or destro(*n. re!l world %!p*t!l th!n the & > 9=!sh $or =lun"ers9 pro.r!m4 whereb( .o;ernment l*ter!ll( p!*d pr*;!te %!r de!lersh*ps to pour su.!r *nto runn*n. %!r en.*nes ensur*n. the*r perm!nent destru%t*on.8 Th*s *s wh(4 when (ou s!;e *n .o;ernment p!per4 (ou !re en!bl*n. m!l*n;estment !nd the destru%t*on o$ %!p*t!l th!t .oes !lon. w*th *t. And *t,s the destru%t*on o$ the %!p*t!l th!t (ou Cust %ontr*buted to the m!r"etpl!%e th!t (ou !re $eed*n.. The s!me .oes $or the pr*;!te se%tor. 2hen (ou s!;e *n pr*;!te p!per (ou !re en!bl*n. the expansion o$ $r*;olous %onsumpt*on 5be(ond n!tur!l m!r"et %onstr!*nt8 !nd the destru%t*on o$ +our %!p*t!l %ontr*but*on to the m!r"etpl!%e th!t .oes !lon. w*th *t. So wh!t,s the !ltern!t*;e@ +$ both publ*% !nd pr*;!te p!per s!;*n.s %ontr*bute to the e?p!ns*on o$ m!l*n;estment4 net7%onsumpt*on !nd s(stem*% %!p*t!l destru%t*on4 wh!t *s ! net produ%er to do@ +$ one w!nts to produ%e more %!p*t!l th!n he %onsumesR$or the .ood o$ the e%onom(R(et he doesn,t w!nt to wor" $or $ree4 wh!t *s he to do@ Or *$ one w!nts to produ%e more th!n she %onsumesR$or the .ood o$ her ret*rement (e!rs !nd her $!m*l(,s $utureRwh!t *s she to do@ The monet!r( pl!ne4 the modern doll!r7b!sed .lob!l $*n!n%*!l s(stem4 h!s $!*led these *nd*;*du!ls. So wh!t *s le$t@ The ph(s*%!l pl!ne@ +$ these *nd*;*du!ls tr!de the*r e!rned m!r"etpl!%e %red*ts *n $or ph(s*%!l %!p*t!l w*thout emplo(*n. th!t %!p*t!l *n produ%t*;e enterpr*se4 then the( !re e*ther %onsum*n. th!t %!p*t!l 5%!p*t!l destru%t*on8 or den(*n. other produ%ers the use o$ *t 5ho!rd*n.4 !lso destru%t*;e to the %!p*t!l %re!t*on pro%ess8. Th*s *s not onl( detr*ment!l to so%*et( !t l!r.e4 but !lso to the $uture ;!lue o$ (our s!;*n.s th!t depends on new %!p*t!l be*n. plent*$ul *n the m!r"etpl!%e when (ou deplo( (our s!;*n.s *n the $uture. 3ut o$ %ourse there *s one *tem4 one ph(s*%!l !sset4 th!t st!nds out !bo;e !ll the rest. And th*s *sn,t some new d*s%o;er( b( FOFOA. M!n d*s%o;ered th!t th*s w!s .old,s h*.hest !nd best use thous!nds o$ (e!rs !.o. On%e (ou,;e produ%ed %!p*t!l $or the m!r"etpl!%e4 wh!te;er !sset %l!ss (ou %hoose to deplo( (our e!rned %red*ts *nto w*ll $eel the e%onom*% pressure to r*se *n pr*%e. +$ the monet!r( pl!ne w!s ;olume7 $*?ed 5or e;en %onstr!*ned84 *t too would r*se *n pr*%e !s re!l %!p*t!l *s !dded to the e%onom(. *ut $t ha% be.ome a %y%tem that e/pand% $n 9o'ume rather than r$%$n# $n pr$.e.

'!.e -:

Th*s *s h(per*n$l!t*onE 6u!nt*t!t*;e e?p!ns*on o$ s!;*n.s! +$ the pool o$ s!;*n.s rose onl( *n ;!lue !nd not 6u!nt*t(4 then e!%h new net produ%er would h!;e to $id 9s!;*n.s9 !w!( $rom !n old net produ%er4 !nd 9s!;*n.s9 would ret!*n the*r proper rel!t*onsh*p to the pool o$ re!l m!r"etpl!%e %!p*t!l !;!*l!ble $or pur%h!se. +$ (ou %hoose to deplo( (our %red*ts *nto the e;er(d!( ph(s*%!l pl!ne4 the t!n.*ble .oods pl!ne4 pr*%es w*ll r*se. +$ !ll the s!;ers %hose o*l $or e?!mple4 we,d !ll p!( ;er( h*.h pr*%es !t the .!s pump. Or %hoose !.r*%ulture $or (our s!;*n.s !nd we,ll !ll h!;e to wor" !n e?tr! hour to $eed oursel;es. No4 (ou w!nt to %hoose someth*n. th!t both r*ses *n pr*%e 5r!ther th!n e?p!nd*n. *n ;olume8 !nd !lso someth*n. th!t does not *n$r*n.e on others or e%onom*%!ll( *mpede the %!p*t!l %re!t*on pro%ess th!t $eeds ;!lue to (our s!;*n.s. And !s !n !dded bonus4 *$ e;er(one %hooses the s!me th*n.4 *t wor"s e?tr! well. Th*s *s %!lled the $o%!l po*nt. 3ut $or .old to $ul$*ll th*s ;*t!l $un%t*on *n the %!p*t!l %re!t*on pro%ess4 *t needs to tr!de *n ! $*?ed 5or !t le!st %onstr!*ned8 6u!nt*t( th!t w*ll !llow *ts pr*%e to r*se e;er( t*me ! new %!p*t!l net7*n%re!se *s %ontr*buted to the m!r"etpl!%e. And4 un$ortun!tel(4 p!per .old !nd $r!%t*on!l reser;e bull*on b!n"*n. doesn,t !llow th*s pro%ess to wor" properl(. +n $!%t4 *t m!"es p!per !ppe!r .ener!ll( %ompet*t*;e4 e;en to .old. So wh!t !bout =h!rl*e Mun.er@ +s he r*.ht@ Are (ou ! Cer" *$ (ou bu( .old@ 2ell4 (es !nd no. +$ he,s t!l"*n. !bout p!per .old4 then (es! 3ut l*"ew*se4 *t seems (ou !re ! Cer" *$ (ou bu( Iharlie4s p!per !s well! And (ou,re !n e;en b*..er Cer" *$ (ou bu( ph(s*%!l %ommod*t*es !nd t!n.*ble .oods w*thout the *ntent*on o$ emplo(*n. them *n re!l e%onom*% !%t*;*t(. +t seemsR!nd %orre%t me *$ +,m wron. hereR th!t ph(s*%!l .old 5!lon. w*th ! $ew other d*s%reet %olle%t*ble *tems l*"e re!l est!te4 $*ne !rt4 !nt*6ue $urn*ture4 !n%*ent !rt*$!%ts4 $*ne .emstones4 $*ne Cewelr( !nd r!re %l!ss*% %!rs8 m!( be the onl+ true we!lth hold*n.s *n wh*%h (ou !re not ! Cer". 2h!t do (ou th*n"@ WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW And $*n!ll(4 here *s ! $un l*ttle e?%erpt $rom Robert '. Murph(,s & Theor(E - !rt*%le4 The +mport!n%e o$ =!p*t!l

A Sush* Model o$ =!p*t!l =onsumpt*on

'!.e --

Abo;e +,;e po*nted out some o$ the b!s*% $l!ws *n Oru.m!n,s !nd =owen,s !r.uments. 5Other Austr*!ns h!;e responded to Oru.m!n *n the p!st. See the repl*es o$ G!rr*son !nd =o%hr!n.8 More .ener!ll(4 the( !re *.nor*n. the !ll7*mport!nt not*on o$ %!p*t!l %onsumpt*on. Th*s *s wh( one needs to underst!nd %!p*t!l theor(4 !s p*oneered b( =!rl Men.er !nd #u.en ;on 3[hm73!wer"4 *n order to m!"e sense o$ wh!t the he%" Cust h!ppened *n the FS e%onom(. An( t!l"*n. he!d on =N3= who doesn,t underst!nd %!p*t!l %onsumpt*on *s .o*n. to .*;e horr*ble pol*%( re%ommend!t*ons. 2hen th*n"*n. !bout th*s !rt*%le4 + went b!%" !nd $orth. + h!;e de%*ded th!t + should spell out ! 9model9 o$ *ntermed*!te %omple?*t(4 be%!use *$ + s*mpl*$( *t too mu%h4 *t m*.ht not re!ll( %l*%" w*th the re!der4 but *$ + .o o;erbo!rd w*th *t4 no one *n h*s r*.ht m*nd would $*n*sh the !rt*%le. 2*thout $urther !do4 let,s e?!m*ne ! h(pothet*%!l *sl!nd e%onom( %omposed o$ 1 people4 where the onl( %onsumpt*on .ood *s rolls o$ sush*. The *sl!nd st!rts *n !n *n*t*!l e6u*l*br*um th!t *s *nde$*n*tel( sust!*n!ble. #;er( d!(4 &1 people row bo!ts out *nto the w!ter !nd use nets to %!t%h $*sh. Another &1 o$ the *sl!nders .o *nto the p!dd*es to .!ther r*%e. Yet !nother &1 people t!"e r*%e !nd $*sh 5%olle%ted dur*n. the pre;*ous d!(4 o$ %ourse8 !nd m!"e t!nt!l*I*n. sush* rolls. F*n!ll(4 the rem!*n*n. &1 o$ the *sl!nders de;ote the*r d!(s to up"eep o$ the bo!ts !nd nets. +n th*s w!(4 e;er( d!( there !re ! tot!l o$ 5let us s!(8 1 sush* rolls produ%ed4 !llow*n. e!%h *sl!nder to e!t 1 sush* rolls per d!(4 d!( *n !nd d!( out. Not ! b!d l*$e4 re!ll(4 espe%*!ll( when (ou %ons*der the o%e!n ;*ew !nd the !bsen%e o$ D*m =r!mer.

3ut !l!s4 one d!( '!ul Oru.m!n w!shes onto the be!%h. A$ter be*n. re;*;ed4 he sur;e(s the humble e%onom( !nd st!rts !d;*s*n. the *sl!nders on how to r!*se the*r st!nd!rd o$ l*;*n. to Amer*%!n le;els. /e shows them the outbo!rd motor 5st*ll $ull o$ .!s8 $rom h*s sh*pwre%"4 !nd the( !re *ntr*.ued. 3e*n. untr!*ned *n e%onom*%s4 the( $*nd h*s !r.uments *rres*st*ble !nd !.ree to $ollow h*s re%ommend!t*ons. There$ore4 the or*.*n!l4 sust!*n!ble deplo(ment o$ *sl!nd wor"ers *s !ltered. Fnder Oru.m!n,s pl!n $or prosper*t(4 0 *sl!nders t!"e the bo!ts 5one w*th ! motor8 !nd nets out to %!t%h $*sh. Another 0 .!ther r*%e $rom the p!dd*es. A th*rd 0 use the $*sh !nd r*%e to m!"e sush* rolls. +n ! new tw*st4 1 o$ the *sl!nders s%our the *sl!nd $or m!ter*!ls ne%ess!r( to m!*nt!*n the motorN !$ter !ll4 e;er( d!( *t burns .!sol*ne4 !nd *ts o*l .ets d*rt*er. 3ut o$ %ourse4 !ll o$ th*s onl( le!;es 1 *sl!nders rem!*n*n. to m!*nt!*n the bo!ts !nd nets4 wh*%h the( %ont*nue to do e;er( d!(. 5+$ the re!der *s %ur*ous4 Oru.m!n doesn,t wor" *n sush* produ%t*on. /e spends h*s d!(s *n ! h!mmo%"4 penn*n. ess!(s th!t bl!me the *sl!nders, po;ert( on the st*n.*ness o$ the %o%onut trees.8 For ! $ew months4 the *sl!nders !re %on;*n%ed th!t the p!le7$!%ed Nobel l!ure!te *s ! .en*us. #;er( d!(4 6 6 sush* rolls !re produ%ed4 me!n*n. th!t e;er(one 5*n%lud*n. Oru.m!n8 .ets to e!t 6 rolls per d!(4 '!.e ->

*nste!d o$ the 1 rolls per d!( to wh*%h the( h!d been !%%ustomed. The *sl!nders bel*e;e th*s *n%re!se *s due to use o$ the motor4 but re!ll( *t,s mostl( due to the re!rr!n.ement o$ t!s"s. 3e$ore4 onl( &1 people were de;oted to $*sh*n.4 r*%e %olle%t*on4 !nd sush* prep!r!t*on. 3ut now4 0 people !re de;oted to e!%h o$ these !re!s. So e;en w*thout the motor4 tot!l d!*l( output o$ sush* would h!;e *n%re!sed b( & Q4 !ssum*n. the *sl!nders were e6u!ll( .ood !t the ;!r*ous Cobs4 !nd th!t there were plent( o$ $*sh !nd r*%e pro;*ded b( n!ture. 5+n $!%t4 the %ontr*but*on o$ the motor w!s re!ll( onl( the e?tr! 6 rolls ne%ess!r( to $eed Oru.m!n.8 3ut !l!s4 e;entu!ll( the redu%t*on *n bo!t !nd net m!*nten!n%e be.*ns to !$$e%t output. 2*th onl( 1 *sl!nders de;oted to th*s t!s"4 *nste!d o$ the or*.*n!l &14 someth*n. h!s to .*;e. The nets be%ome more !nd more $r!(ed o;er t*me4 !nd the bo!ts de;elop sm!ll le!"s. Th*s me!ns th!t the 0 $*shermen don,t return e!%h d!( w*th !s m!n( $*sh4 be%!use the*r e6u*pment *sn,t !s .ood !s *t used to be. The 0 *sl!nders m!"*n. sush* !re then *n ! $*?4 be%!use the( now h!;e !n *mb!l!n%e between r*%e !nd $*sh. The( st!rt %he!t*n.4 b( putt*n. *n sm!ller p*e%es o$ $*sh *nto e!%h roll. The *sl!nders %ont*nue to .et 6 rolls per d!(4 but now e!%h roll h!s less $*sh *n *t. The *sl!nders !re $ur*ous R e?%ept $or those who !re repulsed b( the *de! o$ *n.est*n. r!w $*sh. 3e*n. ! tr!*ned e%onom*st4 Oru.m!n "nows wh!t to do. /e su..ests th!t & o$ the r*%e wor"ers !nd & o$ the sush* rollers sw*t%h o;er to help the $*shermen. Now w*th 04 wor"ers4 the *sl!nders !re !ble to %!t%h !lmost !s m!n( $*sh per d!( !s the( were *n the pre;*ous months4 e;en thou.h the( !re now us*n. t!ttered nets !nd d*l!p*d!ted bo!ts. Oru.m!n R be*n. ;er( sh!rp w*th numbers R mo;ed Cust enou.h wor"ers so th!t the $*sh %!u.ht b( the 04 *sl!nders m!t%hes up per$e%tl( w*th the r*%e p*%"ed b( the rem!*n*n. &- *sl!nders who .o to the p!dd*es e;er( d!(. 2*th th*s !mount o$ $*sh !nd r*%e4 the &wor"ers *n the roll*n. o%%up!t*on !re !ble to produ%e 116 sush* rolls per d!(. Th*s !llows e;er(one to %onsume !bout 1 !nd ! h!l$ rolls per d!(4 w*th ! bonus roll le$t o;er $or Oru.m!n. The *sl!nders !re ! b*t %on%erned. 2hen the( $*rst $ollowed Oru.m!n,s !d;*%e4 the*r %onsumpt*on Cumped $rom 1 rolls to 6 per d!(. Then when th*n.s seemed to be !ll s%rewed up4 Oru.m!n m!n!.ed to $*? the worst o$ the d*s%oord*n!t*on4 but st*ll4 %onsumpt*on $ell to 1.1 rolls per d!(. Oru.m!n rem*nded them th!t 1.1 w!s better th!n 1. /e $*n!ll( .ot the %rowd to d*sperse b( t!l"*n. !bout 9=obb7Dou.l!s produ%t*on $un%t*ons9 !nd dr!w*n. +S7)M %ur;es *n the s!nd. 3e%!use th*s *s ! $!m*l(7$r*endl( webs*te4 we w*ll stop our stor( here. Needless to s!(4 !t some po*nt the 1 *sl!nders de;oted to net !nd bo!t produ%t*on w*ll de%*de th!t the( h!;e to %ut the*r losses. R!ther th!n tr(*n. to m!*nt!*n the or*.*n!l $leet o$ bo!ts !nd or*.*n!l %olle%t*on o$ nets w*th onl( 1 wor"ers *nste!d o$ &14 the( w*ll *nste!d $o%us the*r e$$orts on the best & Q o$ the bo!ts !nd nets4 !nd "eep them *n .re!t sh!pe. At th!t po*nt4 *t w*ll be ph(s*%!ll( *mposs*ble $or the *sl!nders to prop up the*r d!*l( sush* output. +n order Cust to return to the*r or*.*n!l4 sust!*n!ble le;el o$ 1 sush* rolls per person per d!(4 the *sl!nders w*ll need to su$$er ! per*od o$ pr*;!t*on where m!n( o$ them !re de;oted to net !nd bo!t produ%t*on. 52e %!n onl( hope th!t 'ro$essor Oru.m!n h!s been res%ued b( the Swedes b( th*s t*me.8 The 1 people loo"*n. $or w!(s to s(nthes*Ie .!sol*ne !nd motor o*l w*ll h!;e to !b!ndon th!t t!s"4 be%!use *t w!s ne;er !ppropr*!te $or the *sl!nders, pr*m*t*;e %!p*t!l stru%ture. The *sl!nders w*ll o$ %ourse d*s%!rd the motor brou.ht to the *sl!nd b( Oru.m!n on%e *t runs out o$ .!s. F*n!ll(4 we pred*%t th!t dur*n. the per*od o$ tr!ns*t*on4 some *sl!nders w*ll h!;e noth*n. to do. A$ter !ll4 there w*ll !lre!d( be the m!?*mum needed $or %!t%h*n. $*sh w*th the us!ble bo!ts !nd nets4 !nd there '!.e >

w*ll !lre!d( be the %orrespond*n. number o$ *sl!nders de;oted to r*%e %olle%t*on !nd sush* roll*n.4 .*;en the sm!ll d!*l( %!t%h o$ $*sh. There would be no po*nt *n !dd*n. e?tr! *sl!nders to bo!t !nd net produ%t*on4 be%!use then the( would end up bu*ld*n. more th!n %ould be sust!*ned *n the lon. run. /en%e4 the elders rot!te 1 people e;er( d!(4 who !re !llowed to .oo$ o$$. The( %ould o$ %ourse .o tr( to %!t%h $*sh w*th the*r b!re h!nds4 or .o .!ther r*%e th!t would Cust be e!ten *n p*les b( *tsel$4 but e;er(one de%*des th!t th*s *s ! w!ste o$ t*me. G*;en the re!l*t*es4 *t *s de%*ded th!t dur*n. the tr!ns*t*on4 1 people .et the d!( o$$4 e;en thou.h e;er(one *s hun.r(. Th!t *s Cust how b!d Oru.m!n,s !d;*%e w!s. Jon.'u%$on As our s*mple stor( *llustr!tes4 *n modern e%onom*es wor"ers use %!p*t!l .oods to !u.ment the*r l!bor !s the( tr!ns$orm n!ture,s .*$ts *nto %onsumpt*on .oods. 3e%!use o$ the t*me stru%ture o$ produ%t*on4 *t *s poss*ble to tempor!r*l( boost e;er(one,s %onsumpt*on4 but onl( !t the e?pense o$ m!*nt!*n*n. the %!p*t!l .oods 5the bo!ts !nd nets84 wh*%h !re thus 9%onsumed.9 At some po*nt4 en.*neer*n. re!l*t( sets *n4 !nd no 9st*mulus9 pol*%*es %!n pre;ent ! sh!rp drop *n %onsumpt*on. Althou.h the stor( o$ the sush* e%onom( w!s s*mpl*st*%4 + hope th!t *t *llustr!ted essent*!l $e!tures o$ ! boom7bust %(%le. 2hen the *sl!nders $*rst *mplement Oru.m!n,s !d;*%e4 the( !ll $eel r*%her. A$ter !ll4 the( re!ll( !re e!t*n. 6 rolls per d!( *nste!d o$ 1N there *s no !r.u*n. w*th results. And the( would h!;e no re!son to suspe%t !n unsust!*n!ble restru%tur*n.4 e*therE !$ter !ll4 the( !re us*n. ! new outbo!rd motor. Th*s *s !n!lo.ous to the !r.uments !bout the 9New #%onom(9 dur*n. the dot7%om boom4 or the %on$*den%e pl!%ed *n the new $*n!n%*!l *nstruments used dur*n. the hous*n. boom. Dur*n. e;er( boom4 people %!n !lw!(s %ome up w*th re!sons th!t 9th*s t*me *t,s d*$$erent.9 +n the sush* e%onom(4 th*s *n*t*!l prosper*t( w!s *llusor(. Althou.h there were *ndeed bene$*ts $rom the new te%hnolo.(4 the bul" o$ the e?tr! %onsumpt*on w!s be*n. $*n!n%ed throu.h %!p*t!l %onsumpt*on4 *.e.4 b( !llow*n. the bo!ts !nd nets to deter*or!te. Th*s *s !n!lo.ous to Amer*%!ns, %onsum*n. ! m!ss*;e !mount o$ *mported %onsumpt*on .oods dur*n. the hous*n. boom4 be%!use the( erroneousl( thou.ht the*r r*s*n. house ;!lues would more th!n %ompens!te. +n other words4 h!d Amer*%!ns re!l*Ied th!t the*r re!l7est!te hold*n.s would plummet *n ! $ew (e!rs4 the( would not h!;e %onsumed ne!rl( !s mu%h. The( were %onsum*n. %!p*t!l w*thout re!l*I*n. *t4 Cust !s the *sl!nders d*dn,t re!l*Ie th!t the*r e?tr! sush* %onsumpt*on w!s l!r.el( $*n!n%ed throu.h ne.le%t o$ the*r bo!ts !nd nets. Note too th!t th*s !spe%t o$ the stor( !nswers =owen,s obCe%t*onE people %onsume more dur*n. the boom R *.e.4 the ;*ll!.ers e!t more sush* per d!( R e;en wh*le new4 unsust!*n!ble *n;estment proCe%ts !re st!rted. 5+n our sush* e%onom(4 the unsust!*n!ble proCe%t w!s loo"*n. $or .!sol*ne $or the new$!n.led outbo!rd motor.8 =owen *s r*.ht th!t ! sust!*n!ble len.then*n. o$ the %!p*t!l stru%ture *n*t*!ll( re6u*res ! redu%t*on *n %onsumpt*onN wh!t h!ppens *s *n;estors !bst!*n !nd plow the*r s!;*n.s *nto the new proCe%ts. 3ut dur*n. ! %entr!l7b!n"7*ndu%ed boom4 there h!sn,t been re!l s!;*n.s to $und the new *n;estments. Th!t,s wh( the boom *s unsust!*n!ble4 but *t !lso e?pl!*ns wh( %onsumpt*on *n%re!ses !t the s!me t*me. +t,s true th!t th*s *s *mposs*ble *n the lon. run4 but *n the short run *t *s poss*ble to *n%re!se *n;estment *n new proCe%ts4 !nd to *n%re!se %onsumpt*on !t the s!me t*me. 2h!t (ou do *s ne.le%t m!*nten!n%e on %r*t*%!l *ntermed*!te .oods4 Cust !s our *sl!nders were !ble to pull o$$ the $e!t $or ! $ew months. A modern e%onom( *s ;er( %omple?4 !nd *t %!n t!"e ! $ew (e!rs $or !n unsust!*n!ble stru%ture to be%ome re%o.n*Ied !s su%h. F*n!ll(4 our sush* e%onom( showed wh( unemplo(ment *n%re!ses dur*n. the retren%hment. 'eople don,t '!.e >1

l*"e to wor"N the( would r!ther loun.e !round. +n order $or *t be worthwh*le to .*;e up le*sure4 the p!(o$$s $rom l!bor h!;e to be h*.h enou.h. Dur*n. the 9re%ess*on9 per*od4 when the *sl!nders h!d to %ut w!( b!%" on output $rom the $*sh4 r*%e4 !nd sush*7roll 9se%tors49 there weren,t 1 d*$$erent t!s"s worth do*n.. +n our stor(4 we st*pul!ted th!t onl( > people %ould be use$ull( *nte.r!ted *nto the produ%t*on stru%ture4 !t le!st unt*l the $leet o$ bo!ts !nd suppl( o$ nets st!rt .ett*n. restored4 !llow*n. more o$ the 9unemplo(ed9 *sl!nders to on%e !.!*n h!;e someth*n. use$ul to do. +n the re!l world4 th*s !lso h!ppensE dur*n. the re%ess*on $ollow*n. the !rt*$*%*!l boom per*od4 resour%es need to .et re!rr!n.edN %ert!*n proCe%ts need to be !b!ndoned 5l*"e hunt*n. $or .!sol*ne *n the sush* e%onom(8N !nd %r*t*%!l *ntermed*!te .oods 5l*"e bo!ts !nd nets8 need to be replen*shed s*n%e the( were *.nored dur*n. the boom. +t t!"es t*me $or !ll o$ the m*ll*on7!nd7one d*$$erent t(pes o$ m!ter*!ls4 tools4 !nd e6u*pment to be $urn*shed *n order to resume norm!l .rowth. Dur*n. th!t tr!ns*t*on4 the %ontr*but*on o$ the l!bor o$ some people *s so low th!t *t,s not worth *t to h*re them 5espe%*!ll( w*th m*n*mum7w!.e l!ws !nd other re.ul!t*ons8. The element!r( $l!w *n Oru.m!n,s obCe%t*on *s th!t he *s *.nor*n. the t*me stru%ture o$ produ%t*on. 2hen wor"ers .et l!*d o$$ *n the *ndustr*es th!t produ%e *n;estment .oods4 the( %!n,t s*mpl( sw*t%h o;er to %r!n"*n. out TAs !nd ste!" d*nners. Th*s *s be%!use the produ%t*on o$ TAs !nd ste!" d*nners rel*es on %!p*t!l .oods th!t must h!;e !lre!d( been produ%ed. +n our sush* e%onom(4 the unemplo(ed *sl!nders %ouldn,t Cump *nto sush* roll*n.4 be%!use there weren,t (et enou.h $*sh be*n. produ%ed. And the( %ouldn,t Cump *nto $*sh produ%t*on4 be%!use there weren,t enou.h bo!ts !nd nets to m!"e the*r e$$orts worthwh*le. And $*n!ll(4 the( %ouldn,t Cump *nto bo!t !nd net produ%t*on4 be%!use there were !lre!d( enou.h *sl!nders wor"*n. *n th!t !re! to restore the $leet !nd %olle%t*on o$ nets b!%" to the*r lon.7run sust!*n!ble le;el. 'eople *n .r!d s%hool would somet*mes !s" me wh( + bothered w*th !n 9obsolete9 s%hool o$ thou.ht. + d*dn,t bother %*t*n. subCe%t*;*sm4 monet!r( theor(4 or e;en entrepreneursh*p4 thou.h those !re !ll !re!s where the Austr*!n s%hool *s super*or to the neo%l!ss*%!l m!*nstre!m. Nope4 + would !lw!(s s!(4 9The*r %!p*t!l theor( !nd bus*ness7%(%le theor( !re the best + h!;e $ound.9 Our %urrent e%onom*% %r*s*s R !nd the $!%t th!t Nobel l!ure!tes don,t e;en underst!nd wh!t *s h!ppen*n. R shows th!t + %hose w*sel(. WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW Dust ! rem*nder4 the %on%epts up $or d*s%uss*on !re the ph(s*%!l pl!ne ;ersus the monet!r( pl!ne4 s!;*n.s !nd %!p*t!l. The ph(s*%!l pl!ne *s !ll th!t m!tters. The monet!r( pl!ne e?*sts onl( to !ss*st the Superor.!n*sm *n *ts dr*;e tow!rd sust!*n!b*l*t( b( tr!nsm*tt*n. *n$orm!t*on throu.h pr*%es !nd lubr*%!t*n. the $low o$ the ph(s*%!l. S!;ers dr*;e e;er(th*n.. +$ the( !re s!;*n.4 the e%onom( w*ll e?p!nd 5sust!*n!bl( or unsust!*n!bl(8. +$ the( !re not s!;*n.4 the e%onom( w*ll %ontr!%t. The Superor.!n*sm,s n!tur!l dr*;e *s tow!rd e%onom*% sust!*n!b*l*t( wh*le the P+MFS *s ! ped!l7to7the7 met!l %onsumpt*on b*n.e thr*ll r*de tow!rd e%onom*% %oll!pse. S!;ers dr*;e the e%onom(4 the Superor.!n*sm or.!n*Ies *t4 !nd the P+MFS 6u*etl( "*lls *t. S*n%erel(4 FOFOA

'!.e >&

'!.e >0

Fr$day, Mar.h 1=, 2012


Su%h$ 6%'and Sa9er% Sa#a 8 4art 2

Gre!t %omments *n the l!st thre!d! + wrote the $ollow*n. !s ! %omment repl(*n. to ! $ew 6uest*ons th!t h!d %ome up rel!t*n. to how the !%t o$ s!;*n. or net produ%t*on %ontr*butes to the Superor.!n*sm,s dr*;e tow!rd sust!*n!ble .rowth. 3ut + re!ll( w!nted !s m!n( people !s poss*ble to w!t%h the ;*deo below4 so + thou.ht *t would be more prom*nent *n ! post. So here (ou .o! The term 9Superor.!n*sm9 re$ers $*rst !nd $oremost to 9d*str*buted *ntell*.en%e9 or 9m!r"et *ntell*.en%e9 !s opposed to 9%entr!l*Ied pl!nn*n.9. +$ e;er (ou $eel the ur.e to m!"e l*$e better b( %h!n.*n. some rule or !dd*n. ! new one *n order to %ontrol4 %!use or stop someone else,s !%t*ons4 (ou $!ll under the %!te.or( o$ %entr!l pl!nners. +$4 howe;er4 (ou !re dr*;en to person!l !%t*ons to better (our l*$e 5r!ther th!n the !ll too %ommon obsess*on w*th %h!n.*n. the !%t*ons o$ others (ou deem to be wron.8 (ou !re p!rt o$ the Superor.!n*sm. =entr!l pl!nners !re4 o$ %ourse4 !lso p!rt o$ the Supero.!n*sm4 but the( !re ! ret!rd*n. *n$luen%e on th!t wh*%h would be $!r more *ntell*.ent w*thout them. 3oth d*str*buted *ntell*.en%e !nd %entr!l pl!nn*n. !re %!p!ble o$ or.!n*I*n. the me!ns o$ produ%t*on. +t,s Cust th!t one does *t *n$*n*tel( better th!n the other so there,s re!ll( no %omp!r*son. Somewhere !lon. the w!(4 prob!bl( *n the & s !nd 0 s4 .o;ernments sw*t%hed $rom !ss*st*n. the Superor.!n*sm to %entr!l pl!nn*n.4 or ret!rd*n. the Superor.!n*sm. + bel*e;e the s*n.ul!r $!%tor th!t en!bled th*s sw*t%h Rm!de *t e;en poss*bleRw!s th!t the s!;ers be.!n entrust*n. the*r surplus produ%t*on to the .o;ernment !s ! $und!ment!l $un%t*on o$ %h!n.es to the monet!r( s(stem th!t o%%urred *n 1>&&. Not e;er(one *s %!p!ble o$ be*n. ! world7%h!n.*n. entrepreneur. 3ut e;er(one is %!p!ble o$ %onsum*n. less th!n the( produ%e !nd4 there$ore4 s!;*n.. And *t *s the %ho*%es m!de b( b*ll*ons o$ !;er!.e people th!t le!ds to the Superor.!n*sm,s super*or *ntell*.en%e. As the ;*deo below e?pl!*ns4 m!r"ets !re pro%esses o$ le!rn*n. !nd mutu!l d*s%o;er( throu.h *nd*;*du!l %ho*%es l*"e entrepreneursh*p 5*nd*;*du!ls t!"*n. ! %re!t*;e st!b !t the $uture *n the $!%e o$ un%ert!*nt(8 !nd the spre!d o$ "nowled.e 5*nd*;*du!ls bu*ld*n. uponRe?p!nd*n. uponRthe p!st %ontr*but*ons o$ others8. '!.e >4

The %h!*n o$ settlement !mon.st s!;ers wh*%h + des%r*bed *n th*s %omment *s l*"e ! b!tter( s(stem $or the stor!.e o$ e%onom*% power. +t .!*ns *ts power !nd *ts stor!.e !b*l*t( $rom *ts perpetu!l n!ture. #%onom*% power %!n be deplo(ed or d*s%h!r.ed !t !n( t*me b( !n( s!;er be%!use there !re !lw!(s new net produ%ers wor"*n. to Co*n the %h!*n. 2*thout th*s s(stem o$ reser;es4 the surplus produ%t*on o$ s!;ers s*mpl( .ets d*str*buted !nd used up b( wh!te;er !%t*;*t( the debtors !re up to !t th!t t*me4 or where;er the %entr!l pl!nners w!nt to !llo%!te *t. 2*th the Free.old s(stem4 the !llo%!t*on o$ stored pur%h!s*n. power be%omes ! m!tter o$ the *nd*;*du!l de%*s*ons o$ b*ll*ons o$ s!;ers w*th no re!son to hurr(. + do re!l*Ie th!t most s%hol!rl( Austr*!n e%onom*sts prob!bl( *.nore th*s blo. be%!use *t seems somehow not up to the*r st!nd!rds. )*"ew*se4 m( re!ders tend to loo" down on modern Austr*!ns be%!use the( !re4 $or the most p!rt4 9/!rd Mone( So%*!l*sts9 !s Ar* !nd FOA dubbed them more th!n ! de%!de !.o. The So%*!l*st p!rt *s be%!use4 e;en wh*le the( t!l" !bout l*m*ted .o;ernment4 the( w!nt the .o;ernment to %ontrol the produ%t*on o$ mone( 9b( lo%"*n. .old *nto !n( o$$*%*!l %urren%( s(stem to !%t !s ! .!u.e !nd %ontroll*n. $!%tor !.!*nst so%*!l*st tenden%*es *n .o;ernment9 5to 6uote FOA8. So%*!l*sm *s !bout non7m!r"et pr*%es !nd !n( o$$*%*!l .old st!nd!rd *s ! So%*!l*st st!nd!rd. 3ut + w!nt to %!ut*on (ou !.!*nst d*sm*ss*n. the Austr*!n S%hool s*mpl( be%!use most modern pr!%t*t*oners !re m*s.u*ded w*th respe%t to the*r monet!r( pres%r*pt*ons. The Austr*!n S%hool *s pr*m!r*l( ! s%hool o$ #%onom*%s 5$o%used on subCe%t*;*sm !nd ! dedu%t*;e !ppro!%h to e%onom*%s %!lled pr!?eolo.(84 not mone(4 !nd th*s *s where *t *s trul( .re!t. From m( l*m*ted t*me spent *n the Austr*!n sp!%e4 + !m prob!bl( most *mpressed w*th +sr!el O*rIner !mon. the l*;*n. Austr*!ns. /*s $o%us *s more on the per*od o$ Austr*!n #%onom*%s be$ore 1>:4 th!n *t *s on the !%t*;*t*es o$ modern pr!%t*t*oners. And + th*n" (ou,ll $*nd th!t th*s ;*deo below4 ! le%ture .*;en b( O*rIner th*s p!st summer4 *s so %pot8on w*th re.!rd to the d*s%uss*on *n the l!st thre!d th!t + w!nt to s!( *t *s ! must7w!t%h $or !n(one $ollow*n. the d*s%uss*on. #;en *$ (ou,;e seen *t be$ore4 or the older4 lon.er !nd more %omplete ;ers*on4 (ou m!( w!nt to w!t%h *t !.!*nE

The History of Austrian Economics with Israel Kirzner

'!.e >1

Fr$day, Mar.h 23, 2012


*a'' o2 ")$ne Open Forum

FOA; 9The( w*ll not be push*n. on ! str*n.N r!ther p*%"*n. up the b!ll o$ tw*ne !nd throw*n. *t!9 + m!( be %r!I(4 but *$ there w!s ! %ont*n.en%( pl!nGhow7to m!nu!l on throw*n. the world,s l!r.est b!ll o$ tw*ne4 *t m*.ht Cust loo" l*"e th*sE

And here !re ! $ew tw*ne throw*n. e?%erpts $rom our br!*n7trust o$ %entr!l pl!nnersE 3( the !uthor*t( ;ested *n me !s 'res*dent b( the =onst*tut*on !nd the l!ws o$ the Fn*ted St!tes o$ Amer*%!4 *n%lud*n. the De$ense 'rodu%t*on A%t o$ 1>1 T...U *t *s hereb( ordered !s $ollowsE ... Se%. 1 0. Gener!l Fun%t*ons. #?e%ut*;e dep!rtments !nd !.en%*es 5!.en%*es8 respons*ble $or pl!ns !nd pro.r!ms rel!t*n. to n!t*on!l de$ense 5!s de$*ned *n se%t*on - 15C8 o$ th*s order84 or $or resour%es !nd ser;*%es needed to support su%h pl!ns !nd pro.r!ms4 sh!llE 5!8 *dent*$( re6u*rements $or the 2u'' %pe.trum o2 emer#en.$e%4 *n%lud*n. essent*!l m$'$tary A D '!.e >6

.$9$'$an dem!ndN 5b8 !ssess on !n on.o*n. b!s*s the %!p!b*l*t( o$ the domest*% *ndustr*!l !nd te%hnolo.*%!l b!se to s!t*s$( re6u*rements *n pea.et$me A D t$me% o2 nat$ona' emer#en.y4 spe%*$*%!ll( e;!lu!t*n. the !;!*l!b*l*t( o$ the most %r*t*%!l resour%e !nd produ%t*on sour%es4 *n%lud*n. sub%ontr!%tors !nd suppl*ers4 m!ter*!ls4 s"*lled l!bor4 !nd pro$ess*on!l !nd te%hn*%!l personnelN ... Se%. & 1. 'r*or*t*es !nd Allo%!t*ons Author*t*es. 5!8 The !uthor*t( o$ the 'res*dent %on$erred b( se%t*on 1 1 o$ the A%t4 1 F.S.=. App. & :14 to reFu$re a..eptan.e and pr$or$ty per2orman.e o2 .ontra.t% or order% 5other th!n %ontr!%ts o$ emplo(ment8 to promote the n!t*on!l de$ense o9er per2orman.e o2 any other .ontra.t% or order%4 !nd to !llo%!te m!ter*!ls4 ser;*%es4 !nd $!%*l*t*es !s deemed ne%ess!r(... 5b8 The Se%ret!r( o$ e!%h !.en%( dele.!ted !uthor*t( under subse%t*on 5!8 o$ th*s se%t*on 5resour%e dep!rtments8 sh!ll pl!n $or !nd *ssue re.ul!t*ons to pr*or*t*Ie !nd !llo%!te resour%es !nd est!bl*sh st!nd!rds !nd pro%edures b( wh*%h the !uthor*t( sh!ll be used to promote the n!t*on!l de$ense4 under both emer#en.y A D non8emer#en.y %ond*t*ons. ... 'ART +++ 7 #]'ANS+ON OF 'RODF=T+A# =A'A=+TY AND SF'')Y Se%. 0 1. )o!n Gu!r!ntees. 5!8 To redu%e %urrent or proCe%ted short$!lls o$ resour%es4 %r*t*%!l te%hnolo.( *tems4 or m!ter*!ls essent*!l $or the n!t*on!l de$ense4 the head o2 ea.h a#en.y en.!.ed *n pro%urement $or the n!t*on!l de$ense4 !s de$*ned *n se%t*on - 15h8 o$ th*s order4 *s !uthor*Ied pursu!nt to se%t*on 0 1 o$ the A%t4 1 F.S.=. App. & >14 to #uarantee 'oan% b( pr*;!te *nst*tut*ons. 5b8 #!%h .u!r!ntee*n. !.en%( *s des*.n!ted !nd !uthor*Ied toE 518 !%t !s $*s%!l !.ent *n the m!"*n. o$ *ts own .u!r!ntee %ontr!%ts !nd *n otherw*se %!rr(*n. out the purposes o$ se%t*on 0 1 o$ the A%tN !nd 5&8 .ontra.t )$th any Federa' Re%er9e *an+ to a%%$%t the a#en.y $n %er9$n# a% 2$%.a' a#ent. ... Se%. 0 &. )o!ns. To redu%e %urrent or proCe%ted short$!lls o$ resour%es4 %r*t*%!l te%hnolo.( *tems4 or m!ter*!ls essent*!l $or the n!t*on!l de$ense4 the he!d o$ e!%h !.en%( en.!.ed *n pro%urement $or the n!t*on!l de$ense *s dele.!ted the !uthor*t( o$ the 'res*dent under se%t*on 0 & o$ the A%t4 1 F.S.=. App. & >&4 to ma+e 'oan% thereunder. Terms !nd %ond*t*ons o$ lo!ns under th*s !uthor*t( sh!ll be determ*ned *n %onsult!t*on w*th the Se%ret!r( o$ the Tre!sur( !nd the D*re%tor o$ OM3. ... Se%. 0 0. Add*t*on!l Author*t*es. 5!8 To %re!te4 m!*nt!*n4 prote%t4 e?p!nd4 or restore domest*% *ndustr*!l b!se %!p!b*l*t*es essent*!l $or the n!t*on!l de$ense4 the he!d o$ e!%h !.en%( en.!.ed *n pro%urement $or the n!t*on!l de$ense *s dele.!ted the !uthor*t( o$ the 'res*dent T...U to ma+e pro9$%$on 2or pur.ha%e% o$4 or %omm*tments to pur%h!se4 !n *ndustr*!l resour%e or ! %r*t*%!l te%hnolo.( *tem 2or Go9ernment u%e or re%a'e4 !nd to m!"e pro;*s*on $or the de;elopment o$ produ%t*on %!p!b*l*t*es4 !nd $or the '!.e >:

*n%re!sed use o$ emer.*n. te%hnolo.*es *n se%ur*t( pro.r!m !ppl*%!t*ons4 !nd to en!ble r!p*d tr!ns*t*on o$ emer.*n. te%hnolo.*es. ... Se%. 0 4. Subs*d( '!(ments. To ensure the suppl( o$ r!w or nonpro%essed m!ter*!ls $rom h$#h .o%t %our.e%4 or to ensure m!?*mum produ%t*on or suppl( *n !n( !re! !t st!ble pr*%es o$ !n( m!ter*!ls *n l*.ht o$ ! tempor!r( $n.rea%e $n tran%portat$on .o%t4 the he!d o$ e!%h !.en%( en.!.ed *n pro%urement $or the n!t*on!l de$ense *s dele.!ted the !uthor*t( o$ the 'res*dent T...U to ma+e %ub%$dy payment%4 !$ter %onsult!t*on w*th the Se%ret!r( o$ the Tre!sur( !nd the D*re%tor o$ OM3. ... Se%. 0 6. Str!te.*% !nd =r*t*%!l M!ter*!ls. The Se%ret!r( o$ De$ense4 !nd the Se%ret!r( o$ the +nter*or *n %onsult!t*on w*th the Se%ret!r( o$ De$ense !s the N!t*on!l De$ense Sto%"p*le M!n!.er4 !re e!%h dele.!ted the !uthor*t( o$ the 'res*dent T...U to en.oura#e the e/p'orat$on, de9e'opment, and m$n$n# o2 %trate#$. and .r$t$.a' mater$a'% and other mater$a'% . ... Se%. 0 -. Go;ernment7Owned #6u*pment. The he!d o$ e!%h !.en%( en.!.ed *n pro%urement $or the n!t*on!l de$ense *s dele.!ted the !uthor*t( o$ the 'res*dent T...U toE 5!8 pro.ure and $n%ta'' !dd*t*on!l e6u*pment4 $!%*l*t*es4 pro%esses4 or *mpro;ements to pl!nts4 $!%tor*es4 !nd other *ndustr*!l $!%*l*t*es o)ned by the Federa' Go9ernment A D to pro%ure !nd *nst!ll Go;ernment owned e6u*pment *n pl!nts4 $!%tor*es4 or other *ndustr*!l $!%*l*t*es o)ned by pr$9ate per%on%N 5b8 pro;*de $or the mod*$*%!t*on or e?p!ns*on o$ pr*;!tel( owned $!%*l*t*es4 *n%lud*n. the mod*$*%!t*on or *mpro;ement o$ produ%t*on pro%esses... 5%8 %e'' or other)$%e tran%2er eFu$pment owned b( the Feder!l Go;ernment !nd *nst!lled under se%t*on 0 05e8 o$ the A%t4 1 F.S.=. App. & >05e84 to the o)ner% o2 %u.h p'ant%4 $!%tor*es4 or other *ndustr*!l $!%*l*t*es. ... Se%. 01 . =r*t*%!l +tems. The he!d o$ e!%h !.en%( en.!.ed *n pro%urement $or the n!t*on!l de$ense *s dele.!ted the !uthor*t( T...U to t!"e !ppropr*!te !%t*on to ensure th!t %r*t*%!l %omponents4 %r*t*%!l te%hnolo.( *tems4 essent*!l m!ter*!ls4 !nd *ndustr*!l resour%es !re !;!*l!ble $rom rel*!ble sour%es when needed to meet de$ense re6u*rements dur*n. pea.et$me, #raduated mob$'$?at$on, and nat$ona' emer#en.y. Appropr*!te !%t*on m!( *n%lude restr*%t*n. %ontr!%t sol*%*t!t*ons to rel*!ble sour%es4 restr*%t*n. %ontr!%t sol*%*t!t*ons to domest*% sour%es 5pursu!nt to st!tutor( !uthor*t(84 sto%"p*l*n. %r*t*%!l %omponents4 !nd de;elop*n. subst*tutes $or %r*t*%!l %omponents or %r*t*%!l te%hnolo.( *tems. ...

'!.e >-

Se%. 01&. Modern*I!t*on o$ #6u*pment. The he!d o$ e!%h !.en%( en.!.ed *n pro%urement $or the n!t*on!l de$ense T...U m!( ut$'$?e the author$ty o2 t$t'e 666 o2 the A.t to #uarantee the pur.ha%e or 'ea%e o$ !d;!n%e m!nu$!%tur*n. e6u*pment4 !nd !n( rel!ted ser;*%es w*th respe%t to !n( su%h e6u*pment $or purposes o$ the A%t. +n %ons*der*n. t*tle +++ proCe%ts4 the he!d o$ e!%h !.en%( en.!.ed *n pro%urement $or the n!t*on!l de$ense sh!ll pro;*de ! %tron# pre2eren.e 2or propo%a'% %ubm$tted by a %ma'' bu%$ne%% %upp'$er or %ub.ontra.tor... You %!n re!d the $ull 117p!.e #?e%ut*;e Order here. S*n%erel(4 FOFOA

Gre!t %omment4 De$$!... You .u(s don,t h!;e to worr( !bout be*n. press.!n.ed *nto be*n. unp!*d ,%onsult!nts,. Those Cobs w*ll .o to 3u$$ett4 De$$ +mmelt4 et%. who w!nt to help the G out o$ the .oodness o$ the*r he!rts...!nd to prote%t the*r pos*t*on ne!r the $*!t $*rehose o$ %ourse. /onestl(4 the $!s%*st t!l" .ets *n the w!( o$ underst!nd*n. wh!t *s .o*n. on. Yes4 th*s *s the De%l!r!t*on o$ /(per*n$l!t*on4 but d*d (ou e?pe%t the G to Cust s*t on *ts h!nds !nd %oll!pse@ FOFOA; 9+n p!rts two !nd three o$ m( September h(per*n$l!t*on posts + e?pl!*ned how the FS .o;ernment MFST respond to ! %urren%( %oll!pse b( pr*nt*n. more %urren%( *n order to "eep *ts stoo.es do*n. *ts b*dd*n.... GonI!lo %orre%tl( po*nts to 9p!ll*!t*;e pr*nt*n.9 !s ! wheelb!rrow7enl!r.*n. e;ent4 wh*%h %omes !t the ;er( end st!.e o$ ! h(per*n$l!t*on. And he presents *t !s p!ll*!t*;e to the people. 3ut th*s pr*nt*n. *s usu!ll( most p!ll*!t*;e to the .o;ernment !nd *ts e?p!nd*n. r!n" o$ stoo.es. Sure4 there w*ll be 9wel$!re9 !lon. the w!(4 but $or the most p!rt the $reshl( pr*nted %!sh w*ll bu( the most .oods !nd '!.e >>

ser;*%es $or the $*rst h!nds *t tou%hes. And then less $or the se%ond. And e;en less $or the th*rd !nd so on. And th*s pr*me pur%h!s*n. power w*ll be mostl( reser;ed $or the .o;ernment th!t pr*nts *t.9 Th*s #O4 +MO4 me!ns th!t the hour *s .ett*n. l!te...

'!.e 1

"ue%day, Apr$' 3, 2012


4ea+ 1/orb$tant 4r$9$'e#e

3;mporting more than you e"port means lots o% empty containers . -hat isual #anifestation of our trade deficit is what dri ers see as the+ pass the Port of Gew York and Gew Jerse+ on the Gew Jerse+ -urnpike. !n the first eight #onths of (>%>, the port saw the e.ui alent of R>>,>>> #ore full (>-foot containers enter than lea e. D?K o% containers e"ported fro# port operator :P0 -er#inals Port /li@a$eth facilit+ 6part of the Port of Gew York and Gew Jerse+7 are empty, a reflection of the trade i#$alance.3 Sour%e WWWWWWWWW

In the w!"e o$ 22+ 51>1471>1-8 there w!s !n *ntern!t*on!l mo;ement *n #urope to return to the

st!b*l*t( o$ $*?ed e?%h!n.e r!tes between n!t*on!l %urren%*es. 3ut !ll o$ them h!d been *n$l!ted so mu%h dur*n. the w!r th!t reest!bl*sh*n. the pe. to .old !t the pre7w!r pr*%e would h!;e *mpl*ed !n o;er;!lu!t*on o$ %urren%*es th!t would h!;e led *ne;*t!bl( to ! run on !ll the .old *n the b!n"*n. s(stem4 monet!r( de$l!t*on !nd e%onom*% depress*on 5.ood th*n. the( !;o*ded th!t4 eh@8. At the s!me t*me4 the( $e!red th!t r!*s*n. the .old pr*%e would r!*se 6uest*ons !bout the %red*b*l*t( o$ the new post7 w!r re.*me4 !nd 6u*te poss*bl( %!use ! .lob!l s%r!mble *nto .old. Th*s 9problem9 w*th .old w!s ;*ewed !t the t*me !s ! 9short!.e9 o$ .old. And so one o$ the st!ted .o!ls o$ the e$$ort to sol;e th*s problem w!s 3so#e #eans of econo#i@ing the use of gold $+ #aintaining reser es in the for# of foreign $alances.3 5Resolut*on > !t the Geno! =on$eren%e4 1>&&8 To e%onom*Ie me!ns to l*m*t or redu%e4 o$ten used *n %onCun%t*on w*th 9e?pense9 or 9w!ste9. So to 9e%onom*Ie the use o$ .old9 me!nt to l*m*t or redu%e the use o$ .old. Me!nwh*le4 the Fn*ted St!tes h!d emer.ed $rom the w!r !s the m!Cor %red*tor to the world !nd the onl( post7w!r e%onom( he!lth( enou.h to lend the $*n!n%*!l !ss*st!n%e needed $or rebu*ld*n. #urope. And so e;en thou.h the F.S. w!sn,t d*re%tl( *n;ol;ed *n the #urope!n monet!r( ne.ot*!t*ons th!t too" pl!%e *n 3russels *n 1>& !nd Geno! *n 1>&&4 *t w!s !%"nowled.ed th!t !n( new monet!r( order w!s l*"el( to be ! F.S. %entered s(stem. '!.e 1 1

The Geno! ne.ot*!t*ons were led b( the #n.l*sh *n%lud*n. 3r*t*sh 'r*me M*n*ster )lo(d Geor.e !nd 3!n" o$ #n.l!nd Go;ernor Mont!.u Norm!n who proposed ! 9two7t*er9 s(stem espe%*!ll( des*.ned to %*r%um;ent 9the .old short!.e9. The 3r*t*sh propos!l des%r*bed ! .roup o$ 9%enter %ountr*es9 who would hold the*r reser;es ent*rel( *n .old !nd ! se%ond t*er .roup o$ 5unn!med8 %ountr*es who would hold reser;es p!rtl( *n .old !nd p!rtl( *n short7term %l!*ms on the %enter %ountr*es. T1U The propos!l w!s n!med the 9.old7exchange st!nd!rd9 5!s opposed to the pre;*ous .old st!nd!rd8. +n 1>0& Fren%h e%onom*st D!%6ues Rue$$ pro%l!*med the .old7e?%h!n.e st!nd!rd th!t h!d %ome out o$ the Geno! %on$eren%e ! de%!de e!rl*er 3a conception so peculiarl+ :nglo-Saxon that there still is no 9rench expression for it.3 T&U The .old7e?%h!n.e st!nd!rd th!t o$$*%*!ll( %!me *nto be*n. !round 1>&6 5!nd l!sted onl( !bout s*? (e!rs *n *ts pl!nned $orm8 wor"ed l*"e th*sE The F.S. doll!r w!s b!%"ed b( !nd redeem!ble *n .old !t !n( le;el4 e;en down to sm!ll .old %o*ns. The 3r*t*sh pound w!s b!%"ed b( .old and doll!rs !nd redeem!ble *n both4 but $or .old4 onl( *n l!r.e4 e?pens*;e b!rs 5"*nd o$ l*"e the m*n*mum .old redempt*on *n '/YS *s 4 oI. b!rs but (ou %!n redeem *n doll!rs !t !n( le;el8. Other #urope!n %urren%*es were b!%"ed b( !nd redeem!ble *n 3r*t*sh pound sterl*n.4 wh*le both doll!rs !nd pounds ser;ed !s o$$*%*!l reser;es e6u!l to .old *n the *ntern!t*on!l b!n"*n. s(stem. T0U S*n%e onl( the F.S. doll!r w!s $ull( redeem!ble *n .old4 (ou m*.ht e?pe%t th!t .old would h!;e *mmed*!tel( $lowed out o$ the F.S. !nd *nto #urope. 3ut !s + !lre!d( e?pl!*ned4 the F.S. emer.ed $rom 22+ !s the world,s %red*tor !nd the F.S. Tre!sur( *n 1>& held 046:> tonnes o$ .old. 3( the be.*nn*n. o$ the .old7e?%h!n.e st!nd!rd *n 1>&6 the F.S. w!s up to 14>>- tonnes !nd b( 1>01 w!s up to -4>>tonnes. 3( 1>4 the F.S. Tre!sur( held 1>4140 tonnes o$ .old. A$ter 22++ !nd the st!rt o$ the new 3retton 2oods monet!r( s(stem4 o$$*%*!l F.S. .old pe!"ed !t & 4660 tonnes *n 1>1& where *t be.!n *ts lon. de%l*ne. T4U +n On%e Fpon ! T*me + wrote4 9On%e ster*l*Ied T!t the 1>&& Geno! =on$eren%eU4 .old $lowed un%ontrolled *nto the FS r*.ht up unt*l the whole s(stem %oll!psed !nd be(ond.9 M( po*nt w!s th!t be$ore the *ntrodu%t*on o$ 9p!per .old9 !s o$$*%*!l reser;es *n the $orm o$ doll!rs !nd pounds4 the $low o$ ph(s*%!l .old *n *ntern!t*on!l tr!de settlement .o;erned !s ! n!tur!l !dCustment me%h!n*sm $or n!t*on!l %urren%*es !nd e?erted the spur !nd br!"e $or%es on the*r e%onom*es. 3ut !$ter 1>&&4 th*s w!s no lon.er the %!se. A$ter 1>&&4 the F.S. pro;*ded the m!Cor*t( o$ the reser;es $or the *ntern!t*on!l b!n"*n. s(stem *n the $orm o$ pr*nted doll!rs. And !s the world,s %red*tor !nd reser;e pr*nter4 doll!r reser;es $lowed out !nd .old p!(ments $lowed *n. From the st!rt o$ the .old7e?%h!n.e st!nd!rd *n the m*d71>& s unt*l 1>1&4 !bout &6 (e!rs4 the doll!r,s monet!r( b!se .rew $rom P63 to P1 3 wh*le the F.S. .old sto%"p*le .rew $rom 64 tonnes to more th!n & 4 tonnes. T1U The Ro!r*n. Twent*es w!s not Cust ! short7l*;ed per*od o$ super$*%*!l prosper*t( *n Amer*%!4 *t w!s !lso ! t*me when ! .re!t pr*;*le.e w!s unw*tt*n.l( .r!nted to the Fn*ted St!tes th!t would l!st $or the ne?t > (e!rs. And + s!( 9unw*tt*n.l( .r!nted9 be%!use the F.S. d*d not e;en p!rt*%*p!te *n the ne.ot*!t*ons th!t led to *ts pr*;*le.e. As D!%6ues Rue$$ wrote *n h*s 1>:& boo"4 The Monet!r( S*n o$ the 2estE 3-he situation ! a# going to anal+@e was neither $rought a$out nor specificall+ wanted $+ '!.e 1 &

the 5nited States. !t was the outco#e of an un$elie a$le collecti e #istake which, when people $eco#e aware of it, will $e iewed $+ histor+ as an o$;ect of astonish#ent and scandal.3 T6U + should p!use here to note th!t .old st!nd!rd !d;o%!tes !nd h!rd mone( %!mpers w*ll 6u*%"l( po*nt out th!t the post71>&& .old7e?%h!n.e st!nd!rd *s not wh!t the( w!nt. The( w!nt to return to the .old st!nd!rd o$ the 1>th %entur(4 the one be$ore 22+. 3ut th!t,s not m( pos*t*on. And !n(w!(4 *t,s not .onn! h!ppen !nd e;en *$ *t wouldG%ould h!ppen4 *t would not $*? the $und!ment!l problem. Dust l*"e t*me4 we mo;e relentlessl( $orw!rd !nd4 lu%"*l( $or us4 the $uture *s mu%h br*.hter th!n the p!st. Now4 b!%" to th*s pr*;*le.e wh*%h4 *n the end4 m!( turn out to be more o$ ! %urse. +n order to re!ll( underst!nd how the .old7e?%h!n.e st!nd!rd !nd *ts su%%essor s(stems4 the 3retton 2oods s(stem !nd the %urrent doll!r st!nd!rd s(stem tr!nsl!ted *nto ! pr*;*le.e $or the Fn*ted St!tes4 we need to underst!nd wh!t !%tu!ll( %h!n.ed *n the m*d7& s !s *t $und!ment!ll( rel!tes to how we use mone(. + w*ll e?pl!*n *t !s br*e$l( !s poss*ble but + w!nt to %!ut*on (ou to res*st the tempt!t*on to m!"e Cud.ments !bout wh!t *s wron. here !s (ou re!d m( des%r*pt*on. As some o$ (ou !lre!d( "now4 + th*n" there *s onl( one funda#ental $l!w *n the s(stem !nd *t w!s present e;en be$ore the .old7e?%h!n.e st!nd!rd !nd the F.S. e?orb*t!nt pr*;*le.e4 but th!t,s not the subCe%t o$ th*s post. 0hat .han#edD 'eople !nd e%onom*es tr!de w*th e!%h other us*n. mone( B m!*nl( %red*t4 denom*n!ted *n ! n!t*on!l %urren%( B !s the*r pr*m!r( med*um o$ e?%h!n.e so !s to !;o*d the *ntr!%t!ble double %o*n%*den%e o$ w!nts problem w*th d*re%t b!rter. So we tr!de our stu$$ $or the*r stu$$ us*n. b!n" mone( 5!"! $un.*ble %urren%(7denom*n!ted %red*t8 !nd the pr*%es o$ th!t stu$$ *s how we "now *$ there *s !n( *ne6u*t( or *mb!l!n%e *n the o;er!ll tr!de. 2hen we per*od*%!ll( net out the b!n" tr!ns!%t*ons us*n. the pr*%es o$ the stu$$ we tr!ded4 we *ne;*t!bl( %ome up short on one s*de or the other. And so th!t *mb!l!n%e *s then settled *n the %urren%( *tsel$. 3ut be%!use d*$$erent %ountr*es use d*$$erent %urren%*es4 we need !nother le;el o$ *mb!l!n%e %le!r*n.. And th!t *ntern!t*on!l le;el *s %le!red w*th wh!t we %!ll re%er9e%. So4 *n essen%e4 we re!ll( do h!;e two t*ers *n the w!( we use mone(. 2e h!;e the domest*% t*er where e;er(one uses the s!me %urren%( !nd %le!r*n. *s h!ndled !t the %ommer%*!l b!n" le;el w*th %urren%(. And then we h!;e the *ntern!t*on!l t*er where e;er(one doesn,t use the s!me %urren%( !nd so tr!de *mb!l!n%es tend to !..re.!te !nd then %le!r w*th wh!t we %!ll 9reser;es9 5!"! *ntern!t*on!l l*6u*d*t(8 !t the n!t*on!l or =entr!l 3!n" le;el. Th*s *s bu*lt r*.ht *nto the ;er( mone( th!t we use4 !nd h!;e used4 $or ! ;er( lon. t*me. To see how4 we w*ll re.ress %on%eptu!ll( b!%" to how our b!n" mone( *s *n*t*!ll( %on%e*;ed. And be%!use most o$ (ou h!;e !t le!st ! b!s*% underst!nd*n. o$ the #uros(stem,s b!l!n%e sheet $rom m( 6u!rterl( R'G posts4 th*s should be ! $!*rl( e!s( e?er%*se. +$ not4 R'G \4 m*.ht be ! .ood pl!%e to %!t%h up 6u*%"l(. Re%!ll th*s %h!rt $rom #uro GoldE

'!.e 1 0

+t shows the %h!n.e4 o;er t*me4 *n rel!t*;e ;!lue o$ the t)o +$nd% o2 re%er9e% held b( the #uros(stemE 1. .old reser;es !nd &. $ore*.n %urren%( reser;es. And *n R'G \4 + e?pl!*ned the d*$$eren%e between reser;es !nd !ssets on the =3 b!l!n%e sheet. Assets !re %l!*ms !.!*nst res*dents o$ (our %urren%( Ione denom*n!ted mostl( *n (our own %urren%(. Reser;es !re e*ther .old or %l!*ms !.!*nst non7res*dents denom*n!ted *n ! $ore*.n %urren%(. +n our re.ress*on e?er%*se we,ll see the $und!ment!l d*$$eren%e between reser;es !nd !ssets. Reser;es !re the $und!ment!l b!s*s on wh*%h the b!s*% mone( suppl( o$ ! b!n" *s borne4 wh*le !ssets !re the b!l!n%e sheet represent!t*on o$ the b!n",s e?tens*on o$ %red*t. =h!n.es *n the r!t*o between reser;es !nd !ssets e?ert oppos*n. 5en!bl*n.Gd*s!bl*n.8 *n$luen%es on the !b*l*t( o$ the s(stem to e?p!nd. So4 now4 loo"*n. b!%" !t the ;er( .enes*s o$ our mone(4 we,;e !ll he!rd the stor*es o$ the .old b!n"er who *ssues re%e*pts on the .old he h!s *n h*s ;!ult4 r*.ht@ 2ell4 th!t,s b!s*%!ll( *t. Mone( !s we "now *t tod!( ult*m!tel( be.*ns w*th the monet*I!t*on o$ some .old. The =entr!l 3!n" h!s some !mount o$ .old *n the ;!ult wh*%h *t monet*Ies b( pr*nt*n. %!sh. =3 Assets7777777)*!b*l*t*es Gold c =!sh For the s!"e o$ th*s e?er%*se4 let,s s!( th!t the .o;ernment depos*ts *ts o$$*%*!l .old *n *ts newl(7%re!ted =3 !nd the =3 monet*Ies th!t .old b( pr*nt*n. %!sh wh*%h *s now ! .o;ernment depos*t. So let,s s*mpl*$( the b!l!n%e sheet e;en more. =3 H =entr!l 3!n"4 R H reser;es4 A H !ssets !nd = H %!sh 5or !lso =3 l*!b*l*t*es wh*%h !re ele%tron*% obl*.!t*ons o$ the =3 to pr*nt %!sh *$ ne%ess!r(4 so the( !re essent*!ll( the s!me th*n. !s %!sh w*th*n the b!n"*n. s(stem8. =3 Rc= Th!t,s reser;es 5.old8 on the !sset s*de o$ the b!l!n%e sheet !nd %!sh 5the G,s depos*t8 on the l*!b*l*t( s*de. Now the G %!n spend th!t %!sh *nto the e%onom( where *t w*ll end up !t ! %ommer%*!l b!n". )et,s s!( =OMM3ANO1 H %ommer%*!l b!n" \14 = H %!sh 5or =3 l*!b*l*t*es8 !nd D H depos*t. =OMM3ANO1 =cD '!.e 1 4

Now th!t the G spent mone( *nto the e%onom(4 our $*rst %ommer%*!l b!n" h!s *ts own reser;es !nd *ts $*rst depos*t $rom ! .o;ernment stoo.e who re%e*;ed p!(ment $rom G !nd depos*ted *t *n =OMM3ANO1. +n the %ommer%*!l b!n"4 %!sh *s the reser;e on the !sset s*de o$ the b!l!n%e sheet where!s %!sh *s on the oppos*te s*de4 the l*!b*l*t( s*de4 o$ the =entr!l 3!n",s b!l!n%e sheet. Also4 !ll the %!sh *ssued b( the =3 rem!*ns on *ts b!l!n%e sheet e;en !$ter *t h!s le$t the bu*ld*n. !nd *s s*tt*n. *n the %ommer%*!l b!n" 5or e;en *n ! shoebo? under (our bed8. At th*s po*nt we h!;e ! $ull( reser;ed m*n*7monet!r( s(stem. 3oth the =3,s !nd the %ommer%*!l b!n",s l*!b*l*t*es !re b!l!n%ed w*th reser;es. The =3,s reser;es !re .old !nd the %ommer%*!l b!n",s reser;es !re %!sh or =3 l*!b*l*t*es. Th!t,s $ull( reser;ed. 3ut let,s s!( th!t the e%onom( *s tr(*n. to .row !nd the dem!nd $or b!n" mone( 5%red*t8 *s both stron. !nd %red*ble. So now our b!n"s %!n e?p!nd the*r b!l!n%e sheets. As %red*t e?p!nds4 the !sset s*de w*ll be b!l!n%ed w*th !ssets 5A8 r!ther th!n reser;es 5reser;es !re .old *n the %!se o$ the =3 !nd %!sh *n the %!se o$ =OMM3ANO18. Also4 +,m .o*n. to put the =3 under the %ommer%*!l b!n"s s*n%e *t *s essent*!ll( the b!se on wh*%h the %ommer%*!l b!n" mone( st!nds. =OMM3ANO1 A==cDDD WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW =3 ARc== /ere we see th!t our =3 now h!s !n !sset !nd ! reser;e. The !sset *s ! %l!*m denom*n!ted *n *ts own %urren%( !.!*nst ! res*dent o$ *ts %urren%( Ione4 !nd the reser;e *s the .old. )et,s s!( th!t the =3 lent 5!nd there$ore %re!ted8 ! new = to the .o;ernment. Me!nwh*le4 our %ommer%*!l b!n" =OMM3ANO1 h!s h!d two tr!ns!%t*ons. +t h!s re%e*;ed the depos*t $rom ! se%ond .o;ernment stoo.e !nd *t h!s !lso m!de ! lo!n to ! worth( entrepreneur. So on the =OMM3ANO1 5%ommer%*!l b!n"8 b!l!n%e sheet4 the A *s ! %l!*m !.!*nst our entrepreneur !nd the two =s !re %!sh reser;es. The $*rst = %!me *n when our $*rst stoo.e depos*ted h*s .o;ernment p!(%he%" !nd the se%ond = %!me *n when the se%ond stoo.e depos*ted h*s p!(ment wh*%h G h!d borrowed 5*nto e?*sten%e8 $rom the =3. The three Ds 5depos*ts8 belon. to our two stoo.es !nd the entrepreneur. +,m not .o*n. to .o mu%h $urther w*th th*s model but e;entu!ll(4 !s the e%onom( !nd b!n" mone( e?p!nds4 we,ll end up w*th someth*n. th!t loo"s more l*"e th*sE =OMM3ANO1 AAA==cDDDDD =OMM3ANO& AAA==cDDDDD =OMM3ANO0 AAA==cDDDDD

'!.e 1 1

=OMM3ANO4 AAA==cDDDDD =OMM3ANO1 AAA==cDDDDD WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW =3 AAAAAAAAARc========== And here we h!;e ! s*mple model o$ our monet!r( s(stem w*th*n ! s*n.le %urren%( Ione. There !re two obser;!t*ons th!t + w!nt to sh!re w*th (ou throu.h th*s l*ttle e?er%*se. The $*rst *s the t*ered n!ture o$ our monet!r( s(stem e;en w*th*n ! s*n.le %urren%( Ione. And the se%ond *s the natural m!"eup o$ ! =entr!l 3!n",s b!l!n%e sheet. You,ll not*%e th!t one th*n. the =entr!l 3!n" !nd the %ommer%*!l b!n"s h!;e *n %ommon *s th!t the !sset s*de o$ the*r b!l!n%e sheets %ons*st o$ both reser;es !nd !ssets. Remember th!t !ssets !re %l!*ms denom*n!ted *n (our %urren%( !.!*nst someone else *n (our %urren%( Ione. 3ut (ou,ll !lso not*%e th!t the %ommer%*!l b!n" reser;es !re the s!me th*n. !s the =entr!l 3!n",s l*!b*l*t*es. So the =entr!l 3!n" *ssues the reser;es upon wh*%h b!n" mone( *s *ssued to the e%onom( b( the %ommer%*!l b!n"s. The $und!ment!l t!"e7home po*nt here *s th!t reser;es !re the b!se on wh*%h !ll b!n" mone( e?p!nds. =3 mone( rests on =3 reser;es !nd %ommer%*!l b!n" mone( rests on %ommer%*!l b!n" reser;es wh*%h !re4 *n $!%t4 =3 mone( wh*%h *s rest*n. on =3 reser;es. So (ou %!n see th!t the ent*re mone( s(stem *s bu*lt up $rom the =3 reser;es. The depos*ts 5D8 *n the %ommer%*!l b!n"s !re both redeem!ble *n reser;es !nd %le!red w*th reser;es 5reser;es be*n. %!sh or =3 l*!b*l*t*es8. Depos*ts !re not redeem!ble or %le!red 5settled8 w*th !ssets. +$ ! %ommer%*!l b!n" h!s ! he!lth( le;el o$ reser;es *t %!n e?p!nd *ts %red*t. 3ut *$ *t e?p!nds %red*t w*thout su$$*%*ent reser;es $or *ts %le!r*n. !nd redempt*on needs4 *t must then .o $*nd reser;es wh*%h *t %!n do *n ! number o$ w!(s. Not*%e !bo;e th!t we h!;e &1 depos*ts !t 1 %ommer%*!l b!n"s b!sed on 1 %ommer%*!l b!n" reser;es. Those %ommer%*!l b!n" reser;es !re =entr!l 3!n" l*!b*l*t*es wh*%h !re b!sed ult*m!tel( on the or*.*n!l .old depos*t. 3e$ore 1>004 .old %o*ns were one %omponent o$ the %!sh4 !nd =3 l*!b*l*t*es were !lso redeem!ble b( the %ommer%*!l b!n"s *n .old %o*n $rom the =3 to %o;er redempt*on needs. So the %ommer%*!l b!n"s 5!s well !s the Fed8 h!d to worr( !bout h!;*n. su$$*%*ent reser;es o$ two d*$$erent "*nds. As (ou %!n *m!.*ne4 th*s %re!ted !nother le;el o$ d*$$*%ult( *n %le!r*n. !nd espe%*!ll( *n redempt*on. J'ear$n# and Redempt$on Aer( 6u*%"l( + w!nt to .o o;er %le!r*n. !nd redempt*on !nd how the( %!n mo;e reser;es !round *n the s(stem. /ere,s our s*mple s(stem on%e !.!*nE =OMM3ANO1 AAA==cDDDDD

'!.e 1 6

=OMM3ANO& AAA==cDDDDD =OMM3ANO0 AAA==cDDDDD =OMM3ANO4 AAA==cDDDDD =OMM3ANO1 AAA==cDDDDD WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW =3 AAAAAAAAARc========== Now let,s s!( th!t one o$ our depos*tors !t =OMM3ANO1 w*thdrew h*s depos*t *n %!sh. And let,s !lso s!( th!t !nother depos*tor !t the s!me b!n" spent h*s mone( !nd h*s depos*t w!s there$ore tr!ns$erred to =OMM3ANO4 !nd th!t tr!ns!%t*on %le!red. /ere,s wh!t *t would loo" l*"eE =OMM3ANO1 AAA==cDDDDD =OMM3ANO& AAA==cDDDDD =OMM3ANO0 AAA==cDDDDD =OMM3ANO4 AAA===cDDDDDD =OMM3ANO1 AAAcDDD WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW =3 AAAAAAAAARc========== A $ew 6u*%" obser;!t*ons. There !re now onl( > =s *n the %ommer%*!l b!n"*n. s(stem e;en thou.h there !re st*ll 1 =s outst!nd*n. on the =3,s b!l!n%e sheet. Th!t,s be%!use one o$ them *s now outs*de o$ the b!n"*n. s(stem !s on7the7.o %!sh *n the w!llet. Also4 not*%e th!t =OMM3ANO4 re%e*;ed *ts s*?th depos*t wh*%h %le!red !nd so =OMM3ANO4 re%e*;ed the %!sh 5=8 reser;e $rom =OMM3ANO1. Th*s tr!ns!%t*on bumped =OMM3ANO4 up $rom be*n. 4 Q reser;ed to 1 Q reser;ed. 3ut be%!use =OMM3ANO1 h!d to de!l w*th two tr!ns!%t*ons4 one redempt*on !nd one %le!red depos*t tr!ns$er4 =OMM3ANO1 *s now out o$ reser;es. +n th*s l*ttle s%en!r*o4 =OMM3ANO4 *s now e?tr!7%!p!ble o$ e?p!nd*n. *ts b!l!n%e sheet4 wh*le '!.e 1 :

=OMM3ANO1 needs to $or.et !bout e?p!nd*n. !nd tr( to $*nd some reser;es. To obt!*n reser;es4 =OMM3ANO1 %!n %!ll *n ! lo!n4 sell !n !sset $or %!sh4 borrow %!sh tempor!r*l( wh*le post*n. !n !sset !s %oll!ter!l4 or s*mpl( hope th!t some depos*ts %ome h*s w!( ;er( soon. 3ut *n !n( %!se4 =OMM3ANO1,s ne?t !%t*on *s4 to some e?tent4 *n$luen%ed b( *ts l!%" o$ reser;e. Th*s *s !n *mport!nt po*ntE th!t !s reser;es mo;e !round4 the*r mo;ement e?erts some *n$luen%e on the !%t*;*t*es o$ both the .*;er !nd the re%e*;er o$ the reser;es. 6nternat$ona' J'ear$n# Now let,s s%!le our model up !nd loo" !t how *t wor"s *n *ntern!t*on!l tr!de. =ommer%*!l b!n"s de!l mostl( *n the*r own %urren%( Ione,s %urren%(. 3ut *n tod!(,s $!st7p!%ed !nd .lob!l world we h!;e ! %onst!nt $low o$ tr!de !%ross borders4 so ;!r*ous %urren%*es !re !lso $low*n. *n !ll d*re%t*ons. Some *ntern!t*on!l %ommer%*!l b!n"s h!ndle these tr!ns!%t*ons4 but !s (ou %!n *m!.*ne4 %le!r*n. !nd redempt*on be%omes ! b*t more %ompl*%!ted. You m*.ht h!;e ! depos*t 5D8 !t =OMM3ANO1 *n the F.S. be*n. spent *n #urope somewhere !nd end*n. up !t ! #urope!n %ommer%*!l b!n" where *t *s ne*ther redeem!ble nor %le!r!ble !s *t st!nds 5%urrentl( denom*n!ted *n doll!rs8. The F.S.7b!sed =OMM3ANO1 w*ll tr!ns$er both the = !nd the D to the #urope!n b!n". The #urope!n depos*t holder who sold h*s .oods to the F.S. w*ll w!nt h*s b!n" to e?%h!n.e those doll!rs $or euros so he %!n p!( h*s b*lls. So the #urope!n b!n" w*ll loo" to e*ther the $ore*.n e?%h!n.e m!r"et or to *ts =3 to %h!n.e the %urren%(. +$ tr!de between the two %urren%( Iones w!s per$e%tl( e6u!l !t !ll t*mes4 there would be !n e6u!l !mount o$ euros w!nt*n. to bu( doll!rs !nd ;*%e ;ers!. 3ut we don,t l*;e *n ! per$e%t world4 so there,s !lw!(s more o$ one or the other wh*%h *s wh( the e?%h!n.e r!tes $lo!t. +$4 *nste!d4 we h!d $*?ed e?%h!n.e r!tes4 the =3s would be *n;ol;ed *n e6u!l*I*n. the number o$ euros !nd doll!rs be*n. e?%h!n.ed4 !nd then the =3s would settle up !mon.st themsel;es us*n. their reser;es4 wh*%h w!s how *t w!s be$ore 1>:1. 3ut e;en tod!(4 w*th $lo!t*n. e?%h!n.e r!tes4 the =3,s st*ll do .et *n;ol;ed *n wh!t we %!ll the 9d*rt( $lo!t9 to m!n!.e the pr*%e o$ the*r %urren%( on the *ntern!t*on!l m!r"et. Th*s *s essent*!ll( the s!me pro%ess !s dur*n. $*?ed e?%h!n.e r!tes e?%ept th!t the( don,t m!*nt!*n !n e?!%t pe.4 but *nste!d the( let *t $lo!t w*th*n ! r!n.e th!t the( deem !%%ept!ble. And the w!( the( do th!t *s essent*!ll( the s!me w!( the( d*d *t b!%" *n the $*?ed e?%h!n.e r!te s(stem o$ 3retton 2oods !nd be$ore. The( bu( up $ore*.n %urren%( $rom the*r %ommer%*!l b!n"s w*th newl( pr*nted %!sh. Or4 *$ there,s ! .lut o$ the*r own %urren%( *n $ore*.n l!nds tr(*n. to .et home4 then the( h!;e to bu( b!%" the*r own %urren%( us*n. up the*r =3 reser;es. 2h*%h br*n.s us to the m!"eup o$ ! =3,s b!l!n%e sheet4 most po*ntedl( *ts reser;es. And the t!"e7home po*nt th!t + w!nt to sh!re w*th (ou here *s the d*$$eren%e between $*n*te !nd *n$*n*te $rom ! =3,s perspe%t*;e. From the perspe%t*;e o$ ! =34 *ts own %urren%( *s *n$*n*te wh*le *ts reser;es !re $*n*te. So *$ there,s ! .lut o$ $ore*.n %urren%( *n *ts Ione4 *t h!s no problem bu(*n. up !s mu%h !s *t w!nts w*th pr*nted %!sh. +n $!%t4 theoret*%!ll(4 ! =3 %ould bu( up $ore*.n %urren%( th!t *s !%%umul!t*n. *n *ts Ione unt*l the %ows %ome home. On the other h!nd4 *$ there,s ! .lut o$ *ts own %urren%( !bro!d4 *ts bu(7b!%" power *s $*n*te !nd l*m*ted to the !mount o$ reser;es *t sto%"p*led e!rl*er. '!.e 1 -

So wh( do *t@ 2h( does ! =3 spend *ts pre%*ous reser;es bu(*n. *ts own %urren%( b!%" $rom $ore*.n l!nds@ 2h!t h!ppens *$ *t doesn,t@ =urren%( %oll!pse *s wh!t h!ppens. +$ there,s ! .lut o$ (our %urren%( !bro!d !nd (ou don,t bu( *t b!%"4 the m!r"et w*ll t!"e %!re o$ *t $or (ou b( de;!lu*n. (our %urren%( unt*l *t be%omes *mposs*ble $or (ou to run ! tr!de de$*%*t. And th*s *s ! p!*n$ul pro%ess when the m!r"etpl!%e h!ndles *t $or (ou be%!use *t not onl( %oll!pses (our tr!de de$*%*t to Iero4 *t !lso tends to br*n. (our domest*% e%onom( to ! st!ndst*ll !t the s!me t*me4 ! double7wh!mm(. And th*s *s how the monet!r( s(stem !bo;e s%!les up to the *ntern!t*on!l le;el. 2h*le the %ommer%*!l b!n" reser;es 5=!sh8 !re .ood $or %le!r*n.4 redempt*on !nd %red*t e?p!ns*on w*th*n ! %urren%( Ione4 onl( the =3 reser;es wor" *n ! p*n%h on the *ntern!t*on!l le;el. And *$ the =3 runs out o$ reser;es4 the %urren%( %oll!pses due to m!r"et $or%es !nd4 there$ore4 the %ommer%*!l b!n" reser;e 5=!sh8 upon wh*%h %ommer%*!l b!n" mone( *s e?p!nded de;!lues4 !nd so b!n" mone(4 too4 de;!lues. +t *s !ll st!%"ed upon the =3 reser;es $rom when%e the $*rst b!n" mone( w!s born. And !s (ou %!n see !bo;e4 the n!tur!l m!"eup o$ ! =3,s reser;es *s .old. 3ut th!t %h!n.ed *n 1>&&. Now ob;*ousl( there !re ! m(r*!d o$ d*re%t*ons *n wh*%h we %ould t!"e th*s d*s%uss*on r*.ht now. 3ut the d*re%t*on + w!nt to "eep (ou $o%used on so th!t + %!n e;entu!ll( %on%lude th*s post *s th!t when ! =entr!l 3!n",s $*n*te reser;es !re ult*m!tel( e?h!usted *n the *ntern!t*on!l de$ense o$ *ts %urren%(4 *ts lo%!l %ommer%*!l b!n",s reser;es 5=!sh8 !re n!tur!ll( de;!lued b( the *ntern!t*on!l m!r"et. And w*th the %ommer%*!l b!n" reser;es be*n. wh!t %ommer%*!l b!n" depos*ts !re redeem!ble *n4 so too *s lo%!l mone( de;!lued. 3ut *n 1>&& the( 9sol;ed9 th*s 9problem9 w*th the *ntrodu%t*on o$ theoret*%!ll( *n$*n*te reser;es. As we mo;e $orw!rd *n th*s d*s%uss*on4 + w!nt (ou to "eep *n m*nd m( $*rst $und!ment!l t!"e7home po*nt wh*%h w!s th!t reser;es !re the b!se on wh*%h b!n" mone( e?p!nds. =ommer%*!l b!n"s e?p!nd the*r b!n" mone( on ! b!se o$ =entr!l 3!n"7%re!ted reser;es. And 5!s lon. !s there *s tr!de w*th the world outs*de o$ (our %urren%( Ione8 the =entr!l 3!n",s reser;es !re the b!se on wh*%h the %ommer%*!l b!n"s, reser;es st!nd. So the %oroll!r( +,d l*"e to *ntrodu%e here *s th!t theoret*%!ll( *n$*n*te reser;es le!d to theoret*%!ll( *n$*n*te b!n" mone( e?p!ns*on. O$ %ourse *t doesn,t t!"e ! .en*us to $*.ure out th!t *n$*n*te mone( e?p!ns*on does not !utom!t*%!ll( tr!nsl!te *nto *n$*n*te re!l e%onom*% .rowth. And so we need to loo" !t who4 *n p!rt*%ul!r4 w!s the pr*me bene$*%*!r( o$ these newl( *n$*n*te reser;es. +n 1>&& the Go;ernor o$ the 3!n" o$ #n.l!nd wh*%h h!d !round 14 tonnes o$ .old !t the t*me 5less th!n the 3!n" o$ Fr!n%e wh*%h h!d !bout 14& tonnes8 proposed e%onom*I*n. the use o$ .old b( de%l!r*n. 3r*t*sh pound sterl*n. !nd F.S. doll!rs to be o$$*%*!l !nd re%o.n*Ied reser;es !n(where *n the world. The 9lo.*%9 w!s th!t doll!rs !nd pounds would be !s .ood !s .old be%!use the( would be redeem!ble *n .old on the*r home tur$. "hree Fa$r 0arn$n#% The re!son + went throu.h th*s somewh!t7len.th( e?er%*se e?pl!*n*n. the s*.n*$*%!n%e o$ reser;es *n our monet!r( !nd b!n"*n. s(stem w!s to help (ou underst!nd the words o$ D!%6ues Rue$$ who $*rst '!.e 1 >

w!rned o$ the %!t!stroph*%!ll( d!n.erous $l!w embedded *n th*s new s(stemR! $l!w wh*%h %ont*nues tod!(Rw!( b!%" *n 1>01. The term 9e?orb*t!nt pr*;*le.e9 would not be used unt*l 0 (e!rs l!ter under ! new s(stem4 but + hope to help (ou see4 !s + do4 the %ommon thre!d th!t t*es !ll three s(stems to.ether4 the .old7e?%h!n.e st!nd!rd4 3retton 2oods !nd the present doll!r st!nd!rd. As we w!l" throu.h th*s t*mel*ne to.ether4 (ou,ll re!d three w!rn*n.s !t t*mes o$ .re!t per*l to the s(stem. The $*rst w!s del*;ered b( Rue$$ to the Fren%h F*n!n%e M*n*ster *n prep!r!t*on $or the Fren%h 'r*me M*n*ster,s meet*n. w*th 'res*dent /oo;er *n 2!sh*n.ton D= *n 1>01. The se%ond w!s del*;ered to the F.S. =on.ress b( ! $ormer Fed !nd +MF e%onom*st n!med Robert Tr*$$*n *n 1>6 . And the th*rd w*ll be del*;ered l!ter *n th*s post. To put *t !ll *n perspe%t*;e4 + drew th*s rou.h t*mel*ne to help (ou ;*su!l*Ie m( thou.ht pro%ess wh*le wr*t*n. th*s postE

Those o$ (ou who h!;e been re!d*n. m( blo. $or ! wh*le should be !w!re th!t the F.S. h!s run ! tr!de de$*%*t e;er( (e!r s*n%e 1>:1. You should !lso "now th!t4 s*n%e 1>:14 the F.S. .o;ernment h!s run *ts n!t*on!l debt up $rom P4 3 to P1141 34 !nd th!t $ore*.n =entr!l 3!n"s bu(*n. th*s debt h!;e been the pr*m!r( support $or both the rel!t*;el( st!ble ;!lue o$ the doll!r !nd the perpetu!l n!ture o$ the F.S. tr!de de$*%*t. 3ut *t w!sn,t !lw!(s th*s w!(. 3e$ore 1>:1 the F.S. w!s runn*n. ! tr!de surplus !nd the n!t*on!l debt le;el w!s rel!t*;el( ste!d( dur*n. both the .old7e?%h!n.e st!nd!rd !nd the 3retton 2oods er!. Dur*n. the .old7e?%h!n.e st!nd!rd the n!t*on!l debt r!n.ed $rom !bout P163 up to P403. +t *n%re!sed ! lot dur*n. 22++ to !bout P&1 34 but then *t rem!*ned below *ts P4 3 %e*l*n. unt*l 1>:1. Another b*. d*$$eren%e dur*n. th*s t*mel*ne wh*%h + h!;e !lre!d( ment*oned *s the $low o$ .old. The F.S. e?per*en%ed !n un%ontrolled *n$low o$ .old $rom the be.*nn*n. o$ the .old7e?%h!n.e st!nd!rd unt*l 1>1&4 !nd then ! stunted out$low ensued unt*l *t w!s stopped !lto.ether *n 1>:1. The po*nt *s th!t w*th su%h ! w*de !rr!( o$ ;!stl( d*sp!r!te %*r%umst!n%es4 *t *s ! b*t tr*%"( $or me to e?pl!*n the %ommon thre!d th!t b*nds th*s t*mel*ne to.ether. Aer( .ener!ll(4 let,s %!ll th*s %ommon thre!d the monet!r( pr*;*le.e th!t %omes $rom the rest o$ the world ;olunt!r*l( us*n. th!t wh*%h %omes onl( $rom (our pr*nt*n. press !s *ts monet!r( reser;es. +t st!rted !s ! pr*;*le.e4 .rew *nto !n e?orb*t!nt pr*;*le.e 01 (e!rs l!ter4 !nd then pe!"ed 41 (e!rs l!ter !t someth*n. $or wh*%h4 perh!ps4 there *s not !n !ppropr*!tel( stron. enou.h !dCe%t*;e. '!.e 11

Robert Tr*$$*n thou.ht *t h!d .one $!r enou.h to w!rr!nt w!rn*n. =on.ress *n 1>6 4 but Cust w!*t t*ll (ou see how mu%h $!rther *t went o;er the ne?t $our !nd ! h!l$ de%!des. 3ut $*rst4 let,s .o b!%" to 1>01. F$r%t 0arn$n# +n h*s 1>:& boo" T6U4 D!%6ues Rue$$ wr*tesE <etween %',> and %',U ! was 9inancial :ttache in the 9rench /#$ass+ in London. !n that capacit+, ! had noted da+ after da+ the dra#atic se.uence of e ents that turned the %'(' c+clical downturn into the 2reat "epression of %',%-%',U. ! knew that this traged+ was due to disruption of the international #onetar+ s+ste# as a result of re.uests for rei#$urse#ent in gold of the dollar and sterling $alances that had $een so inconsideratel+ accu#ulated. )n % )cto$er %',% ! wrote a note to the 9inance 0inister, in preparation for talks that were to take place $etween the 9rench Pri#e 0inister, who# ! was to acco#pan+ to Washington, and the President of the 5nited States. !n it ! called the 2o ern#ent4s attention to the role pla+ed $+ the gold-exchange standard in the 2reat "epression, which was alread+ causing ha oc a#ong Western nations, in the following ter#sQ 3-here is one inno ation which has #ateriall+ contri$uted to the difficulties that are $esetting the world. -hat is the introduction $+ a great #an+ /uropean states, under the auspices of the 9inancial Io##ittee of the League of Gations, of a #onetar+ s+ste# called the gold-exchange standard. 5nder this s+ste#, central $anks are authori@ed to include in their reser es not onl+ gold and clai#s deno#inated in the national currenc+, $ut also foreign exchange. -he latter, although entered as assets of the central $ank which owns it, naturall+ re#ains deposited in the countr+ of origin. -he use of such a #echanis# has the considera$le draw$ack of da#ping the effects of international capital #o e#ents in the financial #arkets that the+ affect. 9or exa#ple, funds flowing out of the 5nited States into a countr+ that applies the gold-exchange standard increase $+ a corresponding a#ount the #one+ suppl+ in the recei ing #arket, without reducing in an+ wa+ the #one+ suppl+ in their #arket of origin. -he $ank of issue to which the+ accrue, and which enters the# in its reser es, lea es the# on deposit in the Gew York #arket. -here the+ can, as pre iousl+, pro ide $acking for the granting of credit. -hus the gold-exchange standard considera$l+ reduces the sensiti it+ of spontaneous reactions that tend to li#it or correct gold #o e#ents. 9or this reason, in the past the gold-exchange standard has $een a source of serious #onetar+ distur$ances. !t was pro$a$l+ one cause for the long duration of the su$stantial credit inflation that preceded the %'(' crisis in the 5nited States.3 Then *n 1>0& he .!;e $urther w!rn*n. *n the spee%h !t the S%hool o$ 'ol*t*%!l S%*en%es *n '!r*s wh*%h + wrote !bout *n On%e Fpon ! T*meE '!.e 111

-he gold-exchange standard is characteri@ed $+ the fact that it ena$les the $ank of issue to enter in its #onetar+ reser es not onl+ gold and paper in the national currenc+, $ut also clai#s deno#inated in foreign currencies, pa+a$le in gold and deposited in the countr+ of origin. !n other words, the central $ank of a countr+ that applies the gold-exchange standard can issue currenc+ not onl+ against gold and clai#s deno#inated in the national currenc+, $ut also against clai#s in dollars or sterling. KBL -he application of the gold-exchange standard had the considera$le ad antage for <ritain of #asking its real position for #an+ +ears. "uring the entire postwar period, <ritain was a$le to loan to Ientral /uropean countries funds that kept flowing $ack to <ritain, since the #o#ent the+ had entered the econo#+ of the $orrowing countries, the+ were deposited again in London. -hus, like soldiers #arching across the stage in a #usical co#ed+, the+ could ree#erge indefinitel+ and ena$le their owners to continue #aking loans a$road, while in fact the inflow of foreign exchange which in the past had #ade such loans possi$le had dried up. KBL 9unds flowing out of the 5nited States into a gold-exchange-standard countr+, for instance, increase $+ a corresponding a#ount the #one+ suppl+ in the recipient #arket, while the #one+ suppl+ in the :#erican #arket is not reduced. -he $ank of issue that recei es the funds, while entering the# directl+ or indirectl+ in its reser es, lea es the# on deposit in the Gew York #arket. -here the+ contri$ute, as $efore $eing transferred, to the credit $ase. KBL <+ the sa#e token, the gold-exchange standard was a for#ida$le inflation factor. 9unds that flowed $ack to /urope re#ained a aila$le in the 5nited States. -he+ were purel+ and si#pl+ increased twofold, ena$ling the :#erican #arket to $u+ in /urope without ceasing to do so in the 5nited States. :s a result, the gold-exchange standard was one of the #a;or causes of the wa e of speculation that cul#inated in the Septe#$er %'(' crisis. !t dela+ed the #o#ent when the $raking effect that would otherwise ha e $een the result of the gold standard4s co#ing into pla+ would ha e $een felt. Are (ou st!rt*n. to .et ! sense o$ the "e( *ssue (et@ Reser;es mo;e $rom one b!n" to !nother to settle ! tr!ns!%t*on. 2hen our depos*tor !t =OMM3ANO1 spent h*s depos*t !nd *t w!s thereb( tr!ns$erred to =OMM3ANO44 the %!sh 5=8 reser;e w!s !lso mo;ed to =OMM3ANO4 to settle 5or %le!r8 the tr!ns!%t*on. Th*s put ! %ert!*n str!*n on =OMM3ANO1 s*n%e *t h!d !lso lost !nother reser;e to redempt*on wh*%h $or%ed =OMM3ANO1 *nto the !%t*on o$ see"*n. reser;es. Or when ! =entr!l 3!n" e?pends *ts reser;es tr(*n. to remo;e ! .lut o$ *ts %urren%( !bro!d so th!t the m!r"etpl!%e won,t de;!lue 5or %oll!pse8 *t4 th!t =3 *s .ener!ll( l*m*ted to ! $*n*te !mount o$ reser;es wh*%h4 on%e spent4 !re .one. So the mo;ement o$ reser;es ser;es two purposes. +t *s not onl( !tt!*ned b( the re%e*;er but *t *s !lso $or$e*ted b( the .*;er. 3oth !re ;*t!l to ! properl( $un%t*on*n. monet!r( s(stem. '!.e 11&

3ut w*th the s(stem th!t be.!n !round 1>&6 !nd st*ll e?*sts tod!(4 we end up w*th ! s*tu!t*on *n wh*%h one %urren%(,s reser;es !re !%tu!ll( depos*ts *n !nother %urren%( IoneE

Not*%e th!t + !m !;o*d*n. the use o$ .old *n m( *llustr!t*on. The w!rn*n.s .*;en *n 1>01 !nd 1>6 were presented *n the %onte?t o$ ! .old e?%h!n.e st!nd!rd o$ one $orm or !nother4 !nd there$ore the( 5o$ %ourse!8 he!;*l( re$eren%e the problems !s the( rel!ted to on.o*n. .old redempt*on. 3ut the re!l problem4 !s + h!;e s!*d4 tr!ns%ends the spe%*$*% *ssues w*th .old !t th!t t*me. The re!l problem w!s !nd *s the %ommon thre!d + ment*oned e!r*l*erE the monet!r( pr*;*le.e th!t %omes $rom the rest o$ the world ;olunt!r*l( us*n. th!t wh*%h %omes onl( $rom (our pr*nt*n. press !s *ts monet!r( reser;es. +t w!s !nd *s4 !s D!%6ues Rue$$ put *t4 3the outco#e of an un$elie a$le collecti e #istake which, when people $eco#e aware of it, will $e iewed $+ histor+ as an o$;ect of astonish#ent and scandal.3 Another !n.le wh*%h w!s !pp!rent $rom the ;er( be.*nn*n.Rbe%!use Rue$$ ment*oned *t *n 1>0& 5!s 6uoted !bo;e8Rw!s th!t o$ *ntern!t*on!l lend*n.. +t b!s*%!ll( wor"ed *n the s!me w!( !s the three steps !bo;e e?%ept th!t the net *ntern!t*on!l 5tr!de8 p!(ment w!s !n *ntern!t*on!l lo!n. Remember th!t the F.S. w!s the pr*me %red*tor to the world $ollow*n. both w!rs. Th*s m!( p!rtl( e?pl!*n the *n$low o$ .old p!(ments th!t brou.ht the F.S. sto%"p*le up $rom 046:> tonnes *n 1>& to & 4660 tonnes *n 1>1&. A doll!r lo!n w!s the s!me !s ! .old lo!n !nd w!s p!(!ble *n doll!rs or .old. 3ut !s Rue$$ po*nted out !bo;e4 the lent doll!rs %!me *mmed*!tel( b!%" to New Yor" Cust !s the pounds %!me b!%" to )ondonE 3"uring the entire postwar period, <ritain was a$le to loan to Ientral /uropean countries funds that kept flowing $ack to <ritain, since the #o#ent the+ had entered the econo#+ of the $orrowing countries, the+ were deposited again in London. -hus, like soldiers #arching across the stage in a #usical co#ed+, the+ could ree#erge indefinitel+ and ena$le their owners to continue #aking loans a$road.3 Now th*n" !bout th!t $or ! moment. The s!me reser;es 5b!se mone(8 .ett*n. lent out o;er !nd o;er '!.e 110

!.!*n l*"e ! re;ol;*n. door. And let,s Cump $orw!rd to the present $or ! moment to see *$ we %!n st!rt %onne%t*n. some dots between 1>0& !nd & 1&. /ere,s ! re%ent %omment + wrote !bout the re;ol;*n. door o$ doll!rs tod!(E 1ello Jictor, -he point of JR4s excerpts is that the real threat to the dollar lies in the ph+sical plane 6real price inflation7 rather than the #onetar+ plane 6foreign exchange #arket7. -he source of the price inflation will $e fro# a$road and it will $e reflected in the exchange rate, $ut the price inflation, not the 9V #arket, is the real threat. !#agine a to+ #odel where the entire 5nited States 6go t. ? pri ate sector7 i#ports M%>>,>>> worth of stuff during a period of ti#e 6-7. - repeats perpetuall+ and, ;ust to keep it real, let4s sa+ that t W % second, which is prett+ close to realit+. So the 5S i#ports the real stuff and exports the paper dollars. <ut the 5S also exports MR',>>> worth of real stuff each second. So R',>>> of those dollars co#e right $ack into the 5S econo#+ in exchange for the 5S stuff exports. Gow, in our to+ #odel, let4s sa+ that the 5S pri ate sector is no longer expanding its aggregate le el of de$t. :nd so let4s sa+, ;ust for the sake of si#plicit+, that MR',>>> worth of international trade o er ti#e period - represents the 5S pri ate sector trading our stuff for their stuff. :nd let4s sa+ that the other M(%,>>> worth of i#ports each second is all going to the 5S2 consu#ption #onster. So the 5S2 is $orrowing M(%,>>> XXfro# so#e entit+XX each second and spending it on stuff fro# a$road. -his doesn4t co er the entire per-second appetite of the 5S2 consu#ption #onster, onl+ the stuff fro# a$road. -he 5S2 also consu#es another M%%U,>>> in do#estic production each second, which is all the do#estic econo#+ can handle right now without i#ploding, $ut we aren4t concerned with that part +et. Gow, if the XXfro# so#e entit+XX is our trading partner a$road, then there is no fear of real price inflation. The US+ is essentially !orrowing 9.0&/// this second ## that our trading partner recei ed last second ## and the US+ will spend it again on more %oreign stu%% a second %rom now and then !orrow it again. See( -o in%lation7 The same dollars circulate in perpetuity& the real stu%% piles up in :2& and the US+ de!t piles up in 3eiIing. <ut what if that XXfro# so#e entit+XX is #ostl+ the 9ed, and has $een for two +ears now 6and the+ are calling it Y/ onl+ to #ake it sound like its purpose is to assist the 5S pri ate sector78 !f that4s the case, then the fear of real price inflation is now a clear and present danger to 3national securit+3 6aka the 5S2 consu#ption #onster7. Got so #uch for the pri ate sector which is now trading our stuff for their stuff, $ut #ostl+ for the pu$lic sector which trades onl+ M(%,>>> in paper nothings, per second, for their stuff. 5nder this latter situation, +ou now ha e M(%,>>> per second piling up outside of 5S $orders and it4s not $eing lent $ack to either the 5S2 or the 5S pri ate sector 6which has stopped expanding its de$t7. !t4s either going to $id for stuff outside or inside of 5S '!.e 114

$oundaries. -he 5S2 $udget appro ed $+ Iongress does account for this M(%,>>> per second $orrowing, $ut it also assu#es reasona$l+ sta$le prices. !f the general price le el starts to rise faster than Iongress appro es new $udgets, this creates a pro$le# for the 5S2. !t4s not as $ig of a pro$le# for the 5S pri ate sector, since we are trading #ostl+ stuff for stuff. !f the cost of a $anana rises to M%-, it will still onl+ cost half an apple. <ut if +ou4re rel+ing onl+ on paper currenc+ to pa+ for +our #onstrous needs, real price inflation is an i##inent threatD 9V olatilit+ has #ore to do with the changing preferences of the financial #arkets. !t is a #onetar+ plane pheno#enon on #ost nor#al da+s. <ut it will also show up when the price of a $anana starts to rise. When the 5S2 cuts a check, it is drafted on a -reasur+ account at the 9ed. So#eti#es those funds are all read+ to go in the account. So#eti#es the+ are pulled 6#o#entaril+7 fro# a co##ercial $ank into the 9ed account for clearing purposes. :nd so#eti#es the 9ed si#pl+ creates the#, adding a -reasur+ !)5 to its $alance sheet. -his latest /xecuti e )rder pa es the wa+ for the 9ed to start stacking not onl+ -reasur+ !)5s, $ut also Io##erce "ept. !)5s, 1o#eland Securit+ !)5s, State "ept., !nterior, :griculture, La$or, -ransportation, /nerg+, 1ousing and 5r$an "e elop#ent, 1ealth and 1u#an Ser ices, etcB !)5s. Whate er it takes to keep the real stuff flowing inD !f +ou think the 9ed4s $alance sheet looks like a ga+ rain$ow now, ;ust waitD <ut fro# a financial perspecti e, if +ou are stuck in dollar assets when real price inflation takes hold, +ou are going to want out. :nd the .uickest wa+ out is through the currenc+ itself. So we could see a spike 6outside of the 5S7 in the price of Re!ldoll!rs e en as the dollar is collapsing against the ph+sical plane and the 5S2 is printing like cra@+ to defend its own largessD 1ow confusing will that $e to all the hot 3experts3 on IG<I8 -he financial #arkets can cause dra#atic olatilit+ in the 9V #arket, and ice ersa. <ut that4s all #onetar+ plane nonsense. : s#all change in the ph+sical plane #ight not e en register at first in the 9V #arket, especiall+ if a financial panic is o erpowering it in the opposite direction. <ut e en if the dollar dou$les in financial product purchasing power ter#s 65S"V to %N>?7, that4s not going to lower the price of a $anana in the ph+sical plane while the 5S2 is defending its consu#ption status .uo with the printing press. Sincerel+, 9)9): + h*.hl*.hted the p!rt rele;!nt to our re;ol;*n. door d*s%uss*on4 but the whole %omment *s rele;!nt to the whole o$ th*s post be%!use + h!d th*s post *n m*nd when + wrote the %omment. An(w!(4 %!n (ou see !n( s*m*l!r*t( between wh!t D!%6ues Rue$$ wrote !bout the sterl*n. *n 1>0& !nd wh!t + wrote l!st wee"@ /ow !bout ! d*$$eren%e@ Th!t,s r*.ht4 the F.S. *s now the world,s prem*er debtor wh*le *t w!s the '!.e 111

world,s %red*tor b!%" *n the 0 s. 3ut *n both %!ses the doll!r %urren%( *s be*n. %ont*nuousl( re%(%led wh*le not!t*ons re%ord*n. *ts p!ss!.e p*le up !s reser;es on wh*%h $ore*.n b!n" mone( *s e?p!nded wh*le the F.S. %ounterp!rt o$ reser;es !nd b!n" mone( *s not redu%ed !s ! %onse6uen%e o$ the tr!ns$er. +$ (ou pr*nt the %urren%( th!t the rest o$ the world uses !s ! reser;e beh*nd its %urren%(4 th!t !lone en!bles (ou to run ! tr!de de$*%*t w*thout e;er redu%*n. (our !b*l*t( to run ! $uture tr!de de$*%*t. De$*%*t w*thout te!rs *t w!s %!lled. For the rest o$ the world4 runn*n. ! tr!de de$*%*t h!s the $*n*te l*m*t!t*on o$ the !mount o$ reser;es stored pre;*ousl( !ndGor the !mount o$ *ntern!t*on!l l*6u*d*t( 5reser;es8 (our tr!d*n. p!rtner *s w*ll*n. to lend (ou. Another th*n. th!t h!ppens *s th!t4 !s the pr*nter o$ the reser;e4 the rest o$ the world !%tu!ll( re.uires (ou to run ! b!l!n%e o$ p!(ments de$*%*t or else *ts 5the rest o$ the world,s8 reser;es w*ll h!;e to shr*n"4 !nd *ts %urren%(4 %red*t !nd e%onom( %onse6uentl( %ontr!%t. So to !;o*d monet!r( !nd e%onom*% %ontr!%t*on4 the world not onl( puts up w*th4 but supports (our de$*%*t w*thout te!rs. /ere,s ! l*ttle more $rom D!%6ues Rue$$E The Secret o% a :e%icit Hithout Tears KHL -o erif+ that the sa#e situation exists in %'H>, #utatis #utandis, one has onl+ to read President Aenned+4s #essage of H 9e$ruar+ %'H% on the sta$ilit+ of the dollar. 1e indicates with ad#ira$le o$;ecti it+ that fro# % Januar+ %'N% to ,% "ece#$er %'H>, the deficit of the $alance of pa+#ents of the 5nited States had attained a total of M%&.% $illion. )ne could ha e expected that during this period the gold reser e would ha e declined $+ the sa#e a#ount. :#ounting to M((.& $illion on ,% "ece#$er %'N>, it was, against all expectations, M%R.N $illion on ,% "ece#$er %'H>. -he reason for this was si#ple. "uring this period the $anks of issue of the creditor countries, while creating, as a counterpart to the dollars the+ ac.uired through the settle#ent of the :#erican deficits, the national currenc+ the+ re#itted to the holders of clai#s on the 5nited States, had rein ested a$out two-thirds of these sa#e dollars in the :#erican #arket. !n doing so $etween %'N% and %'H% the $anks of issue had increased $+ a$out M%, $illion their foreign holdings in dollars. -hus, the 5nited States did not ha e to settle that part of their $alance-of-pa+#ents deficit with other countries. / er+thing took place on the #onetar+ plane ;ust as if the deficit had not existed. !n this wa+, the gold-exchange standard $rought a$out an i##ense re olution and produced the secret of a deficit without tears. !t allowed the countries in possession of a currenc+ $enefiting fro# international prestige to gi e without taking, to lend without $orrowing, and to ac.uire without pa+ing. -he disco er+ of this secret profoundl+ #odified the ps+cholog+ of nations. !t allowed countries luck+ enough to ha e a $oo#erang currenc+ to disregard the internal '!.e 116

conse.uences that would ha e resulted fro# a $alance-of-pa+#ents deficit under the gold standard. Se.ond 0arn$n# 3( the e!rl( 1>6 s4 D!%6ues Rue$$ w!s not !lone *n spe!"*n. out !.!*nst the Amer*%!n pr*;*le.e embedded *n the monet!r( s(stem. Another Fren%hm!n n!med A!ldr( G*s%!rd d,#st!*n.4 who w!s the Fren%h F*n!n%e M*n*ster under =h!rles de G!ulle !nd would l!ter be%ome 'res*dent h*msel$4 %o*ned the term 9e?orb*t!nt pr*;*le.e9. T:U #;en =h!rles de G!ulle spo"e out *n 1>61 !nd (ou %!n see ! short ;*deo o$ th!t spee%h *n m( post The )on. Ro!d to Free.old. 3ut perh!ps more s*.n*$*%!nt th!n the ob;*ous Fren%h d*sd!*n $or the s(stem w!s Robert Tr*$$en4 who stood be$ore the F.S. =on.ress *n 1>6 !nd w!rnedE 3: funda#ental refor# of the international #onetar+ s+ste# has long $een o erdue. !ts necessit+ and urgenc+ are further highlighted toda+ $+ the i##inent threat to the once #ight+ 5.S. dollar.3 To put Tr*$$*n *n the %onte?t o$ our pre;*ous d*s%uss*on4 here,s wh!t D!%6ues Rue$$ h!d to s!( !bout h*mE 3So#e will no dou$t $e surprised that in %'H%, practicall+ alone in the world, ! had the audacit+ to call attention to the dangers inherent in the international #onetar+ s+ste# as it existed then. ! #ust, howe er, pa+ a tri$ute here to #+ friend Professor Ro$ert -riffin of Yale 5ni ersit+, who also diagnosed the threat of the gold-exchange standard to the sta$ilit+ of the Western world. <ut while we agreed on the diagnosis, we differed widel+ as to the re#ed+ to $e applied. )n the other hand, the late Professor 0ichael 1eilperin, of the 2raduate !nstitute of !nternational Studies in 2ene a, held a position in e er+ respect close to #ine.3 And here *s wh!t 2*"*ped*! s!(s !bout Robert Tr*$$*n,s =on.ress*on!l test*mon(E 3!n %'H> -riffin testified $efore the 5nited States Iongress warning of serious flaws in the <retton Woods s+ste#. 1is theor+ was $ased on o$ser ing the dollar glut, or the accu#ulation of the 5nited States dollar outside of the 5S. 5nder the <retton Woods agree#ent the 5S had pledged to con ert dollars into gold, $ut $+ the earl+ %'H>s the glut had caused #ore dollars to $e a aila$le outside the 5S than gold was in its -reasur+. :s a result the 5S had to run deficits on the current account of the $alance of pa+#ents to suppl+ the world with dollar reser es that kept li.uidit+ for their increased wealth. 1owe er, running the deficit on the current account of the $alance of pa+#ents in the long ter# would erode confidence in the dollar. 1e predicted the result that the s+ste# would not #aintain $oth li.uidit+ and confidence, a theor+ later to $e known as the -riffin dile##a. !t was largel+ ignored until %'R%, when his h+pothesis $eca#e realit+, forcing 5S President Richard Gixon to halt con erti$ilit+ of the 5nited States dollar into gold, an e ent with conse.uences known as the Gixon Shock. !t effecti el+ ended the <retton Woods S+ste#.3 T-U '!.e 11:

5For more on the Tr*$$*n d*lemm!4 ple!se see m( posts D*lemm! !nd D*lemm! & B /omeless Doll!rs. And $or ! .l*mpse !t wh!t + ;*ew !s !n e;en #ore $und!ment!l d*lemm!4 (ou,ll $*nd 9FOFOA,s d*lemm!9 *n m( post The Return to /onest Mone(.8 As noted !bo;e4 Tr*$$*n,s pres%r*pt*on *n the 1>6 s w!s !t odds w*th Rue$$ !nd the Fren%h %ont*n.ent. +n $!%t4 e;en tod!(4 the +MF re$ers to 9Tr*$$*n,s solut*on9 !s ! sort o$ !d;ert*sement $or *ts own produ%t4 the !lm*.ht( SDR. T>U From the +MF webs*teE Tri%%in's Solution -riffin proposed the creation of new reser e units. -hese units would not depend on gold or currencies, $ut would add to the world4s total li.uidit+. Ireating such a new reser e would allow the 5nited States to reduce its $alance of pa+#ents deficits, while still allowing for glo$al econo#ic expansion.

3ut e;en thou.h Tr*$$*n proposed someth*n. l*"e the SDR 5! propos!l the +MF lo;es on to th*s d!(84 + th*n" th!t !%t*ons spe!" louder th!n words. Robert Tr*$$*n w!s ! 3el.*!n e%onom*st who be%!me ! F.S. %*t*Ien *n 1>4& !$ter re%e*;*n. h*s 'hD $rom /!r;!rd. /e wor"ed $or the Feder!l Reser;e $rom 1>4& to 1>464 the +MF $rom 1>46 to 1>4- !nd the pre%ursor to the O#=D $rom 1>4- unt*l 1>11. /e !lso t!u.ht e%onom*%s !t both /!r;!rd !nd Y!le. 3ut *n 1>:: he re%l!*med h*s 3el.*!n %*t*Iensh*p4 mo;ed b!%" to #urope4 !nd helped de;elop the #urope!n Monet!r( S(stem !nd the %on%ept o$ ! %entr!l b!n" $or !ll o$ #urope wh*%h ult*m!tel( be%!me the #=3 $*;e (e!rs !$ter h*s de!th *n 1>>0. F$na' 0arn$n# 2*th the end o$ the 3retton 2oods monet!r( s(stem *n 1>:14 three th*n.s 5bes*des the ob;*ous %los*n. o$ the .old w*ndow8 re!ll( too" hold. The $*rst w!s th!t the F.S. be.!n runn*n. 5!nd e?p!nd*n.8 ! bl!t!nt tr!de de$*%*t. +t went b!%" !nd $orth ! %ouple o$ t*mes be$ore *t re!ll( too" hold4 but st!rt*n. *n '!.e 11-

1>:6 we h!;e run ! de$*%*t e;er( (e!r s*n%e. T1 U The se%ond th*n. th!t too" hold w!s someth*n. FOA %!lled 9%red*b*l*t( *n$l!t*on9. You %!n re!d more !bout *t *n m( !ptl(7t*tled post4 =red*b*l*t( +n$l!t*on. Th*s phenomenon4 !t le!st *n p!rt4 helped .row the o;er!ll le;el o$ tr!de between the F.S. !nd the rest o$ the world *n both nom*n!l !nd re!l terms. +n *n$l!t*on !dCusted terms4 F.S. tr!de w*th the rest o$ the world *s up !lmost e*.ht$old s*n%e 1>:1. T11U The th*rd th*n. w!s th!t the F.S. $eder!l .o;ernment be.!n e?p!nd*n. *tsel$ *n both nom*n!l !nd re!l terms b( r!*s*n. the $eder!l debt %e*l*n. !nd rel(*n. more he!;*l( on F.S. Tre!sur( debt s!les. From =red*b*l*t( +n$l!t*on 56uot*n. 3*ll 3u%"ler8E Wa+ $ack in 0arch %'R%, four #onths $efore Gixon closed the 2old window, the 3per#anent3 5.S. de$t ceiling had $een fro@en at MU>> <illion. <+ late %'&(, 5.S. funded de$t had tripled to a$out M%.(N -R!LL!)G. <ut the 3per#anent3 de$t ceiling still stood at MU>> <illion. :ll the de$t ceiling rises since %'R% had $een officiall+ designated as 3te#porar+D3 !n late %'&(, reali@ing that this charade could not $e continued, -he 5.S. -reasur+ eli#inated the 3difference3 $etween the 3te#porar+3 and the 3per#anent3 de$t ceiling. -he wa+ was cleared for the su$se.uent explosion in 5.S. de$t. With the 5.S. $eing the world4s 3reser e currenc+,3 the wa+ was in fact cleared for a de$t explosion right around the world. /ere !re the debt %e*l*n.s throu.h & 1 !s $ound on 2*"*ped*!E

Th!t,s !ll well !nd .ood4 but to re!ll( see the F.S. e?orb*t!nt 5*s there ! stron.er word@8 pr*;*le.e o$ the l!st 4 (e!rs *n st!r" rel*e$4 we must th*n" !bout those empt( %ont!*ners we e?port $rom the p*%ture !t the top. Those %ont!*ners %ome *n $ull !nd le!;e empt(4 Cust to be re$*lled !.!*n o;erse!s !nd brou.ht b!%" *n. Those empt( %ont!*ners represent the re!l tr!de de$*%*t4 the port*on o$ our *mports th!t we do not p!( $or w*th e?ports. Those empt( %ont!*ners represent the port*on o$ our *mports th!t we p!( $or w*th noth*n. but boo" entr*es wh*%h !re l*ttle more th!n l*nes *n the s!nd. T1&U /ere,s m( thes*sE th!t the F.S. pr*;*le.e wh*%h be.!n *n Geno! *n 1>&&4 !nd w!s so %ompl*%!ted th!t onl( one *n ! m*ll*on %ould e;en $!thom *t *n 1>01 !nd 1>6 4 be%!me !s %le!r !s d!( $or !n(one w*th e(es to see !$ter 1>:1. And so4 to see *t *n re!l 5not nom*n!l8 terms4 we %!n ;er( s*mpl( loo" !t the percentage o$ our *mports th!t *s not p!*d $or w*th e?ports. So s*mple4 wh*%h m*.ht be wh( the .o;ernment doesn,t publ*sh th!t number !nd the med*! doesn,t t!l" !bout *t. All (ou h!;e to do *s '!.e 11>

%omp!re the .oods !nd ser;*%es b!l!n%e 5wh*%h *s ! ne.!t*;e number or ! de$*%*t e;er( (e!r s*n%e 1>:18 w*th the tot!l $or !ll .oods !nd ser;*%e *mports. Th!t,s %omp!r*n. !pples w*th !pples. For e?!mple4 *n 1>:1 tot!l *mports were P6 4>:>4 4 !nd tot!l e?ports were P1>46::4 4 le!;*n. us w*th ! tr!de de$*%*t o$ P140 &4 4 . +t doesn,t m!tter wh!t the pr*%e o$ !n !pple w!s *n 1>:14 be%!use wh!te;er *t w!s4 we st*ll *mported &.14Q more stu$$ th!n we e?ported. 140 & e 6 4>:> H &.14Q. A tr!de d*s%rep!n%( o$ &.14Q *n !n( .*;en (e!r would be norm!l under norm!l %*r%umst!n%es. You,d e?pe%t to see *t !ltern!te b!%" !nd $orth $rom de$*%*t to surplus !nd b!%" !.!*n !s *t !%tu!ll( d*d $rom 1>: throu.h 1>:6. 3ut *t be%omes someth*n. else ent*rel( when (ou .o (e!r !$ter (e!r 5$or 06 (e!rs str!*.ht8 *mport*n. more th!n (ou e?port. And th!t,s wh( + showed th!t l*ttle d*p *n the !bo;e t*mel*ne ;*su!l*I!t*on o$ the F.S. e?orb*t!nt pr*;*le.e !t 1>:1. And now here,s wh!t *t loo"s l*"e %h!rted out $rom 1>: throu.h & 11E

/ere,s the d!t! $rom the %h!rtE 1>: 1>:1 1>:& 1>:0 1>:4 1>:1 1>:6 1>:: 1>:1>:> 1>1>-1 74.14Q &.14Q :.4>Q 7&.10Q 0.40Q 71 .0&Q 4. >Q 11.1:Q 14.0 Q >.--Q 6.66Q 1.&1Q 1>-4 1>-1 1>-6 1>-: 1>-1>-> 1>> 1>>1 1>>& 1>>0 1>>4 1>>1 &:.&6Q &>.66Q 0 .--Q 0 .01Q & .>>Q 16. 1Q 10.10Q 1.11Q 1.>-Q >.-6Q 1&.&-Q 1 .-&Q 1>>1>>> & & & & & & & & & & 1 & 0 4 1 6 : > 11.11Q &1.0>Q &1.>>Q &6.4&Q &>.-1Q 0&.4&Q 04.&0Q 01.1 Q 04. 4Q &>.60Q &:.4-Q 1>.4>Q

'!.e 1&

1>-& 1>-0

-. :Q 1:.-4Q

1>>6 1>>:

1 .->Q 1 .0-Q

& 1 & 11

&1.0>Q & .>:Q

As (ou %!n see4 the F.S. e?orb*t!nt pr*;*le.e 5essent*!ll( $ree *mports8 pe!"ed *n & 1 !t !n !stound*n. 01.1Q4 or more th!n ! th*rd o$ !ll *mports! Stop !nd th*n" !bout th!t $or ! se%ond. For e;er( three %ont!*ners %om*n. *n $ull4 onl( two went out $ull. So how do we re%on%*le th!t number 501.1Q8 w*th the report !t the top o$ th*s post th!t s!*d 41Q o$ %ont!*ners !re e?ported empt(@ The !nswer *s s*mple. The tr!de de$*%*t *n%ludes both .oods !nd ser;*%es. 3ut ser;*%es !re not *mported *n %ont!*ners. +n $!%t4 the F.S. h!s been runn*n. ! tr!de surplus on ser;*%es e;er( (e!r s*n%e 1>:1. +m!.*ne th!t! So *$ we loo" onl( !t the port*on o$ .oods %om*n. !nd .o*n.4 we .et !n e;en h*.her per%ent!.e. So let,s loo" !t & 1 *n p!rt*%ul!r. +n & 1 we *mported P1.6>&T *n .oods but we e?ported onl( P>113 $or ! .oods b!l!n%e o$ p!(ments o$ ne.!t*;e P:-13. Th!t e6u!tes to 46Q o$ !ll %ont!*ners be*n. e?ported empt( *n & 1. Th!t .oods de$*%*t h!s s*n%e dropped down to !round 00Q $or the l!st three (e!rs4 so perh!ps 41Q empt( %ont!*ners *n & 1 %!n be e?pl!*ned b( the lo%!t*on o$ the 'ort #l*I!beth $!%*l*t( be*n. onl( & m*les $rom 2!sh*n.ton D=4 %onsumpt*on %!p*t!l o$ the world. 3ut !ll o$ th*s *s "*nd o$ bes*de the po*nt. The po*nt *s th!t the F.S. e?orb*t!nt pr*;*le.e pe!"ed *n & 14 $or the l!st t*me4 !t *ts !ll7t*me h*.h o$ ! th*rd o$ !ll *mports4 !nd soon *t w*ll .o ne.!t*;e4 where *t h!sn,t been *n ! re!ll( lon. t*me. + %!n s!( th*s w*th !bsolute %on$*den%e be%!use the s*.ns !re e;er(where4 e;en *$ nobod( *s t!l"*n. !bout them *n pre%*sel( these terms. /ere,s one bloodhound who,s !t le!st onto the r*.ht s%ent 5$rom 3!rrons8E <ut #ore recent -reasur+ data show Ihina has $een selling -reasuries outright. :nd while the #arkets ha e $een co#placent to the point of snarkiness, 0acro0a ens4 Stephanie Po#$o+ thinks that4s wrong. 5nlike other Iassandras, she4s $een right in her warnings -nota$l+ in the #iddle of the last decade that the 5.S. financial s+ste# was dangerousl+ exposed to a $u$$le in 5.S. real estate. 1ers was a lonel+ oice then $ecause e er+$od+ knew, of course, house prices alwa+s rose. :s for the present conundru#, there4s an M&>> $illion gap $etween the M%.% trillion the -reasur+ is $orrowing to co er the $udget gap and the roughl+ M,>> $illion o erseas in estors are $u+ing, Po#$o+ calculates. KBL <ut Po#$o+ has little dou$t that the 9ed will step in to fill the gap left $+ others. !n other words, de$t #oneti@ation, a fanc+ ter# for printing #one+ to co er the go ern#ent4s de$ts, which in polite circles these da+s is called 3.uantitati e easing.3 31a ing pushed interest rates to @ero, launched Y/% and Y/(, there4s no reason to $elie e '!.e 1&1

that the 9ed is going to allow free-#arket forces to destro+ the fragile reco er+ it has worked so hard to coax forth now. :nd #ake no #istake, at M&>> $illion, allowing the #arkets to resol e the shortfall in de#and would send rates to le els that would a$solutel+ .uash this reco er+Bif not send the econo#+ in a real depression.3 <ut her real concern is a $igger one. 3-he 9ed4s 4need4 to take on an e en #ore acti e role as foreigners further slow the purchases of our paper is to put the pedal to the #etal on the currenc+ de$ase#ent race now $eing run in the de eloped world -- a race which is speeding us all toward the end of the present currenc+ regi#e.3 -hat is, the dollar-centric, floating exchange-rate s+ste# of the past four decades since the end of <retton Woods s+ste#, when the dollar4s con erti$ilit+ into gold was ter#inated. KBL -hat would lea e the 9ederal Reser e as lender of last resort to the 5.S. go ern#ent to fill the gap left $+ its $iggest creditor. -hink this Zi#$a$we st+le of central-$ank #oneti@ation of an unsustaina$le go ern#ent de$t can4t happen in one of the world4s #a;or industriali@ed de#ocracies8 T10U Th!t w!s $rom M!r%h &nd. /ere,s !nother one $rom the s!me wr*ter !t 3!rrons Cust ! $ew d!(s !.oE )ur friend, Stephanie Po#$o+, who heads the 0acro0a ens ad isor+, offers so#e other incon enient facts a$out the -reasur+ #arketQ 5ncle Sa# is $orrowing so#e M%.% trillion a +ear, while our foreign creditors ha e $een $u+ing ;ust M(&H $illion. 3!4# no #athe#atician, $ut that see#s to lea e M&>> $illion of 4slack4 6of which the 9ed graciousl+ a$sor$ed MHN> $illion last +ear.7 <arring a desire to pa+ the go ern#ent %P after inflation, there is G) profit-oriented or e en preser ation-of-capital-oriented $u+er for -reasuries,3 she writes in an e#ail. "=or the li%e o% me& ; can't understand why -O3O:J is talking a!out this(((777" 1a ing known Stephanie for a few +ears, ! can4t recall her $eing this agitated since (>>H, when she insisted the financial s+ste#4s hugel+ le eraged exposure to residential real estate posed gra e risks. She was called a Iassandra then, $ut $oth ladies4 prophesies turned out to $e right. -he 5.S. fiscal situation hasn4t #attered as long as the -reasur+ could readil+ finance its deficits at record-low interest rates. / en after the loss of :#erica4s triple-: credit rating fro# S[P, -reasuries rallied and +ields slu#ped to record lows. -hat4s no longer happening. 9or what e er reason, assurances $+ the 9ed Ihair#an aren4t i#pressing the $ond #arket. Geither is weakness in the co##odit+ #arkets. 0a+$e Stephanie is on to so#ething. T14U O$ %ourse the( !re loo"*n. onl( !t the monet!r( pl!ne4 the s*ll( m!r"et $or F.S. Tre!sur( debt wh*%h the Fed %!n dom*n!te w*th *n$*n*te dem!nd. As + "eep s!(*n.4 the re!l thre!t to the doll!r *s *n the '!.e 1&&

ph(s*%!l pl!neE the pr*%e o$ !ll those %ont!*ners be*n. unlo!ded !nd then e?ported empt(. The F.S. .o;ernment h!s .rown !dd*%ted to *ts e?orb*t!nt pr*;*le.e o;er the (e!rs. +t *s ! pr*;*le.e th!t h!s been supported b( $ore*.n =entr!l 3!n"s bu(*n. F.S. debt $or the better p!rt o$ the l!st 0 (e!rs. 3ut !s + wrote *n Mone(ness4 !nd !s Ms. 'ombo( h!s not*%ed !bo;e4 th!t ended ! $ew (e!rs !.o. From Mone(ness4 the blue th!t + %*r%led below shows the Fed de$end*n. our e?ports $$o% empty containers$$ w*th noth*n. more th!n the pr*nt*n. press !nd %!ll*n. *t Y#E

+ would l*"e (ou !ll to .*;e th*s some ser*ous thou.htE 1. The F.S. e?orb*t!nt pr*;*le.e pe!"ed *n & 1 Ebe2ore the 2$nan.$a' .r$%$%G !nd *s now on the de%l*ne4 me!n*n. *t *s no lon.er supported !bro!d. &. The F.S. .o;ernment 5w*th the ob;*ous !ss*st!n%e o$ the Fed8 *s now *n de$ens*;e mode4 de$end*n. th!t *n$low o$ $ree stu$$ w*th the pr*nt*n. press. 0. The F.S. $eder!l .o;ernment bud.et de$*%*t 5D=,s 9needs9 m*nus *ts norm!l re;enue8 $$eclipses$$ the tr!de de$*%*t b( more th!n ! & to 1 m!r.*n. So wh!t %ould poss*bl( .o wron.@ The re%ess*on h!s !lre!d( %ontr!%ted the F.S. e%onom(4 !ll e?%ept the p!rt th!t res*des *n 2!sh*n.ton4 D=. And Cust to m!*nt!*n *ts own st!tus 6uo 5when h!s *t e;er been h!pp( do*n. onl( th!t@8 our $eder!l .o;ernment needs to *nsure our n!t*on!l bus*ness o$ e?port*n. empt( %ont!*ners !t *ts present le;el. 2h!t %ould .o wron.@ 'r*%es! +$ the pr*%e o$ !n !pple doubles4 wh!t do (ou th*n" h!ppens to the pr*%e o$ ! $ull %ont!*ner@ Those o$ (ou who th*n" we !re due $or some more pr*%e de$l!t*on *n the stu$$ th!t the FSG needs to m!*nt!*n *ts st!tus 6uo should re!ll( h!;e (our he!ds e?!m*ned. #;en Ob!m! *s w*nd*n. up to p*t%h the whole b!ll o$ tw*ne !t the problem. /e Cust dele.!ted h*s e?e%ut*;e power to pr*nt unt*l the %ows %ome home to e!%h o$ h*s dep!rtment he!ds. + 6uote $rom #?e%ut*;e Order 77 N!t*on!l De$ense Resour%es 'rep!rednessE 3-o ensure the suppl+B fro# high cost sourcesB in light of a te#porar+ increase in transportation costB the head of each agenc+B is delegated the authorit+B to #ake su$sid+ pa+#ents3 +n %!se (ou,re h!;*n. d*$$*%ult( %onne%t*n. the dots +,;e l!*d out 5not8 so subtl(4 +,m t!l"*n. !bout ! '!.e 1&0

ne!r7term doll!r super7h(per*n$l!t*on th!t w*ll m!"e (our h!*r %url !nd m!"e 2e*m!r !nd Z*mb!bwe seem l*"e %h*ld,s pl!( *n the re!r;*ew m*rror. +$ (ou,re new to th*s blo.4 (ou should "now th!t the r!te o$ h(per*n$l!t*on does not $ollow the pr*nt*n.. An !pple does not end up %ost*n. ! tr*ll*on doll!rs be%!use the( pr*nted enou.h doll!rs to pr*%e !ll !pples th!t w!(. /(per*n$l!t*on %omes $rom the m!r.*n4 $rom the .o;ernment de$end*n. *ts own needs4 !nd there,s ne;er enou.h 9mone(9 $or us mere mort!ls to p!( the pr*%es wh*%h !re runn*n. !w!( $rom e;er(one dur*n. h(per*n$l!t*on. Also4 h(per*n$l!t*on turns ph(s*%!l 5!s *n ph(s*%!l %!sh8 ;er( 6u*%"l( on%e *t t!"es hold. So *$ (ou,re e?pe%t*n. some sort o$ ele%tron*% %urren%( h(per*n$l!t*on4 $u..ed!bout*t. +$ (ou th*n" we,re more te%hnolo.*%!ll( !d;!n%ed th!n b!ss7!%"w!rd Z*mb!bwe or !n%*ent 2e*m!r4 (ou !re not underst!nd*n. wh!t re!ll( h!ppens dur*n. %urren%( h(per*n$l!t*on. +t %!nnot pl!( out ele%tron*%!ll( !ll the w!( to the b*tter end be%!use4 when pr*%es !re r*s*n. th!t $!st4 ph(s*%!l %!sh !lw!(s br*n.s ! prem*um o;er ele%tron*% depos*t tr!ns$ers wh*%h re6u*re some !mount o$ t*me 5!nd thereb( de;!lu!t*on8 to %le!r. /ere !re ! $ew o$ m( re%ent posts *n wh*%h + e?plore wh!t l*ttle we %!n do to prep!re $or wh!t *s *ne;*t!bl( %om*n. our w!(E De$l!t*on or /(per*n$l!t*on@ 3*. G!p *n Fnderst!nd*n. 2e!"ens De$l!t*on*st Ar.ument Dust Another /(per*n$l!t*on 'ost 7 '!rt 1 Dust Another /(per*n$l!t*on 'ost 7 '!rt & Dust Another /(per*n$l!t*on 'ost 7 '!rt 0 Th!t,s r*.ht4 + s!;ed the 9%r!I( super7h(per*n$l!t*on t!l"9 $or the t!*l end o$ ! re!ll( lon. post. 3e%!use A8 people who th*n" the( h!;e *t !ll $*.ured out !lre!d( tend to !b!ndon ! post on%e the( re!d the word 9h(per*n$l!t*on94 !nd 38 the stu$$ *n th*s post re!ll( h!ppened !nd *s st*ll h!ppen*n. so *t,s onl( $!*r to (ou4 the re!der4 to .*;e *ts *ne;*t!ble denouement the !ppropr*!te we*.ht o$ ! bold %on%lus*on. +$ + d*dn,t do th!t4 + would not h!;e done m( Cob4 now would +@ N8 And *n %!se (ou d*dn,t $*.ure *t out (et4 th*s th*rd !nd $*n!l w!rn*n. w!s onl( $or the s!;ers who !re st*ll s!;*n. *n doll!rs. +t,s w!( too l!te to $*? the P+MFS. S*n%erel(4 FOFOA 'S. Th!n"s to re!der Free.oldTube $or the %ustom ;*deo below! /e Cust h!ppened to send me the l*n" wh*le + w!s %ons*der*n. son.s $or th*s post. The b!nd *s Muse !nd the son. *s Fpr*s*n. $rom the*r !lbum t*tled The Res*st!n%e. T1U httpEGGm!ur*%*o.e%on.ub%.%!Gpd$sG"*rsten.pd$ T&U The A.e o$ +n$l!t*on BD!%6ues Rue$$ T0U httpEGGm*ses.or.Gmone(G4s0.!sp T4U httpEGGwww..old.or.Gdownlo!dGpubW!r%h*;eGpd$GRs&0.pd$ T1U rese!r%h.stlou*s$ed.or.Gpubl*%!t*onsGre;*ewG 0G >G 0 >r!.?ls T6U httpEGGm*ses.or.Gboo"sGmonet!r(s*n.pd$ T:U httpEGGen.w*"*ped*!.or.Gw*"*G#?orb*t!ntWpr*;*le.e T-U httpEGGen.w*"*ped*!.or.Gw*"*GRobertWTr*$$*n '!.e 1&4

T>U www.*m$.or.Ge?tern!lGnpGe?rG%enterGmmGen.GmmWs%W 0.htm T1 U www.%ensus..o;G$ore*.n7tr!deGst!t*st*%sGh*stor*%!lG.!nds.t?t T11U Fs*n. d!t! $rom T1 U !nd the 3)S *n$l!t*on %!l%ul!tor !t httpEGGwww.bls..o;Gd!t!G*n$l!t*onW%!l%ul!tor.htm T1&U )*nes *n the s!nd *s ! re$eren%e to m( 3en !nd =hen *sl!nd !n!lo.( *n Fo%!l 'o*ntE Gold T10U httpEGGonl*ne.b!rrons.%omG!rt*%leGS3...1&46.html T14U httpEGGonl*ne.b!rrons.%omG!rt*%leGS3...6144.html

'!.e 1&1

"ue%day, Apr$' 1(, 2012


Open Forum

/ere,s ! r*ddle. 2h!t do Sme!.ol4 R!.n!ro"4 3ru%e D*%"*nson !nd S!muel T!(lor =oler*d.e !ll h!;e *n %ommon@

The Rh(me o$ the An%*ent Gold7M!r*ner


2r*tten *n & 4 b( Sme!.ol 5who now .oes b( the n!me R!.n!ro"4 re!ds th*s blo.4 but won,t p!rt*%*p!te *n the %omments here $or the superst*t*ous re!son th!t e;er( s*te where he %omments seems to .o the w!( o$ the !lb!tross4 wh*%h he then h!n.s !round h*s own ne%". N8

Around the 2orld the stor( h!d been told4 About ! R!%e th!t would *n t*me un$old4 2h*%h would *ntr*.ue !ll4 lo$t( or lowl(4 2*th st!"es h*.her th!n !n( *n h*stor(. The out%ome would turn out to !$$e%t #;en those who d*dn,t p!rt*%*p!te or bet. +rres*st*bl( !lter*n. e;er(one,s %ourse +n subtle or brut!l w!(s $or better or worse. F*n!ll( the se!son %!me $or wh*%h m!n( lon. h!d (e!rned. And then d!wned the d!( on wh*%h !ll e(es were turned To su%h ! spe%t!%le !s r!re !s one would e;er see. Yu*te poss*bl( the onl( o$ *ts "*nd to e;er be. )on. *n prep!r!t*on w*th no e?penses sp!red4 2h*le news reporters shouted !nd "l!?ons bl!red4 +n the morn*n. !t pre%*sel( e*.ht7twent( on the %lo%"4 The l!r.est ;essel the 2orld h!d e;er seen sl*d $rom her do%". =hr*stened w*th onl( the $*nest o$ =h!mp!.ne +n the m*dst o$ !n e?tr!;!.!nt !d %!mp!*.n4 '!.e 1&6

2*th ! thunderous w!;e th!t dren%hed onloo"ers !shore4 The Der*;e w!s l!un%hed4 .re!ter th!n !n( be$ore. F*n!n%ed b( those who h!d no peers4 3u*lt b( te!ms o$ respe%ted en.*neers4 Fnderwr*tten b( tr*ple7A r!ted p!pers4 /er de%"s !nd br*d.es rose l*"e s"(s%r!pers. Stron.er she loo"ed th!n the $ortress o$ ! tre!sur(. #!%h o$ her en.*nes %ould power ! ;er( l!r.e %*t(. /er *t*ner!r( w!s *mpe%%!ble !nd the menu w!s endlessN She would m!"e m!n( ! t*d( sum4 th*s new empress. One %ould %hoose to h!;e e;er( !$$!*r m!n!.ed !nd let the*r %!res .o4 Or e?per*en%e the thr*ll o$ r*s"*n. *t !ll *n the world,s l!r.est $lo!t*n. %!s*no. Thous!nds bo!rded !nd the st!$$ the*r mer%h!nd*se stowed. The Der*;e w!s open $or bus*ness !nd the pro$*ts $lowed. S*n%e she %omm!nded resour%es so ;!st4 A.!*nst th*s behemoth surel( no other %ould l!st. 2*th e;er( opt*on4 e;er( bene$*t one %ould des%r*be4 2h!t %ould e;er %ompete w*th the .re!t Der*;e@ Yet *n t*me ! .lor*ous sh*p on the hor*Ion d*d !ppe!r. Old (et m!Cest*% w!s the St!nd!rd4 proud !nd w*thout $e!r. 2here;er !nd whene;er her t!ll s*l;er s!*ls un$urled She w!s %ons*dered the .re!test o%e!n7.o*n. %r!$t *n the 2orld. Gl!d %r*es went up !s the renowned St!nd!rd dropped !n%hor. Trust( !nd se%ure4 9Good !s .old9 e;er(one r!n"ed her. A bo!st *n t(p*%!l .ood $!*th her =!pt!*n d*d m!"eE 9=ome4 Der*;e4 we %h!llen.e (ou to $ollow *n our w!"e!9 Then the p!rt*es %ommen%ed !nd e;er(one %elebr!ted. +n sleepless e?pe%t!t*on the st!rt the( !nt*%*p!ted4 Onl( to be rudel( stunned !w!"e b( the news !t bre!" o$ d!(N The .re!t St!nd!rd h!d sun"4 r*.ht there *n the b!(! Tre!%her(! S"ulldu..er(! S!bot!.e4 =lo!"s !nd D!..ers! =onsp*r!%(! An *n6u*r(! (elled he!dl*nes *n the p!pers. 3ut !s the d!(s p!ssed *t soon be%!me ob;*ous +t w!s unl*"el( th!t !n( would soon be brou.ht to Cust*%e. DeCe%ted4 the d!*l( %rowds o$ spe%t!tors m*lled !bout. Der*;e rem!*ned un%h!llen.ed !nd m!n( be.!n to doubt. 9Now wh!t@ 2e m*.ht !s well .o homeN 2*th St!nd!rd .one the Der*;e surel( st!nds !lone.9 '!.e 1&:

For the .re!t sh*p St!nd!rd h!d been d!m!.ed be(ond rep!*r. +ndeed ne;er would her lo$t( s!*ls !.!*n embr!%e the !*r. Me!nwh*le4 $!r out on the o%e!n ! br*ll*!nt $l!sh o$ sun Gl!n%ed $rom .olden hullsN $rom the m*ddle one4 A .olden m!st w*th (ellow s!*l %!nted !t ! C!unt( !n.le. From !nother the le.s o$ some o$ her %rew d*d d!n.le. A slee" se!worth( t*me7tested tr*m!r!n w!s she4 S"*mm*n. the sun7d!ppled w!;es l*"e .olden dolph*ns three. At $*rst $ew not*%ed the ele.!nt sh*p,s !ppro!%hN A$ter !ll the h!rbor ! .re!t m!n( !nd mu%h b*..er d*d bo!st. 3ut n*mbl( she wo;e4 throu.h !nd between4 e;entu!ll( to !rr*;e R*.ht under the bow o$ the humon.ous Der*;e. /er %rew !nd %!pt!*n were ru..ed4 stron. !nd le!n !s w*res. +n some other t!le perh!ps4 the( m*.ht p!ss !s m*ners. 9M!n( ! thous!nd m*le we,;e %ome to see th*s b*. p*le o, sh*p. +,m =!pt!*n Goldhe!rt. #?%use me4 _3AF7FRR7+7+7'7'_! 3ut (our %l!*m to be the best we most emph!t*%!ll( doubt. 2e,re throw*n. down the .!untlet. =!ll*n. (ou out. 2e,;e seen ! $ew rou.h t*mes4 but no r!%e we,;e e;er lost. + don,t %!re how hu.e4 how power$ul or how mu%h (ou %ost. Goldw*n. here,s ! $our7n*ne sh*p w*th ! m*.ht( $*ne %rew4 And we,re Cust *t%h*n. to troun%e the l*"es o$ (ou!9 The mult*tude w!s bemused b( Goldhe!rt,s r!sh br!;!do. Someth*n. !bout the depth o$ p!ss*on *n h*s ;o*%e w!s odd4 thou.h. 'erple?ed4 %on$used4 the( wondered !t some ho!?N 9M!(be *t,s someone,s str!n.e *de! o$ ! Co"e@9 Now Goldw*n. w!sn,t ! sm!ll sh*p %omp!red to some4 3ut when ne!rb( the tremendous Der*;e d*d she %ome4 Most ob;*ous to !ll w!s the .re!t d*$$eren%e *n s*Ie. /er m!st not h!l$w!( to Der*;e,s $*rst r!*l*n. d*d r*se. The s%ene %ert!*nl( d*dn,t su..est !n( poss*b*l*t( o$ ! r!%e. 3( now some were th*n"*n. the whole th*n. ! d*s.r!%e. 9G*;e us ! bre!"!9 9A tr*m!r!n@9 9Th!t des*.n,s ! rel*%.9 9'rett(4 (es4 but... *sn,t *t "*nd o$ b!rb!r*%@9 Then4 to the utter !ston*shment o$ !ll4 The =!pt!*n o$ Der*;e !nswered the %!ll!

'!.e 1&-

92e,re .o*n. !bro!d no m!tter who (ou !re or wh!t (ou s!(. You m!( t!. !lon. *$ (ou w!nt4 onl( st!( out o$ our w!(! Fr!n"l( we st!nd to .!*n whether or not ! r!%e *s run. 3ut we l*"e .ood t*mes !nd spe%ul!t*on !s mu%h !s !n(one. + br*n. word the 3o!rd o$ D*re%tors w*ll h!nd to (ou Der*;e4 Should (ou %*r%le the 2orld be$ore us4 !nd here return !l*;e. Otherw*se4 (ou must .*;e up (our !nt*6u!ted sh*p o$ .old4 As our troph( to d*spl!( *n our An%*ent #?h*b*ts hold.9 #;er( e(e went to !nd $ro the two sh*ps4 worlds !p!rt. 92h!t s!( (ou to these terms4 =!pt!*n Goldhe!rt@9 Goldhe!rt s!*d noth*n.4 %!re$ull( we*.h*n. the words. All .rew hushed4 e?pe%t!ntN onl( se!.ulls %ould be he!rd. Then49You,;e noth*n. we %!n,t .et4 e;en *$ we w!nted *t4 (ou see. 2e l*;e l*$e to *t,s $ullest !nd m!"e our own prosper*t(. + wouldn,t .*;e !n(th*n. $or th!t4 mu%h less bet49 he s!*d. 93ut *$ th!t,s wh!t (ou th*n" (ou need then th!t +,ll !%%ept.9 A m*.ht( %heer went up !nd !round the 2orld the mess!.e r!n4 And one d!( !t noon !s %!nnon boomed the .re!t R!%e be.!n. All "*nds o$ bo!ts4 $rom s"*$$s to $re*.hters o$ m!n( thous!nd ton4 Too" to se! to see them o$$4 e;en to the sett*n. sun. )*esurel( *t seemed4 but ne;er $or.ett*n. the true *ntent4 Around the 2orld *n $!*r we!ther !nd $oul Der*;e !nd Goldw*n. went. O%%!s*on!ll( lesser sh*ps to !nd $rom Der*;e would pl(4 =h!n.*n. %rew !nd p!ssen.ers4 br*n.*n. $uel !nd suppl*es. Onl( r!rel( would !n(one dr!w !lon.s*de Goldw*n.4 S!;e to br*n. news4 en%our!.ment4 or perh!ps tr!de them someth*n.. For the( were resour%e$ul4 *ndependent !nd *ndustr*ous. )on. !.o the( le!rned wh!t to stow $or !n( Courne( per*lous. F!r too lon. w!s the R!%e to rel!te here e;er( det!*l O$ the %ontr!sts !nd the stru..les o$ brute $or%e ;ersus s!*l As e!%h sou.ht to d*;*ne the other,s str!te.*es4 2e!"nesses4 stron. po*nts4 %!p!b*l*t*es. M!"*n. the most o$ breeIe or %!lm4 Goldw*n. e?pressed %ompeten%e4 2h*le Der*;e plowed on relentlessl(4 heedless o$ w*nd or %urrents. Ne*ther %ould .!*n $or lon. ! trul( de%*s*;e le!dN 2ho the ;*%tor would e;entu!ll( be w!s *mposs*ble to re!d. Thus h!d the( %ome to the most d!n.erous p!rt4 The l!st but not the le!st le. o$ m!n( s*n%e the st!rt. '!.e 1&>

Ahe!d l!( the tre!%herous /orn wh*%h the( must round4 Then the( would be homew!rd bound. +t h!d been not*%ed w*th not ! l*ttle %on%ern4 A se;ere storm unpred*%ted w!s brew*n. !stern. On !ll sh*ps b!rometers were $!ll*n. r!p*dl(N D!n.erous we!ther would be upon them presentl(. The w*nd %!me up h!rd !nd Goldw*n. m!de t*me4 )e!p*n. e!s*l( p!st Der*;e4 le!;*n. her $!r beh*nd. For the $*rst t*me some !bo!rd Der*;e $elt ! b*t se!s*%"4 2h*le those on Goldw*n. e?ulted *n !dren!l*ne,s "*%". 3ut l*"e Der*;e the storm *tsel$ w!s unl*"e !n( other be$ore. There$ore no one re!ll( "new wh!t *t held *n store. And !s the w*nds rose $*er%er *n *ts d!r"en*n. .loom4 Goldw*n.,s %rew must tr*m s!*l !nd there*n l!( her doom. /elp$ul w*nd h!d be%ome ! thre!t !nd the %urrent onl( mo%"ed 7 From beh*nd *n dr*;*n. r!*n %!me Der*;e l*"e ! Cu..ern!ut! 9=!pt!*n4 *t,s ! b*. storm4 loo"s l*"e ! b!d one too. +t,s d*$$erent th!n !n( +,;e e;er seen be$ore4 h!;e (ou@9 2*th e!s( %on$*den%e Der*;e,s =!pt!*n re!ssured4 9Yes4 but *t m!tters notN b( h*.hest7r!ted p!per we,re *nsured.9 9She,s ! b*. storm4 =!p,n4 !n, ! re!l blower4 too. D*$$erent4 %older th!n !n( +,;e e;er $elt be$ore4 h!;e (ou@9 9Th!t,s ,%!use she,s ! per$e%t one.9 Goldhe!rt s!*d. 9)et ,er %ome!9 Se%ure e;er( "*lo.r!m o$ b!ll!st. '!ss ,round th*s rum.9 And so *t w!s *n shr*e"*n. .!le *n the worst poss*ble str!*t Th!t the( went ne%" !nd ne%" round the /orn4 there to meet the*r $!te. For there *nste!d o$ open w!ter !n *%( w!ll towered h*.hN M!ss*;e storm7%!r;ed b!ttlements r!"ed the r!..ed s"(. On Der*;e the s*rens w!*led As her w!t%hmen loudl( h!*led4 9D#3T 3#RG4 D#AD A/#AD!9 On Der*;e ! p!ssen.er une!s*l( s!*d4 9+t sounds ! b*t worr*some4 th*s Debt9. 9Au %ontr!*re49 s!*d the w!*ter4 9There *s no need to be !l!rmed. +t h!ppens !ll the t*me. 2ould (ou l*"e (our %o$$ee w!rmed@9 For *ndeed Der*;e *n ponderous m!Cest( '!.e 10

Alw!(s rode the se! *n !loo$ suprem!%(. As*de $rom her *mper;*ous hull sm!ll ber.s were h!u.ht*l( %!st4 2h*le t*t!n*% ones w*th ! shudder*n. boom were spe%t!%ul!rl( sm!shed. +ndeed *t h!d be%ome tr!d*t*on to s!;e ! sou;en*r To $lo!t *n ! dr*n" or *%e down some beer. +n $!*r we!ther the spe%t!%le w!s ! popul!r h*tN +n %ond*t*ons l*"e th*s none would be bothered to see *t. On Goldw*n. !n une!s( %rewm!n s!*d4 9+t %ould be the end o$ us4 th*s Debt. 2e,re ber.7s*de o$ Der*;e !nd tow!rd *t the %urrent,s dr*;*n. us. 2e m*.ht !;o*d her but not th!t %olossus!9 =!pt!*n Goldhe!rt %ons*dered4 then wr(l( shoo" h*s he!d. 9)oo"s l*"e we,ll h!;e to one7up them both *nste!d. The w*nd,s !%ross the %urrent se;ent(7n*ne de.rees.9 And he %h!rted ! %ourse $or !ll o$ them to see. )ow murmurs o$ 9Th!t,s *ns!ne!949+t,s su*%*de!9. 9+,M the =!pt!*n !nd +,)) de%*de!9 bellowed Goldhe!rt4 e(es $l!sh*n. under h*s brow. 9Trust me ne;ermore but trust me now! 2e,;e !ll been throu.h m!n( ! n!st( blow to.ether. Th*s one,s ! dooI( but th!t don,t me!n we %!n,t w*n ,er. Dust do !s + s!(4 l!sh (ou down4 r!*se sp*nn!"er !nd b*de4 And .et (oursel;es re!d( $or one /#))FAA r*de!9 +n $!*l*n. l*.ht !nd l!sh*n. r!*n the orders were obe(ed4 2h*le Goldw*n.,s %rew 5!nd her %!pt!*n8 s*lentl( pr!(ed. 2et l*nes sn!pped t!ut s*n.*n.4 sl*pped *n wh*te7"nu%"led h!ndsN O;erstressed %!n;!s ne!rl( r*pped $rom *ts b!nds. )*"e ! .olden stone $rom some le.end!r( .*!nt,s sl*n.4 A%ross the sp*ndr*$t7blow*n. bre!"ers Goldw*n. shot s"*pp*n.. R*.ht *nto the h!rrow*n. r!p*dl( n!rrow*n. slot she w!s swept4 3etween *mper*ous Der*;e !nd *mportun!te Debt! Throu.h ro!r*n. tw*l*.ht,s l!st $!d*n. Thundered the %run%h*n. shr*e"*n. .r*nd*n. O$ m!n( dre!ms !nd hopes4 o$ l*$e,s $ortunes *m!.*ned !nd re!l4 Shredd*n. on *%e th!t would not (*eld. O;er the howl o$ the w*nd4 to the so!"ed !nd sh!"*n. %rew4 Goldhe!rt shouted 92e,re p!st them4 we,re throu.h!9 S!*l w!s hurr*edl( .!thered !nd !ll w!s m!de $!stN '!.e 101

No one spo"e !nd $*n!ll( Goldhe!rt s!*d !t l!st4 9Thou.h *t m*.ht! loo"ed *mposs*ble b!%" there4 +,d,;e ne;er put (ou throu.h th!t *$ *t w!sn,t %le!r She,s ! $our7n*ne sh*p w*th ! m*.ht( $*ne %rewN +t w!s ! h!rd test !nd +,m ;er( proud o$ (ou9 3ut upon the w*nd w!s borne m!n( ! terr*ble soundN Somewhere out there the .re!t Der*;e w!s .o*n. down. There w!s noth*n. else those on Goldw*n. %ould do4 #?%ept b!tten down $or the n*.ht !s he!;( r!*n blew. A$ter sett*n. ! w!t%h the( slept $*t$ull( +n the*r l*ttle .olden bo!t on the ;!st he!;*n. se!. Yet the storm d*d !b!te some t*me *n the n*.ht4 And the( be.!n ! se!r%h b( morn*n.,s dre!r( l*.ht. 92e %!n m!"e room $or ! $ew4 but no more94 Thou.ht Goldhe!rt4 loo"*n. on the .re( swell *n horror. 9+ w*sh th!t we %ould,;e s!;ed them !ll4 Goldw*n. m( lo;e4 but th!t,s not our shot to %!ll.9 3ut no $l!. nor $l!re nor smo"e w!s to be seen Am*d the endless r!$ts o$ $lots!m dr*$t*n.. +n the ne!r d*st!n%e the .*!nt ber. slowl( rolled o;er4 M*ndlessl( drown*n. the s%!rs o$ the de!dl( en%ounter. 9+ see no l*$ebo!ts4 !nd th!t,s the worst. /ow %ould the( h!;e been so79 !nd he %ursed. 3ut he "new trul( where*n the tr!.*% bl!me d*d l*eE On bel*e$4 not "nowled.e4 d*d the lost rel(. Out o$ the thous!nds lost *n the wre%" o$ the Der*;e4 Onl( two doIen were $ound4 %old4 e?h!usted !nd b!rel( !l*;e. 2*th .*lded l*$e7r*n.s !tt!%hed to sturd( l*nes The( were dr!wn to s!$et(4 one or two !t ! t*me. O;er the ne?t se;er!l d!(s the we!ther .r!du!ll( %le!red4 And tow!rds home st*ll $!r !w!( the( steered. As those who h!d been res%ued re.!*ned the*r stren.th4 The( t!l"ed !mon. themsel;es !t len.th. And !s the( d*s%ussed the e;ents o$ re%ent d!(s The( d*s%o;ered th!t e!%h o$ them4 to l!st*n. !m!Ie4 +n some po%"et or other $or lu%" or so the( thou.ht4 Alon. on the $!te$ul tr*p ! %o*n o$ .old h!d brou.ht.

'!.e 10&

These the( de%*ded to .*;e to Goldhe!rt *n .r!t*tude4 For the sel$less deeds o$ he !nd Goldw*n.,s %rew. 3ut he s!*d4 9Don,t th*n" we don,t !ppre%*!te su%h ! .esture $!*r. Somed!( (ou m!( need them !.!*nN *t,s !n un%ert!*n world out there. 93e%!use (ou h!d th!t .old (our $ortune w!s su%h Th!t (ou were !ble to es%!pe the worst o$ ru*n,s %lut%h. Oeep *t4 s!;e *t4 !nd remember how *t pro;ed true As th*n.s (ou thou.ht se%ure sl*pped $rom under (ou.9 +n the wee"s !he!d the( bus*ed themsel;es le!rn*n. s!*l*n.N )*$e th*s %lose to the se! the( $ound ;er( d*$$erent4 (et s!t*s$(*n.. 9On th*s sh*p4 l*"e *t or not4 (ou,re p!rt o$ the %rew49 Goldhe!rt .r*nned4 9but (ou,ll $*nd *t "*nd! .rows on (ou.9 Fore;er *t seemed h!d p!ssed when $*n!ll( the( returned To the port when%e the( h!d st!rted4 !nd ! lon. rest trul( e!rned. The( were wel%omed w*th $*rewor"s4 %elebr!t*on !nd l!u.hter4 Tempered somewh!t b( sober*n. t!les o$ the *n%red*ble Der*;e d*s!ster. #;er(one w!nted to "now !nd would h!rdl( let them rest Fnt*l the( told them !ll !bout how the( sur;*;ed su%h ! .ruel*n. test. And $*n!ll( !$ter se;er!l d!(s when the hubbub h!d d*ed down4 =!pt!*n Goldhe!rt bo!rded Goldw*n. !nd too" ! loo" !round. 92ell4 wh!t,s the d!m!.e4 or d!re + !s"@94 Goldhe!rt 6uer*ed ! %rewm!n !s he un%!pped h*s $l!s". 9She,s done us more th!n well4 =!p,n4 %ons*der*n. wh!t we !s" o$ her. None the worse $or ! l*ttle we!r !nd te!rN ! worth( %red*t to her M!"er. Some n*%"s here !nd there4 ! $ew .ood bu$$s !nd ! s%r!t%h4 3ut we,;e lost the b!ll $rom the top o$ the m!st.9 9No surpr*se4 th!t49 Goldhe!rt s!*d !s he too" ! sw*. !nd l!u.hed. 9,Tw!s her l!st ten7thous!ndth4 !nd *t w!s m!de o$ br!ss!9

'!.e 100

Saturday, May 3, 2012


6n2'at$on or ,yper$n2'at$onD

Whilst discussing the de#ise of the Ianadian penn+ in front of a Iongressional panel, 9ed Ihair#an <en <ernanke de#onstrates that 3transactional currenc+ is si#pl+ a notional, purel+ s+#$olic token #ediu# of exchange, #uch #ore replacea$le, resource-efficient and en iron#entall+ friendl+ than #ining stupid #etals for stupid coins.3 6GotReal Gews7

Remember m( post !round th*s s!me t*me l!st (e!r t*tled De$l!t*on or /(per*n$l!t*on@ At th!t t*me4 the deb!te between de$l!t*on !nd h(per*n$l!t*on w!s !ll the r!.e4 !nd so + wrote ! post to ! prom*nent !nd lon.7t*me de$l!t*on*st n!med R*%" A%"erm!n4 who l!ter stopped b( *n the %omments. +n $!%t4 most o$ m( h(per*n$l!t*on posts h!;e been wr*tten *n the %onte?t o$ the de$l!t*on*sts, !r.uments. + %!n,t s!( th!t the deb!te h!s sh*$ted $rom de$l!t*on to *n$l!t*on o;er the l!st (e!r4 but *t sure seems th!t the !r.uments %om*n. !%ross m( des" these d!(s !re $or r*s*n. *n$l!t*on w*th the e?%lus*on o$ h(per*n$l!t*on. M( pos*t*on h!sn,t %h!n.ed. 3ut th*s does .*;e me the opportun*t( to present m( pos*t*on !.!*nst ! d*$$erent prem*se4 th!t o$ *n$l!t*on w*thout %urren%( %oll!pse. + would .uess th!t some o$ (ou w*ll h!;e ! %ompletel( d*$$erent ;*ew o$ h(per*n$l!t*on b( the t*me (ou $*n*sh th*s post. +$ so4 ple!se let me "now *n the %omments. 3ut $*rst + need to m!"e *t %le!r on%e !.!*n th!t th*s h(per*n$l!t*on d*s%uss*on *s not !bout t*m*n.. +tMs !bout how *t !ll ends4 !nd *tMs better 5$or ! s!;er8 to be ! de%!de too e!rl( th!n ! m*nute too l!te. The other s*de 5whoe;er *t m!( be8 o$ten tr*es to m!"e the deb!te !bout t*m*n.. +t *s not !bout t*m*n. !nd + don,t do t*m*n.4 but th!t doesn,t me!n the end *s $!r !w!(. +$ !n(th*n.4 *t,s o;erdue *n the s!me w!( ! b*. e!rth6u!"e %!n be o;erdue. +n ,De$l!t*on or /(per*n$l!t*on@, + wroteE -he whole point of the Kh+perinflationL de$ate is a$out the denoue#ent, the final outco#e of this %>>+ear dollar experi#ent. !t is a$out the ulti#ate end, and the de$ate has $een going on e er since the R>s when the dollar was separated fro# gold and it $eca#e clear that there would $e an end. -he de$ate is a$out deter#ining the $est stance so#eone should take who has plent+ of net worth. :nd ! do #ean PL/G-Y. People of #odest net worth, like #e, can of course participate in the de$ate. <ut then it can $eco#e confusing at ti#es when we think a$out shortages or suppl+ disruptions of necessities like food. )f course +ou need to look out for life4s necessities first and fore#ost. <ut $e+ond that, there is real alue to $e gained $+ trul+ understanding this de$ate. '!.e 104

/ere *s FOA on t*m*n.4 $rom ! post *n wh*%h he spe%*$*%!ll( pred*%ted doll!r 9h(per pr*%e *n$l!t*on9E T*m*n.@ 2e4 !nd +4 !s ph(s*%!l .old !d;o%!tes4 don,t need t*m*n. $or th*s pos*t*on! T*m*n. *s $or poor4 p!per tr!ders. 2e !re ne*ther !nd our sol*d4 lon. term4 one %!ll o;er se;er!l (e!rs to hold ph(s*%!l .old w*ll %on$*rm our re!son*n.. There *s no stress $or me to own th*s !n%*ent !sset !s *t *s *n ! .ood proport*on to !ll m( other we!lth. There *s no tr!d*n. !n e%onom*% s(stem whose %urren%( *s end*n. *ts t*mel*ne. Sm!rt4 6u*%" t!l"*n. pl!(ers w*ll Co"e !t our e?pense unt*l $!st m!r"ets !nd lo%"ed down p!per .old pos*t*ons blo%" the*r 9tr!d*n. e;en9 mo;e *nto ph(s*%!l !t !n( rel!t*;e %he!p pr*%e. M*ne owners w*ll see !n( ne!r term pro$*ts e;!por!te *nto ! .o;ernment *ndu%ed pr*%*n. %ont!n.o th!t %onstr!*ns sto%" e6u*t( w*th $or%ed sell*n. !t p!per .old pr*%es. M( person!l ;*ew The( w*ll4 one d!( *n the $uture4 helplessl( w!t%h the*r *n;estments $!ll $!r beh*nd ! world $ree m!r"et pr*%e $or ph(s*%!l .old. Further *nto the $uture4 one d!(4 m*nes w*ll m!"e mone( on the l!st thous!nd per oun%e pr*%e $or .oldN onl( the $*rst P]]4 . o$ pr*%e w*ll not be !;!*l!ble to them. Yup4 th!t w!s b!%" *n O%tober o$ & 1. 3!d t*m*n.@ /ow h!;e (our m*n*n. sto%"s done l!tel(@ + "now o$ one FOA re!der who went 9!ll *n9 w*th .old %o*ns th!t (e!r to the tune o$ somewhere !round P4 O. /e h!d Cust ret*red $rom h*s pre;*ous l*$e !s ! tr!der. Tod!( h*s .olden nest e.. *s worth P& m*ll*on4 and he h!s been l*;*n. o$$ o$ *t $or most o$ th!t t*me! So mu%h $or b!d t*m*n.4 eh@ M( !r.ument $or h(per*n$l!t*on *s FOA,s !r.ument. So (ou,ll see me use FOA,s terms. You,ll see me 6uote ! lot o$ FOA. And (ou,ll see me rest!te the s!me %!ll he m!de b!%" *n & 1. /*s %!ll w!s %le!r !nd un%h!n.*n.. /*s !r.ument w!sn,t wron. then !nd *t *s e;en more press*n. tod!(4 wh*%h + w*ll e?pl!*n. And Cust to be %le!r !bout FOA,s %!ll4 here *t *s $rom th!t s!me postE 92h*le others %!ll4 on%e !.!*n4 $or ! l*ttle b*t o$ 14 1 4 11Q pr*%e *n$l!t*on4 th!t l!sts unt*l the $ed %!n on%e !.!*n .et *t under %ontrol444444444 + %!ll $or ! %omplete4 %urren%( "*ll*n.4 *n$l!t*on pro%ess th!t runs unt*l the doll!r resembles some South Amer*%!n 'eso!9 9=omplete4 %urren%( "*ll*n.9 h(per*n$l!t*on *s ! one7t*me e;ent. +n ! moment +,ll e?pl!*n the re!son*n. beh*nd th*s %!ll !nd wh( *t st*ll st!nds. 3ut $*rst4 let,s t!"e ! loo" !t ! %ouple o$ the 9*n$l!t*on but not h(per*n$l!t*on9 !r.uments th!t h!;e %ome *nto m( s*.hts. CAn Adu't Approa.hC +n An Adult Appro!%h B ++ 5De$*n*n. Rel!t*;e Re!l A!lue8 )ee Yu!*nt!n%e !nd '!ul 3rods"( o$ Y3 Asset M!n!.ement 5or Y3AM=O8 l!*d out ! n*%e !r.ument $or wh!t sounds ! lot l*"e FOA,s $ront l!wn dump but w*thout the 9%omplete4 %urren%( "*ll*n.9 h(per*n$l!t*on. +n *t4 the( e?pl!*ned th!t the pro%ess o$ 9re7%oll!ter!l*I*n. unreser;ed %red*t9 wh*%h be.!n *n & - w*ll l*"el( end w*th !ll o$ the !ssets b!%"*n. tod!(,s b!n" mone( be*n. repl!%ed w*th new b!se mone(.

'!.e 101

+n other words4 FS doll!r monet!r( b!se 5tod!( !t !round P&.6T8 w*ll be *n%re!sed to %o;er !nd repl!%e tod!(,s FS b!n" !ssets 5!lmost P& T8. 3ut the( !ren,t pred*%t*n. th!t the ent*re mone( suppl( w*ll be%ome b!se mone(4 !s h!ppens dur*n. h(per*n$l!t*on. +nste!d4 the( th*n" th!t !s %red*t mone( h!s !ll but been repl!%ed w*th b!se mone(4 9b!n" !n*m!l sp*r*ts w*ll on%e !.!*n t!"e o;er !nd we w*ll h!;e ! new le;er!.*n. %(%le.9 The( pro;*ded the $ollow*n. %on%eptu!l *llustr!t*on to help us ;*su!l*Ie wh!t the( !re proCe%t*n.E

Then the( !s" 5!nd !nswer84 92*ll the l*nes meet or %ross@ 2e donMt bel*e;e soL9 +,m .o*n. to .*;e (ou ! lon.er e?%erpt4 but + w!nted to h*.hl*.ht th*s po*nt $*rst4 be%!use *t *s where m( ;*ew d*$$ers $rom the*r ;*ew. The l*nes meet*n. !nd %ross*n. *s e?!%tl( wh!t *t loo"s l*"e dur*n. h(per*n$l!t*on4 when b!n" %red*t d*s!ppe!rs 5be%!use pr*%e *n$l!t*on *s runn*n. too hot to *ssue %red*t !t !n( pr!%t*%!l *nterest r!te8 !nd the ent*re mone( suppl( be%omes b!se mone( *n !mounts wh*%h o;ert!"e the pre;*ous !mount o$ %red*t mone(. The l*nes meet*n. !nd %ross*n. %ould loo" someth*n. l*"e th*s %on%eptu!l *llustr!t*on 5b( D'8E

/ere *s p!rt o$ FOA,s $!mous $ront l!wn dumpE 9M( $r*end4 debt *s the ;er( essen%e o$ $*!t. As debt de$!ults4 $*!t *s destro(edL h(per*n$l!t*on *s the pro%ess o$ s!;*n. debt !t !ll %osts4 e;en bu(*n. *t outr*.ht $or %!shL be%!use pol*%( w*ll !llow the pr*nt*n. o$ %!sh4 *$ ne%ess!r(4 to %o;er e;er( l!st b*t o$ debt !nd dump*n. *t on (our $ront l!wn!9 So the*r thes*s *s th!t the Fed bu(s !lmost !ll o$ tod!(,s b!n" !ssets 5debt8 $or %!sh4 but then dur*n. th*s pro%ess the b!n"s4 now !lmost $ull( reser;ed4 st!rt lend*n. !.!*n !nd ! new %red*t %(%le be.*ns w*thout '!.e 106

! s(stem*% %oll!pse. And wh!t th*s w*ll do to pr*%es *s del*;er 9! h*.her Gener!l 'r*%e )e;el9 !nd 9! ='+ r!te h*.her th!n the r!te !t wh*%h the G') r*ses.9 + em!*led w*th '!ul !bout th*s %!ll be*n. mu%h more t!me th!n some th*n.s he h!s wr*tten *n the p!st !nd he wrote b!%" th!t he th*n"s m( h(per*n$l!t*on proCe%t*on *s 9! ;er( $!t7t!*led e;ent9 wh*le the( !re 9tr(*n. to be mu%h more moder!te *n Tthe*rU proCe%t*ons.9 + hope to show *n th*s post th!t !;o*d*n. th*s 9$!t7t!*led e;ent9 *s the #ost unl*"el( s%en!r*o. +t *s not Cust !bout the .!p between unreser;ed depos*ts !nd b!se mone( !nd b!n" le;er*n.Gde7le;er*n. %(%les. 6t $% about a .urren.y that ha% rea.hed the end o2 $t% t$me'$ne )hen the remo9a' o2 structural support Ean FOA termG meet% the 'ar#e%t %pend$n#Kdo''ar8em$tt$n# ma.h$ne the )or'd ha% e9er +no)n. 3ut $*rst4 here,s ! more %omplete e?%erpt $rom the*r p!per4 or (ou %!n re!d the whole th*n. !t the l*n"E Ma#n$tude o2 the 4rob'em =entr!l b!n"ers stru%" ! m!t%h under the .lob!l e%onom( *n 1>-1 !nd *t %ont*nues to burn. The m!t%h be.!n to burn the*r $*n.ers *n & - when the pro%ess o$ Jre7%oll!ter!l*I*n.K unreser;ed %red*t .ot underw!(.

The $!m*l*!r .r!ph !bo;e shows the *n%re!se *n FSD b!se mone( th!t be.!n to de7le;er the FS b!n"*n. s(stem *n & -. Thou.h we h!;e wr*tten *n the p!st !bout tot!l doll!r7 denom*n!ted debt e?%eed*n. P1 tr*ll*on4 !ll o$ th!t debt does not h!;e to be p!*d down. 5Most o$ *t *s $ull(7reser;ed be%!use *ts %red*tors !re not le;ered.8 3ut there *s !n *dent*$*!ble port*on o$ doll!rBdenom*n!ted debt *ssued b( h*.hl( le;ered %red*tors B b!n"s. We $elie e the de$t-to-#one+ gap that #ust and will $e greatl+ reconciled in short order is the ratio of $ank assets to the #onetar+ $ase. :s the graph $elow shows, the 5S 0onetar+ <ase was onl+ %,P of 5S <ank :ssets on "ece#$er ,%, (>%%.The b!n"*n. s(stem *s the sour%e o$ unreser;ed %red*t !nd *s on the hoo" to use *ts %olle%t*;e b!l!n%e sheet to be the tr!ns$er me%h!n*sm $or e%onom*% st*mul!t*on throu.h monet!r( pol*%(. And !s the( h!;e !lre!d( demonstr!ted repe!tedl(4 monet!r( pol*%( m!"ers $eel the need to de7le;er the b!n"*n. s(stem tod!( so *t m!( then e?tend %red*t to the rest o$ the e%onom( tomorrow.

'!.e 10:

O$ %ourse4 the FS b!n"*n. s(stem *s not !lone. A%%ord*n. to the F*n!n%*!l St!b*l*t( 3o!rd4 worldw*de b!n" !ssets 5*n%lud*n. FS b!n" !ssets8 were !ppro?*m!tel( P>1 tr*ll*on *n O%tober & 11 5FSD terms8. Me!nwh*le the +MF reported th!t !s o$ De%ember & 1 the .lob!l suppl( o$ b!se mone( w!s !ppro?*m!tel( P1& tr*ll*on 5FSD terms8. These $*.ures put the worldw*de proport*on o$ b!se mone(7to7b!n" le;er!.e rou.hl( *n l*ne w*th the FS. G*;enE 18 the e?orb*t!nt le;er!.e %urrentl( *n the .lob!l b!n"*n. s(stem4 &8 %urrent ne.!t*;e re!l output .rowth *n de;eloped e%onom*es4 08 %urrent ne.!t*;e re!l *nterest r!tes4 48 un*$orml( poor monet!r(4 $*s%!l !nd demo.r!ph*% %ond*t*ons !%ross most de;eloped e%onom*es4 !nd 18 !lre!d( w!r( popul!t*ons be.*nn*n. to .et restlessN we h!;e d*$$*%ult( *m!.*n*n. th!t .lob!l b!n"s4 l!bor4 s!;ers4 pol*t*%*!ns !nd *n;estors w*ll be !ble to endure %urrent %ond*t*ons mu%h lon.er be$ore dem!nd*n. the $*n!n%*!l reset button be pressed to %omplete b!n" de7le;er*n.. 2e pro;*de the .r!ph below merel( to m!"e *t e!s*er to %on%eptu!l*Ie the n!ture o$ su%h ! de7le;er*n.4 !s we see *t. 5Th*s *s not ne%ess!r*l( ! pred*%t*on o$ t*m*n. or m!.n*tude.8 The t!"e!w!( *s th!t b!se mone( 5*n the $orm o$ ph(s*%!l %urren%( *n %*r%ul!t*on8 !nd b!n" depos*ts w*ll h!;e to r*se !t ! mu%h steeper r!te th!n b!n" !ssets unt*l the b!n"*n. s(stem *s more $ull( reser;ed. 5At some po*nt we th*n" b!n" !n*m!l sp*r*ts w*ll on%e !.!*n t!"e o;er !nd we w*ll h!;e ! new le;er!.*n. %(%le.8

The .r!ph !bo;e *llustr!tes the $or%es beh*nd ! h*.h7te%h Cub*lee. The $urden of repa+ing p!st s(stem*% debt w*ll h!;e been .re!tl( redu%ed throu.h b!se mone( *n$l!t*on4 5th!t sh*$ts the G') TGener!l 'r*%e )e;elU h*.her4 *n%lud*n. re;enues !nd w!.es84 wh*le the *nte.r*t( o$ s(stem*% debt rem!*ns *nt!%t 5nom*n!ll(8. The *nte.r*t( o$ the b!n"*n. s(stem w*ll !lso rem!*n *nt!%t4 !s would the %red*tworth*ness o$ most debtors. '!.e 10-

So we !nt*%*p!te the sum o$ ph(s*%!l %urren%( !nd b!n" depos*ts to %ont*nue to r*se to st*mul!te nom*n!l GD' .rowth !nd the r!t*o o$ b!n" %red*t7to7b!se mone( to %ontr!%t $urther. 2*ll the l*nes meet or %ross@ 2e donMt bel*e;e so but we do th*n" the .!p w*ll n!rrow subst!nt*!ll( be$ore b!n" !ssets %!n .row m!ter*!ll( !.!*n. Thus4 we expect the rate of change of the 2eneral Price Le el to e.ual the rate of change of the su# of ph+sical currenc+ and $ank credit L/SS so#e acco##odation for producti it+ gains. +t *s re!son!ble to e?pe%tE 18 A h*.her Gener!l 'r*%e )e;el &8 A ='+ r!te h*.her th!n the r!te !t wh*%h the G') r*ses 08 )e;ered !sset *n$l!t*on r!tes th!t ;er( l*"el( w*ll be nom*n!ll( pos*t*;e but ne.!t*;e *n G') terms !nd4 e;en more so *n ='+ terms CMere'y Stron# 6n2'at$onC Another 9*n$l!t*on but not h(per*n$l!t*on9 post wh*%h %rossed m( p!th the other d!( w!s Get Re!d( $or ,/ot, +n$l!t*on b( Gre.or M!%don!ld. +n *t he wr*tesE +deolo.*%!l de$l!t*on*sts !nd *n$l!t*on*sts !l*"e $*nd themsel;es both $!%*n. the s!me problem. The $ormer st*ll %!rr( the tor%h $or ! ;*%*ous de$l!t*on!r( Cu..ern!ut sure to o;erpower the !%t*ons o$ the m*.ht*est %entr!l b!n"s on the pl!net. The l!tter "eep e?pe%t*n. not merel( ! stron. *n$l!t*on but ! bre!"out o$ h(per*n$l!t*on. Ne*ther h!s o%%urred4 !nd the 6uest*on *s4 wh( not@ The !nswer *s ! ,%old, *n$l!t*on4 m!r"ed b( ! ste!d( loss o$ pur%h!s*n. power th!t h!s pro.ressed throu.h 2estern e%onom*es4 not merel( o;er the p!st $ew (e!rs but o;er the p!st de%!de. Moreo;er4 perh!ps *tMs !lso the %!se th!t %ompl!%en%( *n the $!%e o$ emp*r*%!l d!t! 5he!;*l(7m!n*pul!ted4 m!n( would !r.ue84 support h!s .rown up !round on.o*n. Jben*.nK *n$l!t*on. +$ so4 2estern e%onom*es $!%e !n unpr*%ed r*s" now4 not $rom sp*r!l*n. de$l!t*on4 nor h(per*n$l!t*on4 but r!ther $rom the bre!"out o$ ! 5merel(8 stron. *n$l!t*on. A$ter re!d*n. h*s post4 + !s"ed Gre.or *n ! %omment !nd ! tweetE 3With our go ern#ents $udget deficit at twice the rate of the trade deficit, and with the drop-off in foreign I< support for our go ern#ent de$t, how can we possi$l+ ha e E#erel+ strong inflationF83 /ere w!s Gre.or,s repl(E 3<ecause the su$;ect is so ast, and $ecause !4d like to #ake a co##ent that is useful, !4ll ;ust respond $riefl+ to 9)9): on his re#arks regarding #+ present concern for a strong inflation, and #+ lack of '!.e 10>

concern for a spiraling deflation or h+perinflation... So, while there are #an+ co#ponents re.uired to fosterCcreateCspark either strong inflation or h+perinflation--which ha e $een discussed and articulated historicall+ in the corpus of work done on the su$;ect--there is in #+ opinion one factor, and one factor alone, that X#ustX $e present in all h+perinflations. :nd that factor is the social, $eha ioral co#ponent in which the users of the currenc+ X#ustX cross a tipping point where the+ are inclined to effecti el+ throw the currenc+ awa+, in exchange for an+ other good or currenc+, at so#e nota$le rate of speed. Without this $eha ioral shift, without this social decision, without the ps+chological change in perception that leads to this t+pe of crowd $eha ior, there will $e no h+perinflation. So, +ou won4t find #e predicting 5S"-@one h+perinflation or e en the risk of such an+ ti#e soon, $ecause the re.uisite social-ps+chological shift is a large and hea + o$;ect that needs a collapse in confidence to #o e fro# its current state of inertia. !nstead, ! a# genuinel+ concerned with a $reakout of strong inflation, owing to a con ergence of er+ large glo$al trendsQ pri#aril+ the reaching of the Lewis -urning Point in non-)/I" countries, and the relentless ad ance of resource scarcit+. )/I" currenc+ users, #eanwhile, fro# Japan to /urope to the 5S re#ain largel+ trapped within their currencies and their so ereign $onds, and will re#ain trapped in these until the+ aren4t. -rue, nothing goes on fore er. Wake #e when the #anagers of trillions of )/I" pension assets panic out of their own currencies, and their own so ereign $onds, and ! will finall+ $e willing to entertain the risk of h+perinflation in )/I" currenc+ @onesQ /5R, JPY, 5S". Perhaps this happens sooner than ! anticipate. <ut ! wager that it happens #uch later than #ost anticipate. 23 There !re three .ood po*nts *n Gre.or,s repl( wh*%h + w!nt to !ddress4 so +,ll Cust l*st them out r*.ht hereE 1. A ps(%holo.*%!l t*pp*n. po*nt must be present *n !ll h(per*n$l!t*ons. MeE 3ut *s th*s m!ss7 ps(%holo.*%!l t*pp*n. po*nt the %!use4 or s*mpl( ! ;*s*ble e$$e%t 5s(mptom8 th!t *s somet*mes m*st!"en !s the %!use@ A loss o$ %ons%*ousness *s !lso present *n !ll de!ths. &. A so%*!l7ps(%holo.*%!l sh*$t *s ! l!r.e !nd he!;( obCe%t th!t needs ! %oll!pse *n %on$*den%e to mo;e $rom *ts %urrent st!te o$ *nert*!. MeE +s *t re!ll( so l!r.e !nd he!;( to mo;e@ Or *s *t4 !s + wrote *n th*s post4 someth*n. th!t 9%!n stop on ! d*me !nd re;erse %ourse 1- de.rees o;ern*.ht4 $rom .reed to $e!r4 b!sed on ! s*n.le news *tem9@ 0. 92!"e me when the m!n!.ers o$ tr*ll*ons o$ O#=D pens*on !ssets p!n*% out o$ the*r own %urren%*es4 !nd the*r own so;ere*.n bonds.9 MeE The( m!( well p!n*% out !t some po*nt4 but !.!*n4 w*ll th!t be ! %!use or !n e$$e%t@ + w*ll show th!t *t *s 1 Q e$$e%t !nd th!t4 *$ th!t,s wh!t (ou,re w!*t*n. $or unt*l (ou,re w*ll*n. to entert!*n the r*s" o$ h(per*n$l!t*on4 (ou w*ll be ! d!( l!te !nd ! doll!r short to m!"e !n( prep!r!t*ons th!t were %ont*n.ent upon entert!*n*n. the r*s". There,s one other *tem th!t + w!nt to ment*on be%!use *t !lso %ontr*buted to m( de%*s*on to wr*te th*s '!.e 14

post. And th!t *s th*s 9no h(per*n$l!t*on9 w!.er o$$ered up b( someone *n the MMT %!mpE "he <n$ted State% )$'' not e/per$en.e hyper$n2'at$on Ede2$ned by 3 .on%e.ut$9e month% o2 =L Month o9er Month $n2'at$on a..ord$n# to the *$''$on 4r$.e% 4roMe.t mea%urement o2 MoM $n2'at$onG 2rom Apr$' 1(th 2012 to Apr$' 1(th 201(. M!n( people %l!*m the Fn*ted St!tes w*ll e?per*en%e h(per*n$l!t*on4 be%!use o$ ! m!ss*;e *n%re!se *n the monet!r( b!se. The monet!r( b!se h!s shown ! hu.e *n%re!se !s (ou %!n see !t FR#D under 3AS#4 httpEGGrese!r%h.stlou*s$ed.or.G$red&Gser*esG3AS# The bul" o$ the *n%re!se *n the monet!r( b!se h!ppened *n l!te & -. Th*s pred*%t*on .*;es ne!rl( > (e!rs $or h(per*n$l!t*on to o%%ur *n the Fn*ted St!tes 7 m!n( t*mes !n( re!son!ble 9lon. !nd ;!r*!ble del!(s9 between monet!r( b!se *n%re!ses !nd *n$l!t*on %ould lo.*%!ll( be l*n"ed. Other people po*nt to so %!lled Yu!nt*t!t*;e #!s*n. !s ! tr*..er $or h(per*n$l!t*on. The $*rst rounds o$ Y# h!ppened *n e!rl( & >. Th*s pred*%t*on .*;es - $ull (e!rs $or the h(per*n$l!t*on!r( *mp!%ts o$ Y# to m!n*$est *n the Fn*ted St!tes. Modern Monet!r( Re!l*sm 5www.monet!r(re!l*sm.%om8 !nd Modern Monet!r( Theor( 5www.moslere%onom*%s.%om8 both s!( there w*ll be no h(per*n$l!t*on due to the *n%re!se *n the monet!r( b!se. MMR !nd MMT %l!*m *n$l!t*on *s not l*"el( !t !ll. /*.h *n$l!t*on m*.ht be %!used b( e*ther ;!stl( h*.her ener.( %ommod*t( pr*%es due to suppl( %onstr!*nts or *n%re!ses *n the not*on!l ;!lue the .o;ernment p!(s $or .oods !nd ser;*%es. The l!r.e *n%re!se *n the %ost o$ o*l h!s not %!used run!w!( *n$l!t*on !s o$ Apr*l &14 & 1&4 s*mpl( be%!use *t w!s not l!r.e !nd sust!*ned enou.h. There h!s been no l!r.e *n%re!ses *n the ;!lues p!*d b( the F.S. .o;ernment throu.h Apr*l & 1&. S*n%e ne*ther o$ these two %*r%umst!n%es h!s h!ppened or !re l*"el( to h!ppen *n the F.S. dur*n. the ne?t 1 (e!rs4 there w*ll be no h(per*n$l!t*on *n the F.S. !s de$*ned b( the !bo;e pred*%t*on $or the ne?t 1 (e!rs. As*de $rom the $!%t th!t *t would be s*ll( to t!"e the h(per*n$l!t*on s*de o$ ! doll!r7denom*n!ted bet4 !s + wrote *n the %omments4 + !m !lso not *nterested *n t!"*n. th*s bet be%!use *t *s ! t*m*n. bet !nd + th*n" th!t sends the wron. mess!.e. 3ut + d*d w!nt to ment*on *t be%!use *t m!"es some spe%*$*% po*nts wh*%h !re rele;!nt to th*s post. 1. Th!t 9h*.h *n$l!t*on9 m*.ht be %!used b( suppl( %onstr!*nts 5s*m*l!r to the e$$e%t o$ resour%e s%!r%*t( wh*%h Gre.or ment*oned8 or *n%re!ses *n the not*on!l ;!lue 5+ th*n" he me!nt pr*%e8 the .o;ernment p!(s $or .oods !nd ser;*%es. &. Th!t be%!use there h!;e been no l!r.e pr*%e *n%re!ses $rom & unl*"el( dur*n. the ne?t $*;e (e!rs. - throu.h 4G&1G& 1&4 the( !re -

+ w*ll show (ou th!t he *s loo"*n. !t the wron. th*n.s *n s!(*n. th!t *$ b!se mone( %re!t*on *n & d*dn,t %!use pr*%e *n$l!t*on (et4 then *t won,t $or the ne?t $*;e (e!rs. There !re some *mport!nt '!.e 141

d*$$eren%es between tod!( !nd & -. For e?!mple4 the $eder!l bud.et de$*%*t *n & - w!s 9onl(9 P40-3 wh*le the tr!de de$*%*t w!s mu%h l!r.er !t P6>-3. And *n & : the $eder!l bud.et de$*%*t w!s e;en sm!ller4 !t &0Q o$ the tr!de de$*%*t. The & : bud.et de$*%*t w!s onl( P16&3 wh*le the tr!de de$*%*t w!s P6>63. Tod!( th!t s*tu!t*on *s re;ersed. So pr*or to & >4 the $ore*.n se%tor w!s support*n. the sum tot!l o$ both the FS pr*;!te !nd .o;ernment se%tor de$*%*ts4 le!;*n. some room $or the pr*;!te se%tor !nd $ore*.n support to %ontr!%t wh*le the .o;ernment se%tor e?p!nds. And th!t *s e?!%tl( wh!t h!ppened. Tod!( the $eder!l bud.et de$*%*t *s more th!n tw*%e the tr!de de$*%*t4 !nd the $ore*.n se%tor *s support*n. less th!n h!l$ wh*le Fed pr*nt*n. supports the rest. Add*t*on!ll(4 there !re s*.ns tod!( th!t $ore*.n support *s w!n*n. e;en more. + w*ll .et to those l!ter4 but th*s *s the ;er( re%*pe $or h(per*n$l!t*on wh*%h FOA des%r*bed4 onl( !n order o$ m!.n*tude worse th!n *n & 1 when he w!s wr*t*n.. So !n(one who w!nts to t!"e th!t s*ll( bet w*ll onl( lose be%!use the doll!rs the(,ll w*n w*ll be ;*rtu!ll( worthless. AKFOA-% Ja'' +n h*s $*n!l month o$ $ull posts4 $rom 1 G0G 1 throu.h 11G0G 14 FOA %ountered both the de$l!t*on*sts !nd the *n$l!t*on*sts 5who he .rouped !s the 9h!rd mone( th*n"ers98 *n h*s dr*;e to e?pl!*n how the doll!r reser;e s(stem w*ll end *n h(per*n$l!t*on. /ere,s ! 6u*%" s!mpl*n. $rom th!t l!st month to show (ou wh!t + me!nE FOA 1 G0G 1 7 For de%!des h!rd mone( th*n"ers h!;e been loo"*n. $or 9pr*%e *n$l!t*on9 to show up !t ! le;el th!t !%%ur!tel( re$le%ts the doll!r,s 9pr*nt*n. *n$l!t*on9. 3ut *t ne;er h!ppened! L Th!t 9pr*%e *n$l!t*on9 ne;er showed up be%!use the world h!d to support *ts onl( mone( s(stem unt*l someth*n. %ould repl!%e *t. 2e !s Amer*%!ns %!me to th*n" th!t our doll!r4 !nd *ts *llus*on o$ ;!lue4 represented our spe%*!l !b*l*t*esL Oh bo(444444 do we h!;e some h!rd $*n!n%*!l le!rn*n. to do. FOA 1 G&1G 1 7 Somewhere *n the 1>: s er! + w!s e?posed to the th*n"*n. o$ se;er!l d*$$erent de$l!t*on*sts. +t seemed th!t !ll o$ the*r %on%lus*ons %!me to the s!me endE th!t doll!r de$l!t*on would rule the d!(4 no m!tter wh!t... De$l!t*on w!s !lw!(s the $*n!l out%ome. FOA 1 G0G 1 7 The rel!t*;el( sm!ll .oods 9pr*%e *n$l!t*on9 so m!n( .old bu.s loo"ed $or w*ll be $!r surp!ssed !nd the 9h(per pr*%e *n$l!t*on9 + h!;e been s!(*n. *s %om*n. *s now be*n. 9stru%tur!ll(9 set $ree to run. FOA 1 G>G 1 7 Doll!r h(per*n$l!t*on !nd super h*.h .old pr*%es !re %loser th!n m!n( th*n". FOA 11G&G 1 7 The e;olut*on o$ 'ol*t*%!l w*ll *s now dr*;*n. the doll!r *nto !n end t*me h(per *n$l!t*on $rom where we w*ll not return. Th!t *s our %!ll. 3et (our we!lth on the other theor*st,s %!ll *$ (ou w!nt more o$ the*r l!st 0 (e!rs o$ h!rd mone( su%%ess. Get the po*nt@ Good. Now one other th*n. *s th!t4 !s + !m e?pl!*n*n. wh!t + le!rned $rom FOA4 FOA w!s e?pl!*n*n. wh!t he h!d le!rned $rom AnotherE FOA 1 G0G 1 7 A number o$ (e!rs !.o4 + be.!n to le!rn $rom some sm!rt people !bout the re!l pol*t*%!l '!.e 14&

.!me !t h!nd !nd how th!t would4 one d!(4 produ%e the $*n!l pl!( *n our doll!r,s t*mel*ne. +ndeed4 (ou !re h*"*n. th!t tr!*l w*th us tod!(N us me!n*n. #uro G .old G !nd o*l people. All o$ us 'h(s*%!l Gold Ad;o%!tes th!t h!;e !n underst!nd*n. !bout .old $ew Amer*%!ns h!;e e;er been e?posed to. Now th!t (ou "now the AGFOA pos*t*on 5h(per*n$l!t*on %!mp4 not *n$l!t*on4 not de$l!t*on84 the AGFOA %!ll 59h(per *n$l!t*on $rom where we w*ll not return. Th!t *s our %!ll.984 !nd the ped*.ree o$ the AGFOA mess!.e 59us me!n*n. #uro G .old G !nd o*l peopleL $ew Amer*%!ns h!;e e;er been e?posed to984 let,s .et on w*th the det!*ls. Stru.tura' Support FOA 1 G0G 1 7 Our re%ent Amer*%!n e%onom*% e?p!ns*on h!s4 !ll !lon.4 !%tu!ll( been the result o$ ! worldl( pol*t*%!l 9w*ll9 th!t supported doll!r use !nd doll!r %red*t e?p!ns*on so !s to bu( t*me $or Another %urren%( blo%" to be $ormed. 2*thout th!t *ntern!t*on!l support4 th*s de%!des7lon. doll!r der*;!t*;e e?p!ns*on %ould not h!;e t!"en pl!%e. Further4 nor would our lon. term doll!r %urren%( e?p!ns*on produ%e the *n%red*ble *llus*on o$ p!per we!lth th!t bu*lt up w*th*n our re%ent *ntern!l Amer*%!n l!nds%!pe. The rel!t*;el( sm!ll .oods 9pr*%e *n$l!t*on9 so m!n( .old bu.s loo"ed $or w*ll be $!r surp!ssed !nd the 9h(per pr*%e *n$l!t*on9 + h!;e been s!(*n. *s %om*n. *s now be*n. 9stru%tur!ll(9 set $ree to run. 2h( 9stru%tur!ll(94 wh( now@ For (e!rs now4 9pol*t*%!ll(94 the doll!r s(stem h!s h!d no support! On%e !.!*n4 $or e$$e%t4 9'ol*t*%!ll( NO94 9Stru%tur!ll( Yes9! For !nother %urren%( blo%" to be bu*lt4 o;er (e!rs4 the %urrent world e%onom( h!d to be "ept $un%t*on*n.. To th*s end the doll!r reser;e s(stem h!d to be stru%tur!ll( m!*nt!*nedL Trul(4 the re%ent (e!rs o$ doll!r ;!lue w!s Cust !n *llus*on. An *llus*on o$ %urren%( $un%t*on !nd ;!lue4 m!*nt!*n*n. the purpose o$ hold*n. the world $*n!n%*!l !nd e%onom*% s(stem to.ether $or ! de$*n*te t*mel*ne. 'ol*t*%!ll(4 the world does not h!te Amer*%!N r!ther the( h!te the $ree l*$est(le our doll!r,s *llus*on ;!lue brou.ht us (esterd!( !nd tod!(. +$ our doll!r *s .o*n. to $!ll so $!st !nd so $!r *n ;!lue th!t *t w*ll be %!lled 9h(per*n$l!t*on94 then the doll!r must be tremendousl( o;er;!lued tod!(4 r*.ht@ +n $!%t4 !nd these !re FOA,s words4 9 :ollars ha e no alue at all except for our associating re#e#$ered trading alue with the#. 9 A b!rrel o$ %rude o*l *sn,t worth P1 be%!use ! one hundred doll!r b*ll h!s ! ;!lue e6u!l to ! b!rrel o$ o*lN r!ther we remember th!t ! b!rrel o$ o*l w*ll tr!de $or the s!me !mount o$ n!tur!l .!s th!t !lso rel!tes to those s!me 1 un*ts. Mone( *s !n !sso%*!ted ;!lue *n our he!ds. +t,s not ! ph(s*%!l *tem. Yet $or the l!st 0 f (e!rs4 the $ull( $*!t doll!r4 ! purel( s(mbol*% to"en %urren%(4 h!s been beh!;*n. !s *$ *t !%tu!ll( is !n *tem o$ ;!lue e6u!l to the re!l .oods !nd ser;*%es the FS h!s re%e*;ed throu.h *ts perpetu!l tr!de de$*%*t. Fnderst!nd*n. how th*s w!s e;en poss*ble *s the onl( w!( to underst!nd how *t w*ll end. FOA 1 G&1G 1 7 + me!n th!t our whole doll!r l!nds%!pe h!s now be%ome Cust ! tr!d*n. !sset !ren!E *t,s now e;ol;*n. !w!( $rom !n( me!n*n.$ul %urren%( use to tr!de $or re!l .oods. +t %!n he!d *n no other '!.e 140

d*re%t*on be%!use our lo%!l e%onom*% stru%ture4 the FSA e%onom*% b!se4 %!nnot poss*bl( ser;*%e e;en ! t*n( $r!%t*on o$ the bu(*n. power %urrentl( held *n doll!rs worldw*de. FOA 1 G1G 1 7 The .!me *s to let the FS e%onom( su$$er $rom *ts own blo!ted e?p!ns*on b( mo;*n. slowl( !w!( $rom support*n. $ore*.n doll!r settlement w*th =3 stor!.e. Th*s *s more th!n enou.h to end the doll!rs t*mel*ne !s we !re !lre!d( stret%hed to the le;er!.e l*m*t. The( "now th!t Greensp!n h!s but one pol*%( to use !nd th!t w*ll be super pr*nt*n.. /e *s do*n. *t now4 r*.ht on 6ue! And here we $*nd the "e( to the "*n.domE 9%upport$n# 2ore$#n do''ar %ett'ement )$th J* %tora#e.9 All %urren%*es h!;e the ;!lue o$ wh!te;er the( %!n bu(. +n ! sense4 the( .et the*r ;!lue $rom pr*%e t!.s o$$er*n. pr*%es denom*n!ted *n the*r un*t. 3ut th*s Mo# 5med*um o$ e?%h!n.e8 us!.e dem!nd *s not enou.h $or the doll!r. +t *s not enou.h th!t $ore*.n .oods !re pr*%ed *n doll!rs. The doll!r re6u*res !nother "*nd o$ us!.e dem!ndE SoA 5store o$ ;!lue8 us!.e. The re!son $or th*s *s s*mple. The FS *s the onl( or*.*n!tor o$ new doll!rs !nd the FS h!s run !n unend*n. tr!de de$*%*t $or 0: (e!rs4 so the FS h!s been e?port*n. !n unend*n. stre!m o$ doll!rs $or 0: (e!rs. To some e?tent4 th!t pool o$ e?tern!l doll!rs %!n %*r%ul!te outs*de o$ the FS !s lon. !s some $ore*.n .oods4 l*"e o*l4 %!rr( ! doll!r pr*%e t!.. 3ut th!t *s not enou.h. 2*thout $ore*.n =3s support*n. th*s s(stem o$ $ore*.n doll!r settlement b( mopp*n. up the unend*n. .lut o$ doll!r em*ss*ons4 the m!r"et pr*%e me%h!n*sm would %oll!pse the FS tr!de de$*%*t *n ! he!rtbe!t. Now +,;e .ot to m!"e !n *mport!nt po*nt !bout sto%" !nd $low here. 2e need not be %on%erned !bout the sto%" o$ doll!rs held b( these $ore*.n =3s4 wh*%h tod!( st!nds !t more th!n P1T. The re!l d!n.er *s the unstopp!ble flow o$ doll!rs. No one needs to dump the*r doll!r hold*n.s to %oll!pse the doll!r. +n $!%t4 the( won,t dump !nd + don,t e?pe%t them to dump4 !t le!st not unt*l %oll!pse *s well underw!(. All the( need to do *s to slow down mopp*n. up the .ush*n.4 unend*n. $low. /ere,s how $r!.*le the doll!r !%tu!ll( *s. +t *s supremel( o;er;!lued be%!use *ts SoA !ren!4 *ts 9tr!d*n. !sset !ren!9 !s FOA termed *t4 s*mpl( dw!r$s the Mo# !ren! where !ll %urren%*es .et the*r ;!lue. 3ut wh!t thre!tens the doll!r,s m!ss*;e o;er;!lu!t*on most %le!rl( !nd presentl( tod!( *s onl( th!t t*n(4 m!r.*n!l port*on o$ the $lowE the de$*%*t port*on or the unstopp!ble net7em*ss*on o$ doll!rs. Tr*ll*ons o$ doll!rs %*r%ul!te 5%h!n.e h!nds8 e;er( d!(4 !nd orders o$ m!.n*tude more s*t *dle *n *n;estments. 3ut the re!l thre!t to !ll o$ *t *s the net7em*ss*on o$ doll!rs wh*%h must be mopped up 5stored8 b( someone. Th*s *s the stru%tur!l support th!t holds the whole s(stem to.etherE $ore*.n =3s perpetu!ll( .or.*n. themsel;es on Tre!sur*es. +t,s not th!t the( m*.ht sell the*r sto%" o$ Tre!sur*es. The re!l thre!t *s th!t the( m*.ht slow or stop the*r r!te o$ !%%umul!t*on rel!t*;e to our r!te o$ em*ss*on. *$# Dan#er $n a 5$tt'e Mar#$na' F'o) 2h!t do + me!n b( 9m!r.*n!l $low9@ 2ell4 $*rst there,s someth*n. (ou need to underst!nd !bout $low. Sto%" !nd $low !re not d*re%tl( %omp!r!ble be%!use wh*le sto%" *s ! me!sure o$ un*ts4 $low *s ! me!sure o$ un*ts per t*me. 2e %!n loo" !t the r!t*o o$ sto%" to $low o;er ! per*od o$ t*me4 but +,m not e;en *nterested *n th!t *n the %!se o$ the doll!r. 2*th doll!r $lows4 we h!;e the pr*%es o$ .oods !nd ser;*%es '!.e 144

wh*%h !re $!r more rele;!nt to the m!r.*n!l 5de$*%*t8 $low o$ doll!rs th!n !n( me!sure o$ the tot!l sto%" o$ doll!rs. +,m !lso not re!ll( *nterested *n the $low o$ doll!rs w*th*n the monet!r( pl!ne o$ 9*n;estments9. +n;estments w*th*n the monet!r( pl!ne %h!n.e pr*%e re.ul!rl(4 somet*mes w*th .re!t ;ol!t*l*t(4 (et w*thout %r!sh*n. the ent*re .lob!l monet!r( !nd $*n!n%*!l s(stem. 3ut th!t re!l stu$$ *n the ph(s*%!l pl!ne4 stu$$ l*"e $ood4 ener.(4 med*%*ne !nd *ndustr*!l *nputs4 *s 5rem!r"!bl(8 rel!t*;el( st!ble on *ts doll!r pr*%e t!.s o;er t*me 5!t le!st %omp!red to %urren%*es .o*n. throu.h h(per*n$l!t*on8. So we don,t need to p*%ture the doll!r $low !s ! port*on o$ the ent*re doll!r sto%"4 we %!n *nste!d p*%ture *t !s ! $low o$ re!l .oods !nd ser;*%es !s lon. !s we $o%us on the .oods !nd ser;*%es port*on o$ the 3O'. And we !lso "now th!t .o;ernment spend*n. 5the $eder!l bud.et8 *s !ll on .oods !nd ser;*%es *n the ph(s*%!l pl!ne4 not on 9*n;estments9 *n the monet!r( pl!ne. So wh!t do + me!n b( 9m!r.*n!l $low9@ The FS *s the doll!r,s home4 *ts %re!tor !nd *ts le.!l tender Ione. Most e;er(th*n. here %!rr*es ! doll!r pr*%e t!.. 3ut the FS !lso tr!des w*th the world outs*de o$ *ts own %urren%( Ione4 !nd *n so do*n. *t em*ts doll!rs. )!st (e!r the FS spent P&.66T !bro!d4 but we !lso too" b!%" most o$ those doll!rs b( sell*n. our stu$$ !bro!d. +n $!%t4 we too" b!%" P&.1T o$ the P&.66 we sent out. So nett*n. *t out4 we net7em*tted P16 3 l!st (e!r. Th!t,s 16 3 doll!rs %re!ted here *n the doll!r %re!t*on Ione !nd sent out *nto the non7doll!r 5homeless doll!r8 Ione. Th!t,s m!r.*n!l 5de$*%*t8 $low. 3ut there,s more. 3e$ore + .et to the 9more94 let,s redu%e th*s to !n e!s*er t*me7$r!me. +n ! st!ble %urren%( 5l*"e the doll!r84 the pr*%es o$ ne%ess*t*es l*"e $ood4 ener.(4 med*%*ne !nd *ndustr*!l *nputs don,t %h!n.e mu%h o;er ! one7(e!r t*me per*od. 3ut pr*%es can %h!n.e o;ern*.ht4 !nd th!t,s wh!t +,m pred*%t*n.. So +,m .o*n. to st!rt 6uot*n. these !nnu!l st!t*st*%s *n d!*l( $low !mounts4 b( d*;*d*n. the !nnu!l number b( 061. Th!t4 o$ %ourse4 *n%ludes wee"ends !nd hol*d!(s. And wh*le our belo;ed monet!r( pl!ne %loses down $or wee"ends !nd hol*d!(s4 the ph(s*%!l pl!ne o$ ne%ess*t*es runs &4G:. So loo"*n. !t *t !s ! d!*l( $low4 l!st (e!r the FS *n !..re.!te em*tted !bout P:.03 per d!( to the world outs*de o$ *ts bound!r*es !nd too" b!%" *n onl( P1.-3. So the FS *s ! net7em*tter o$ !bout P1.13 per d!(. 3ut there,s more. +n & >4 the $eder!l bud.et de$*%*t o;ertoo" our tr!de de$*%*t *n dr!m!t*% $!sh*on. As + s!*d e!rl*er4 *n & : the $eder!l bud.et de$*%*t w!s onl( &0Q o$ the tr!de de$*%*t. +n & - *t w!s 60Q. And *n & > *t Cumped to 06:Q o$ the tr!de de$*%*t. +n & 1 the $eder!l bud.et de$*%*t w!s &1>Q o$ the tr!de de$*%*t4 !nd *n & 11 *t w!s &0&Q. You don,t see th*s %omp!r*son ;er( o$ten4 bud.et de$*%*t to tr!de de$*%*t. And the !%tu!l per%ent!.es don,t re!ll( m!tter mu%h. 2h!t m!tters *s th!t *t went o;er 1 Q. 2h!t m!tters *s th!t4 s*n%e & >4 the FS .o;ernment 5FSG8 *s ! net7em*tter o$ more doll!rs th!n the FS *n !..re.!te em*ts to the outs*de world.

So wh!t@ 2ell4 the FSG em*ts !bout P>.-3 per d!( wh*le *t t!"es *n re;enue o$ onl( !bout P6.&3. So the FSG *s ! net7em*tter o$ P0.63 per d!(. Th!t,s the m!r.*n!l $low +,m t!l"*n. !bout. And there,s b*. d!n.er *n th!t d!*l( $low o$ P0.63.

'!.e 141

+n & -4 the FS *n !..re.!te 5pr*;!te se%tor !nd publ*% se%tor %omb*ned8 net7em*tted P1.>3 per d!( to the outs*de world. Th*s *s l*"e ! bro"en w!ter m!*n th!t %!nnot be shut o$$4 !nd must be mopped up b( someone. 3ut th!t (e!r the FSG onl( .ushed P1.&3 per d!(. So the $ore*.n mess we %re!ted w!s onl( 60Q !ttr*but!ble to the FSG. The other 0:Q %!me $rom pr*;!te se%tor de$*%*t spend*n.. 3ut e;er s*n%e & -4 th!t bro"en w!ter m!*n .ush*n. doll!rs !bro!d *s 1 Q !ttr*but!ble to the FSG !lone. And not onl( th!t4 but *t,s now sp*ll*n. out here !t home4 on our own $ront l!wn! The FSG tod!( *s spend*n. P0.63 more th!n *t *s t!"*n. *n4 e!%h !nd e;er( d!(. Th!t,s ! b*. mess o$ doll!rs $lood*n. out o$ the FSG. P1.13 per d!( *s $lood*n. outs*de o$ our Ione wh*le P&.13 *s st!(*n. r*.ht here on our $ront l!wn. Th*s *s !ll $low. +t *s on.o*n. !nd unstopp!ble. And *t !ll must be mopped up b( someone. And b( someone4 + me!n e*ther the $ore*.n se%tor4 the domest*% pr*;!te se%tor or the Fed bu(*n. up FS Tre!sur*es. P0.63 per d!(4 !n unstopp!ble4 unend*n. bro"en w!ter m!*n .ush*n. out doll!rs. M!r.*n!l $low! Don,t be $ooled b( the m*sd*re%t*on. Y#4 tw*st4 wh!te;erN *t,s not !bout *nterest r!tes or help*n. the e%onom( re%o;er. +t,s 1 Q !bout d*s.u*s*n. !nd m!n!.*n. th*s un%ontroll!ble4 unstopp!ble mess. +t,s more l*"e ! bro"en sewer l*ne th!n ! w!ter m!*n now th!t + th*n" !bout *t. Sure4 the Fed needs to "eep *nterest r!tes $rom r*s*n.. 3e%!use wh!t h!ppens when *nterest r!tes r*se@ The ;!lue o$ the ent*re P01T bond m!r"et st!rts to %oll!pse !nd bond holders p!n*%. The Fed doesn,t w!nt th!t4 so don,t bet on them lett*n. *nterest r!tes r*se. 3ut !s + s!*d4 +,m not worr*ed !bout the sto%" o$ doll!rs. +,m worr*ed !bout th*s bro"en sewer l*ne we %!ll the $eder!l bud.et de$*%*t wh*%h me!ns no one h!s to sell ! s*n.le bond. +n $!%t4 someone h!s to %ont*nuousl( bu( P0.63 more e!%h !nd e;er( d!(4 *n%lud*n. wee"ends !nd hol*d!(s. And *$ pr*%es st!rt to r*se !s the( do *n ! ,hot, *n$l!t*on4 + propose to (ou th!t the FSG w*ll not %ut b!%" *n re!l terms. So *$ pr*%es were to r*se b(4 s!(4 1 Q4 the FSG net7em*tt!n%e o$ doll!rs would r*se b( 1 Q to P0.>63 per d!(. And be%!use the tr!de de$*%*t *s 1 Q !ttr*but!ble to the FSG e;er s*n%e & -4 the tr!de de$*%*t would !lso r*se 1 Q to P1.613 per d!(. The FSG w*ll not be outb*d $or .oods pr*%ed *n doll!rs. 'r*%e *s wh!t determ*nes who .ets ! s%!r%e .ood4 !nd the FSG w*ll not be depr*;ed. The( e;en s!*d so *n ! re%ent #?e%ut*;e Order! And where !re .oods !nd ser;*%es pr*%es d*s%o;ered@ +n the m*nds o$ *n;estors w*th pens*ons !nd +RAs4 or !t the m!r.*n where doll!rs $low@ CSupport$n# 2ore$#n do''ar %ett'ement )$th J* %tora#eC For de%!des up unt*l tod!(4 $ore*.n doll!r settlement h!s been supported b( $ore*.n =3s stor*n. the .lut o$ doll!rs em*tted b( the Fn*ted St!tes4 Cust !s FOA s!*d. And b( 9support94 he me!nt "eep*n. doll!r pr*%es st!ble *n the $!%e o$ ! .lut o$ doll!rs %om*n. out o$ the FS4 but to the detr*ment o$ the l*;*n. st!nd!rd o$ the*r own popul!t*on. Th*s l!%" o$ doll!r pr*%e *n$l!t*on to m!t%h the monet!r( e?p!ns*on o$ the doll!r o;er the l!st 0 (e!rs h!s $ostered m!n( %r!I( e%onom*% theor*es to e?pl!*n how the doll!r %!n,t %oll!pse. +n $!%t4 most !ll e%onom*% theor*es tod!( h!;e some e?pl!n!t*on or !nother des%r*b*n. the m*r!%le o$ the m!.*%!l doll!r. 3ut wh!t the( !ll m*ss *s the pol*t*%!l %omponent wh*%h supported the doll!r $or !ll these (e!rs b( mopp*n. up th!t m!r.*n!l 5de$*%*t8 $low. =3 stor!.e wor"s4 surpr*s*n.l(4 b( dupl*%!t*n. the .lut o$ doll!rs !bro!d. The =3 mops up the doll!rs '!.e 146

!nd then dupl*%!tes them b( send*n. them b!%" to the FS publ*% !nd pr*;!te se%tors 5*n proport*on to e!%h se%tor,s de$*%*t !ttr*but*on4 tod!( 1 Q FSG4 Q pr*;!te se%tor8 so the( %!n be spent !.!*n4 !nd !lso "eep*n. those s!me doll!rs *n =3 reser;es !s ! debt o$ the Fn*ted St!tes. S*n%e & >4 *t,s !ll !ttr*but!ble to the FSG4 so e;er( d!(4 !s ! b*ll*on7plus doll!r .lut p*les up4 the $ore*.n =3 sends *t b!%" to the FSG !nd !lso stores *t *n *ts own ;!ult w*th ! new b*ll*on7plus *n Tre!sur*es. 3ut *n order to do th*s4 th!t $ore*.n =3 needs to dupl*%!te *t !.!*n *n *ts own %urren%(. So the $ore*.n =3 pr*nts !n !mount o$ *ts own %urren%( needed to bu( up the doll!r .lut4 thereb( tr!ns$err*n. the monet!r( *n$l!t*on to *ts own popul!t*on !nd "eep*n. the doll!r pr*%e t!.s $rom %h!n.*n.. No 5or low8 doll!r pr*%e *n$l!t*on. Fore*.n doll!r settlement %ont*nues. Support! Not underst!nd*n. the pol*t*%!l element o$ $ore*.n =3 support *s wh( low doll!r pr*%e *n$l!t*on h!s %on$ounded !n ent*re .ener!t*on o$ h!rd mone( th*n"ers. And (et4 !.!*n tod!(4 h!;*n. $*n!ll( .*;en *n to the m*r!%le o$ the m!.*%!l doll!r theor*es4 the( w*ll be on%e !.!*n %on$ounded !s the doll!r %oll!pses *n h(per*n$l!t*on upon the remo;!l o$ th!t support. 3ut $e!r not. FOA !nd + !re here to help! FOA 1 G0G 1 7 For de%!des4 h!rd mone( th*n"ers h!;e been loo"*n. $or 9pr*%e *n$l!t*on9 to show up !t ! le;el th!t !%%ur!tel( re$le%ts the doll!r,s 9pr*nt*n. *n$l!t*on9. 3ut *t ne;er h!ppened! Yes4 we .ot our l*ttle 04 44 - or >Q pr*%e *n$l!t*on r!tes *n n*%e l*ttle pred*%t!ble %(%les. 2e .!sped *n horror !t these numbers4 but these r!tes ne;er %!me %lose to re$le%t*n. the tot!l doll!r e?p!ns*on *$4 !t th!t moment4 *t %ould !%tu!ll( be represented *n tot!l worldw*de doll!r debt. Th!t %re!t*on o$ tr*ll*ons !nd tr*ll*ons o$ doll!r e6u*;!lents should h!;e4 lon. !.o4 been re$le%ted *n ! doll!r .oods 9pr*%e *n$l!t*on9 th!t re!%hed h(per st!tus. 3ut *t d*dn,t. Th!t 9pr*%e *n$l!t*on9 ne;er showed up be%!use the world h!d to support *ts onl( mone( s(stem unt*l someth*n. %ould repl!%e *t. 2e4 !s Amer*%!ns4 %!me to th*n" th!t our doll!r !nd *ts *llus*on o$ ;!lue represented our spe%*!l !b*l*t*esN perh!ps more po*ntedl( our m*l*t!r( !nd e%onom*% power. 2e %on%e*;ed th!t th*s wonder$ul bu(*n. power4 $ree o$ subst!nt*!l .oods pr*%e *n$l!t*on4 w!s our .od .*;en r*.htN !nd the rest o$ the world %ould h!;e th*s l*$e4 too4 *$ the( %ould onl( be !s .ood !s us! Oh bo(444444 do we h!;e some h!rd $*n!n%*!l le!rn*n. to do. O;er the (e!rs4 !ll th*s doll!r %re!t*on h!s stored up ! m!ss*;e 9pr*%e *n$l!t*on e$$e%t9 th!t would be set $ree one d!(. /!rd mone( th*n"ers pro%eeded to e?pe%t th*s $lood to !rr*;e e;er( $ew (e!rs or soN the de%!des p!ssed !s those e?pe%t!t*ons !lw!(s $!*led. Gold n!tur!ll( $ell *nto th*s s!me %(%le o$ $!*led e?pe%t!t*ons4 !s the doll!r ne;er %!me *nto *ts 9pr*%e *n$l!t*on!r(9 dem*se. A number o$ (e!rs !.o4 + be.!n to le!rn $rom some sm!rt people !bout the re!l pol*t*%!l .!me !t h!nd !nd how th!t would4 one d!(4 produ%e the $*n!l pl!( *n our doll!r,s t*mel*ne. +ndeed4 (ou !re h*"*n. th!t tr!*l w*th us tod!(N us me!n*n. #uro G .old G !nd o*l people. All o$ us 'h(s*%!l Gold Ad;o%!tes th!t h!;e !n underst!nd*n. !bout .old $ew Amer*%!ns h!;e e;er been e?posed to. Our re%ent Amer*%!n e%onom*% e?p!ns*on h!s4 !ll !lon.4 !%tu!ll( been the result o$ ! worldl( pol*t*%!l 9w*ll9 th!t supported doll!r use !nd doll!r %red*t e?p!ns*on so !s to bu( t*me $or Another %urren%( blo%" to be $ormed. 2*thout th!t *ntern!t*on!l support4 th*s de%!des7lon. doll!r der*;!t*;e e?p!ns*on %ould not h!;e t!"en pl!%e. Further4 nor would our lon. term doll!r %urren%( e?p!ns*on produ%e the *n%red*ble *llus*on o$ p!per we!lth th!t bu*lt up w*th*n our re%ent *ntern!l Amer*%!n l!nds%!pe.

'!.e 14:

The rel!t*;el( sm!ll .oods 9pr*%e *n$l!t*on9 so m!n( .old bu.s loo"ed $or w*ll be $!r surp!ssed !nd the 9h(per pr*%e *n$l!t*on9 + h!;e been s!(*n. *s %om*n. *s now be*n. 9stru%tur!ll(9 set $ree to run. 2h( 9stru%tur!ll(94 wh( now@ For (e!rs now4 9pol*t*%!ll(94 the doll!r s(stem h!s h!d no support! On%e !.!*n4 $or e$$e%t4 9'ol*t*%!ll( NO94 9Stru%tur!ll( Yes9! For !nother %urren%( blo%" to be bu*lt o;er (e!rs4 the %urrent world e%onom( h!d to be "ept $un%t*on*n.. To th*s end the doll!r reser;e s(stem h!d to be stru%tur!ll( m!*nt!*nedN w*th *ts +MF !.end! *nt!%t4 .old pol*%es $ollowed !nd $ore*.n %entr!l b!n" support !ll be*n. p!rt o$ th!t stru%ture. Trul(4 the re%ent (e!rs o$ doll!r ;!lue w!s Cust !n *llus*on. An *llus*on o$ %urren%( $un%t*on !nd ;!lue4 m!*nt!*n*n. the purpose o$ hold*n. the world $*n!n%*!l !nd e%onom*% s(stem to.ether $or ! de$*n*te t*mel*ne. 'ol*t*%!ll(4 the world does not h!te Amer*%!N r!ther the( h!te the $ree l*$est(le our doll!r,s *llus*on ;!lue brou.ht us (esterd!( !nd tod!(. Now th!t the #uro blo%" *s p!ss*n. ! po*nt where the #uro %urren%( *s ;*!bleN th*s s!me p!st doll!r support th!t bu*lt Amer*%!,s *llus*on we!lth w*ll now $!ll !w!(. +n *ts pl!%e we w*ll see the be.*nn*n.s o$ ! %urren%( w!r l*"e no other *n our t*me. Th*s ;er( %h!n.e *n stru%tur!l doll!r support *s the s!me %h!n.e th!t h!s been *mp!%t*n. our $ed,s !%t*ons $or o;er ! (e!r now. Th*s %h!n.e *s the d*$$eren%e between m( %!ll $or super pr*%e *n$l!t*on !nd the endless %!lls p!st h!rd mone( th*n"ers h!;e m!de. The*r on !.!*n G o$$ !.!*n .oods 9pr*%e *n$l!t*on9 outloo" *s b!sed on the s!me $!*led !n!l(s*s th!t e?pe%ts pr*%e r*ses be%!use the $ed w!s *nto !nother 9pr*nt*n. mone( $!ster9 %(%le. + po*nt out th!t th!t %(%le h!s %ome !nd .one m!n( t*mes w*thout ! pr*%e *n$l!t*on !n(th*n. %lose to our tot!l4 lon. term4 doll!r %re!t*on. Further To th*s end4 + h!;e been %!ll*n. $or ! h(per *n$l!t*on th!t *s be*n. set $ree to run !s ! %ompleted #uro s(stem !lters 'ol*t*%!l per%ept*ons !nd support. Th!t pr*%e *n$l!t*on w*ll be unend*n. !nd !ll en%omp!ss*n.. 2h*le others %!ll4 on%e !.!*n4 $or ! l*ttle b*t o$ 14 1 4 11Q pr*%e *n$l!t*on4 th!t l!sts unt*l the $ed %!n on%e !.!*n .et *t under %ontrol444444444 + %!ll $or ! %omplete4 %urren%( "*ll*n.4 *n$l!t*on pro%ess th!t runs unt*l the doll!r resembles some South Amer*%!n 'eso! TLU Greensp!n w*ll not emb!r" on ! doll!r bu*ld*n. pol*%( !.!*n! #;en *$ he %h!n.es h*s m*nd !bout le!;*n.. Fnl*"e our p!st *n$l!t*on %(%les4 he h!s onl( one !%t to $ollow be%!use he must support the *ntern!l e%onom*% d(n!m*%s o$ th*s %ountr( !s *ts doll!r $!lls $rom reser;e st!tus. There w*ll be no *n$l!t*on 9%(%le9 on th*s .o !round. The %re!t*on o$ ! %ompet*n. #uro %urren%( blo%" h!s %h!n.ed h*s pol*%( d(n!m*%. The $ed h!s %ut r!tes below per%e*;ed pr*%e *n$l!t*on le;els !lre!d( !nd w*ll %ut !.!*n !nd !.!*nN e;en *n the $!%e o$ re!l4 publ*shed4 so!r*n.4 o$$*%*!l st!t*st*%!l ='+. The d*e h!s been %!st !nd the .!me *s *n pro%ess.

'!.e 14-

Th!t w!s wr*tten *n O%tober4 & 1. So wh!t h!ppened@ +t,s s*mple re!ll(. From m( post4 Mone(ness4 the bl!%" d*;*d*n. l*ne *s r*.ht !round O%tober4 & 1E

'eople l*"e to s!( th!t AGFOA .ot *t wron.4 be%!use the t*m*n. d*dn,t seem to pl!( out e?!%tl( !s the( *n$erred *t would. 3ut + would l*"e to pro$$er !nother ;*ew. 'erh!ps FOA w!s un!w!re o$ the len.ths to wh*%h the '3O= w!s prep!red to .o *n support*n. the doll!r !nd the FS tr!de de$*%*t o;er the ne?t de%!de. =h*n! w!s !dm*tted *nto the 2orld Tr!de Or.!n*I!t*on on De%ember 114 & 14 one month after these posts. And *t w!sn,t unt*l & &4 !$ter FOA stopped post*n.4 th!t =h*n! re!ll( be.!n to r!mp up *ts tr!de w*th the FS !nd to pur%h!se FS bonds *n s*Ie Tmop up the de$*%*t $low o$ doll!rs "eep*n. doll!r pr*%es low !nd st!bleU. From ,>> to , 1 =h*n!,s Tre!sur( hold*n.s were $l!t !t !round P1 34 but $rom & & the( be.!n ! p!r!bol*% r*se th!t h!s now ended !nd *s on%e !.!*n $l!t. So *$ =h*n! h!s b!%"ed o$$ $rom support*n. the doll!r tod!(4 *n the s!me w!( th!t the #urope!n =3s h!d b!%"ed o$$ r*.ht when FOA wrote these posts4 well then perh!ps the( !re more rele;!nt tod!( th!n the d!( the( were wr*tten. /ere *s 3en 3ern!n"e $rom ! spee%h *n & 1 not*%*n. the sh*$t *n doll!r support $rom 9*ndustr*!l %ountr*es9 5#urope8 to 9de;elop*n. %ountr*es9 5=h*n!8 wh*%h too" pl!%e somet*me 9between 1>>6 !nd & 49E The %olle%t*;e %urrent !%%ount o$ the *ndustr*!l %ountr*es de%l*ned more th!n P441 b*ll*on between 1>>6 !nd & 44 *mpl(*n. th!t4 o$ the P14- b*ll*on *n%re!se *n the F.S. %urrent !%%ount de$*%*t4 onl( !bout P1 6 b*ll*on w!s o$$set b( *n%re!sed surpluses *n other *ndustr*!l %ountr*es. As t!ble 1 shows4 the bu'+ o2 the $n.rea%e $n the <.S. .urrent a..ount de2$.$t )a% ba'an.ed by .han#e% $n the .urrent a..ount po%$t$on% o2 de9e'op$n# .ountr$e%4 wh*%h mo;ed $rom ! %olle%t*;e de$*%*t o$ P> b*ll*on to ! surplus o$ P0&6 b*ll*on77! net %h!n.e o$ P416 b*ll*on77 between 1>>6 !nd & 4. O$ %ourse *n & 1 the $eder!l bud.et de$*%*t w!s onl( P01:3 wh*le the tr!de de$*%*t w!s P: -3. So the $ore*.n se%tor w!s st*ll support*n. the sum tot!l o$ the FS publ*% !nd pr*;!te de$*%*ts b( mopp*n. up the ent*re .lut o$ doll!r net7em*ss*ons to the tune o$ P: -3 per (e!r4 or P1.>43 per d!(. And th*s would be ! .ood t*me $or me to put down ! %ommon m(th prop!.!ted b( 3en 3ern!n"e !s well !s4 well4 '!.e 14>

e;er(one else. +t *s ! m(th th!t Y# *s ! result o$ the Fed,s %on%ern $or the e%onom*% outloo" or e;en !bout "eep*n. *nterest r!tes down. Th!t,s Cust wh!t the( w!nt (ou to be $o%used on4 r!ther th!n the re!l re!son $or Y#. Not*%e th!t Y# be.!n !t the s!me t*me !s the $eder!l bud.et de$*%*t o;ertoo" !nd surp!ssed the tr!de de$*%*t. Not onl( th!t4 but the !mount o$ Y# m!t%hes %lose enou.h $or .o;ernment wor" the d*$$eren%e between the bud.et de$*%*t !nd the tr!de de$*%*t. +t *s !lso ! m(th th!t Y# *s ster*le mone( %re!t*on be%!use 5!s the( l*"e to s!(8 *t *s !ll Cust s*tt*n. on the b!n"s, b!l!n%e sheets !s e?%ess reser;es held !t the Fed r!ther th!n %*r%ul!t*n. *n the e%onom(. +n $!%t4 *t *s A)) %*r%ul!t*n. *n the e%onom( be%!use the FSG spends th!t mone( into the e%onom(. Go;ernment doll!r em*ss*ons s*mpl( %ome w*th b!n" reser;es. +$ (ou don,t underst!nd th*s4 ple!se .o b!%" !nd re;*ew m( b!n"*n. s(stem model *n 'e!" #?orb*t!nt 'r*;*le.e. So *$ (ou,re w!t%h*n. 9e%onom*% *nd*%!tors9 !nd Tre!sur( m!r"et $*.ures !nd *nterest r!te %ur;es tr(*n. to .uess *$ there w*ll be more pr*nt*n.4 !"! Y#04 (ou should *nste!d !s" (oursel$ *$ the FSG w*ll %ut ! 6u!rter o$ !ll *ts spend*n. h!b*ts th*s (e!r4 or e;er. Th!t would be rou.hl( e6u*;!lent to %utt*n. !ll o$ Med*%!re4 or !ll o$ So%*!l Se%ur*t(4 or !ll o$ de$ense spend*n.4 or ! th*rd o$ e!%h4 Cust to .*;e (ou !n *de! o$ how mu%h the( !re pr*nt*n.. 2h!t we h!;e tod!(4 *n essen%e B n!(4 *n re!l*t( B *s the FSG runn*n. ! daily de$*%*t o$ P&.13 !.!*nst *ts own e%onom( !nd !nother P1.13 per d!( !.!*nst the rest o$ the world. FOA e?pl!*ned th!t wh!t th*s me!ns *n essen%e B *n re!l*t( 5when (ou !re the pr*nter o$ the .lob!l reser;e %urren%(8 B *s the $lee%*n. o$ the st!nd!rd o$ l*;*n. o$ someone elseE FOA &G&6G 7 So4 doll!r h(per *n$l!t*on ne;er !rr*;ed !nd .old d*d not m!"e *ts run be%!use world =3s bet (our produ%t*;e e$$orts on support*n. the doll!r reser;e. +n the pro%ess4 the FS st!nd!rd o$ l*;*n. w!s r!*sed tremendousl( on the b!%"s o$ most o$ the worlds wor"*n. poor. 3ut th*s *s not !bout to l!st! FOA 0G1 G 7 M( po*nt w!s th!t the*r !%t*ons %!n onl( be Cust*$*ed $rom ! pos*t*on o$ 9bu(*n. t*me9L The*r =entr!l 3!n"s support pol*%es were ! de%*s*on to w!ste the*r %*t*Ien,s produ%t*;e e$$orts *n ! pro%ess th!t held to.ether ! $!*l*n. %urren%( s(stem. FOA 4G1>G 1 7 2h!t %h!n.es *s the re%o.n*t*on o$ wh!t we do produ%e $or oursel;es !nd wh!t we re6u*re $rom others to m!*nt!*n our %urrent st!nd!rd o$ l*;*n.L 2e w*ll %ome to "now Cust how 9!bo;e9 our %!p!b*l*t*es we h!;e been l*;*n.. Re%e*;*n. $ree support b( w!( o$ !n o;er;!lued doll!r th!t we spent w*thout the p!*n o$ wor". FOA :G16G 1 7 The Amer*%!n doll!r h!s bou.ht *ts m!"ers ! l*$est(le th!t *s !t odds w*th th*s new thrust *n mone( use. A reser;e %urren%( tod!( must !llow *ts ;!lue to be set solel( upon *ts mone( $un%t*on TMo# !ren!U4 not *ts $un%t*on o$ ret!*n*n. we!lth TSoA !ren!U. Fse trends tod!( !re $or%*n. mone( %re!t*on pol*%( !nd mone( ;!lues to be determ*ned b( we!lth outs*de the o$$*%*!l mone( re!lm. All the wh*le the doll!r holders !re $*.ht*n. to stop th*s $rom h!ppen*n.. FOA :G& G 1 7 For (e!rs Amer*%!n l*$est(les en%our!.ed *ts pol*t*%!l s(stem to prote%t the*r b!n"*n. Gdebt %red*b*l*t( !t !ll %ostsN so we %ould bu( others, re!l .oods w*thout send*n. re!l we!lth to p!( $or '!.e 11

*t. 2e d*d th*s *n the onl( w!( we "new howN *n bod(4 m*nd !nd sp*r*t4 our pol*t*%!l e%onom*% purpose promoted the doll!r !nd *ts debt to be !s .ood !s .old !nd ! subst*tute $or re!l we!lth hold*n.s. #;en ! subst*tute $or re!l we!lth to be held *n reser;e beh*nd other %urren%*es! FOA 1 G1G 1 7 #;en the th*rd world d*dn,t w!nt to he!r *t. The( $*.ured th!t !n( return to ! h!rd mone( s(stem would h!r" b!%" to ! t*me the( remembered well. These .u(s su$$ered dur*n. the e!rl( %entur( !nd no one w!s .o*n. to tell them th!t the .old st!nd!rd w!sn,t !t $!ult. The FS *s tod!(4 !nd w!s then4 robb*n. them bl*nd but the s*tu!t*on seemed4 to them4 th!t th*s new doll!r st!nd!rd w!s bu*ld*n. them up. )oo"*n. !t *t !ll44444 we robbed the D!p!n l*$e st(le st!nd!rds the most. All to bu( us !n !lmost $ree st!nd!rd !nd the( lo;ed *t. FOA 1 G-G 1 7 2e m!n!.ed th*s thre!t w*th help $rom our #uro $r*endsN somehow th*n"*n. the( enCo(ed !nd w!nted our $lee%*n. the*r l*$est(le to the s!me de.ree we d*d *t to the rest o$ the world. The*r %ooper!t*on4 we w*ll $*nd out4 w!s but ! stru%tur!l pol*%( th!t bou.ht t*meN t*me $or ! doll!r repl!%ement to be m!de. FOA 1 G&6G 1 7 A.!*nN th*s !ll wor"s !s lon. !s the world 9bu(s *nto9 us*n. our doll!rs. As + s!*dN !n e?p!nd*n. $*!t wor"s to .row the e%onom( thru e?p!nd*n. %red*t bu(*n. power be%!use the $ed %!n support the s(stem w*th %red*t %re!t*on th!t h!s no 9*n$l!t*on prem*um9. Th!t l!%" o$ prem*um onl( e?*sts !s lon. !s Amer*%!ns %!n e?%h!n.e $ree %red*t $or re!l ph(s*%!l .oods. On%e th*s per%ept*on %h!n.es *t,s o;er. On%e the world underst!nds th!t *t,s not lo%!l FS .oods th!t st!nds beh*nd doll!r .rowth4 but less e?pens*;e $ore*.n .oods4444444444 the st!.e *s set $or our 9supporters9 to sell to themsel;es! M!"*n. themsel;es 9l*$est(le r*%h9. All the( need *s Another %urren%( un*t. /ere,s the bottom l*ne4 !nd the !bsolute correct w!( to ;*ew the FSG,s de$*%*t spend*n. tod!(. St!rt*n. *n & >4 the FS pr*;!te se%tor w!s no lon.er 9$lee%*n. l*$est(le9 $rom the rest o$ the world throu.h the e?orb*t!nt pr*;*le.e o$ *ts %urren%( 5! pr*;*le.e wh*%h be.!n *n 1>&& !nd pe!"ed *n & 18. 3e.*nn*n. *n & > the FSG st!rted $lee%*n. l*$est(le $rom *ts own e%onom( 5*n !dd*t*on to the rest o$ the world8 wh*le *ron*%!ll( %!ll*n. *t 9e%onom*% st*mulus9. Th*s *s the me!n*n. beh*nd these sho%"*n. *m!.es $rom & >4 wh*%h + $*rst used *n m( & > post4 No Free )un%hE

'!.e 111

Glob!l resour%es !re be*n. $lee%ed b( the FSG !t the r!te o$ P1.13 per d!(4 wh*le Amer*%!n resour%es4 !bo;e !nd be(ond the norm!l 9*ntern!l re;enue ser;*%e49 !re be*n. $lee%ed !t the r!te o$ P&.13 per d!(. The $ore*.n resour%e $lee%*n. *s be*n. en!bled b( $ore*.n =3s 5mostl( =h*n! up unt*l re%entl(8 bu(*n. Tre!sur*es4 !nd the lo%!l resour%e $lee%*n. *s en!bled mostl( b( Y#4 but !lso p!rtl( b( (our pens*on $und m!n!.er bu(*n. (ou some o$ those t!st( (*eld7$ree Tre!sur*es. +t *s no wonder !t !ll th!t the sto%" m!r"et *s do*n. rel!t*;el( well .*;en the unstopp!ble domest*% sew!.e B + me!n doll!r B le!" th!t *s the FSG,s de$*%*t spend*n.. Fn$ortun!tel( 5$or e;er(one8 the sto%" m!r"et doesn,t ster*l*Ie the sew!.e !.!*nst .oods !nd ser;*%es pr*%e *n$l!t*on the w!( the Tre!sur( m!r"et does. The doll!rs Cust $low r*.ht through the sto%" m!r"et to the sellers. 3ut !s + wrote !bo;e4 *t doesn,t re!ll( m!tter wh!t per%ent!.e o$ the tr!de de$*%*t the bud.et de$*%*t *s4 Cust th!t *t,s o;er 1 Q. As lon. !s *t,s o;er 1 Q4 the ent*re tr!de de$*%*t *s 1 Q nom*n!ll( !ttr*but!ble to the FSG4 wh*%h me!ns *$ we .et some 9hot *n$l!t*on9 e*ther the FSG w*ll h!;e to .*;e up some o$ *ts %onsumpt*on *n re!l terms4 or else de$end *ts 9l*$est(le9 w*th the pr*nt*n. press4 r*.ht there !t the m!r.*n where pr*%es !re d*s%o;ered. + don,t e?pe%t th*s *n$l!t*on to or*.*n!te *ns*de the FS. +n $!%t4 !s lon. !s $ore*.n =3s !re stru%tur!ll( support*n. the doll!r reser;e s(stem b( mopp*n. up our P1.13 per d!( out$low4 the Amer*%!n people !re .ett*n. ! prett( .ood de!l on the*r own $lee%*n.. + me!n4 e;en thou.h we !re be*n. $lee%ed o$ P&.13 per d!( *n 9l*$est(le9 b( our own .o;ernment 5*n !dd*t*on to t!?es84 $or th!t $lee%*n. we !re !%tu!ll( re%e*;*n. P0.63 per d!( b!%" *n .o;ernment. RO+! So e;en thou.h .o;ernment *s terr*bl( w!ste$ul4 our w!ste$ul .o;ernment *s st*ll be*n. subs*d*Ied b( (,!ll! 9)*$e *s so $u%"*n. .ood + %!n t!ste *t *n m( sp*t.9 And be%!use the FS pr*;!te se%tor de$*%*t spend*n. *n !..re.!te h!s %ontr!%ted to well below Iero s*n%e & -4 + h!;e ! hun%h th!t ! lot o$ the $!t h!s been %ut out o$ the 9b!s"et9 o$ FS *mports. The tr!de de$*%*t h!s dropped $rom P6>-3 *n both & : !nd & - to P1 3 *n & 1 !nd P16 3 *n & 11. + bet !ll o$ th!t ^P10 3 drop h!s %ome $rom pr*;!te se%tor %onsumpt*on redu%t*on 5pr*;!te se%tor %r!sh*n. *ts l*;*n. st!nd!rd8. +n $!%t4 the 9pr*;!te se%tor %onsumpt*on drop9 *s prob!bl( .re!ter th!n ^P10 3 !nd the FSG h!s m!de up some o$ *t b( e?p!nd*n. its %onsumpt*on. 3ut the FSG doesnMt %onsume %he!p %onsum!bles $rom 2!lm!rt. The FSG %onsumes *mport!nt stu$$L stu$$ we .ener!ll( %!ll ne%ess*t*es.

'!.e 11&

)oo"*n. !t the top *mports $rom & - !s well !s the $!stest .row*n. *mports o$ s*.n*$*%!n%e 5s!(4 o;er P13 per (e!r !t le!st84 the top 9ne%ess*t*es9 !re o*l4 med*%*n!l prep!r!t*ons4 petroleum produ%ts4 %o!l4 $ert*l*Iers !nd pest*%*des4 $ood o*ls4 o*l $*eld e6u*pment4 $eedstu$$ !nd $ood.r!*ns4 unm!nu$!%tured steelm!"*n. m!ter*!ls4 *ndustr*!l or.!n*% %hem*%!ls4 !nd sem*$*n*shed *ron !nd steel. A.!*n4 th*s *s Cust ! hun%h4 but th!t,s prob!bl( ! .ood l*st o$ th*n.s to w!t%h $or pr*%e *n%re!ses th!t %ould 6u*%"l( turn h(per when the FSG re$uses to be outb*dL *$ !nd when the $ore*.n =3 9stru%tur!l support9 slows down !nd the rest o$ the world stops e?port*n. ne%ess*t*es to the FSG $or noth*n. but p!per th!t w*ll soon be worthless. So now th!t we "now wh!t to w!t%h $or4 let,s t!"e ! loo" !t the st!te o$ th!t 9stru%tur!l support9 tod!(. The FS Tre!sur( puts out ! l*st o$ Fore*.n /olders o$ Tre!sur( Se%ur*t*es. The l!test upd!te4 wh*%h w!s put out on Apr*l 0 th4 %o;ers Tre!sur( hold*n.s throu.h Febru!r( & 1& !nd shows e!%h month $or ! whole (e!r4 *n th*s %!se be.*nn*n. *n Febru!r( & 11. The top row *s =h*n! be%!use =h*n! h!s the most Tre!sur*es. And loo"*n. !%ross $or the (e!r we %!n see th!t =h*n!,s hold*n.s !re prett( $l!t4 e?%ept th!t the( pe!"ed !t P1.0T *n Dul( !nd then dropped !ll the w!( to P1.1:-T *n Febru!r(. +t loo"s l*"e D!p!n 5l*ne &8 re!ll( p*%"ed up the sl!%" thou.h4 bu(*n. P& 13 *n Tre!sur*es $rom Febru!r( to Febru!r(. + .uess we better hope th!t D!p!n "eeps runn*n. ! tr!de surplus! OopsL D!p!n Sw*n.s to Tr!de De$*%*t 4G1>G1&RD!p!n swun. b!%" *nto ! tr!de de$*%*t *n M!r%h !s ! ste!d( r*se *n ener.( *mports outwe*.hed ! rebound *n !utomob*le e?ports !$ter l!st (e!r,s $lood*n. *n Th!*l!nd. 3ut $e!r not! Zero /ed.e *s on the %!seE &G&>G1& 7 3est !d;*%eE "eep ! tr!%" o$ th!t =h*nese tr!de surplus. +$ *t be%omes ! de$*%*t 5Cust l*"e D!p!n d*d re%entl(84 th!t *s the $*rst s*.n!l th!t th*n.s !re %h!n.*n. dr!m!t*%!ll( $rom !n *ntern!t*on!l $low o$ $unds perspe%t*;e. +t !lso me!ns th!t unless the FS $*nds subt*tute dem!nd4 most l*"el( $rom w*th*n4 the onl( rem!*n*n. bu(er w*ll be the ent*t( th!t !lre!d( h!s the l!r.est hold*n. o$ FS p!per 7 the Feder!l Reser;e. Th!t l!st (e!r o$ Tre!sur( d!t!4 $rom Feb. to Feb.4 shows th!t the *n%re!se *n $ore*.n Tre!sur( hold*n.s %o;ered the tr!de de$*%*t $or th!t (e!r. +$ we loo" down !t the l!st l*ne4 .r!nd tot!ls4 !nd subtr!%t Feb. & 11,s tot!l $rom Feb. & 1&,s we %ome up w*th !n *n%re!se *n 9stru%tur!l support9 o$ P600.03. And *$ we !dd up the monthl( tr!de de$*%*t $or those s!me months we %ome up w*th P161.13. On%e !.!*n4 %lose enou.h $or .o;ernment wor". So + .uess *t,s ! .ood th*n. so#eone4s st*ll propp*n. up the doll!r. 3ut w!*t! /ere,s !nother one $rom Zero /ed.e onl( ten d!(s l!terE Jh$na 4o%t% *$##e%t "rade De2$.$t S$n.e 1@8@ 0G1 G1& 7 +n !dd*t*on to !ll the FS ele%t*on (e!r prop!.!nd! !nd del!(ed !$ter e$$e%ts o$ %entr!l b!n"s *nCe%t*n. ne!rl( P0 tr*ll*on *n l*6u*d*t( to Cu*%e up the FS sto%" m!r"et4 someth*n. $!r more not!ble (et underreported h!s h!ppened *n & 1&E the world stopped e?port*n.. Obser;e the $ollow*n. se6uen%e o$ ;er( re%ent he!dl*nesE 9D!p!n tr!de de$*%*t '!.e 110

h*ts re%ord94 9Austr!l*! Re%ords F*rst Tr!de De$*%*t *n 11 Months on -Q 'lun.e *n #?ports94 93r!I*l 'osts F*rst Monthl( Tr!de De$*%*t *n 1& Months 9 then o$ %ourse th*sE 9TFSU Tr!de de$*%*t h*ts 07(e!r re%ord *mb!l!n%e94 !nd $*n!ll(4 !s o$ l!te l!st n*.ht4 we .et the $ollow*n. stunn*n. he!dl*neE 9=h*n! /!s 3*..est Tr!de Short$!ll S*n%e 1>-> on #urope Turmo*l.9 TLU =h*n! tot!l *mports !nd e?ports 7 whooshE

=h*n! tr!de b!l!n%e b( re.*on 7 whooshE

=h*n! tr!de w*th the FS 7 whooshE

=h*n! tr!de w*th the #F 7 whooooooooooooooooooshE

'!.e 114

/owe;er4 de$*n*tel( no whoosh hereE

Oh4 !nd let,s not $or.et th*s p!rt*%ul!r whooshE

...+s *t st!rt*n. to m!"e sense now@ You %!n n*tp*%" th!t d!t! !ll (ou w!nt4 but one th*n. *s !s %le!r !s !n !Iure s"( o$ deepest summer. Th*s *s ! ;er( d*$$erent p*%ture $rom the =h*n! o$ & & emb!r"*n. on ! 9p!r!bol*% r*se9 *n FS doll!r 9stru%tur!l support9. +n $!%t4 e;en thou.h *t *s true th!t some %omb*n!t*on o$ D!p!n4 o*l e?porters4 =!r*bbe!n b!n"*n. %enter4 T!*w!n4 Sw*tIerl!nd4 Russ*!4 )u?embour.4 3el.*um !nd +rel!nd 5to n!me ! $ew8 m!n!.ed to %obble to.ether the ne%ess!r( support l!st (e!r4 the doll!r *s now l*;*n. o$$ o$ ! w*ll(7 n*ll( support s(stem r!ther th!n the 9stru%tur!l support9 *t enCo(ed $or the l!st 0 or so (e!rs. +$ FOA w!s here4 he,d prob!bl( s!( someth*n. l*"e th*sE

'!.e 111

The rel!t*;el( sm!ll .oods 9pr*%e *n$l!t*on9 so m!n( .old bu.s loo"ed $or w*ll be $!r surp!ssed !nd the 9h(per pr*%e *n$l!t*on9 + h!;e been s!(*n. *s %om*n. *s now be*n. 9stru%tur!ll(9 set $ree to run. O$ %ourse 9hot *n$l!t*on9 *s %om*n.! 3ut how lon. w*ll *t l!st@ /ow lon. can *t l!st w*thout the stru%tur!l support o$ $ore*.n =3s mopp*n. up the doll!rs the FSG w*ll be pr*nt*n. *n order to de$end *ts own 9l*$est(le9 *n re!l terms@ /ow $!r %!n pr*%es r*se w*thout h*tt*n. th!t h(per $eedb!%" loop !t the m!r.*n where pr*%es !re d*s%o;ered@ The FSG *s net7em*tt*n. P0.63 per d!( tod!(4 !nd the problem *s th!t the FSG *s not !n e%onom(. +t *s ! %onsumer !nd ! pr*nter. So the d!*l( net7em*ss*on o$ .lob!l doll!rs *s now b!%"ed4 not b( !n e%onom(4 but b( the l!r.est %onsum*n. ent*t( e;er "nown to m!n! )ee !nd '!ul !re %orre%t th!t the %ommer%*!l b!n"*n. s(stem w*ll soon be $ull( reser;ed. 3ut + don,t th*n" those new reser;es w*ll %ome d*re%tl( $rom the Fed *n e?%h!n.e $or b!n" !ssets. Now th!t the .o;ernment de$*%*t h!s surp!ssed the tr!de de$*%*t4 !ll $ore*.n support *s Tre!sur( bu(*n.4 not pr*;!te se%tor debt l*"e M3S. The %ross*n. o$ th*s Rub*%on me!ns th!t m!*nt!*n*n. the Tre!sur( m!r"et t!"es stru%tur!l pre%eden%e o;er !ll other !ssets. +t !lso me!ns th!t e;er( new doll!r the FSG de%*des to spend puts new reser;es *nto the pr*;!te se%tor b!n"*n. s(stem4 r!*s*n. *ts r!t*o o$ reser;es to depos*ts. So the new reser;es %om*n. *nto the b!n"s w*ll be %om*n. $rom domest*% FSG de$*%*t spend*n. ;*! Y# or wh!te;er the( de%*de to %!ll *t ne?t t*me. And + bel*e;e th!t those b!n" !ssets !nd 9unreser;ed %red*t9 w*ll s*mpl( d*e on the ;*ne o$ worthless to"ens !s the FSG %rushes *ts own %urren%( de$end*n. *ts l*$est(le. Gre.or *s %orre%t !bout the 9ben*.n9 *n$l!t*on we,;e h!d4 not Cust $or the p!st de%!de4 but $or the p!st three or $our. Th*s *s wh!t FOA w!s t!l"*n. !bout. 9Yes4 we .ot our l*ttle 04 44 - or >Q pr*%e *n$l!t*on r!tes *n n*%e l*ttle pred*%t!ble %(%les.9 3ut h(per*n$l!t*on 9ne;er showed up be%!use the world h!d to support *ts onl( mone( s(stem unt*l someth*n. %ould repl!%e *t.9 The euro w!s born4 then %!me =h*n!4 !nd m( %!ll *s th!t h(per*n$l!t*on 9*s now be*n. ,stru%tur!ll(, set $ree to run.9 +$ (ou pr*nt enou.h mone(4 (ou %!n .et the pr*%e o$ e;er(th*n. to r*se. Dust loo" !t Z*mb!bwe *$ (ou don,t bel*e;e me. 3ut pr*nt*n. doesn,t m!"e !ll pr*%es r*se *n un*son. Gre.or m!"es ! .ood %!se $or the 9M*ddle =l!ss S6ueeIe9 %omb*ned w*th !sset pr*%e de$l!t*on4 !n *n$l!t*onGde$l!t*on double wh!mm(4 !s well !s resour%e s%!r%*t(7dr*;en subs*sten%e *n$l!t*on le!;*n. no d*s%ret*on!r( spend*n. room $or the poor or those *n de;elop*n. %ountr*es. And $rom the 9#?e%ut*;e Summ!r(9 o$ h*s p!rt &E 9R*s*n. w!.es *n the de;elop*n. world %re!te upw!rd pr*%e pressure e;er(where .lob!ll(.9 + !.ree w*th Gre.or on !ll %ounts! So (es4 + !.ree w*th Gre.or th!t 9hot *n$l!t*on9 *s %om*n. !nd *t,s ! re!l r*s". 3ut *n$l!t*on .ener!ll( suppresses %onsumpt*on *n re!l terms. As Gre.or s!(s4 9*t 6u*%"l( be.*ns to dr*;e out spend*n. $or d*s%ret*on!r( .oods *n $!;or o$ true b!s*%s.9 3ut th*s doesn,t !ppl( to the FSG who %!n 9spend9 *n$*n*tel( *n e?trem*s. Gre.or %on%ludes h*s p!rt 1 w*th th*sE The Fn*ted St!tes %urrentl( enCo(s reser;e %urren%( st!tus4 wh*%h en!bles *t to borrow %he!pl(4 !nd wh*%h "eeps %!p*t!l %*r%ul!t*n. throu.h our .o;ernment bond m!r"ets4 wh*%h !re the l!r.est *n the world. G*;en the b!%"drop to our post7%red*t7bubble en;*ronment4 *t *s now the %onsensus ;*ew th!t we w*ll %ut ! p!th s*m*l!r to D!p!nMs !s we os%*ll!te $rom we!" .rowth b!%" to the st*mul!t*;e res%ue pol*%*es o$ the Feder!l Reser;e. There *s there$ore ! sense o$ %ompl!%en%( !bout !n es%!l!t*on *n pr*%es. '!.e 116

Th!t h*.hl*.hted port*on *s the prem*se on wh*%h ;*rtu!ll( e er+one *n Amer*%! *s oper!t*n.4 w*thout e;en underst!nd*n. wh!t *t re!ll( me!ns. +t *s the m*r!%le o$ the m!.*%!l doll!r theor*es l!*d !s the sol*d $ound!t*on under !n( !nd e;er( d*s%uss*on. One o$ m( re!ders4 M*%h!el4 ! med*%!l do%tor4 w!s !ttend*n. ! %onser;!t*;e 9Te! '!rt(7*sh9 meet*n. *n =!l*$orn*! (esterd!(. The meet*n. *n%luded FS Sen!tors !nd Represent!t*;es4 !nd the( were tot!ll( oper!t*n. on the prem*se o$ the m*r!%le o$ the m!.*%!l doll!r theor*es. You %!n re!d h*s *nterest*n. report here. The po*nt *s th!t the prem*se rests on > (e!rs o$ h*stor( wh*%h onl( m!"es sense *$ ;*ewed properl(. +t rests on 1 to 6 (e!rs o$ pol*t*%!l support $ollowed b( & (e!rs o$ stru%tur!l support $rom #urope !nd !nother - or > (e!rs o$ stru%tur!l support $rom =h*n!. Tod!( both pol*t*%!l !nd stru%tur!l support !re .one4 !nd the 9sol*d $ound!t*on under !n( !nd e;er( d*s%uss*on9 o$ monet!r( m!tters *n Amer*%! *s wh!t + !m .enerousl( term*n. the 9w*ll(7n*ll( support9 o$ the rest o$ the world. +n other words4 we h!;e no s!( *n the m!tter. Our $!te *s *n their h!nds. 2h*%h "*nd o$ renders the prem*se *n;!l*d4 doesn,t *t@ + !.ree w*th Gre.or th!t 9hot *n$l!t*on9 *s %om*n. whether (ou l*"e *t or not4 $or !ll the re!sons he e?pl!*ns !nd more. M( onl( d*s!.reement *s th!t =on.ress w*ll t!"e *t more h(per th!n we,;e seen *n !ll o$ $*!t h*stor(4 so $!st *t w*ll peel the s"*n o$$ (our $!%e4 be%!use the( !re oper!t*n. on ! $!lse prem*se. The m*r!%le o$ the m!.*%!l doll!r theor( prem*se *s ! $!lse prem*se be%!use *t %ompletel( m*sses wh!t,s .o*n. on. And !n(one who,s w!*t*n. $or those oper!t*n. under ! $!lse prem*se to p!n*% out o$ the*r doll!r hold*n.s be$ore e;en entert!*n*n. th*s re!l*t( *s l*"e someone w!*t*n. $or the loss o$ %ons%*ousness be$ore entert!*n*n. the poss*b*l*t( o$ de!th. The doll!r *s so ;!stl( o;er;!lued tod!( be%!use the rest o$ the world h!s "ept *t on l*$e support $or 0 (e!rs p!st *ts e?p*r!t*on d!te. +t *s the st!b*l*t( o$ doll!r pr*%es !t th!t sm!ll m!r.*n!l $low th!t sust!*ns the *llus*on o$ we!lth *n the ent*re4 m!ss*;e monet!r( pl!ne. And (et the modern 9h!rd mone( th*n"ers9 th*n" th!t we %!n somehow ret!*n th*s le;el *n re!l terms b( s*mpl( de;!lu*n. the doll!r !.!*nst .old !nd then m!n!.*n. th!t new 9.old ;!lue9. + w*sh !ll the modern h!rd mone( th*n"ers B (ou "now who the( !re so + don,t need to ment*on !n( n!mes B would Cust t!"e ! $ew m*nutes !nd l*sten to FOA !nd m!(be4 Cust m!(be4 see how wron. the( !re. +t,s !ll *n th!t l!st p!.e o$ The Gold Tr!*l4 but + tr*ed to m!"e *t b*te7s*Ied *n ! re%ent bl!st o$ Tweets. \/MS me!ns /!rd Mone( So%*!l*st wh*%h des%r*bes !ll o$ these .u(s. +$ (ou don,t underst!nd4 .o see $or (oursel$. These !re !ll FOA 6uotes $rom th!t l!st p!.e 5ed*ted $or Tw*tter8E C"ru'y, to th$% day, A,MS th$n+ the$r $dea% are the %a9$n# #ra.e o2 the money )or'd. 6t $%n-t no) and ne9er )a% then.C AFOA C"h$% po'$t$.a' pro.e%% o2 2$/$n# money to #o'd ha% ru$ned more e.onom$e%, #o9ernment% and %o.$et$e% than anyth$n#.C AFOA C6t Mu%t 2'$e% r$#ht pa%t them that the 1J* )ant% #o'd a% a do''ar rep'a.$n# Ba%%etB, not 'o.a' money ba.+$n#.C AFOA CA,MS .a'' 2or Co22$.$a' money #o'dC a% the on'y )ay #o9ernment% .an #o. "hat )$'' not e9er be a''o)ed a#a$n.C AFOA C"he%e are the %ame peop'e that ho'd 2ree mar+et% on a h$#h p'ateau a% the #oa' 2or e9eryone. Yet, '!.e 11:

they ta'+ a %tory o2 #o'd .ontro'.C AFOA CFortunate'y 2or the maMor$ty o2 )or'd phy%$.a' #o'd o)ner%, the hard money %o.$a'$%t #ame ha% ended.C AFOA C5ate .omer% to th$% under%tand$n# )$'' en.ounter a true 2ree mar+et, but the$r buy $n pr$.e )$'' be at a mu.h h$#her natura' 'e9e'.C AFOA C6n the 'ate =0%, A,MS %eemed %o natura'. ,o)e9er, e9en then, 6 had %ome %er$ou% peop'e po$nt$n# me $n a d$22erent d$re.t$on.C AFOA C"h$% $% a'' happen$n# )h$'e 0e%tern %ty'e ,ard Money So.$a'$%t% are de2end$n# the$r %tan.e by %ay$n# 1uro $% Mu%t another 2$at. ,a!C AFOA C0e%tern thou#ht $% #o'dNmoney. "h$% %$mp'e p$.ture 2rom the m$dd'e a#e% ban+$n# rena$%%an.e $% u%ed to ba%tard$?e the #o'd %tory to th$% day.C AFOA 'le!se .o re!d th!t l!st p!.e o$ The Gold Tr!*l !$ter re!d*n. th*s post. St!rt !t the bottom !nd re!d up. +t,s *n re;erse order4 unl*"e the $*rst $*;e p!rts. There,s so mu%h more there th!n the l*ttle b*ts + *n%luded here. +t,s the ;er( l!st words he wrote be$ore he stopped wr*t*n.. + "now th!t some people th*n" + !ppro!%h these AGFOA !r%h*;es somewh!t rel*.*ousl(. 2ell4 + do!! )oo" !t the subt*tle !t the top o$ th*s blo.! Not *n !n( w!( s*m*l!r to sp*r*tu!l $!*th4 but M( God4 h!s !n(one B !nd + do me!n ANYON# B e?pl!*ned wh!t,s .o*n. on tod!( better th!n these .u(s@ S*n%erel(4 FOFOA

'!.e 11-

Fr$day, June 1, 2012


G5D "a'+ Jont$nued

As m!n( o$ (ou "now $rom the %omments here !nd on Tw*tter4 A*%tor The =le!ner Cust %ompleted ! .re!t new post %!lled G)D B The =entr!l 3!n" O$ The 3ull*on 3!n"s. The t*m*n. w!s prett( ne!t. )!n%e )ew*s, G)D 'u"e +nd*%!tor del*;ered ! bu( s*.n!l on 1G&& !nd A*%tor !nd + h!;e been em!*l*n. e?tens*;el( e;er s*n%e th!t d!( d*s%uss*n. m( ;*ew o$ the G)D 'u"es.

Dur*n. our d*s%uss*on A*%tor %ondu%ted !n !n!l(s*s o$ the 'u"e +nd*%!tor us*n. ! h(pothet*%!l tr!d*n. str!te.( b!sed on bu(*n. spot .old !t the pu"e !nd sell*n. on%e the .old *n G)D *s replen*shed !nd $ound th!t *t opt*m*Ied !t ! pu"e s*Ie o$ !bout .1Q o$ the *n;entor(. Fs*n. &1 4 oun%es !s the pu"e s*Ie4 he $ound th!t the P'oG %l*mbed $our t*mes !s mu%h 5!nnu!l*Ied8 *n onl( one7th*rd o$ the t*me 5between pu"e !nd replen*shment8 !s *t d*d dur*n. the rem!*n*n. two7th*rds o$ the t*me. Th*s w!s ! s*.n*$*%!nt $*nd*n. wh*%h4 !t the ;er( le!st4 showed th!t the +nd*%!tor re!ll( does wor". Fs*n. )!n%e,s 1Q threshold the tr!d*n. str!te.( w!s ! l*ttle less opt*m!l4 but perh!ps )!n%e,s h*.her threshold *s more *mmed*!tel( pred*%t*;e o$ b*. mo;es l*"e tod!(. + don,t "now. 3ut th!t,s so#e t*m*n.4 huh@ A*% $*n!ll( .ot h*s post up l!te l!st n*.ht !nd then tod!( we h!;e ! Cumbo up7mo;e o$ more th!n 4Q! At the ;er( le!st + th*n" *t dem!nds ! l*ttle b*t o$ !ttent*on.

'!.e 11>

=ost!t! re!ll( enCo(ed A*%tor,s post !nd he em!*led me w*th ! $ew %omments !bout *t. + $elt th!t =ost!t! h!d m!(be m*ssed some o$ wh!t + thou.ht w!s !n *mport!nt thrust *n the post !nd so + tr*ed to summ!r*Ie *n one short em!*l ! $ew o$ the th*n.s th!t A*% !nd + h!d d*s%ussed o;er n*ne d!(s o$ lon. em!*ls. Not e;er(th*n. we d*s%ussed m!de *t *nto A*%tor,s post. A*%tor *s met*%ulous *n h*s e?pos*t*on wh*le + o$ten tr( to %o;er too mu%h .round4 re6u*r*n. me to Cust tou%h on some th*n.s wh*%h4 *$ *t w!s A*%tor wr*t*n.4 would re6u*re ! to( model4 some %h!r!%ters w*th !lph!bet*%!l n!mes4 !nd ! $!n%( %h!rt or three. An(w!(4 =ost!t! su..ested th!t + should post m( em!*l !nd DR %on%urred4 so here (ou .o4 w*th m*n*m!l pol*shE =ost!t!E 3!t also occurred to #e ;ust now that if this anal+sis is correct, it #akes the possi$ilit+ of a run on the unallocated accounts with the L<0: clearing #e#$ers e en #ore re#ote. -he 3large $u+er3 at the L<0: that J-I speculates a$out appears to $e extre#el+ disciplined - the <!S perhaps. -houghts83 MeE No4 At= d*;*ded *t *nto two poss*ble theor*es. )!r.e bu(er who "nows the bottoms *n the m!r"ets *s one theor(4 !n unl*"el( one. The se%ond theor( he %!lled Jspe%ul!t*;e *nterpret!t*onK *s the re!l mess!.e. +$ the 33s !re redeem*n. G)D sh!res to $ul$*ll !llo%!t*on dem!nds4 th!t *mpl*es th!t the( do not h!;e enou.h 4 oI. b!rs outs*de o$ G)D to $ul$*ll those dem!nds. And th!t !lso *mpl*es th!t the 33s !re us*n. G)D sh!res !s reser;es. Ob;*ousl( 4 oI. b!rs %ome !nd .o. The( %ome *n $rom m*nes4 s%r!p !nd h!pless *n;estors !nd the( .o out to !llo%!t*on dem!nds !nd del*;er*es. Th!tMs the $low. So when we see ! G)D pu"e4 we *n$er the( were essent*!ll( out o$ 4 oI. b!rs !t the t*me. There *s no other re!son $or ! 33 to redeem G)D sh!res4 e;en *$ *t *s per$orm*n. the !rb*tr!.e. G)D sh!res4 $or !ll pr!%t*%!l purposes4 !re !s .ood !s 4 oI. b!rs not *n G)D $rom the perspe%t*;e o$ ! 33. As sh!res4 the 33 reser;es %!n e;en be lent !t *nterest to those who w!nt to short G)D. +n $!%t4 the 33s %ould potent*!ll( h!;e onl( G)D sh!res !s the*r reser;es4 wh*%h *s wh( R!nd!ll Str!uss %!lled G)D ! J%entr!l %o!t7%he%" roomK $or the 33s. The pu"es su..est to me th*s m!( be the %!se. Th!t $low $rom the m*nes to *n;estors *s the $low. Remember when thereMs not enou.h suppl( *n th!t $low *s when the sto%" to $low r!t*o e?plodes tow!rd *n$*n*t(. 2*th th*s ;*ew4 we %!n *n$er th*s m!( be wh!t *s h!ppen*n. w*th e!%h pu"e. 2e %!nMt re!ll( loo" !t the s*Ie o$ G)D !nd the s*Ie !nd $re6uen%( o$ the pu"es !nd e?tr!pol!te ! t*mel*ne. +$ (ou loo" !t )!n%eMs %h!rt4 the s*Ie o$ G)D pe!"ed *n & 1 . +$ we suddenl( see ! pu"e o$4 s!(4 1 Q o$ the G)D *n;entor(4 +Md s!( *tMs .!me o;er st!rt*n. there. The l!r.est pu"e so $!r w!s !bout 4Q o;er two %onse%ut*;e d!(s l!st Au.ust. Th!t w!s !bout 1 tonnes when the 'oG w!s !round P14- . Th!t w!s /FG#. Almost P03. So when the pu"es h!ppen4 th!t *s 33 he!rt !tt!%" t*me4 but then the pr*%e r*ses !nd e;entu!ll( 5so $!r8 the pu"e .ets replen*shed. So !s the pr*%e r*ses4 the reser;es !re stret%hed !nd so *s the *n$low. As A*%tor s!*d4 the *n$low o$ .old $rom the m*nes *s rel!t*;el( %onst!nt b( we*.ht but the out$low *s norm!ll( '!.e 16

%onst!nt *n %urren%( terms. So the( r!*se the pr*%e unt*l the pu"e *s replen*shed !nd then the( stop. Th!tMs the mess!.e *n the post. /ow the( r!*se *t4 wh*%h he d*dnMt .o *nto4 *s ! l*ttle more *nterest*n.. From th!t )3MA sur;e(4 we %!n see th!t the )3MA h!d net s!les *n one 6u!rter o$ :41:1 tonnes o$ p!per .old. Th!tMs ! .ross *n%re!se *n the !mount o$ p!per .old *n e?*sten%e o;er onl( three months. 1 E1 !%tu!ll( seems %onser;!t*;e *n th*s l*.ht. Th!tMs most l*"el( FOR#] use o$ .old !s ! hed.e or ! %urren%( pl!(. 3ut e;en st*ll4 the 33s h!;e to hed.e the*r pr*%e e?posure when sell*n. th!t mu%h p!per .old. 2*thout ! hed.e4 th!t would be ! :41:1 tonne n!"ed short pos*t*on $or the 33s. So th!t net *n%re!se *n p!per .old *s !lso ! net *n$low o$ %!sh $or the 33s4 %!sh wh*%h the( use to hed.e th!t net e?posure. +n $!%t4 we %!n see $rom the )3MA sur;e( e?!%tl( how mu%h %!sh *t w!s. +t w!s P00-3. Th!tMs o;er 0 months4 so *tMs more l*"e P1.43 per d!( *n$low. Th!tMs ! sm!ll per%ent %ons*der*n. the d!*l( turno;er *n p!per .old used !s ! FOR#] %urren%( *s P&4 3 !nd the d!*l( turno;er o$ !ll %urren%*es *s P4T. So *n ! P4TGd!( FOR#] m!r"et4 th!tMs ! P1.43Gd!( net $low $rom other %urren%*es *nto .old. Th!t w!s P1.43 per d!( *n Y1 & 11 th!t needed to be hed.ed b( the 33s. ThereMs no w!( the( hed.ed !ll o$ th!t *n the J.oldK m!r"et 5=ome?Gm*n*n. $orw!rdsGG)D8. +tMs s*mpl( not b*. enou.h to !bsorb th!t r!te o$ $low w*thout r*s*n. ! lot $!ster th!n we s!w *t r*se. So the 33s must be hed.*n. th*s e?posure the w!( the( hed.e net pos*t*ons !.!*nst other %urren%*es *n the FOR#] m!r"et4 s*mpl( us*n. %omple? $ormul!s !nd der*;!t*;es th!t loo" !t %orrel!t*ons between d*$$erent th*n.s. =orrel!t*ons %h!n.e slower th!n r!w pr*%e %h!n.es wh*%h 5the( th*n"8 .*;es them t*me to !dCust the*r hed.es *$ the %orrel!t*ons st!rt to e?%eed the model p!r!meters. An(w!(4 th!t *s ! pl!us*ble w!( the( !re hed.*n. the*r e?posure to the pr*%e o$ .old w*thout do*n. so *n the J.oldK m!r"et per se. 3ut the( %!n !lso hed.e some o$ th!t e?posure *n the .old m!r"et !s well4 b( .o*n. lon. .old on the =ome? or some other w!(. So *$ the( w!nt the pr*%e to r*se *n order to stret%h the ph(s*%!l s*de !nd 5hope$ull(8 replen*sh the G)D pu"e4 the( would s*mpl( sh*$t some hed.es $rom %omple? der*;!t*;es *nto =ome?. So e;en thou.h the( h!;e some %ontrol o;er the pr*%e o$ .old4 the( !re st*ll rel(*n. on other m!r"et pl!(ers $rom the ph(s*%!l s*de to respond !s e?pe%ted. And $rom the ;*ew o$ G)D !s the*r reser;e pool4 we %!n see th!t reser;es !re not onl( 6u*te $*n*te4 but the( !lso pe!"ed !lmost two (e!rs !.o. AGFOA s!*d the #=3G3+S str!te.( w!s to Je?p!nd !nd supportK the doll!r p!per .old m!r"et so the doll!r would e;entu!ll( Jb!n"rupt *tsel$K Cust to "eep the .old m!r"et .o*n. !nd st!( *n the .!me w*th the euro. FOA 5 -G10G 1N :E&4E0 MT 7 us!.old.%om ms.\>68 A ;er( l!r.e p!rt o$ th!t w!r str!te.(4 emplo(ed b( the #=3G3+S4 w!s to let the doll!r G +MF $!%t*on h!n. themsel;es b( e?p!nd*n. !nd support*n. the whole !ren! o$ th*s doll!r p!per .old m!r"et Tthe #=3G3+S *s support*n. !nd e?p!nd*n. p!per .old !s ! str!te.(U. +n$l!t*n. the .old m!r"et pl!%e w*th so mu%h 9p!per .old9 th!t we would e;entu!ll( h!;e to b!n"rupt oursel;es Cust to "eep the doll!r *n the w!r .!me !.!*nst the #uro. TLU '!.e 161

So4 don,t %ount on th*s destru%t*on o$ our p!per .old m!r"et to m!r" the re!l ;!lue !nd !;!*l!b*l*t( o$ ph(s*%!l .oldN th!t r!t*o w*ll spl*t somewhere down the .oldtr!*l. Th*s !%t*on w*ll s%!re most h!rden .old *n;estors to de!thN espe%*!ll( the ones *n le;er!.ed .old sto%"s !nd lesser wh*te met!ls! The w!r between .old !nd the doll!r h!s been o;er $or ! wh*le now. The !%t*on4 tod!(4 *s between the doll!r !nd the euro !ren! !nd th*s *s wh!t w*ll bre!" the pr*%e lo%" on .old. )e!;*n. .old bu.s w*th ! lot o$ 6uest*ons th!t !s" wh( th*sE both s(stems w*ll str*;e $or ! h*.her %urren%( pr*%e $or .oldN one do*n. *t be%!use the( h!;e toN the other do*n. *t be%!use the( w!nt to! The %!su!lt( on th*s b!ttle$*eld w*ll be the world .old m!r"et !s we "now *t. A m!r"et %!u.ht between how 2estern per%ept*on th*n"s .old,s pr*%e should be 9d*s%o;ered9 !nd !t wh!t pr*%e le;el tr!d*n. *n ph(s*%!l .old %r!ters the ent*re p!per stru%ture. A stru%ture o$ Amer*%!n b!sed 9p!per .old9. 2e h!;e been s!(*n. $or some t*me th!t th*s w*ll be 9the9 show to w!t%h un$oldN but onl( *$ (our hold*n.s !llow (ou to st!( st*ll *n (our se!t !s *t h!ppens 5sm*le8. The( sh*$ted the*r w!r on .old to be%ome ! w!r on the #uro4444 onl( too l!te. Now4 "now*n. th!t the #uro *s ! $!%t4 we must h!;e ! super .old pr*%e *$ the doll!r *s to st!( *n the .!me! The 6uest*on be%omes one o$ support*n. ! %he!p p!per pr*%e $or the sole $un%t*on o$ "eep*n. the m!r"et !nd !ll *ts bull*on pl!(ers !l*;e. 2*th the w!r on .old o;er4 the( need to turn the*r t!n"s !round to $!%e the re!l enem( but %!nnot. So *t seems th!t !s the w!r sw*t%hed $rom doll!r ;. .old to doll!r ;. euro4 the euro s*de helped m!"e the doll!r .old m!r"et T3TF. 3ut w*th ! r*s*n. ph(s*%!l .old pr*%eGdem!nd4 the doll!r p!per .old m!r"et h!s to "eep up be%!use *tMs T3TF now. Too m!n( o$ those J.oldK FD+= st*%"ers out there! +$ those st*%"ers $!*l4 the doll!r loses. So the J.oldK m!r"et *s T3TF. Remember th*s $rom FOA@ FOA 51 G>G 1N 1 E 1E4-MT 7 us!.old.%om ms.\11:8 2h!t doesn,t seem to be ob;*ous *s the 9wh( $or9 the p!per m!r"et .rew so l!r.e. +t .rew to dom*n!te be%!use worldw*de doll!r e?p!ns*on re!%hed *ts 9non7hed.ed9 pe!". +n other words4 the doll!r,s t*mel*ne w!s end*n. !s *ts !b*l*t( to produ%e non pr*%e *n$l!t*on!r( e%onom*% .!*ns %!me *nto s*.ht. +n order to push doll!r hold*n.s $urther4 *ntern!t*on!l pl!(ers needed !nd pur%h!sed 9p!per $*n!n%*!l hed.es9 to b!l!n%e the*r r*s". 2*th*n the*r tot!l m*? o$ der*;!t*;e hed.es were $ound 9p!per .old pr*%e hed.es9N modern .old der*;!t*;es. The *mport!nt th*n. to remember *s th!t these pos*t*ons !re not !nd ne;er w*ll be used to dem!nd ph(s*%!l .old. The( !re held to bu$$er $*n!n%*!l !nd %urren%( r*s" !sso%*!ted w*th hold*n. !n( $orm o$ doll!r b!sed !sset. To wor" these *tems don,t need to re!ll( per$orm 9doll!r pr*%e mo;ements9 *n the holders $!;or !s mu%h !s the( !re present *n the port$ol*o to !%t !s *nsur!n%e st*%"ers. +n th!t truth4 these p!per .old pos*t*ons !%t l*"e FD+= *nsur!n%e !t our b!n"s. +t %!n !nd w*ll m!n!.e onl( ! sm!ll determ*ned port*on o$ b!n" runs44444 not ! $ull s%!le $!*lure o$ the b!n"*n. s(stem. +n ! re!l $ull b!n"*n. $!*lure we would !ll .et4 perh!ps4 - Q o$ our %o;ered P1 4 !nd 1 Q o$ the rest. The s!me *s true $or these .old pos*t*on,s per$orm!n%eN re!l .old del*;er( !lon. w*th true pr*%e per$orm!n%e4 m!t%h*n. re!l bull*on tr!d*n.4 would be onl( $or the ;er( $ew. For th!t m!tter4 !n !%tu!l '!.e 16&

$un%t*on*n. p!per .old m!r"etpl!%e would be $or the ;er( $ew4 too! 3ut4 *n the s!me w!( ! b!n" !%%ount owner underst!nds the %red*b*l*t( o$ FD+= *nsur!n%e when t*mes !re .oodN the *ntern!t*on!l doll!r !sset owner w*ll not .r!sp th!t modern p!per .old hed.es %!nnot be !llowed to wor" unt*l !$ter ! re!l ser*ous pr*%e *n$l!t*on!r( run be.*ns. For the $*rst t*me *n th*s port*on o$ the doll!r,s t*mel*ne !nd our l*$et*mes4 su%h !n *n$l!t*on *s !bout to show *ts $!%e! So the p!per .old o$ the bull*on b!n"s *s now T3TF. O$ %ourse th!t doesnMt me!n *t %!nMt $!*l. +t e*ther $!*ls4 or the FSG h(per*n$l!tes the doll!r !s pr*%es r*se. The( !re rel!ted4 !nd e!%h w*ll l*"el( %!use the other !lmost *mmed*!tel(4 but e*ther one %ould end up be*n. the *n*t*!l %!use +MO. +$ pr*%e *n$l!t*on $or%es the FSG to h(per*n$l!te then the p!per .old *nsur!n%e st*%"ers w*ll h!;e to $!*l to per$orm. And *$ these pr*%e r*ses *n the .old m!r"et $!*l to m!n!.e the $low 5dem!nd8 o$ ph(s*%!l !s the( h!;e so $!r4 weMll l*"el( see ! 1 Q or l!r.er G)D pu"e !t some po*nt. Th!t would s*.n*$( more th!n ! 1& tonne !llo%!t*on dem!nd4 ! s(stem7bust*n. s*Ie. The( m*.ht th*n" the( %!n ro%"et the pr*%e !t th!t po*nt !nd .et *t b!%"4 but more l*"el( weMll see more !llo%!t*on re6uests %o*n%*dent w*th ! $!ll*n. 5p!per8 9.old9 pr*%e !s the lon.s dump the*r worthless J*nsur!n%eK wh*le w*sh*n. the( h!d the re!l th*n.. FOA 5 6G1&G N 1>E4-E&1MT 7 us!.old.%om ms.\&68 'ut (our %!rds on the t!ble! The %urrent p!per .old world w*ll d*e 5burn8 !s *ts ;!lue to users erodes4 not *n%re!ses! LA.!*n4 most e;er(one *n the 2estern Gold bu. .!me *s runn*n. w*th the b!ll *n the wron. d*re%t*on. LSo who *s *n d!n.er o$ be*n. hurt !s th*s un$olds@ Th!t,s r*.ht4 the 2estern p!per .old lon.! +,m not t!l"*n. !bout Cust the FS m!r"et! Th*s *s !bout the ent*re world .old m!r"et !s we "now *t tod!(. The re!l pl!( w*ll be $or the ones th!t .et out *n $ront o$ the mo;e b( own*n. ph(s*%!lL +t seems e;er( Gold bu. sees onl( h!l$ the tr!de !nd h!s .re!t $!*th th!t %ontr!%t l!w w*ll $!;or ! short s6ueeIe. Yet4 none o$ them see where *t *s the lon. th!t w*ll be dump*n. !nd $or%*n. the d*s%ount! As + h!;e s!*d *n the p!st4 .old *s so o;ersubs%r*bed throu.h the 33,s p!per .old *t,s more o$ ! wonder when the P'oG r*ses th!n when *t $!lls. 'erh!ps now we h!;e ! pl!us*ble e?pl!n!t*on $or wh( !nd how *t h!s been r*s*n. o;er ! de%!de4 !nd !lso how *t w*ll end. S*n%erel(4 FOFOA 'S. + re!l*Ie there,s ! ton o$ stu$$ + onl( tou%hed on here. + hope th!t A*%tor w*ll .r!%e us w*th h*s presen%e !nd h*s met*%ulous Thou.hts. N8 9#$$e%t And =!use9

'!.e 160

+ .uess (ou h!;e to h!;e ! problem +$ (ou w!nt to *n;ent ! %ontr!pt*on F*rst (ou %!use ! tr!*n wre%" Then the( put me *n tr!%t*on 2ell $*rst %!me !n !%t*on And then ! re!%t*on 3ut (ou %!n,t sw*t%h !round For (our own s!t*s$!%t*on 2ell (ou burnt m( house down Then .ot m!d !t m( re!%t*on 2ell *n e;er( %ompl*%!ted s*tu!t*on There,s ! hum!n rel!t*on M!"*n. sense o$ *t !ll T!"es ! whole lot o$ %on%entr!t*on 2ell (ou %!n bl!me the b!b( For her pre.n!nt m! And *$ there,s one o$ these un!;o*d!ble l!ws +t,s Cust th!t (ou %!n,t Cust t!"e the e$$e%t !nd m!"e *t the %!use T=horusEU 2ell (ou %!n,t t!"e the e$$e%t And m!"e *t the %!use + d*dn,t rob ! b!n" 3e%!use (ou m!de up the l!w 3l!me me $or robb*n. 'eter 3ut don,t (ou bl!me '!ul =!n,t t!"e the e$$e%t And m!"e *t the %!use + !*n,t the re!son th!t (ou .!;e me No re!son to return (our %!ll You bu$'t a hou%e o2 .ard% And #ot %ho.+ed )hen you %a) them 2a'' 2ell + !*n,t s!(*n. +,m *nno%ent +n $!%t the re;erse 3ut *$ (our he!d*n. to the .r!;e You don,t bl!me the he!rse You,re l*"e ! l*ttle .*rl (ell*n. !t her brother =!use (ou lost h*s b!ll You "eep bl!m*n. me $or wh!t (ou d*d 3ut th!t !*n,t !ll The w!( (ou %le!n up ! wre%" +s enou.h to .*;e one p!use You seem to $or.et Cust how th*s son. st!rted '!.e 164

+,m re!%t*n. to (ou 3e%!use (ou le$t me bro"en he!rted See (ou Cust %!n,t Cust t!"e the e$$e%t !nd m!"e *t the %!use T=horusU 7777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777777 ;*%torthe%le!ner s!*d... FOFOA4 th!n"s $or !d;ert*s*n. the !rt*%le! /ere !re some $urther det!*ls $rom m( em!*l e?%h!n.e w*th FOFOA. F*rstl(4 the pu"e *nd*%!tor wor"s! Th*s $!%t *s th!n"s to )!n%e )ew*s. 3ut then (ou need to underst!nd wh( *t wor"s. And the %on;ent*on!l e?pl!n!t*on th!t *t *s !rb*tr!.e be%!use o$ ! m*spr*%*n. o$ G)D rel!t*;e to spot4 .*;es (ou the $ollow*n. %on%lus*onE The G)D *n;entor( str!te.( wor"s. There$ore *t *s !pp!rentl( bull*sh *$ G)D *n;estors sell !nd !ll other .old *n;estors *n !..re.!te bu(. And be%!use *t *s be!r*sh *$ G)D *n;estors bu(4 but !ll other .old *n;estors sell. Now th*s *mpl*es th!t G)D *n;estors !re dumb !nd !ll other .old *n;estors !re sm!rt. Th*s e?pl!n!t*on %ert!*nl( m*sses the po*nt. +$ not !rb*tr!.e be%!use o$ ! m*spr*%*n. o$ G)D rel!t*;e to spot4 then wh!t *s *t th!t dr*;es the *n;entor( %h!n.es@ The onl( opt*on le$t *s th!t *t *s ! de%*s*on o$ the A'. Th!t,s R!nd( Str!uss, !nd FOFOAs po*nt o$ ;*ew. 3ut then (ou %!nnot e?pl!*n wh( the *nd*%!tor wor"s. Fnless... !nd here *s one o$ the em!*ls + sent to FOFOAE 2ood. ! think we are con erging. So the #a;or reason wh+ the gold gets into 2L" is $ecause the <<s decided to put it there. <ut here co#es the interesting .uestionQ -he 2L" puke indicator works. -his #eans that during the (H weeks after a puke, the XpaperX price rises. We need to explain this. :ssu#e a giant takes out so #uch ph+sical that the <<s ha e to access 2L". Yesterda+4s %.,P of 2L" were a$out %N tonnes. -his is still s#all co#pared to the paper trading olu#e 6H>> tonnes per trading da+7. KJtIQ ! got this wrong. 9)9): put it straight. !t is rather in excess of (R>> tonnesL We agree that the 4gold4 price is do#inated $+ paper trading. !f the hedge funds are all selling, the price will go down, e en if our giant takes so#e ph+sical. So wh+ does the paper gold price rise during the su$se.uent weeks8

'!.e 161

... Dune 14 & 1& 11E40 'M ;*%torthe%le!ner s!*d... ... 0+ picture is thisQ -here are so#e $u+ers of ph+sical who effecti el+ ha e li#it orders .uite a $it $elow the da+-to-da+ fluctuations of the 4gold4 price. Gor#all+, we don4t see it when the+ are $u+ing. <ut occasionall+, when the price drops enough for one of these orders to execute at a #o#ent in which one of the <<s is short of ph+sical, the << takes so#e gold out of 2L". -hese are the few occasions at which we see a trace of the giant $u+ing. Gow take a look at Lance4s $right $lue picture. -here is a staircase under the gold price. Since the fall of (>%%, the stair is at a$out M%NN>. Whene er the price drops to that le el, 2L" pukes 6twice in "ec and +esterda+7. -his is the le el at which the giant is $u+ing. 6perhaps the+ are $u+ing higher, too, $ut when the price drops to that le el, the+ $u+ e er+thing that4s a aila$le7 <ut wh+ does the price rise after that8 -he ph+sical taken $+ the giant is s#all co#pared to the da+-toda+ paper trading, and it is unrelated to all the speculati e acti it+ that dri es the 4gold4 price. Wh+ does the paper price rise after the puke8 -hink a$out +our 4-oda+4s 32old34. -he #ain danger to the London $ullion #arket is a drop of the paper price to such a low le el that the+ lose too #uch ph+sical. <ut now that we ha e stated the pro$le#, we also know how to sol e it and how to defend the London #arket. So#eone has to #onitor the flow of ph+sical. -here is so#e flow co#ing in fro# #ining and fro# scrap - that4s pro$a$l+ prett+ stead+ in ter#s of weight per da+. :nd there is the outflow fro# ph+sical $u+ing. -his is pro$a$l+ a stead+ a#ount of dollars per da+. So if the+ see that the+ are losing too #uch ph+sical, the+ can si#pl+ raise the paper price and there$+ reduce the outflow of ph+sical. !s this the reason wh+ the paper price rises after a puke8 1ow do the+ raise the paper price8 -here is $asicall+ onl+ one wa+Q So#eone has to go long paper gold. Who8 -he 9ed8 /S98 )ther I<s8 Perhaps e en the /uropean I<s8 9unn+, isn4t it8 :nd tell this to 2:-:Q -he 9ed is $u+ing paper gold in order to sta$ili@e the $ullion #arket. 1e+, ! want to see the looks on their faces when the+ figure this out. "o +ou agree that if +our picture of the puke is correct, that then the indicator can work onl+ if there is so#e acti e #anage#ent of the paper price8 ... Dune 14 & 1& 11E44 'M ;*%torthe%le!ner s!*d... '!.e 166

The ne?t 6uest*on *s do we h!;e !n *de! )ho *s m!n!.*n. the p!per pr*%e up !$ter ! ,pu"e,@ + *n*t*!ll( thou.ht *t m*.ht be some =3 or .o;ernment !%t*;*t(4 but then + run the s!me !n!l(s*s w*th s*l;er !nd S)A4 !nd !lthou.h ! b*t we!"er4 the s*.n!l *s st*ll there. S*l;er *s odd be%!use *t *s the onl( other %ommod*t( bes*des .old th!t *s tr!ded l*"e ! $ore*.n %urren%(. So *t sh!res !ll the te%hn*%!l *ssues w*th the .old m!r"et. 3ut *$ S)A pu"es !re !lso !n e$$e%t*;e s*.n!l 5!lbe*t !t po*nts *n t*me th!t d*$$er $rom the G)D pu"es84 then we need !n e?pl!n!t*on th!t does not *n;o"e =3s or .o;ernments. So the %on%lus*on *s th!t *t *s the 33s who somehow t!"e the pr*%e up !$ter the pu"e. Does *t wor" w*thout =3 *nter;ent*on@ ... Dune 14 & 1& 11E1 'M ;*%torthe%le!ner s!*d... The ne?t p!rt *s ! b*t spe%ul!t*;e4 !nd + h!;e not (et h!d t*me to %on$*rm whether *t *s te%hn*%!ll( %orre%t. 3ut here *s how the *de! .oes. FOFOA pressed me to t!"e the )o%o )ondon )*6u*d*t( Sur;e( 5Al%hem*st no 608 ser*ousl(. +$ (ou t!"e these numbers l*ter!ll(4 (ou see th!t dur*n. the $*rst 6u!rter o$ & 114 the )3MA members who responded to the sur;e(4 sold !bout :1 tonnes o$ .old more OT= th!n the( bou.ht. So *s loo"s !s *$ the( d*d enter ! hu.e d*re%t*on!l bet *n the .old m!r"et. Short :1 tonnes. O$ %ourse4 nobod( *s so stup*d !s to .o outr*.ht short :1 %!n th*s number e;en m!"e sense@ tonnes *n ! de%!de lon. bull m!r"et. So how

/ere *s the spe%ul!t*onE The( do hed.e th*s e?posure. 3ut the( do th*s not *n the OT= m!r"et $or .old. Other opt*ons !re4 $or e?!mple4 the( .o lon. the =OM#]4 et%4 *.e. .old *n;estments outs*de the $ore*.n e?%h!n.e m!r"et. Then (ou th*n" !bout th*s4 !nd4 (es4 the( %!n hed.e some e?posure *n the non7OT= p!per .old m!r"ets4 but :1 tonnes st*ll loo"s unre!l*st*% 5=OM#] open *nterest *s onl( !bout 1& tonnes 7 !nd there !re plent( o$ others there4 too8. So how the hell do the( hed.e *t@ The onl( !nswer + %!n th*n" o$ *s th!t the( hed.e *t b( .o*n. lon. %orrel!ted 5but not *dent*%!l8 !ssets. 2h!t,s %orrel!ted w*th p!per .old@ S*l;er4 %opper4 euros4 %rude o*l4 *nterest r!tes4 (*eld %ur;e spre!ds4 wh!te;er. So now (ou h!;e the me%h!n*sm $or *n$luen%*n. the .old pr*%e. +$ (ou w!nt to dr*;e the pr*%e up4 (ou Cust sh*$t (our hed.e $rom %orrel!ted 5but not *dent*%!l8 to !%tu!l .old *n;estments. A.!*n4 !t th*s st!.e th*s *s !ll spe%ul!t*on4 !nd *t needs *ndependent %on$*rm!t*on th!t we !re .ett*n. the l*6u*d*t( sur;e( r*.ht. +n %!se th*s *s %orre%t4 (ou %!n st!rt th*n"*n. !bout how *t w*ll !ll blow up one d!(. '!.e 16:

A*%tor Dune &4 & 1& 1&E 1 AM ;*%torthe%le!ner s!*d... Another rem!r" on GOFO. You prob!bl( remember !ll the h*%%ups !nd hed.e $und blow7ups dur*n. 1>>:7& 1 reported dur*n. the or*.*n!l .old tr!*l d*s%uss*on. #!%h t*me4 (ou %!n see GOFO sp*"e tow!rds ne.!t*;e terr*tor( 5ne.!t*;e GOFO H b!%"w!rd!t*on *n the OT= $orw!rd m!r"et *nd*%!tes th!t someone desper!tel( w!nts to borrow .old !nd *s w*ll*n. to p!( ! prem*um $or th*s8. A$ter & &4 there h!;e been _no_ s*.n*$*%!nt GOFO e;ents !n(more. Not e;en No;ember & dr!m!t*% !s the %ommon d*s!sters dur*n. 1>>:7& 1. - w!s !s

5One th*n.4 + th*n"4 th!t we "now4 *s th!t the !;er!.e numbers !s reported on the )3MA webs*te m!( be somewh!t $ud.ed 7 t!"e ! loo" !t the &&4&0 Au.ust & 11 e?!mple *n m( !rt*%le8 3ut e;en w*th the $ew s%reenshots o$ the Reuters 6uotes th!t people "ept4 GOFO *s r!ther t!me these d!(s. Th*s m!( be be%!use there *s su%h ! re!d*l( !;!*l!ble reser;e *ns*de G)D. +$ (ou %!n e!s*l( !nd pr*;!tel( !%%ess G)D4 wh( would (ou b*d $or ! .old sw!p !nd let e;er(one w*th ! Reuters d!t! $eed "now th!t (ou !re short o$ ph(s*%!l .old. The !nswer *s (ou don,t. You Cust t!"e *t out o$ G)D. 2h!t *mpresses me most *s th!t the( h!;e !lw!(s m!n!.ed to replen*sh *t 7 well4 !lmost. F*n!ll(4 Au.ust & 11 m*.ht h!;e been some sort o$ ! p!n*%. 'erh!ps some o$ the re.ul!rl( bu(*n. .*!nts were %lose to los*n. the*r temper. /en%e the hu.e pu"es. Th*s m!( .*;e (ou !n *de! o$ ! threshold !t wh*%h people be%ome ner;ous. A*%tor Dune &4 & 1& 1E 1 AM #dw!rdo s!*d... Th!n"s A*%tor4 FOFOA !nd =ost!t! $or sh!r*n.. So4 the reser;es o$ G)D pe!"ed two (e!rs !.o4 !nd FOFOA %onCe%tures th!t ! l!r.e pu"e o$ 1 Q or more w*ll !mount to 9.!me o;er9. +t seems !?*om!t*%4 !t le!st to me4 th!t wh!t we don,t "now $!r e?%eeds wh!t we do. For e?!mple4 !nd p!rdon the %onsp*r!tor*!l tone4 but *s *t poss*ble th!t there h!;e been !ttempts to remo;e 1 Q or more o$ G)D,s *n;entor( th!t h!;e been rebu$$ed ;*! 9ne.ot*!t*on.9 2*th th!t *de! *n m*nd + $*nd *t *nterest*n. th!t the two b*. pu"es th!t o%%urred *n Au.ust o$ & 11 h!ppened ne!r ! m!Cor h*.h 5both tempor!ll( !nd *n pr*%e8 th!t n*ne months on rem!*ns un%h!llen.ed. Th!t !%t*on s*ts *n st!r" %ontr!st to the pu"es th!t o%%urred !t the m!Cor lows *n & Dune &4 & 1& :E1: AM -.

'!.e 16-

FOFOA s!*d... /ello #dw!rdo4 3is it possi$le that there ha e $een atte#pts to re#o e %>P or #ore of 2L"4s in entor+ that ha e $een re$uffed ia 3negotiation.3 + doubt *t. You h!;e to .*;e ph(s*%!l to e er+one who dem!nds *t to "eep the .!me .o*n.. Th!t,s the "e( to the whole .!me!! +$ *tMs Cust one *nd*;*du!l dem!nd*n. & tonnes (ou %!n 6uell th!t thre!t w*th ! 'u"e or ! =3 lo!n. + suppose *t,s poss*ble to somehow t!l" someone out o$ the*r dem!nd4 but th!t would be ! d!n.erous .!me to pl!(. 2h!t (ou !re powerless !.!*nst *s ! run4 ! dr!m!t*% sh*$t *n ph(s*%!l dem!nd. You %!n r!*se the pr*%e to stret%h the $low4 but (ou %!n,t r!*se *t too $!r too $!st w*thout !%tu!ll( %!us*n. th!t sh*$t (ou most w!nt to !;o*d. Remember th*s $rom ANOT/#R@ CGo'd ha% a')ay% been 2unny $n that )ay. So many peop'e )or'd)$de th$n+ o2 $t a% money, $t tend% to dry up a% the pr$.e r$%e%.C On the other h!nd4 (ou don,t w!nt *t to $!ll too $!r too $!st e*ther be%!use4 !pp!rentl(4 there !re some G*!nts out there who w!nt the ph(s*%!l but who !lso "now *t *s not *n the*r best *nterest to run up the pr*%e. )*"e A*%tor s!*d4 3-here are so#e $u+ers of ph+sical who effecti el+ ha e li#it orders .uite a $it $elow the da+-to-da+ fluctuations of the 4gold4 price.3 Another told us !bout someth*n. s*m*l!r *n the > sE C0e'' a 2unny th$n# happened r$#ht a2ter the Gu'2 )ar ended. 0hat 'oo+ed '$+e b$# money be2ore turned out to be '$tt'e money a% %ome ,O peop'e, 6-'' .a'' them C*$# "raderC 2or %hort, mo9ed $n and %tarted buy$n# a'' the note% and phy%$.a' the mar+et o22ered. The ru! was that they only !ought low& and lower and cheaper. They ne er ran the price and they ne er ran out o% money. See$n# th$%, %ome peop'e E m$dd'e ea%t G %tarted to e/.han#e the$r e/$%t$n# paper #o'd 2or the rea' %tu22. From that t$me, ear'y 1@@( 5*MA )a% runn$n# 2u'' %peed Mu%t to %tay $n one %pot! 6n other )ord% paper 9o'ume had to $n.rea%e to the phy%$.a' 9o'ume on a )or'd)$de %.a'e, and that )a% #o$n# to be one he'' o2 a Mump. 6t .ou'd not be h$dden 2rom the ne)% any 'on#er. "h$% )a% not 2ar 2rom the t$me that C*$# "raderC %a$d that C$2 #o'd drop% be'o) P3(0 the )or'd )ou'd %ee trad$n# 9o'ume '$+e ne9er be2ore %eenC. "he re%t $% h$%tory. o) the J*% )$'' ha9e to %e'' 1K3 to 1K2 o2 the$r #o'd Mu%t to .o9er )hat% out there. "o u%e the 7ueen% 1n#'$%h C$t a$n-t #ona happen dudeC!C +,m not s!(*n. th!t !ll G*!nts !re =3s. The( !ren,t. 3ut some =3s do pl!( w*th the 33s. + h!;e ! re!der who *s ! FOR#] tr!der !nd she sends me .old7rel!ted *n$o th!t %omes !%ross her s%reen $rom t*me to t*me. On 1G&04 the d!( !$ter the 'u"e she sent me th*s wh*%h + sh!red w*th A*%torE 31e+ 9)9):, ! hear on the wire toda+ that there is at least one :sian Ientral <ank with $ids in the inter$ank #arket for spot gold at M%N(N3 These em!*ls she sends me !re ;er( *n$re6uent. To .*;e (ou !n *de! o$ the $re6uen%(4 the l!st t*me she sent me !n( *tem o$ *nterest th!t %!me !%ross her FOR#] 9w*re9 w!s O%tober. An(w!(4 + w!s !bout to '!.e 16>

sh!re w*th A*%tor ! %ouple o$ her em!*ls *n wh*%h she e?pl!*ned th*s *n$o she .ets. 3ut s*n%e *t *s rele;!nt to the d*s%uss*on !t h!nd4 + de%*ded to sh!re them w*th e;er(one. + hope she doesn,t m*nd! N8 'C%UC%% 1i 9)9):, ! realise ! didn4t $other to tell +ou #uch a$out #+self, $ut ! a# a currenc+ trader and that is how ! ca#e across +our $log. So#eti#es info co#es across #+ desk to do with Ientral <anks hitting $ids or offers in arious forex pairs, like 3word is, Singapore So ereign 9und on the $id /5R5S" $elow %.,HN3, or whate er. -oda+, for the first ti#e in ages and ages 6#a+$e since the M%>>> #ark7 ! got a wire a$out goldQ =ontL Dune &4 & 1& 4E11 'M FOFOA s!*d... &G& ";nter!ank reports 2hina !id spot LAU 90E0? into -J close& %urther !id interest e"pected %rom same 90M.?#90M?/." So#eti#es the wire will #ention the si@e of $ids or offers $ut not in this case. !4# not sure if info like this interests +ou, $ut let #e know if it does and ! will pass it on as it co#es to light. 'C(HC%% 1i 9)9):, -he inter$ank is what we refer to as the aggregate price posted $+ a $unch of $anks, sa#e wa+ the spot forex #arket works. -here is no single exchange and no single posted price, rather a $unch of $ank run /IGs which aggregate against each other to pro ide a 3$est $idCoffer3. -he $estCwell known exa#ples are /<S, Iurrenex and Reuters ", httpQCCen.wikipedia.orgCwikiC/lectronic\<roking\Ser ices httpQCCen.wikipedia.orgCwikiCReuters\,>>>\Vtra 5suall+, on $ig #arket da+s and e en #ost da+s, at the end of the da+ 6GY close7 traders with access go $ack o er the nights action and tr+ to #atch executed olu#e against order flow which the+ executed for clients or saw their $uddies on another desk executing for clients, to help get a grasp on who was doing what in the pre ious da+s action. So#eti#es traders will put stop or li#it orders into the #arket directl+, so +ou can see olu#e waiting $efore it4s executed. So as -ok+o opens +ou will often see wires like 3Ionfir#ed , +ards executed 5S"JPY during London afternoon fix at &N.N3 or as London opens 3So ereign $u+ stops located ;ust a$o e %.N /5R5S", s#all si@e, $igger at %.NN(N3 or si#ilar 6! ;ust pulled those ones out of #+ arse for exa#ple purposes7. : +ard is % $illion. '!.e 1:

!t isn4t often +ou see such wires a$out inter$ank gold transactions. :s #entioned, $efore M%&%N the last ti#e ! saw such a line 6ad#ittedl+ the+ #ight ha e occurred and ! #issed the#7 was in (>>' around the M%>>> spot gold price. So to clarif+ what ! #eant specificall+Q )n the inter$ank gold #arket last night, which is the gold e.ui alent of spot forex, there was er+ little olu#e. Iertainl+ not enough olu#e to attri$ute to a large pla+er. Large pla+ers #a+ ha e $een positioning the#sel es in gold through other #arkets, $ut not on the inter$ank #arket. :s ru#ors a$out M%HN> $ids fro# a cachet of :sian Ientral <anks had $een floating around e er since the original M%&%N Ihina $id was spotted, after the GY close traders looked er+ hard at the o ernight inter$ank flows for signs of order execution $+ these sa#e parties and ca#e up with nothing. M%&%N was a real $id 6although who knows how long it was held for7, $ut no $ids #aterialised under M%RN> fro# so ereigns, certainl+ not $elow M%HN>, in the inter$ank #arket. ! also noticed toda+ there is a note fro# 2old#an Sachs floating around the net a$out the recent price action in gold, and ! will .uote the appropriate section $elowQ 3What we are seeing in the #arket place is high olu#e turno er on the exchange $ut extre#el+ low li.uidit+ and huge acti it+ on the screens rather than in the )-I discretionar+ space where #ost of our counterparties ha e had er+ little risk in gold for se eral weeks. !nter$ank flows are al#ost extinct.3 S*n%erel(4 FOFOA Dune &4 & 1& 4E14 'M M*%h!el / s!*d... Re.!rd*n. ,s(nthet*% hed.es,E +$ the h(pothes*s th!t the 33s e$$e%t ! .old pr*%e r*se b( repl!%*n. s(nthet*% ,.old pr*%e %orrel!ted, hed.es b( !%tu!l p!per .old4 wouldn,t th*s !%t*on %!use losses $or the 33s@ #?!mpleE 33 h!s ]]] short e?posure to .old pr*%e so !s p!rt o$ the hed.e the( bu( ]] lon. o*l pr*%e e?posure. The( need the .old pr*%e to r*se so the( sell ] o*l pr*%e !nd bu( ] .old pr*%e. 3( sell*n. ] o*l pr*%e4 do the( be.*n to bre!" the %orrel!t*on between the rem!*n*n. ]] *n o*l hed.es !nd the .old pr*%e@ +.e. b( unw*nd*n. p!rt o$ the*r hed.es !re the( e!t*n. losses on the rem!*nder o$ the*r hed.e. Dune &4 & 1& :E4: 'M FOFOA s!*d... '!.e 1:1

/ello M*%h!el /4 #!rl*er G!r( !s"ed !bout the 9need*n.Gw!nt*n. *ssue9. +t,s the doll!rG33 s*de th!t needs the P'oG 5p!per .old8 to r*se so !s to m!n!.e the $low o$ ph(s*%!l. Short e?posure *s ! sl!m dun" to the 33s. The( don,t $e!r *t one b*t. As + s!*d4 *t,s more o$ ! wonder 5*.e. m(ster(8 when the P'oG r*ses th!n when *t $!lls4 wh*%h *s wh( *t doesn,t m!"e sense to th*n" th!t !n(one *s *ntent*on!ll( suppress*n. the P'oG. /ere,s some FOA $rom 9A =le!r '!th9 50G&G 8E 39ro# a /uroland iewpoint, the dollar no longer needed to $e supported $+ a low gold price. With the /uro in place and holding a large portion of the world4s new, non-currenc+ 3reser e asset3 for support, they no longer had a reason to !uy at 9.E/ or sell at 9DE/. !ndeed, the+ told the world the+ were $acking out of the paper gold ga#e with the Washington :gree#ent.3 So (ou,re ! 334 M*%h!el4 !nd (ou no lon.er h!;e o$$*%*!l support $or ! low 5m!n!.ed8 pr*%e $or ph+sical to "eep *t *n l*ne w*th the pr*%e o$ (our p!per produ%t4 the P'oG. The other w!( to loo" !t th*s *s !s *$ (ou !re ! b!n" who h!s Cust lost *ts =3 b!%"er4 *ts lender o$ l!st resort. A b!n" w*th ! lender o$ l!st resort doesn,t need to m!n!.e the $low o$ reser;es *tsel$ !s *ts =3 Cust steps *n !nd $loods the m!r"et w*th reser;es when needed. /ere,s ! b*t $rom m( post The A*ewE A =l!ss*% 3!n" Run to set up th*s !n!lo.(E 3: $ank can $e 3populated3 with unallocated gold accounts in two pri#ar+ wa+s. !t can either $e done as a ph+sical deposit $+ a sill+ person or $+ another corporate entit+, or else it can occur co#pletel+ in the non-ph+sical real# as a cashflow e ent where$+ a custo#er with a surplus account of forex calls up and re.uests to exchange so#e or all of it for gold units, whereupon the $ank acts as a $rokerCdealer to co er the deal * occurring and residing on the $ooks as an accounting e ent a#ong counterparties rather than as an+ sort of ph+sical purchase. Go $read, no $readcru#$s, onl+ a paper trail and #etal of the #ind. -his is how the L<0: can report its #ere su$set of clearing olu#es a eraging in the neigh$orhood of %& #illion ounces P/R ":Y. Just a whole lot of 3unallocated gold3 digital acti it+ as an ongoing counterpart+-s.uaring exercise. !t is here that ! offer the eurodollar #arket as a er+ good parallel to the $ullion sector of $anking. While not a perfect parallel 6for all the #ost o$ ious reasons7 it pro ides a re#arka$l+ good $ridge to help an+one who has a good footing on #odern co##ercial $anking to successfull+ cross o er to that see#ingl+ unfa#iliar territor+ of 3$ullion $anking3. !n fact, the+ need do little #ore to successfull+ cross o er than to si#pl+ think of $ullion $anking ops as though the+ were eurodollar $anking ops * the difference $eing that whereas eurodollar $anking #akes extra-so ereign use of the 5.S. dollar as its accounting $asis in international $anking acti ities 6thus outflanking Gew York4s pur iew and restrictions7, $ullion $anking engages in si#ilar 3extra-so ereign3 use of gold ounces within its operationalCaccounting $asis 6thus outflanking and o errunning 0other /arth4s do#ain and tangi$le restrictions7.3 =ontL Dune 04 & 1& 1&E > AM FOFOA s!*d... '!.e 1:&

&G& There,s re!ll( no r*s" o$ p!per .old ro%"et*n. to the moon. Fnl*"e the re!l th*n.4 p!per .old %!n be 6u!nt*t!t*;el( e!sed 5e?p!nded *n ;olume8 to meet dem!nd4 "*nd o$ l*"e the doll!r. The r*s" *s !n un%ontroll!ble sh*$t *n dem!nd $rom (our p!per to (our reser;es. To m!n!.e th!t r*s"4 (ou must m!n!.e the $low o$ reser;es. You,re ! b!n"4 so (ou ne;er h!;e !n( e?%h!n.e r!te or pr*%e e?posure. You h*red some /!r;!rd 'hD .ee"s to t!"e %!re o$ th!t. You m*.ht h!;e 9short e?posure9 !%%ord*n. to those !nno(*n. l*ttle .old bu.s 5wh( %!n,t someone %ome up w*th !n e$$e%t*;e .old bu. l!mp@84 but (ou,re ! b!n"4 ! m!ster o$ the "nown !nd un"nown un*;erse4 so (ou "now better. 2h!te;er (our moment!r( e?posure m!( be *n th!t m*nute !$ter one o$ (our m*n*ons h!n.s up w*th ! %l*ent4 (our bl!%" bo? t!"es %!re o$ *t. Most o$ (our Cob *s Cust 9nett*n. out9 e;er(one else,s tr!ns!%t*ons !nd then %ount*n. 5!nd subse6uentl( roll*n. !round *n8 !ll the tr!ns!%t*on $ees. And (our n*$t( bl!%" bo? nets these th*n.s out s*? w!(s to Sund!(. +$ someone bu(s ! doll!r $rom (ou e?pos*n. (ou !s short one doll!r4 th!t %!n be netted out !.!*nst someone else sell*n. (ou ! doll!rL or !n !lmost *n$*n*te !mount o$ other w!(s! A sm!ll p!rt o$ (our Cob *s m!n!.*n. (our net7e?posure !t the end o$ the d!(4 !nd the e;en sm!ller4 most !nno(*n. p!rt *s m!n!.*n. the $low o$ those stup*d sh*n( ro%"s the d*rt( m*ners !nd blue7%oll!r wor"ers !t the re$*ner( sh*p to (our ;!ult. An( net short e?posure (our bl!%" bo? sp*ts out me!ns (ou h!;e net %!sh o$ one "*nd or !nother w*th wh*%h (ou %!n 6u*%"l( el*m*n!te th!t e?posure b( p*%"*n. $rom the menu o$ %ho*%es (our bo? sp*ts out !t the s!me t*me. +$ there,s ! net *n$low o$ P1.43 w*th short .old e?posure !s there w!s *n Y1 & 11 !%%ord*n. to the )3MA sur;e(4 there,s no need to unw*nd !n(th*n. th!t (ou !lre!d( own. You Cust p*%" where (ou w!nt to %h!nnel th!t *n$low o$ %!sh. Some to the 9.old9 m!r"et 5to m!n!.e the $low o$ ph(s*%!l8 !nd the rest *nto wh!te;er (our bl!%" bo? s!(s h!s ! stron. %orrel!t*on. +$ there,s ! net out$low o$ %!sh 5or other stu$$8 le!;*n. (ou w*th ! net lon. e?posure to sh*n( ro%"s4 (ou %ould e*ther short the 9.old9 m!r"et or s*mpl( unw*nd some other %orrel!ted lon. hed.es. 3ut *$ (ou w!nt (our pre%*ous P'oG to r*se $or those e;er7!nno(*n. 9reser;e m!n!.ement9 re!sons4 (ou ob;*ousl( won,t %hoose to short the 9.old9 m!r"et! You w*ll *nste!d be unw*nd*n. (our other lon. hed.es. And *$ (ou re!ll( w!nt to .*;e the 9.old9 m!r"et ! boost 5be%!use o$ ! 'u"e84 wh( not unw*nd more th!n (ou need !nd pour th!t e?tr! %!sh *nto =OM#]@ You,;e Cust unwound (our le;er!.ed lon. *n th!t other *tem wh*%h w*ll now be tempor!r*l( less7 %orrel!ted w*th .old be%!use o$ (our _F'2ARD_ m!n*pul!t*on o$ the 56uote7un6uote8 9.old9 pr*%e. And the best p!rt *s th!t s*n%e (ou !re ! m!ster o$ the un*;erse !nd (ou "new th!t .old would une?pe%tedl( boun%e up P: 5.*;e or t!"e8 on Fr*d!(4 (ou were !ble to let (our bl!%" bo? "now !bout *t !nd heGsheG*t m!de the !ppropr*!te !dCustments. All *n ! d!(,sGwee",s wor"4 !nd now b!%" to roll*n. !round *n those $ees. S*n%erel(4 FOFOA 'S. Your /!r;!rd 'hD .ee"s ne;er he!rd o$ Another4 FOA or Free.old !t /!r;!rd4 so th!t p!rt*%ul!r ph!t t!*l ne;er m!de *t *nto (our un$ortun!te !l.or*thm. '!.e 1:0

Sunday, June 10, 2012


*'ond$e-% Q$e)

+ thou.ht 3lond*e,s e?%ellent %omment w!s Cust !bout .ood enou.h to be ! post. And when RD %!lled *t Sermon on the Mount m!ter*!l4 th!t t*pped the s%!le. 3ut be %!re$ul not to m*ss the $orest $or the trees4 or the $r!%t!l $or the %h!os4 be%!use 3lond*e prett( mu%h n!*ls *t. +t,s !ll *n the ;*ewRthe perspe%t*;e. And e;en thou.h (ou m!( not be ! .*!nt4 (ou %!n st*ll le!rn to ;*ew the world !s ! .*!nt w*th ! l*ttle pr!%t*%e. +t,s e!s*er th!n (ou m*.ht th*n". All (ou h!;e to do *s .entl( set (our shr*mp b!..!.e on the .round !nd w!l" !w!(. *'ond$e on the Mount Another s!*dE "+old7 ;t is the only medium that currencies do not "mo e thru". ;t is the only <oney that cannot !e alued !y currencies. ;t is gold that denominates currency. ;t is to say "gold mo es thru paper currencies" +$ th*s st!tement !ppe!rs the le!st b*t %r(pt*%4 *$ *t does not m!"e 1 Q %r(st!l %le!r sense4 then l*ttle else wr*tten on th*s blo. b( e*ther the %ontr*butors or the s%!nt $ew %ommenters who do underst!nd *t w*ll m!"e %omplete sense to (ou4 desp*te (our best e$$orts. You see4 m( $r*end4 *n th*s world there !re two t(pes o$ peopleE those who 'RODF=#4 !nd those who %onsume. YOF %onsume. Those who 'RODF=#4 !nd there *s per$e%tl( .ood re!son wh( *t *s wr*tten *n %!ps4 !re .*!nts. #;er(one else4 *n%lud*n. YOF4 *s ! shr*mp. AnotherMs st!tement !bo;e *s the perspe%t*;e o$ the .*!nts4 not the shr*mps. So donMt $eel b!d *$ *ts *nherent truth *s not sel$7e;*dent4 (ou h!;e s*mpl( ne;er d*re%tl( e?per*en%ed l*$e !s ! .*!nt. No sh!me *n th!t! Th!t *n *tsel$ me!ns nothing at all. #?%ept th!t (ou donMt h!;e the perspe%t*;e $rom wh*%h to underst!nd .old. So (ou,ll h!;e to bu*ld *t $rom s%r!t%h.

'!.e 1:4

+n th*s %!se !%tu!ll( underst!nd*n. .old me!ns $*rstl( h!;*n. to d*s%!rd !n !w$ul lot o$ $und!ment!l bel*e$s !bout the w!( th*n.s wor". Th*s *s !lso the s*n.le b*..est b!rr*er to d*s%uss*n. .old w*th !n(one elseL the( w*ll ne;er underst!nd w*thout d*t%h*n. some o$ wh!t the( hold !s $und!ment!l bel*e$s4 so (ou m!( !s well not bother. +$ (ou w*n !n(one o;er *t *s ult*m!tel( onl( be%!use o$ the*r $!*th *n (ou !nd (our per%ept*ons4 not the*r own underst!nd*n.. 3ut + d*.ress. You m!( !ppre%*!te th!t we need .old to $*? our monet!r( s(stem4 but th!t does not me!n (ou !%tu!ll( underst!nd how .old re!ll( $un%t*ons. Gold $un%t*ons !s the ult*m!te store o$ ;!lue. N*%e words4 n*%e *de!4 but (ou !re ! shr*mp. YouM;e ne;er h!d ;!lue *n ! 6u!nt*t( th!t needed stor*n.. Sure (ou m!( h!;e Js!;*n.sK4 but (ouM;e ne;er person!ll( e?per*en%ed d*m*n*sh*n. m!r.*n!l ut*l*t( to the de.ree th!t .oldMs $un%t*on be%omes !pp!rent4 so *t rem!*ns ! theor(. There *s ! monument!l d*$$eren%e between mere theor( !nd theor( %orrobor!ted b( e?per*en%e. The l!tter h!s .r!du!ted $rom theor( to $!%t. Th*s *s the b!s*s o$ m( pre;*ous %omment !bout anew mone(M !nd the $!%t th!t *t does not ne%ess!r*l( underst!nd .old. New mone( $or the most p!rt bel*e;es *t h!s *ts surplus ;!lue se%urel( stored *n ;!r*ous $*n!n%*!l *nstruments. Old mone( 5re!l .*!nts8 "nows better. Th*s perspe%t*;e *s !lso wh( the *de! th!t O*l would not re6u*re ph(s*%!l .old $or the*r surplus *s preposterous. Another told (ou th!t (ou %ould $ollow *n the $ootsteps o$ .*!nts4 !nd (ou %!n4 but *$ (ou w!nt to see the*r perspe%t*;e thereMs ! b*t more *n;ol;ed. News$l!shE PFS /+ !lre!d( h!ppened. Th!tMs wh!t the astru%tur!l supportM s*n%e the e!rl( a- s h!s been *n !*d o$4 to !;o*d the %on%lus*on o$ th*s pro%ess. As FOFOA h!s po*nted out so %le!rl(4 !s lon. !s the m!r.*n!l $low o$ e?%ess doll!rs em*tted b( the FS *s !bsorbed *nto the m!r"et the doll!r %!n %ont*nue to $un%t*on. The de;!lu!t*on o$ the %urren%( *s ! m!r"et dr*;en e;ent4 the $*n!l st!.e o$ e;er( /+4 but it does not occur as long as the excess currenc+ is a$sor$ed. Some ent*t*es h!;e not w!nted *t to o%%ur unt*l the( were better prep!red4 so the( h!;e4 !t no sm!ll %ost4 suppl*ed the stru%tur!l support to del!( the denouement. Ob;*ousl( the( $elt the %osts were outwe*.hed b( the bene$*ts. The re;!lu!t*on o$ .old *s ! d*st*n%tl( sep!r!te thou.h %on%urrent e;ent. +$ (ou underst!nd how .old wor"s (ou w*ll !ppre%*!te th!t the .*!nts h!;e no *n%ent*;e to d*re%tl( tr*..er e*ther o$ these sep!r!te but s*mult!neous e;entsL the( !lre!d( h!;e the*r .old4 !nd the( !lre!d( "now *ts ;!lue 5!nd who w!nts to be bl!med $or someth*n. th!t w!s %ompletel( un!;o*d!ble@8. +$ (ou donMt need to !%%ess the ;!lue (ou h!;e stored *n .old4 then *t *s re!ll( *rrele;!nt to (ou wh!t the m!r"et %urrentl( ;!lues .old !t. The( donMt need the shr*mps to tell them !n(th*n.N r!ther *t *s the shr*mps who need to w*se up. Shr*mps !re the s!me ones obCe%t*n. to J!uster*t(K !"! l*;*n. w*th*n oneMs me!ns. DoesnMt o%%ur to them th!t the $!nt!s( m!( h!;e been the t*me when the( l*;ed o;er !nd !bo;e the*r me!ns4 does *t@ + .ot ! .ood l!u.h $rom th*s !rt*%le4 p!rt*%ul!rl( the open*n. p!r!.r!phsE 3So what is it a$out #one+ that the leaders of the euro@one don4t get8 0one+ has $een around for a while, and it4s not terri$l+ co#plicated. '!.e 1:1

-he ke+ ele#ent is trust. -hat was true when #one+ was a piece of #etal that +ou could $ite or $ounce. Gow that #one+ is ;ust a piece of paper, it4s e en truer. -oda+4s #one+ is nothing $ut trust. -hat4s wh+ the euro crisis is so $i@arre. -he euro is, in theor+, one of the world4s great currencies. :nd +et, as this crisis has de#onstrated, no$od+ actuall+ stands $ehind it. -here is no lender of last resort. -here is no 3full faith and credit.3 -here4s no$od+ on the other end of the pro#ise. :nd it4s as if the leaders of the euro@one wanted to go out of their wa+ to pro e it. -he+4 e taken us up to the el et curtain and then the#sel es, with a self-satisfied s#ile, pulled it aside to show us that there is no 2reat )@. :nd in the process the+4 e done #a;or, and perhaps irretrie a$le, da#age to their own currenc+ and to the er+ idea of #one+ in our ti#e. !f +ou can4t trust the euro, what paper can +ou trust83 )oo"s to me l*"e the Jle!ders o$ the euroIoneK .et *t $*neL the !uthor *s s*mpl( under the presumpt*on he underst!nds mone(. DoesnMt seem to h!;e o%%urred to h*m th!t he m!( not. /eMs de$*n*tel( not !lone. FOFOAE 3!t4s ;ust a shift in the perception of sa ers. Ian4t change that.3 JS!;ersKE those produ%ers who %urrentl( do not underst!nd .old. =onsumers 5shr*mps8 !re Cust !lon. $or the r*de. As + s!*d !t the top4 *$ AnotherMs st!tement *s not %r(st!l %le!r (ou donMt underst!nd .old4 so donMt delude (oursel$ th!t (ou do4 !nd be!r th*s *n m*nd when (ou %ompose ! %omment. +,;e no doubt m( %omments w*ll upset some people. Th!t doesn,t me!n the(,re not %orre%t4 Cust th!t some people don,t l*"e them. A b*t l*"e 9!uster*t(9 perh!ps. WWWWWWWWWW m*l!mber s!*dE 3... to this western shri#ps #ind, there is a whole lot of unlearning that ! ha e hadCa# ha ing to doD3 + !ppre%*!te th!t4 h!;*n. been there too. To be honest4 *t,s not !s d*$$*%ult !s *t !ppe!rs. )*"e m!n( others4 *t be%!me %le!r to me ! $ew (e!rs !.o th!t b*. th*n.s were .o*n. down. + $elt %ompelled to $*nd out wh!t. +t w!sn,t ! b*. step to see th!t th*s w!s ent*rel( ! monet!r( *ssue. 2hen + thou.ht !bout *t4 + %ouldn,t produ%e ! re!ll( .ood de$*n*t*on o$ mone(4 so ... + h!d some wor" to do. 3u*ld (oursel$ ! .ood de$*n*t*on !nd Another,s perspe%t*;e4 not to ment*on the world !t l!r.e4 st!rt m!"*n. ! lot more sense.

'!.e 1:6

"hur%day, June 21, 2012


"he Debtor% and the Sa9er% 2012

5$+e Du%t $n the 0$nd -here are ,%,N,>,>>> seconds in a +ear. : thousand #illiseconds in a second. : #illion #icroseconds. : $illion nanoseconds. :nd the one constant, connecting nanoseconds to +ears, is change. -he uni erse, fro# ato# to galax+, is in a perpetual state of flux. <ut we hu#ans don4t like change. We fight it= it scares us. So we create the illusion of stasis. We want to $elie e in a world at restOthe world of right now. Yet our great paradox re#ains the sa#e. -he #o#ent we grasp the now, that now is gone. We cling to snapshots, $ut life is #o ing pictures, each nanosecond different than the last. -i#e forces us to grow, to adapt, $ecause e er+ ti#e we $link our e+es, the world shifts $eneath our feet. Ihange isn4t eas+. 0ore often, it4s wrenching and difficult. <ut #a+$e that4s a good thing. <ecause it4s change that #akes us strong, keeps us resilient, and teaches us to e ol e. BT*m Or*n. 'r*%es %h!n.e. Don,t the(@ Yes4 o$ %ourse the( do! 2e don,t !lw!(s l*"e *t when pr*%es %h!n.e4 but the( do nonetheless. And wh( do pr*%es %h!n.e@ 3e%!use ;!lues %h!n.e! Th!t,s r*.ht4 +,m t!l"*n. !bout the w!( hum!ns ;!lue th*n.s rel!t*;e to other th*n.s. Rel!t*;e ;!lues %h!n.e %onst!ntl(4 !nd be%!use rel!t*;e ;!lue *s ! subCe%t*;e %ho*%e m!de b( e!%h *nd*;*du!l4 wh!t !%tu!ll( %h!n.es *s dem!nd. + remember b!%" *n & - 3l!%"3err*es were !ll the r!.e. F*rst .ener!t*on *'hones were ! l*ttle bu..( !nd R+M 5the m!"er o$ the 3l!%"3err(8 w!s ro%"et*n. tow!rd P11 . 3oth R+M !nd Apple were !round P14 !t !bout the s!me t*me. Tod!( *'hones !re %ool4 R+M *s P1 !nd Apple *s P1::. Dem!nd %h!n.es4 rel!t*;e ;!lues %h!n.e4 pr*%es %h!n.e. 2e don,t !lw!(s l*"e *t when th*n.s %h!n.e4 but the( do nonetheless. So wh( !re some people so stu%" on th!t old obCe%t*;e %ost theor( o$ ;!lue@ One th*n. + h!;e le!rned throu.h wr*t*n. th*s blo. *s th!t these people *n p!rt*%ul!r4 when the( %ome !%ross m( blo.4 seem to be the most obsess*;e !bout 9debun"*n.9 me. Yes4 +,m t!l"*n. !bout our old M!r?*st $renem( Ash. +n the $*rst dr!$t o$ th*s post + h!d l*n"s to ! %ouple o$ others !s well4 one who wrote someth*n. l*"e "e$unking 9)9): !nd !nother who de;oted no less th!n s*? posts to the %!use. 3ut there,s re!ll( no need to loo" !n( $urther th!n e;er(one,s $!;or*te M!r?*!n w*th h*s ten posts !nd %ount*n.. /e h!s !n on.o*n. ser*es o;er !t 9The Autom!t*% #!rth9 de;oted to debun"*n. Free.old! '!.e 1::

"he Mar/$an Q$e) A%h9$n 4anduran#$; 3-his series was a co#prehensi e atte#pt to de$unk the K9reegoldL theor+ $+ attacking its foundations, which range fro# 1egelian idealis# to the 6#ore concrete7 #arginal utilit+ theor+ of alue, and $+ replacing those foundations with what ! $elie e to $e #ore solid ones. :#ong these were 0arx4s theor+ of capitalis#, spanning his concepts of surplus alue, rate of exploitation, o er-production and reali@ation of alueB3 +n m( & 1 post4 The Debtors !nd the S!;ers4 + e?pl!*ned the 9M!r?*!n9 ;*ew o$ %l!ss stru..le l*"e th*sE 3Si#pl+ put, 0arx sa+s it4s the rich ersus the poor. :ccording to 0arx the rich exploit the poor to get the#sel es a 3la$or-free inco#e3, which spawns a class struggle.3 Th*s $l!wed perspe%t*;e m!"es *t *mposs*ble to underst!nd Free.old4 wh*%h *s perh!ps wh( the( !re so dr*;en to debun" *t. ,e#e'$an 6dea'$%m 2*th the %orre%t del*ne!t*on be*n. the debtors !nd the s!;ers 5!"! the e!s( mone( %!mp !nd the h!rd mone( %!mp84 Free.old s*mpl( e?pl!*ns how4 w*th the term*n!t*on o$ the P+MFS4 wh!t rem!*ns *s ! s(stem *n wh*%h these two %!mps w*ll no lon.er be *n ! perpetu!l st!te o$ monet!r( %on$l*%t. Th*s *s wh!t Ash;*n dubs /e.el*!n *de!l*smN the *de! th!t mutu!ll( bene$*%*!l %oe?*sten%e between those whose *nn!te tenden%( *s to net7produ%e 5produ%e more th!n the( %onsume8 !nd those who pre$er e!s( mone( throu.h borrow*n.4 t!?*n. !nd pr*nt*n. *s e;en poss*ble. /*s !r.ument th!t *t *s not poss*ble bo*ls down to 9the(9 5the e;*l rul*n. el*te8 w*ll ne;er let *t h!ppen. Mar#$na' <t$'$ty "heory o2 Qa'ue S*mpl( st!ted4 the M!r.*n!l Ft*l*t( Theor( o$ A!lue wh*%h M!r?*sts obCe%t to *s re!ll( Cust the subCe%t*;e ;*ew o$ ;!lue wh*%h + des%r*bed !t the top. The( pre$er M!r?,s obCe%t*;e ;*ew o$ ;!lue wh*%h s!(s th!t ;!lue $lows up throu.h the %osts embedded *n the suppl( s*de r!ther th!n down $rom the subCe%t*;e %ho*%e o$ the end user. And wh*le M!r? h!s been thorou.hl( d*s%red*ted *n e%onom*%s4 th*s '!.e 1:-

obCe%t*;e ;*ew o$ ;!lue pers*sts be%!use *t $*ts the 9e?plo*t!t*on o$ the wor"ers9 theme th!t *s so popul!r !mon. *mpress*on!ble (oun. m*nds !nd s%!r( doomers w*th b!tsh*t7%r!I( world;*ews.

2h*%h br*n.s us to Ash;*n,s 9more sol*d9 $ound!t*ons o$ M!r?*!n 9surplus ;!lue4 r!te o$ e?plo*t!t*on4 o;er7produ%t*on !nd re!l*I!t*on o$ ;!lue.9 Surp'u% Qa'ue +n th*s ;*ew4 surplus ;!lue %omes onl( $rom the =!p*t!l*st,s e?plo*t!t*on o$ wor"ers4 be *t $rom sell*n. .oods b!%" to the wor"ers $or ! pr*%e h*.her th!n the ;!lue 5;!lue be*n. the cost o$ produ%t*on p!*d to the wor"ers84 or $rom lend*n. to the wor"ers $or *nterest or rent 5l!bor7$ree *n%ome8. Rate o2 1/p'o$tat$on The r!te o$ e?plo*t!t*on4 !s (ou %!n *m!.*ne4 *s s*mpl( the r!te o$ surplus ;!lue !%%umul!ted b( the =!p*t!l*sts !t the wor"ers, e?pense. So *$ surplus ;!lue *s the sto%"4 the r!te o$ e?plo*t!t*on *s the $low. O9er8produ.t$on /ere,s ! 6u*%" e?%erpt $rom M!r?*sts.or. on o;er7produ%t*onE The re!l problem when .oods l*e on the shel;es *s th!t no7one %!n !$$ord to bu( the %ommod*t*esN *n other words Jo;er7produ%t*onK should re!ll( be %!lled Junder7 %onsumpt*onK. +n !nother sense howe;er4 the term Jo;erprodu%t*onK *s ;!l*dN but *t *s not .oods !nd ser;*%es wh*%h h!;e been o;er7produ%ed4 but %!p*t!l. Dur*n. ! boom per*od B the r*s*n. ph!se o$ ! %!p*t!l*st %r*s*s B pro$*ts run h*.h !nd ! mount!*n o$ $*%t*t*ous %!p*t!l *s bu*lt7up b( spe%ul!t*on !nd borrow*n. $or unw!rr!nted '!.e 1:>

$uture e?p!ns*on. All th*s $*%t*t*ous %!p*t!l h!s to be $ed b( the surplus e?tr!%ted $rom wor"ers !nd th*s .rows to be more !nd more o$ ! burden on the b!%"s o$ the wor"ers unt*l pro$*t!b*l*t( %!n no lon.er be m!*nt!*ned4 !nd slump t!"es o;er. Rea'$?at$on o2 Qa'ue A.!*n $rom M!r?*sts.or.E Re!l*s!t*on *s the tr!ns$orm!t*on o$ someth*n. $rom !n *de!l or potent*!l $orm to !n !%tu!l or m!ter*!l $orm. Re!l*s!t*on o$ ;!lue *s the %on;ers*on o$ ! pro$*t or p!(ment *n the $orm o$ ! surplus produ%t or %red*t *nto mone( $orm. =ommod*t( produ%t*on *s b!sed on the produ%t*on o$ ! produ%t wh*%h the produ%er themsel$ does not need4 on the b!s*s th!t the*r own need %!n be met b( e?%h!n.e or s!le o$ the surplus produ%t. +n p!rt*%ul!r %!p*t!l*st produ%t*on %!n onl( %omplete the %(%le o$ %!p*t!l*st reprodu%t*on when the l!bour power *s used4 the produ%t sold !nd p!*d $or. The be.*nn*n.s o$ %r*s*s o$ten l*e not so mu%h *n the $!*lure to produ%e ! surplus !s *n the $!*lure to re!l*se surplus produ%t*on. Are (ou st!rt*n. to .et the p*%ture@ These .u(s don,t l*"e the %on%ept th!t ;!lue *s *n the e(e o$ the beholder. The( need ;!lue to be !n obCe%t*;e metr*% *n order to e?pl!*n how the =!p*t!l*st e?plo*ts the wor"er. /ow the r*%h e?plo*t the poor. /ow the bour.eo*s*e e?plo*t the prolet!r*!t. From m( & 1 post4 here !re M!r?,s %l!sses *n h*s ;ers*on o$ the %l!ss stru..leE M!r?,s %l!sses wereE 1. )!bour 5the prolet!r*!t or wor"ers8 7 !n(one who e!rns the*r l*;el*hood b( sell*n. the*r l!bor !nd be*n. p!*d ! w!.e $or the*r l!bor t*me. The( h!;e l*ttle %ho*%e but to wor" $or %!p*t!l4 s*n%e the( t(p*%!ll( h!;e no *ndependent w!( to sur;*;e. &. =!p*t!l 5the bour.eo*s*e or %!p*t!l*sts8 7 !n(one who .ets the*r *n%ome not $rom l!bor !s mu%h !s $rom the surplus ;!lue the( !ppropr*!te $rom the wor"ers who %re!te we!lth. The *n%ome o$ the %!p*t!l*sts4 there$ore4 *s b!sed on the*r e?plo*t!t*on o$ the wor"ers. And here *s m( %orre%ted del*ne!t*onE The two %l!sses !re not the )!bour !nd the =!p*t!l4 the r*%h !nd the poor4 the prolet!r*!t !nd the bour.eo*s*e4 or the wor"ers !nd the el*te. The two %l!sses !re the Debtors !nd the S!;ers. 9The e!s( mone( %!mp9 !nd 9the h!rd mone( %!mp9. /*stor( re;e!ls the stor( o$ these two .roups4 o;er !nd o;er !nd o;er !.!*n. Alw!(s one *s *n power4 !nd !lw!(s the other one des*res the power. 1. Debtors 7 9The e!s( mone( %!mp9 l*"es to spend 5!nd red*str*bute8 mone( *t d*d not e!rn4 e*ther b( borrow*n. *t4 t!?*n. the s!;ers $or *t4 or pr*nt*n. *t. The( l*"e e!s( mone( be%!use *t *s !lw!(s !nd e;er(where %onst!ntl( *n$l!t*n.4 e!s*n. the rep!(ment o$ the*r debts. '!.e 1-

&. S!;ers 7 9The h!rd mone( %!mp9 l*"es to l*;e w*th*n the*r me!ns !nd s!;e !n( e?%ess $or the $uture. The( pre$er h!rd mone( 5or *n some %!ses 9h!rder9 mone(8 be%!use *t prote%ts the*r s!;*n.s !nd $or%es the debtors to wor" o$$ the*r debts. Some o$ m( re!ders thou.ht th*s w!s m( most pro$ound post. Others p*%"ed up on m( theme !nd wrote the*r own !rt*%les !bout 9the debtors !nd the %red*tors9 th*n"*n. the( h!d %orre%ted m( ob;*ous error. +t w!sn,t !n error. +t w!s *ntent*on!l. The Debtors !nd the S!;ers !re the two *nherent %!mps. The( !re not4 !nd should not be4 d*re%t %ounterp!rt*es! More on th*s *n ! moment. 6n "$me +n The Debtors !nd the S!;ers + posted ! ;er( short ;ers*on o$ ! $or.ett!ble mo;*e wh*%h helped m!"e the po*nt th!t *nd*;*du!l members o$ the two %!mps !re not !s ob;*ous !s the super$*%*!ll( r*%h !nd poor. +n $!%t4 m!n( *n the 2est who !re l*;*n. l*"e "*n.s !re !%tu!ll( up to the*r e(eb!lls *n debt. For th*s post +,d l*"e to d*re%t (our !ttent*on to the mo;*e +n T*me st!rr*n. Dust*n T*mberl!"e !nd Am!nd! Se($r*ed. +t,s ! mu%h less $or.ett!ble mo;*e th!n T*.er,s T!*l4 so %he%" *t out. /ere,s ! two7 m*nute tr!*lerE +n T*me Tr!*ler The prem*se o$ the mo;*e *s th!t t*me *s the %urren%(. And s*n%e t*me p!sses !utom!t*%!ll(4 th!tMs l*"e *n$l!t*on. +$ (ou Cust s*t on (our %urren%( do*n. noth*n.4 *t w*ll le!" !w!( w*th t*me. +n the mo;*e4 when (ou run out o$ %urren%(4 (ou run out o$ t*me !nd (ou drop de!d on the spot. Most o$ the people l*;e *n the .hetto !nd the( ne;er h!;e more th!n ! d!( or two !t ! t*me4 so the( h!;e to "eep wor"*n. Cust to st!( !l*;e. Then there !re the r*%h people who h!;e eons o$ t*me. You %!n l*ter!ll( l*;e $ore;er *n th*s world *$ (ou !%%umul!te enou.h %urren%( wh*%h *s !lso re!l t*me. And the r*%h .et r*%her not b( produ%*n. lots o$ .ood stu$$4 but b( lo!n*n. the*r surplus t*me to the poor !t usur*ous r!tes. The stor( *s told $rom the perspe%t*;e o$ the poor4 but $rom !nother perspe%t*;e *t re!ll( dr*;es home the po*nt th!t we!lth *s best "ept not m*?ed *n w*th the tr!ns!%t*on!l %urren%( b( rel(*n. on debtors, ser;*tude. +n the mo;*e the r*%h %ould onl( l*;e $ore;er !s lon. !s the poor l*;ed h!nd to mouth4 !lw!(s wor"*n.4 produ%*n.4 !nd ne;er .ett*n. !he!d to the po*nt where be%om*n. ! %onsumer w!s !n opt*on. So the we!lth( rel*ed on the produ%t*on output o$ poor debtors $or the*r we!lth wh*%h4 *n th*s world4 w!s !n endless l*$e o$ lu?ur*ous %onsumpt*on. 3ut !s ! net7produ%er 5one who produ%es more th!n (ou %onsume8 th!tMs not the best w!( to store (our pur%h!s*n. power. +$ (ou %ould p*%" ! %ounterp!rt( $or (our $uture4 would *t be ! debtor who l*;es h!nd to mouth !lw!(s on the pre%*p*%e o$ b!n"rupt%(4 or ! $ellow net7produ%er@ /ow !bout *$ (ou %ould %hoose between e*ther all o$ the debtors !s (our %ounterp!rt(4 !..re.!ted b( ! .o;ernment wh*%h h!s e;er( *n%ent*;e to deb!se (our s!;*n.s4 or all o$ the net7produ%ersGs!;ers w*th ! 14 (e!r tr!%" re%ord o$ the*r *nn!te dr*;e to net7produ%e !nd s!;e $or the $uture@ 2h*%h would (ou %hoose *$ su%h ! %ho*%e e?*sted@ '!.e 1-1

Th*s $*lm *s ! %l!ss*% *llustr!t*on o$ the popul!r 9M!r?*!n9 ;*ew o$ perpetu!l %l!ss stru..leE e?plo*t!t*on o$ the wor"ers. The we!lth( l*;e the .ood l*$e %onsum*n. !s mu%h !s the( w!nt on the b!%"s o$ the *ndebted poor who must sl!;e !w!( produ%*n. Cust enou.h to st!( !l*;e4 plus some surplus $or the we!lth( to %onsume. 3ut *s th*s re!l*t(@ 2*th the proper perspe%t*;e !nd ! l*ttle 6u*et %ontempl!t*on *t be%omes ob;*ous th!t4 tod!(4 we h*.hl( *ndebted 2esterners h!;e ! mu%h h*.her l*;*n. st!nd!rd !nd lu?ur*ous r!te o$ %onsumpt*on th!n the net7produ%ers o$ the world. Those support*n. our l*$est(le !re not *ndebted to usR*t,s the other w!( !round. And other th*n.s be%ome %le!r !s well. )*"e th!t %red*t 5debt8 *s de#anded b( the debtors 5remember4 hum!n dem!nd dr*;es e;er(th*n.84 not $or%ed upon them. And th!t b!n"s4 whose Cob *t *s to e?tend %red*t 5!"! e!s( mone(84 !re !%tu!ll( *n the e!s( mone( %!mp !lon. w*th the debtors. More on th*s *n ! moment. "he Mun#er$an Q$e) O;er on the other s*de o$ the %o*n we h!;e Mun.er*!n p!perbu. =!p*t!l*st !nd $!*r7we!ther $r*end to the 9.oldbu.s9 5! term w*th wh*%h + %!nnot *dent*$(84 +I!bell! O!m*ns"! T1U4 who4 !$ter 9endur*n.9 ! $ew tweets $rom Free.olds !mon. others4 thou.ht she s%hooled her bu..( $r*ends w*th ! two7p!rt ser*es %re!t*;el( t*tled4 Debun"*n. .oldbu.s. + s!( she,s the other s*de o$ the %o*n be%!use +I!bell! th*n"s the s!;ers owe *t to the debtors to be the*r d*re%t %ounterp!rt( !nd e!rn some l!bor7$ree *n%ome ;*! *nterest wh*%h the M!r?*!ns %!ll e?plo*t!t*on. And + %!lled her ! Mun.er*!n p!perbu. *n honor o$ =h!rl*e Mun.er be%!use she sounds Cust l*"e Mun.er !nd the D*n.b!t $rom m( post A 2*nner T!"es the Gold. Remember th!t =h!rl*e th*n"s (ouMre ! Cer" *$ (ou ho!rd .old@ 2ell +I!bell! s!(s (ou,re ! sel$*sh4 !nt*7so%*!l %he!t. She e;en tr*es %h!nnel*n. Dohn )o%"e,s re!son*n. *nto !n !r.ument !.!*nst ho!rd*n. .old w*th th*s %le;er 6uote $rom the %on;en*entl( t*tled Re!l*t(S!ndw*%h.%omE Suppose + h!;e twel;e lo!;es o$ bre!d4 !nd (ou !re hun.r(. + %!nnot e!t so mu%h bre!d be$ore *t .oes st!le4 so + !m h!pp( to lend some o$ *t to (ou. J/ere4 t!"e these s*? lo!;es4K + s!(4 J!nd when (ou h!;e bre!d *n the $uture4 (ou %!n .*;e me s*? lo!;es b!%" !.!*n.K + .*;e (ou s*? $resh lo!;es now4 !nd (ou .*;e me s*? $resh lo!;es somet*me *n the $uture. +n ! world where the th*n.s we need !nd use .o b!d4 sh!r*n. %omes n!tur!ll(. The ho!rder ends up s*tt*n. !lone !top ! p*le o$ st!le bre!d4 rust( tools4 !nd spo*led $ru*t4 !nd no one w!nts to help h*m4 $or he h!s helped no one. /ere,s some Dohn )o%"e $rom m( post de!l*n. w*th Mun.er !nd the D*n.b!tE Furthermore4 .old *s the most so%*!ll( respons*ble ;!lu!ble .ood to 9ho!rd9 5s!;e84 wh*%h *s !nother re!son *t *s the $o%!l po*nt. Dohn )o%"e wrote w!( b!%" *n 16> th!t *t *s 9$ool*sh !nd d*shonest9 $or men to ho!rd up th*n.s o$ short dur!t*on4 th*n.s th!t !re %onsumed *n the support o$ l*$e4 or !n( more th!n one %!n person!ll( use $rom the %ommon sto%" o$ '!.e 1-&

per*sh!bles !nd trul( use$ul supports o$ l*$e. Th*s4 )o%"e wrote4 *s how m!n %!me to ;!lue dur!ble th*n.s o$ no *ndustr*!l worth4 th!t 9he m*.ht he!p up !s mu%h o$ these dur!ble th*n.s !s he ple!sedL !nd "eep those b( h*m !ll h*s l*$e49 be%!use 9he *n;!ded not the r*.ht o$ others.9 )f course (ou don,t w!nt to ho!rd per*sh!ble .oods l*"e lo!;es o$ bre!d! Th!t,s Cust s*ll(. 3ut *t *s !n *mport!nt %on%ept to underst!nd. So wh( hold someone else *n debt r!ther th!n s*mpl( ho!rd*n. ! dur!ble th*n. o$ no *ndustr*!l worth4 !s the re!l Dohn )o%"e re%ommends@ 2ell4 +I!bell!,s !r.ument *s th!t (ou !re better o$$ *$ (ou lend (our surplus to someone so th!t (ou %!n l!ter !s" $or *t b!%". She %!lls th*s the 9$!;our s(stem9 !nd she s!(s th!t *$ (ou ho!rd .old then (ou !re 9opt*n. out9 o$ th*s 9%oll!bor!t*;e pro%ess9. 3ut how does hold*n. someone else *n (our debt m!"e *t more l*"el( th!t (ou,ll be !ble to redeem (our s*? lo!;es th!n *$ (ou s*mpl( sold them !nd bou.ht ! dur!ble th*n. th!t *s e?tremel( l*"el( to be %ons*dered ;!lu!ble b( other s!;ers *n the $uture@ +n $!%t4 *t doesn,t! And +I!bell! !ddresses th*s *ssue. She s!(s th!t (ou,re better o$$ not hold*n. ! spe%*$*% person *n debt be%!use he m*.ht d*e4 but r!ther hold*n. (our .o;ernment,s debt! She s!(s the 9so;ere*.n lord9 pro;*des the ;*t!l ser;*%e o$ %red*t !..re.!t*on !nd %entr!l %le!r*n. 5wh*%h *s true $or the tr!ns!%t*on!l %urren%(8 !nd thereb( %re!tes 9$un.*ble9 !nd 9non7per*sh!ble9 debts $or s!;*n.! 5At le!st she d*dn,t .o so $!r !s to %!ll .o;ernment debt *n$*n*tel( d*;*s*ble4 d*s%reet4 tr!nsport!ble !nd prett(.8 3ut e;en thou.h .o;ernment debt m!( be rel!t*;el( $un.*ble !nd 5nom*n!ll(8 non7per*sh!ble4 (ou,re st*ll !t the mer%( o$ the .o;ernment should *t de%*de to deb!se (our s!;*n.s. +I!bell! s!(s th*s *s not onl( ! .ood th*n.4 but *t *s (our so%*!l dut(E )u%"*l( $or the s(stem4 the so;ere*.n %!n e?p!nd or %ontr!%t the number o$ debts th!t %*r%ul!te w*th*n *ts %ommun*t( to m!t%h the %urrent produ%t*onGwe!lth pro$*le o$ the n!t*on !nd "eep the s(stem *n %he%". TLU You %ould s!(4 the so;ere*.n borrowed $rom the r*%h 5those w*th surplus we!lth wh*%h w*ll otherw*se per*sh8 !nd red*str*buted the we!lth !%%ord*n. to the needs o$ the %ommun*t(. S*n%e e;er(bod( re%e*;ed someth*n.4 *n%lud*n. the ar*%hM4 ! t!? 5%!n%ell!t*on o$ debts outst!nd*n.8 "ept the s(stem *n b!l!n%e. Aer( MMT. 2h!t she,s s!(*n. here *s th!t too mu%h s!;*n.s *s ! burden on the s(stem !nd the .o;ernment pro;*des the ;!lu!ble ser;*%e o$ deb!s*n. burdensome le;els o$ s!;*n.s down to ! so%*!ll( he!lth( le;el. /ow does th!t m!"e (ou $eel@ And (e!h4 +I!bell! *s !pp!rentl( 6u*te $ond o$ MMT4 wh*%h *s wh( th*s p!rt rem*nded me o$ someone else who on%e s!*d th!t s!;*n.s !bo;e 9! %ert!*n le;el9 !re ! 9burden9. +,m t!l"*n. !bout our ;er( own MMT Gre.E + don,t d*s!.ree w*th (our *de! o$ s!;*n. but *t %!nnot be done to mu%h o$ ! de.ree on ! m!%role;el. There must be someone to %onsume (our o;ersuppl( !$ter ! %ert!*n le;el. Sa9$n#% $% a burden )hen e/.e%%$9e. /ow to predeterm*ne the 9r*.ht9 !mount @ Dont '!.e 1-0

"now. /ow to "now *t when (ou see *t....... r*.ht now. 2e h!;e OA#R produ%ed ! lot o$ th*n.s. As Mosler *s $ond o$ s!(*n.4 e%onom*%s *s the oppos*te o$ rel*.*on4 *n e%onom*%s *t,s better to re%e*;e th!n to .*;e. +$ (ou produ%e e?tr! !nd R'oanS *t to me so + don,t h!;e to produ%e *t m(sel$ .....T/ANOS *s the proper response. +n p!rt & o$ her bu. s%hool*n. !$$e%t*on!tel( t*tled GoldMs Ant*7So%*!l 3eh!;*our Order4 here *s +I!bell! e?press*n. the s!me sent*ment !s MMT Gre. re.!rd*n. e?%ess*;e s!;*n.s be*n. ! burden on the s(stem 5m( emph!s*s8E LthereMs no den(*n. ! prom*ssor( note *s ! mu%h more pr!%t*%!l un*t o$ e?%h!n.e !nd store o$ ;!lue th!n ! b!r o$ .old. The problem w*th prom*ssor( notes $rom ! .oldbu.Ms po*nt o$ ;*ew4 howe;er4 *s th!t ! so;ere*.n !lw!(s h!s the me!ns to Jm!n*pul!teK suppl( so as to regulate the system's e"cesses and de%icits %or the !ene%it o% the group> !ringing their purchasing power o% the notes down when there *s !n !bund!n%e o$ .oods to notes Jb( pr*nt*n. moreK4 !nd br*n.*n. the*r pur%h!s*n. power up when there *s ! de$*%*t o$ .oods to notes. Th*s puts the *nterests o$ the .roup !bo;e those o$ the *nd*;*du!l4 be%!use R *n the words o$ .oldbu.s R *t Jste!lsK we!lth $rom *nd*;*du!ls. These regulati e processes o% course are necessary. The(Mre ! %orre%t*n. me%h!n*sm th!t ensure e$$*%*en%( !nd %urb w!ste$ul produ%t*on. And4 !s weM;e st!ted be$ore4 *t *s !nt*%*p!ted th!t prom*ssor( notes !re e;entu!ll( e?t*n.u*shed ;*! the p!(ment o$ t!?es. ;n a per%ect system the so ereign should pro ide %or you& once you're no longer producti e anyway. +n other words4 *t *s .ood th!t the .o;ernment %!n redu%e 9e?%ess*;e s!;*n.s9 throu.h deb!sement. +n $!%t *t *s the .o;ernment,s Cob to do th!t4 Cust l*"e *t *s the .o;ernment,s Cob to t!"e %!re o$ (ou when (ou .et old !%%ord*n. to +I!bell!. And here *s 9.old,s !nt*7so%*!l beh!;*or9 *n ! nutshellE 2h!t .old thus represents4 we would !r.ue4 *s !n opt out4 !nd ! %he!t4 $rom p!rt*%*p!t*on *n the .roup %orre%t*on!l pro%ess. +ts e?*sten%e underm*nes the so;ere*.nMs !b*l*t( to re.ul!te the suppl( o$ debt to m!t%h the needs o$ the s(stem. +n ! s*tu!t*on where there !re too m!n( .oods4 !nd too l*ttle monet!r( so;ere*.n debt4 the so;ere*.n %le!rl( needs to %re!te more so;ere*.n adebt mone(M R !nd deb!se the store o$ ;!lue R to en%our!.e more o$ th*s o;erprodu%t*on to be used !nd e$$*%*entl( !llo%!ted. S*n%e .old %!nMt be Jdeb!sedK4 *t be.*ns to !ttr!%t *n;estment $rom those who would r!ther not %onsume tod!(Ms o;erprodu%t*on 5!nd ;*! th!t sh!r*n. we!lth !nd a$!;oursM8 but %ont*nue to ho!rd these $or the purpose o$ *nd*;*du!l we!lth !%%umul!t*on. +n the oppos*te s%en!r*o4 when there !renMt enou.h .oods to s!t*s$( so;ere*.n debt %l!*ms !nd the so;ere*.n *nter;enes b( %ontr!%t*n. the mone( suppl( R b( m!"*n. *t e?tremel( '!.e 1-4

e?pens*;e to borrow but e?tremel( !ttr!%t*;e to *n;est *n the produ%t*on o$ .oods R .old !ttr!%ts *n;estment $rom those who would r!ther not del!( %onsumpt*on unt*l tomorrow $or the bene$*t o$ the %ommun*t(. Gold *n th*s w!( s(mbol*ses hum!n*t(Ms sel$*sh stre!". TLU So wh*le .old m!( be ! wor"!ble underl*er $or ! redempt*on opt*on4 th*s doesnMt %h!n.e the $!%t th!t !t the he!rt o$ the s(stem *t *s $!*th !nd $!*th !lone wh*%h holds e;er(th*n. to.ether. 2hether th!t $!*th *s re$le%ted *n ! so;ere*.nMs !b*l*t( to m!n!.e the e%onom( on beh!l$ o$ the .roup4 *n the so;ere*.nMs .u!r!ntee to honour ! .old opt*on4 or $!*th *n the .old .od h*msel$L $!*th *s the %onst!nt. Not .old. 2h!tMs more4 wh*le .old en%our!.es !nt*7so%*!l beh!;*our !nd ho!rd*n. *n *nd*;*du!ls4 ! $*!t7b!sed s(stem en%our!.es the ;er( oppos*teE sh!r*n.4 d*str*but*on4 %oll!bor!t*on !nd %ooper!t*on. And then she %on%ludes w*th two opt*onsE 2h*%h le!;es two poss*ble pl!ns out o$ the %r*s*sE 18 The .oldbu. pl!nE b!sed on en%our!.*n. e;er(one to ho!rd e;er .re!ter !mounts o$ n!tur!l we!lth $or themsel;es !nd themsel;es *n wh!t *s ult*m!tel( ! %ommod*t( (ou m*.ht ne;er be !ble to e!t. &8 The $*!t pl!nE b!sed on en%our!.*n. so%*et( to trust e!%h other !.!*n4 !nd ;*! th!t stor*n.4 redeem*n. !nd return*n. $!;ours unt*l the s(stemMs !*ls !re el*m*n!ted. Th*s *s ob;*ousl( someone w*th both $eet $*rml( pl!nted *n one %!mp tell*n. the other %!mp wh!t the( should do. Almost rem*nds me o$ th!t $!mous 6uote !bout sh!r*n. !nd unsel$*shness b(L hmm4 + $or.et4 w!s *t Desus@ "=rom each NproducerO according to his a!ility& to each NconsumerO according to his needs." Funn*l( enou.h4 here,s wh!t 2*"*ped*! s!(s !bout th!t 6uoteE +n the M!r?*st ;*ew4 su%h !n !rr!n.ement w*ll be m!de poss*ble b( the !bund!n%e o$ .oods !nd ser;*%es th!t ! de;eloped %ommun*st so%*et( w*ll produ%eN the *de! *s th!t there w*ll be enou.h to s!t*s$( e;er(one,s needs. Now %omp!re th!t *de! w*th +I!bell!,s post one wee" l!ter t*tled The end o$ !rt*$*%*!l s%!r%*t(E +tMs !n en;*ronment th!t we h!;e !r.ued re6u*res ! new p!r!d*.m $or the world. A tr!ns*t*on tow!rds ! ste!d(7st!te where mone( h!s no %ho*%e but to depre%*!te be%!use *ts role !s ! store o$ ;!lue h!s been m!de redund!nt due to the .ener!l !bund!n%e o$ .oods *n so%*et(4 brou.ht !bout b( te%hnolo.*%!l *nno;!t*on !nd e$$*%*en%(. +n ! post7s%!r%*t( en;*ronment there *s no need to del!( or hurr( pur%h!ses4 or to e;en h!;e ! store o$ ;!lue. You use onl( '!.e 1-1

wh!t (ou need. TLU And when th!t h!ppens mone( *tsel$ w*ll d*e4 be%!use who needs to s!;e $or the*r old !.e4 *$ o;er the t*me the s(stem *s .o*n. to pro;*de e;er more Jstu$$K (ou need $or $ree or !lmost $or $ree. Not %on;*n%ed@ 2eMd !r.ue the s*.ns th!t th*s *s h!ppen*n. !re !lre!d( !ppe!r*n..

gh ijkhlmnlopn kplqrstuv *ndeed!


+n truth4 +I!bell!,s whole !r.ument *n the two .oldbu. posts w!s b!sed on ! $l!wed prem*se %ons*der*n. th!t the( were sp!wned b( her $rustr!t*on !t *nter!%t*on w*th 9Free.olds9 !nd ! $ew o$ m( other 9re.ul!rs9 on Tw*tter r!ther th!n w*th true .oldbu.s. Th!t prem*se w!s her !ssumpt*on th!t the( 5we8 h!;e4 *n her words4 !n 9utter !nd %omplete h!tred o$ the so7%!lled p!per mone( s(stem.9 The truth *s th!t we ;*ew the pr*m!r( !nd se%ond!r( $un%t*ons o$ ! monet!r( s(stem sep!r!tel(. '!per mone( 5!nd ele%tron*% %urren%(8 *s4 *n $!%t4 the best th*n. s*n%e sl*%ed bre!d *n the tr!ns!%t*on!l role. /ere,s ! 6uote $rom our ;er( own Ar*stotle des%r*b*n. h*s person!l Courne( !nd d*s%o;er( th!t p!per mone( *s not onl( .ood4 but ne%ess!r(4 b!%" *n & E 9Go*n. *n4 + w!s ! %h!rter member o$ the Goldhe!rts %lub T!"! ! .oldbu.U4 !nd + emer.ed e;en more e?%*ted !bout the prospe%ts o$ Gold th!n be$ore. The $uture $or Gold *s br*.ht4 !nd *t *s r!p*dl( !ppro!%h*n. *n the m!nner + l!*d out4 *$ +,m re!d*n. the s*.ns %orre%tl(. +n wor"*n. on th*s proCe%t4 6 )a% per%ona''y %ho.+ed )hen 6 d$%.o9ered that )e ab%o'ute'y 11D1D paper .urren.y $n order to %et Go'd 2ree.9

'!.e 1-6

Free.old *s not !bout m!"*n. e!s( mone( ! l*ttle b*t h!rder. On the %ontr!r(4 *t *s !bout the debtors !nd the s!;ers %oe?*st*n. w*thout the perpetu!l monet!r( %on$l*%t embedded *n !ll pr*or s(stems. 5See The Debtors !nd the S!;ers & 1 $or more !bout th*s perpetu!l %on$l*%t.8 +I!bell! h!s prob!bl( ne;er he!rd o$ FOFOA,s d*lemm!. /ere *t *s4 $rom The Return to /onest Mone(E FOFOA,s d*lemm!E 2hen ! s*n.le med*um *s used !s both store o$ ;!lue !nd med*um o$ e?%h!n.e *t le!ds to ! %on$l*%t between debtors !nd s!;ers. FOFOA,s d*lemm! holds true $or both .old !nd $*!t4 the solut*on be*n. Free.old4 wh*%h *n%*dent!ll( !lso resol;es Tr*$$*n,s d*lemm!. And $rom th!t s!me post4 here,s m( de$*n*t*on o$ /onest Mone(E 9M( de$*n*t*on *s th!t honest mone( *s s*mpl( mone( th!t does not purport to be someth*n. *t *s not.9 As + e?pl!*ned *n th!t post4 mone(,s two m!*n $un%t*ons4 med*um o$ e?%h!n.e !nd store o$ ;!lue4 !re !%tu!ll( $ul$*lled b( two d*$$erent med*!4 e;en tod!(E ! pr*m!r( !nd ! se%ond!r( med*um o$ e?%h!n.e. Tod!( 5!nd *n +I!bell!,s *de!l world8 th!t se%ond!r( med*um o$ e?%h!n.e *s debt denom*n!ted *n the pr*m!r( med*um. The 6uote !t the top o$ m( blo. re!dsE 3/ er+one knows where we ha e $een. Let4s see where we are goingD3 2ell4 e;er(one "nows we h!;e been where debt *s the s(stem*% store o$ ;!lue4 *ts 9t*er 19 reser;es4 !nd +I!bell! doesn,t seem to be !r.u*n. the *ne;*t!b*l*t( th!t th*s *s !lso our $uture. +nste!d she seems to be !r.u*n. th!t *t *s s*mpl( the better o$ two %ho*%esRthe so%*!ll( respons*ble !nd unsel$*sh th*n. to do w*th (our s!;*n.s. 3ut *s she %orre%t@ +s debt re!ll( better th!n .old $or the o;er!ll so%*et(@ +n order to !nswer th*s 6uest*on + th*n" we need to loo" %!re$ull( !t wh*%h one *s better $rom two d*$$erent perspe%t*;esN $rom the perspe%t*;e o$ the s!;ers !nd $rom the perspe%t*;e o$ so%*et( !t l!r.e. +,m !ttr*but*n. the perspe%t*;e o$ so%*et( !t l!r.e to th!t o$ the debtors !s well. As + po*nted out e!rl*er4 +I!bell! *s %le!rl( *n the debtor %!mp. Th*s doesn,t ne%ess!r*l( me!n th!t she,s *n debt. +t s*mpl( me!ns th!t she,s *n the e!s( mone( %!mp !s opposed to be*n. *n the h!rd mone( %!mpRwh!t she th*n"s o$ !s 9the .oldbu.s9. She m!( *n $!%t h!;e s!;*n.s4 but !s she s!(s4 she 9puts the *nterests o$ the .roup !bo;e those o$ the *nd*;*du!l9 !nd she,s h!pp( to do her %*;*% dut( o$ lett*n. the .o;ernment deb!se her s!;*n.s when ne%ess!r(. Th*s puts her $*rml( *n the debtor %!mp. And be*n. *n the debtor %!mp4 she *s ob;*ousl( !r.u*n. $or the bene$*t o$ the o;er!ll so%*et( or e%onom(. So th!t,s wh( + s!( +,m !ttr*but*n. the perspe%t*;e o$ so%*et( !t l!r.e to th!t o$ the debtors !s well4 be%!use the( !re !pp!rentl( one !nd the s!me. Now would prob!bl( be ! .ood t*me to rest!te th!t 9the debtors !nd the s!;ers9 *s ! d*%hotom(4 not ! mor!l Cud.ment. +t *s ! w!( o$ ;*ew*n. the world *n two %!mps th!t %orre%ts O!rl M!r?,s most endur*n. 5!nd h!rm$ul8 le.!%(. Ne*ther %!mp *s better th!n the other !n( more th!n women !re better th!n men. +t *s s*mpl( ! model $or underst!nd*n. how two .roups w*th !pp!rentl( d*$$erent *nn!te tenden%*es h!;e !lw!(s been pl!%ed *n %on$l*%t w*th e!%h other throu.hout h*stor( due to the emer.en%e o$ monet!r( s(stems. +$ (ou h!;en,t re!d The Debtors !nd the S!;ers (et4 now would be !s .ood ! t*me !s !n(! N8 From the Q$e)po$nt o2 the Sa9er% +s mone( pos*t*;e or ne.!t*;e e6u*t(@ +I!bell! %orre%tl( *mpl*es mone( to be $un.*ble %l!*ms on e!%h other,s .oods. And she .oes on to e?pl!*n th!t these %l!*ms %!n somet*mes be too numerous 9when '!.e 1-:

there !renMt enou.h .oods to s!t*s$(9 !ll o$ the %l!*ms. Th*s4 she e?pl!*ns4 *s when the .o;ernment steps *n !nd m!"es !dCustments to "eep the number o$ %l!*ms rou.hl( *n l*ne w*th the number o$ .oods. So when we loo" !t mone( 5or %l!*ms !.!*nst the ph(s*%!l pl!ne o$ .oods !nd ser;*%es8 *n !..re.!te4 we %!n %le!rl( see th!t h(pothet*%!ll( doubl*n. or tr*pl*n. the number o$ %l!*ms !%tu!ll( redu%es the spe%*$*% !mount o$ e6u*t( *n the ph(s*%!l pl!ne e!%h $un.*ble %l!*m represents. +t *s $or th*s re!son th!t + l*"e to th*n" o$ mone( *n !..re.!te !s ne.!t*;e e6u*t(4 !nd !lso wh( + l*"e to del*ne!te between the monet!r( !nd ph(s*%!l pl!nes. 3e*n. ! %l!*m4 *t *s merel( one h!l$ o$ ! ph(s*%!l pl!ne b!rter tr!ns!%t*on. You sold ! .ood or pro;*ded ! ser;*%e *n the ph(s*%!l pl!ne !nd re%e*;ed ! %l!*m *n the monet!r( pl!ne. On%e (ou redeem th!t %l!*m $or ! .ood or ser;*%e *n the ph(s*%!l pl!ne (ou w*ll h!;e %ompleted ! $ull tr!ns!%t*on. 3ut unt*l th!t t*me4 wh*le (ou !re hold*n. mone(4 (ou !re onl( h!l$w!( there. And $or !s lon. !s (ou rem!*n *n th*s b!rter pur.!tor(4 (ou !re e?posed to the e$$e%ts o$ (our %l!*m be*n. ne.!t*;e e6u*t( wh*%h + Cust des%r*bed. 5+ used the term 9mone(9 !bo;e be%!use *$4 h(pothet*%!ll(4 the .old sto%" %ould be doubled or tr*pled 6u*%"l( enou.h4 the s!me pr*n%*ple would !ppl( to .old.8 =le!rl( *t *s the well7"nown e?%h!n.e r!te between monet!r( %l!*ms !nd the ph(s*%!l pl!neR!s opposed to some *ntr*ns*% or %ost7der*;ed ;!lueRwh*%h .*;es these %l!*ms the*r ;!lue. +t *s the obser;ed %omplet*on o$ other tr!ns!%t*ons tod!(4 (esterd!( !nd l!st wee"4 wh*%h *n$orms us o$ wh!t we %!n e?pe%t to .et $or the %l!*ms we !re hold*n.. 3ut !s s!;ers4 we *ntend to hold these %l!*ms $or ! lon. t*me4 perh!ps e;en de%!des4 so we w!nt some sort o$ !dd*t*on!l re!son*n. !s to wh( the( w*ll hold th*s present "nown ;!lue $or su%h lon. per*ods o$ t*me. O$ %ourse ;er( $ew s!;ers hold the pr*m!r( med*um o$ e?%h!n.e $or lon. per*ods o$ t*me. 2e hold wh!t M*ses %!lled se%ond!r( med*! o$ e?%h!n.e. And the world *s $ull o$ th*n.s other th!n 9the %ommon sto%" o$ per*sh!bles !nd trul( use$ul supports o$ l*$e9 wh*%h we %!n hold 5ho!rd8 $or th*s purpose4 $rom sto%"s to bonds to !nt*6ues4 %l!ss*% %!rs or e;en b!seb!ll %!rds. /ere *s M*ses $rom h*s boo" /um!n A%t*on e?pl!*n*n. the %on%ept o$ se%ond!r( med*!E A $*rst7%l!ss bond *s more m!r"et!ble th!n ! house *n ! %*t(,s m!*n street4 !nd !n old $ur %o!t *s more m!r"et!ble th!n !n !uto.r!ph o$ !n e*.hteenth7%entur( st!tesm!n. One no lon.er %omp!res the m!r"et!b*l*t( o$ the ;!r*ous ;end*ble .oods w*th the per$e%t m!r"et!b*l*t( o$ mone(. One merel( %omp!res the de.ree o$ m!r"et!b*l*t( o$ the ;!r*ous %ommod*t*es. One m!( spe!" o$ the se%ond!r( m!r"et!b*l*t( o$ the ;end*ble .oods. /e who owns ! sto%" o$ .oods o$ ! h*.h de.ree o$ se%ond!r( m!r"et!b*l*t( *s *n ! pos*t*on to restr*%t h*s %!sh hold*n.. /e %!n e?pe%t th!t when one d!( *t *s ne%ess!r( $or h*m to *n%re!se h*s %!sh hold*n. he w*ll be *n ! pos*t*on to sell these .oods o$ ! h*.h de.ree o$ se%ond!r( m!r"et!b*l*t( w*thout del!( !t the h*.hest pr*%e !tt!*n!ble !t the m!r"et. TLU =onse6uentl( there emer.es ! spe%*$*% dem!nd $or su%h .oods on the p!rt o$ people e!.er to "eep them *n order to redu%e the %osts o$ %!sh hold*n.. The pr*%es o$ these .oods !re '!.e 1--

p!rtl( determ*ned b( th*s spe%*$*% dem!ndN the( would be lower *n *ts !bsen%e. These .oods !re se%ond!r( med*! o$ e?%h!n.e4 !s *t were4 !nd the*r e?%h!n.e ;!lue *s the result!nt o$ two "*nds o$ dem!ndE the dem!nd rel!ted to the*r ser;*%es !s se%ond!r( med*! o$ e?%h!n.e4 !nd the dem!nd rel!ted to the other ser;*%es the( render. TLU One must not %on$use se%ond!r( med*! o$ e?%h!n.e w*th mone(7subst*tutes. Mone(7 subst*tutes !re *n the settlement o$ p!(ments .*;en !w!( !nd re%e*;ed l*"e mone(. 3ut the se%ond!r( med*! o$ e?%h!n.e must $*rst be e?%h!n.ed !.!*nst mone( or mone(7subst*tutes *$ one w!nts to use themR*n ! round!bout w!(R$or p!(*n. or $or *n%re!s*n. %!sh hold*n.s. =l!*ms emplo(ed !s se%ond!r( med*! o$ e?%h!n.e h!;e4 be%!use o$ th*s emplo(ment4 ! bro!der m!r"et !nd ! h*.her pr*%e. The out%ome o$ th*s *s th!t the( (*eld lower *nterest th!n %l!*ms o$ the s!me "*nd wh*%h !re not $*t to ser;e !s se%ond!r( med*! o$ e?%h!n.e. Go;ernment bonds !nd tre!sur( b*lls wh*%h %!n be used !s se%ond!r( med*! o$ e?%h!n.e %!n be $lo!ted on %ond*t*ons more $!;or!ble to the debtor th!n lo!ns not su*t!ble $or th*s purpose. The debtors %on%erned !re there$ore e!.er to or.!n*Ie the m!r"et $or the*r %ert*$*%!tes o$ *ndebtedness *n su%h ! w!( !s to m!"e them !ttr!%t*;e $or those *n se!r%h o$ se%ond!r( med*! o$ e?%h!n.e. The( !re *ntent upon m!"*n. *t poss*ble $or e;er( holder o$ su%h se%ur*t*es to sell them or to use them !s %oll!ter!l *n borrow*n. under the most re!son!ble terms. +n !d;ert*s*n. the*r bond *ssues to the publ*% the( stress these opportun*t*es !s ! spe%*!l boon. + *n%luded !ll o$ th!t lon. e?%erpt so th!t (ou %ould see how he e?pl!*ned4 *n h*s own words4 the %on%ept o$ ! $o%!l po*nt *n th*s se%ond!r( med*! role. M!n( *tems w*ll su$$*%e !s ! se%ond!r( med*um o$ e?%h!n.e4 but the more !n *tem *s used *n th*s $un%t*on4 the more ;!lue *t der*;es fro# th*s p!rt*%ul!r $un%t*on4 o;er !nd !bo;e the ;!lue $rom other usesE 3Btheir exchange alue is the resultant of two kinds o% demandQ the de#and related to K%L their ser ices as secondar+ #edia of exchange, and the de#and related to K(L the other ser ices the+ render.3 And then (ou prob!bl( not*%ed th!t h*s se!r%h $or the $o%!l po*nt led h*m to .o;ernment bonds. + $*.ured th*s would m!"e +I!bell! sm*le *$ she,s st*ll w*th us. So wh( do (ou th*n" he d*dn,t ment*on .old !s one o$ the se%ond!r( med*! o$ e?%h!n.e@ 'erh!ps *t w!s be%!use4 when he wrote the boo" *n 1>4 4 .old w!s the pri#ar+ med*um o$ e?%h!n.e. + th*n" +,m now !t the po*nt where + %!n n!rrow the $o%us o$ the d*s%uss*on subst!nt*!ll(. +I!bell! !nd + !re both t!l"*n. !bout .o;ernment debt ;ersus .old !s the two m!*n %ompet*tors to be%om*n. the $o%!l po*nt store o$ ;!lue 5!"! se%ond!r( med*!8 o$ the $uture. So let,s Cust st*pul!te th!t !nd mo;e on. Also4 + th*n" we %!n both !.ree th!t .o;ernment debt has $een the o$$*%*!l 5!nd $o%!l po*nt8 se%ond!r( med*um o$ the re%ent p!st. Furthermore4 +I!bell! s!(s th!t between .o;ernment debt !nd .old4 .old *s the more sel%ish %ho*%e. +,ll st*pul!te to th!t !s well. +n ! moment we,ll *n;est*.!te whether the 9sel$*sh9 %ho*%e *s the better one $or the e%onom( !s ! whole4 but *n th*s se%t*on we !re loo"*n. !t *t $rom the 9sel$*sh9 ;*ewpo*nt o$ the s!;ers. +I!bell! !dm*ts th!t '!.e 1->

the .o;ernment deb!ses *ts own debt4 wh*%h4 t!"en !lon. w*th her l!bel*n. o$ .old !s the 9sel$*sh9 %ho*%e4 le!ds me to bel*e;e th!t she would be o"!( st*pul!t*n. th!t4 !t le!st on the sur$!%e4 .old appears to be the better %ho*%e $rom ! 9sel$*sh9 s!;er,s perspe%t*;e. So then the onl( 6uest*on rem!*n*n. *s whether or not .old !%tu!ll( is better !s *t !ppe!rs to be. +I!bell! s!(s no. +I!bell! w!rns 9us9 ;*! Tw*tterE 3-he pro$le# with gold 6i#ho7 is that it isn4t a scarce co##odit+. You ha e to ph+sicall+ #ake it scarce $+ hoarding it.3 The onl( problem w*th her tweet *s the word 9problem9. Other th!n th!t4 she,s !bsolutel( r*.ht! There !re 1: 4 tonnes o$ .old out there somewhere4 6 t*mes !nnu!l produ%t*onRth!t,s ! 6 (e!r 9suppl( o;erh!n.9 *n %ommod*t( termsR!nd (et the $low tod!( *s b!rel( more th!n wh!t,s %om*n. out o$ the .round. Th!t,s not ! problem. Th!t,s !bsolute proo% th!t .old *s $!r more ;!lu!ble th!n *ts %ommod*t( pr*%e tod!(! GoldMs ;!lue re!ll( %omes $rom *nter.ener!t*on!l G*!nts who h!;e no need to e;er sell *t. The( re!ll( Cust net7produ%e !nd net7produ%e !nd the( do *t w*ll*n.l( $or more !nd more .old4 !nd then Cust s*t on th!t .old unt*l the( d*e !nd p!ss *t on to the ne?t .ener!t*on. And the( w*ll "eep do*n. th*s no m!tter wh!t the P'oG does. The(,re not bu(*n. *t $or *ts we*.ht4 but $or pro;en lon. run %urren%( e?%h!n.e ;!lue! 3ut *$ thereMs no $low $or them to .et some4 then the( h!;e to bu( th*n.s l*"e e?tr! %!stles !nd %!rs !nd stu$$ th!t dr*;es up pr*%es !nd dr*;es down e;er(one elseMs pur%h!s*n. power. So *tMs better $or e;er(one *$ thereMs ! ste!d( $low o$ .old. Remember how Another s!*d the( Cust*$*ed the 9.old !s ! %ommod*t(9 5stron. doll!r8 tr!de be%!use the( thou.ht *t would *ndu%e the m*n*n. *ndustr( to produ%e .re!ter !nd .re!ter 6u!nt*t*es o$ .old@ D!teE Mon Feb 16 1>>- 14E4 A O",1R E",O<G,"S!G +D\6 &10E Now4 b!%" to .old. The de!lE (ou m!( st!nd (our !rm( $or us4 *n return4 9o*l w*ll b!%" the doll!r *$ the doll!r *s m!de stron. b( .old9 9*n !s mu%h !s our people m!( repl!%e the lost ;!lue o$ o*l w*th .old9 9*n !s mu%h !s we w*ll produ%e o*l *n !mounts to e6u!te ! .oldGo*lGdoll!r r!t*o %lose to th!t wh*%h e?*sted !t our pre;*ous !.reement *n the : ,s9 And4 pr!( tell4 how does the FSA m!"e the doll!r stron. *n .old @ The 3+S le!ds the %re!t*on o$ ! p!per .old m!r"et th!t w*ll lower the world pr*%e o$ .old to the e?tent th!t *t rem!*ns !bo;e 9produ%t*on %osts9. Guess wh!t4 *t wor"ed! =ontr!r( to !ll e?pe%t!t*ons o$ o*l short!.es4 *n$l!t*on4 debt %oll!pse !nd wh!t h!;e (ou4 +t 2or"ed! 3ut4 there *s one sm!ll problem@ The 3+S !nd other ;!r*ous .o;ernments th!t de;eloped th*s tr!de 5not*%e + d*dn,t use %onsp*r!%( !s *t w!s .ood bus*ness4 !s the world .!*ned ! lot84 thou#ht that the paper #o'd 2or)ard mar+et )ou'd ha9e a''o)ed the #o'd $ndu%try to e/pand produ.t$on %ome 2$9e t$me% o9er! Don-t a%+ )here they #ot th$%, a% they are the %ame peop'e that br$n# u% #o9ernment 2$nan.e and %u.h. 3ut4 w*thout ! m!Cor *n%re!se *n .old suppl(4 the p!per %re!ted b( th*s 9.old %ontrol oper!t*on9 w*ll e*ther be p!*d b(4 1. new suppl(. &. the %entr!l b!n"s. 0. rollo;er e?*st*n.. 4. %!sh@ or 1. tot!l de$!ult! As the As*!ns st!rted bu(*n. up e;er(th*n. l!st (e!r 5 >: 8 4 numbers 1 !nd 1 st!rted loo"*n. l*"e the !nswer! 2hen the =3s st!rted sell*n. *nto th*s bl!%" hole o$ dem!nd4 the d*s%uss*on o$ \1 st!rted *n the*r rooms !lso.

'!.e 1>

So *tMs .ood $or e;er(one *$ thereMs ! ste!d( $low o$ .old !nd ! st!ble pr*%e $or the G*!nts. These G*!nt super7produ%ers 5*n%lud*n. o*l produ%ers8 w*ll produ%e the most stu$$ !nd le!;e *t on the e%onom*% t!ble $or us w*thout runn*n. up the pr*%es o$ th*n.s we need to bu( !s lon. !s .old *s $low*n. unrestr*%ted. And !lso4 when =3s !nd n!t*on7st!tes st!rt ;!lu*n. .old the w!( these G*!nts do4 we wonMt h!;e the m*nes runn*n. !t $ull ste!m tr(*n. to !dd more to the suppl(. F*rst o$ !ll the(,ll w!nt the pr*%e to st!( ste!d( $or the e%onom*% bene$*t net7produ%ers br*n. to the t!ble4 !nd se%ond o$ !ll the(,ll w!nt the*r own tre!sure to hold *ts ;!lue. And to the n!t*on7st!te4 .old *n the .round *s ! tre!sured reser;e !s well !s .old *n the ;!ult. +t m!( seem %ounter*ntu*t*;e4 but the $low o$ .old $rom the m*nes w*ll e;entu!ll( be %ontrolled or re.ul!ted b( the .o;ernment !nd4 *n most %!ses4 w*ll be Cust enou.h to "eep the m*ners e%onom*%!ll( ;*!ble. Th*s *s wh( + ;*ew m*n*n. sh!res !s ! terr*ble Free.old pl!(. Tod!( the $low o$ ph(s*%!l .old *s mostl( $rom the m*nes to the s!;ers. +n Free.old4 the $low w*ll be !lmost ent*rel( $rom the !bo;e7 .round sto%"4 $rom one s!;er to !nother. As + wrote !bout *n Gl*mps*n. the /ere!$ter4 .old *s l*"e ! %losed %*r%u*t $or the s!;ers4 *sol!ted $rom the tr!ns!%t*on!l %urren%( s(stem wh*%h *s used b( e;er(one4 debtors !nd s!;ers !l*"e. Some m*.ht %!ll *t sel$*sh. + %!n l*;e w*th th!t. /ere,s ! t!ste $rom th!t postE + th*n" th!t *$ we loo" %losel( !t how the debtors use the $*!t mone( s(stem w*th !nd w*thout the !ss*st!n%e o$ the s!;ers4 *t w*ll be%ome %le!r th!t we w*ll !ll be better o$$ w*th ! b*$ur%!ted monet!r( s(stem. And *t w*ll %ert!*nl( be %le!r th!t the s!;ers h!;e no bus*ness t!"*n. debtors on !s the %ounterp!rt( to the*r s!;*n.s. TLU So .old h!s "*nd o$ ! double $lo!t. +t $lo!ts w*th the *n$l!t*onGde$l!t*on o$ e;er(th*n. else. And then *t !lso $lo!ts *n ! %losed %*r%u*t %ons*st*n. onl( o$ s!;ers 5!nd the*r 9ho!rdGd*sho!rd9 %ho*%es84 o$ whom the m!Cor*t( 5me!sured b( ;!lue stored8 !re *nter.ener!t*on!l .*!nts. The w!( the .old m!r"et wor"s tod!( *s ! l*ttle d*$$erent. +t *s "*nd o$ ! $low w*th*n ! $low. On the sur$!%e4 !n(one %!n ;er( e!s*l( bu( e?posure to the pr*%e o$ .old. +n $!%t4 th*s 9e?posure9 *s !ll th!t most 2esterners w!nt4 *n%lud*n. tr!ders4 spe%ul!tors4 .oldbu.s4 hed.e$unds4 !n("*nd!$unds4 b!n"s4 (ou n!me *t. And most o$ th*s .roup *s $*rml( *n the debtors 5e!s( mone(8 %!mp. 3ut underne!th th*s super$*%*!l $low *s the ph(s*%!l $low $rom the m*ners !nd ph(s*%!l .old pu"ers *n the 2est to the true s!;ers l*"e the G*!nts *n the o*l7r*%h M*ddle #!st !nd net7produ%*n. As*!. The "e( to "eep*n. th*s .old m!r"et humm*n. !lon.4 howe;er4 *s th!t !n(one who !s"s $or ph(s*%!l *n !n( s*Ie h!s to .et *t. 3ut those who %!n !$$ord re!l s*Ie !lso "now th!t ho..*n. the $low !nd stress*n. the s(stem *s not the best w!( to .et wh!t the( w!nt. So here,s wh!t we "now. +n 1>>: the )3MA le!"ed to the F*n!n%*!l T*mes ! p!per .old %le!r*n. ;olume $!r .re!ter th!n !n(one *m!.*ned. Th*s w!s the s!me t*me th!t Another s!*d 9the As*!ns st!rted bu(*n. up e;er(th*n.9 !nd th!t 9the =3s st!rted sell*n. *nto th*s bl!%" hole o$ dem!nd.9 About two (e!rs l!ter we he!rd $rom the #urope!n =3s throu.h the 2AG 5the 2!sh*n.ton A.reement '!.e 1>1

on Gold8 !lso "nown !s the =3GA 5the =entr!l 3!n" Gold A.reement8. The !.reement %!me on the heels o$ the euro l!un%h !nd4 e;en thou.h *t w!s !nnoun%ed *n 2!sh*n.ton D= dur*n. !n +MF meet*n. w*th )!rr( Summers !nd Al!n Greensp!n present4 *t w!s onl( between the #urope!n %entr!l b!n"s. +t st!ted ;er( s*mpl( the $ollow*n.E +n the *nterest o$ %l!r*$(*n. the*r *ntent*ons w*th respe%t to the*r .old hold*n.s4 the unders*.ned *nst*tut*ons m!"e the $ollow*n. st!tementE 1. Gold w*ll rem!*n !n *mport!nt element o$ .lob!l monet!r( reser;es. &. The unders*.ned *nst*tut*ons w*ll not enter the m!r"et !s sellers4 w*th the e?%ept*on o$ !lre!d( de%*ded s!les. 0. The .old s!les !lre!d( de%*ded w*ll be !%h*e;ed throu.h ! %on%erted pro.r!mme o$ s!les o;er the ne?t $*;e (e!rs. Annu!l s!les w*ll not e?%eed !ppro?*m!tel( 4 tons !nd tot!l s!les o;er th*s per*od w*ll not e?%eed &4 tons. 4. The s*.n!tor*es to th*s !.reement h!;e !.reed not to e?p!nd the*r .old le!s*n.s !nd the*r use o$ .old $utures !nd opt*ons o;er th*s per*od. 1. Th*s !.reement w*ll be re;*ewed !$ter $*;e (e!rs. Two (e!rs l!ter4 *n & 14 .old be.!n ! relentless %l*mb *n doll!r7denom*n!ted pr*%e o$ !bout 1-Q per (e!r wh*%h %ont*nues tod!(E

And then4 *n &

>4 the =3s *n !..re.!te be%!me net7bu(ers o$ sh*n( ro%"sE

'!.e 1>&

+n & 11 the )3MA rele!sed ! sur;e( re;e!l*n. not Cust the %le!r*n. ;olume *t be.!n report*n. *n 1>>:4 but the total dail+ turno er *n )3MA bull*on b!n" .old %red*ts. From m( post On%e Fpon ! T*meE And th!t,s be%!use the pr*%e o$ .old tod!( st*ll does not re$le%t the ph(s*%!l $low o$ .old th!t would norm!ll( be ! $un%t*on o$ !rb*tr!.e4 w*th spe%ul!tors tr!nsport*n. .old to where *ts pur%h!s*n. power *s h*.hest. The $low o$ .old tod!( *s st*ll ster*l*Ied b( the p!per .old tr!de w*th*n the )3MA bull*on b!n"*n. s(stem th!t4 b( ! re%ent )3MA sur;e(4 w!s !round &1 t*mes l!r.er th!n the $low o$ new .old $rom the m*nes. Th!t,s ! tot!l turno;er *n the )3MA 5s!les plus pur%h!ses8 o$ 144 tonnes e;er( s*n.le d!(. Th!t,s the e6u*;!lent o$ e;er( oun%e o$ .old th!t h!s e;er been m*ned *n !ll o$ h*stor( %h!n.*n. h!nds *n Cust the $*rst three months o$ & 11. Th!t,s wh!t the )3MA members4 themsel;es4 ;olunt!r*l( reported. And that4s ! lot o$ p!per .old th!t *s st*ll ster*l*I*n. the e%onom*%!ll( bene$*%*!l pr*%e me%h!n*sm th!t ph(s*%!l .old would otherw*se be tr!nsm*tt*n.. Yet th*n.s !re %h!n.*n.4 e;en tod!(. Th!t,s wh!t the r*s*n. pr*%e o$ .old s*n%e & & tells me. Th*s *s !bout mu%h more th!n Cust ! r*s*n. pr*%e. +t,s not Cust !bout ! .old or e;en ! %ommod*t( bull m!r"et. As FOA s!*d4 9*t h!s e;er(th*n. to do w*th ! %h!n.*n. world $*n!n%*!l !r%h*te%ture.9 Gold,s %unction *n the monet!r( s(stem *s %h!n.*n.. And !s FOA !lso s!*d4 9None o$ the other met!ls w*ll pl!( ! p!rt *n th*s.9 Gold w*ll return to *ts pre71>&& $un%t*on4 but th!t does not me!n we w*ll return to ! pre71>&& .old st!nd!rd. Th*s post *s not !bout the mer*ts o$ the .old st!nd!rd. +t *s not !bout pr!*s*n. the h!rd mone( %!mpMs de%*s*on *n 1441 o;er the e!s( mone( %!mpMs de%*s*on *n 1>&&. +t *s !bout the %ho*%e o$ the Superor.!n*sm o;er the m!n!.ement o$ men. The pre7&& .old st!nd!rd4 !lthou.h *t !llowed .old to $un%t*on4 st*ll %!rr*ed the s!me $l!w + po*nt to so o$tenN th!t us*n. the s!me med*um $or e?%h!n.e !nd s!;*n.s le!ds to re.ul!r re%urr*n. %on$l*%ts between the two %!mps. Then *n & 1& 5Cust ! %ouple o$ d!(s !.o !%tu!ll(84 the FS FD+= !nnoun%ed th!t .old bull*on *s up $or %ons*der!t*on !s !n e6u!l to .o;ernment debt w*th ! Iero r*s" we*.ht*n.. And Cust (esterd!( 3en 3ern!n"e s*.n!led h*s sub%ons%*ous support $or th*s me!sure b( %hoos*n. to we!r ! .old t*e. N8

'!.e 1>0

+,m sure th*s *s !ll ;er( *ns*.n*$*%!nt *n$orm!t*on to ! Mun.er*!n p!perbu. l*"e +I!bell! O!m*ns"!4 but let,s Cust th*n" !bout th*s $or ! se%ond !s *t %omp!res to her r!%ehorseE .o;ernment debt. From ! s!;er,s perspe%t*;eRone who w!nts to hold %l!*ms $or ! lon. but un"nown4 unspe%*$*ed !mount o$ t*meRdebt *s !ttr!%t*;e *n ! falling *nterest r!te en;*ronment. Th*s *s be%!use debt usu!ll( h!s ! spe%*$*% m!tur*t( d!te !nd (et s!;ers %!n,t "now pre%*sel( when the(,ll need the*r mone(. So debt *s !ppe!l*n. !s lon. !s there *s ! l*6u*d se%ond!r( m!r"et w*th plent( o$ ups*de to run. Th*s *s most ob;*ousl( true when *nterest r!tes !re !llowed to be set !s h*.h !s ne%ess!r( b( the un$ettered m!r"etpl!%e !nd then the( be.*n to $!ll $or one re!son or !nother. As *nterest r!tes $!ll4 old prom*ssor( notes s*.ned when r!tes were h*.her be%ome more de!r. Debtors see" re$*n!n%*n. wh*le s!;ers %!n e!s*l( unlo!d the*r s!;*n. w*thout los*n. pur%h!s*n. power. Th*s w!s the %!se $rom 1>-1 to present. +nterest r!tes $ell 5$or one re!son or !nother8 $rom !round & Q down to Q. Tod!( there,s not ! whole lot o$ room $or them to $!ll !n( $urther e?%ept $or m!(be .o*n. ne.!t*;e4 !nd then (ou,re Cust los*n. pr*n%*ple. So there,s not mu%h ups*de $or debt tod!( l*"e there w!s *n 1>-14 but w*th Z+R' there *s ! whole lott! potent*!l downs*de. Not onl( th!t4 but *n th*s %!se we,re t!l"*n. spe%*$*%!ll( !bout go ern#ent debt. And wh!t !re our %ho*%es tod!(@ 2e %!n %hoose between !lmost no *nterest 5!%tu!ll( ne.!t*;e re!l *nterest8 $rom ! .o;ernment wh*%h *s openl( deb!s*n. *ts %urren%( !nd d*lut*n. *ts bond m!r"et4 or ! sl*.htl( h*.her *nterest r!te $rom ! .o;ernment w*th ser*ous bud.et problems !nd some non7Iero l*"el*hood o$ de$!ult. Th!t,s 6u*te ! %ho*%e $or ! se%ond!r( med*um w*th l*m*ted ups*de !nd unl*m*ted downs*de! Then there,s .old4 w*th l*m*ted downs*de !nd lots o$ ups*de potent*!l. +t,s ! tou.h sell to s!;ers who h!;e been sw*mm*n. *n ! se! o$ Mun.er*!n p!perbu..erdom the*r whole l*;es4 but not to the true G*!nts who !lre!d( hold 1: 4 tonnes !nd !ren,t lett*n. *t .o !t tod!(,s p!per .old pr*%es. As + h!;e !lre!d( po*nted out4 the *nter.ener!t*on!l G*!nts who hold ! .re!t de!l o$ th*s ph(s*%!l .old h!;e no need to e;er sell *t. Th*s *s ! "e( %on%ept (ou m*.ht w!nt to stop !nd ponder. )!stl(4 + w!nt to ment*on the nom*n!l s!;*n.s !r.ument. Go;ernment debt4 espe%*!ll( ! .o;ernment l*"e the FSG wh*%h %!n pr*nt *ts own %urren%(4 *s !t le!st nom*n!ll( s!$e. +$ (ou s!;e ! m*ll*on doll!rs (ou,ll .et ! m*ll*on b!%" !t the end o$ the d!(. The onl( 6uest*on *s wh!t w*ll be the pur%h!s*n. power o$ those doll!rs when (ou need them. 2ell the s!me nom*n!l !r.ument !ppl*es to .old when !ppl*ed properl(. +$ (ou bu( 1 oun%es o$ .old (ou w*ll st*ll h!;e 1 oun%es o$ .old !t the end o$ the d!(. The onl( 6uest*on *s wh!t w*ll be the pur%h!s*n. power o$ those oun%es when (ou need them. See@ '!.e 1>4

So4 not th!t + th*n" + h!;e %on;*n%ed +I!bell! o$ !n(th*n.4 but Cust so th!t we %!n mo;e on4 let,s !.ree th!t $rom the ;*ewpo*nt o$ the s!;ersRperh!ps e;en ! sel$*sh ;*ewpo*nt *$ th!t helpsRwho w!nt to hold $un.*ble 9%l!*ms9 on .oods !nd ser;*%es $or ! lon. but un"nownGunspe%*$*ed !mount o$ t*me4 .old be!ts .o;ernment debt tod!( h!nds down. +$ (ou don,t !.ree then ple!se return to the top o$ th*s se%t*on !nd re!d *t !.!*n. +$ (ou !.ree4 let,s mo;e on to the ;*ewpo*nt o$ the debtors4 !"! the ;*ewpo*nt o$ the e%onom( !s ! whole. From the Q$e)po$nt o2 the 1.onomy a% a 0ho'e +n the s*mplest terms4 + l*"e to re$er to the s!;ers !s net7produ%ers. All th*s me!ns *s th!t ! s!;er %onsumes less th!n she produ%es. +t,s re!ll( the s*mplest w!( to d*$$erent*!te the debtors !nd the s!;ers. +n .ener!l4 the debtors e*ther %onsume !s mu%h or more th!n the( produ%e b( borrow*n.4 t!?*n. or pr*nt*n. mone(. O$ %ourse e;er(one %onsumes4 !nd e;er(one produ%es to one e?tent or !nother. 3ut !t the m!r.*n4 debtors %onsume !nd s!;ers produ%e. M( del*ne!t*on does .o ! l*ttle deeper th!n th*s4 thou.h4 to *n%lude monet!r( pre$eren%e. Th!t,s wh( + use 9the e!s( mone( %!mp9 *nter%h!n.e!bl( w*th 9the debtors9. The e!s( mone( %!mp pre$ers e!s( mone( $or ;!r*ous re!sons *n%lud*n. not Cust the e!se o$ rep!(*n. debts but !lso th!t e!s( mone( m!( be how the( m!"e ! l*;*n.. And th*s *s wh( + put the b!n"*n. *ndustr(4 *n%lud*n. 2!ll Street4 *n the e!s( mone( %!mp !lon. w*th the debtors. 3!n"s4 o$ %ourse4 !re o$ten the %red*tors to the debtors. And th!t,s wh( *t,s the debtors !nd the sa ers r!ther th!n the debtors !nd the %red*tors. The debtors !nd the %red*tors !re *n the s!me %!mp to.ether! As + s!*d e!rl*er4 *t,s not ! .ood *de! $or the s!;ers to be %ounterp!rt( to the debtors. 3ut4 o$ %ourse4 +I!bell! O!m*ns"! d*s!.rees. She th*n"s *t,s the s!;ers, %*;*% dut+ to be the debtors, %ounterp!rt(. +n th*n"*n. throu.h wh*%h *s best $or the e%onom( !s ! whole4 *t *s *mport!nt to underst!nd th!t the e?%ess mone( e!rned $rom net7produ%*n. does not d*s!ppe!r no m!tter how *t *s s!;ed. +t *s !lw!(s p!ssed !lon. to someone. The mone( rem!*ns *n the e%onom(. /o!rd*n. .old does not depr*;e the e%onom( o$ (our e?%ess e!rn*n.s !n( more th!n bu(*n. .o;ernment debt does. +$ (ou %hoose to s!;e *n debt4 (our mone( *s p!ssed on to ! debtor. A debtor,s n!tur!l *n%l*n!t*on *s to net7%onsume 5%onsume !t the m!r.*n8 r!ther th!n net7produ%e 5produ%e !t the m!r.*n8 *$ !t !ll poss*ble. So b( s!;*n. *n debt (ou !%tu!ll( en%our!.e ! n!tur!l pred*le%t*on to produ%e less s*n%e (ou en!ble spe%*$*%!ll( those people w*th the tenden%( to borrow r!ther th!n produ%e. +n the lon. run (ou end up w*th h*.h unemplo(ment. 3ut *n Free.old4 the mone( th!t %omes $rom net7produ%*n. *s p!ssed on to other net7produ%ers who %hoose to sell the*r .old $or one re!son or !nother. These 9d*sho!rd*n.9 net7produ%ers 5s!;ers8 !re e*ther .o*n. to use th!t mone( $or %onsumpt*on or the( w*ll use *t $or produ%t*;e purposes l*"e st!rt*n. or e?p!nd*n. ! bus*ness. All o$ these uses tend to emplo( someone. And *$ the e!s( mone( %!mp *s m!n!.*n. the %urren%( prudentl(4 some m!( e;en sell the*r .old $or mone( Cust so the( %!n lend *t $or produ%t*;e purposes4 or *n;est *t *n prom*s*n. ;entures. Debt7$*n!n%ed %onsumpt*on onl( e?p!nds the tot!l !mount o$ debt !nd the r!n"s o$ the unemplo(ed. The *de! th!t debtors borrow*n. to %onsume w*ll r!*se emplo(ment le;els *s pure ho.w!sh. '!.e 1>1

So *n no un%ert!*n terms4 Free.old is the "e( to $ull emplo(ment! Debt !s !n !ltern!t*;e to .old le!ds to h*.h unemplo(ment!! +I!bell!4 Mun.er !nd the D*n.b!t !re !ll de!d wron.! "he 0$nd% o2 Jhan#e Are (ou enCo(*n. h*.h unemplo(ment (et@ The P+MFS *s4 e;en thou.h *ts le!ders w*ll ne;er !dm*t *t. One o$ the Fed,s 56uote7un6uote8 9m!nd!tes9 *s $ull emplo(ment !nd Ob!m! touts 56uote7un6uote8 so$ten*n. unemplo(ment wh*le the number o$ 'hDs on $ood st!mps h!s tr*pled. #;er(one would enCo( $ull emplo(ment4 r*.ht@ The debtors4 the s!;ers4 the e%onom( !s ! whole@ 2ell4 m!(be e;er(one e?%ept the wel$!re Cun"*es. And who,s the b*..est wel$!re Cun"*e o$ them !ll@ The onl( h*nt +,m .onn! .*;e (ou *s loo" !t the p*%ture !t the top o$ th*s post. See@ 2el$!re Cun"*es don,t !lw!(s loo" l*"e th*sE +t,s Free4 Yo Sw*pe Your #3T The $l*.ht pl!n to .lob!l unemplo(ment w!s $*led *n 1>&& when the( %!me up w*th the br*ll*!ntl( %*r%ul!r *de! o$ us*n. %red*t !s the store o$ ;!lue $ound!t*on $or %red*t. O$ %ourse .lob!l unemplo(ment *s ! $!nt!s( *sl!nd dest*n!t*on4 so here we h!;e h!d !n emer.en%( h!rd l!nd*n. on the *sl!nd o$ re!l*t( w*th ! br*e$ l!(o;er be$ore he!d*n. tow!rd our new dest*n!t*on4 %h!n.e.

3!n"s %!n pro;*de !ll the %red*t the debtors need be(ond the*r ord*n!r( *n%ome 5!nd th!t *n%ludes .o;ernments8. There *s no $und!ment!l e%onom*% need $or the s!;ers to %ontr*bute the*r surplus e!rn*n.s throu.h debt se%ur*t*I!t*on !s ! store o$ ;!lue. All th!t does *s en%our!.e unemplo(ment. The s!;ers h!;e no bus*ness be*n. %ounterp!rt( to the debtors. A Germ!n e%onom*st4 uber7e!s( mone( %!mper !nd so%*!l Cust*%e !%t*;*st who wrote the boo" on e!s( mone( ! %entur( !.o e;en s!*d !s mu%h. From h*s boo" %le;erl( t*tled ,Free Mone(, on wh*%h Dohn M!(n!rd Oe(nes showered $ulsome pr!*se4 '!.e 1>6

here,s S*l;*o GesellE 3:nd it is clear that #one+ cannot $e si#ultaneousl+ the #ediu# of exchange and the #ediu# of sa ing - si#ultaneousl+ spur and $rake. KBL ! therefore propose a co#plete separation of the #ediu# of exchange fro# the #ediu# of sa ing. :ll the co##odities of the world are at the disposal of those who wish to sa e, so wh+ should the+ #ake their sa ings in the for# of #one+8 0one+ was not #ade to $e sa edD3 And ! $un 6uote $rom Oe(nesE 9+ bel*e;e th!t the $uture w*ll le!rn more $rom GesellMs th!n $rom M!r?Ms sp*r*t.9 The Debtors !nd the S!;ers *s s*mpl( ! %ommon sense !dCustment to the pre;!*l*n. d*%hotom( o$ the =!p*t!l*sts !nd the )!borers4 or the bosses !nd the wor"ers. +t *s ! sl*.htl( !ltered lens w*th wh*%h to ;*ew the h*stor( o$ the world. The old lens h!s ! blood( h*stor( o$ le!d*n. to d!n.erous !nd de!dl( %on$ront!t*ons. +t w*ll !lso pre;ent (ou4 person!ll(4 $rom underst!nd*n. Free.old e!rl( enou.h to pro$*t $rom th!t underst!nd*n.. )f course !ll present .oods !nd ser;*%es .et used *n the present4 but th!t doesn,t me!n th!t surplus ;!lue *s onl( !n *llus*on b!sed on e?plo*t!t*on. Surplus ;!lue *s ;er( re!l4 !nd s!;!ble throu.h !n( len.th o$ t*me !nd *n theoret*%!ll( l*m*tless !mount. 3ut not *$ (ou,re us*n. debt !s the med*um. Fs*n. debt4 too mu%h 9s!;*n.s9 be%omes ! burden wh*%h *s then de!lt w*th one w!( or !nother. #;er(one w*ll underst!nd th*s e;entu!ll(4 !lthou.h *t m!( not spe%*$*%!ll( be %!lled 9Free.old9 *n the end. Th*n"*n. $or (oursel$ p!(s. See"*n. re!ssur!n%e $eels .ood4 but *t doesn,t p!(. 2!*t*n. $or o$$*%*!l %on$*rm!t*on *s !lso rew!rd*n.4 but the rew!rd *sn,t mone(. 9=h!n.e *sn,t e!s(. More o$ten4 *t,s wren%h*n. !nd d*$$*%ult. 3ut m!(be th!t,s ! .ood th*n.. 3e%!use *t,s %h!n.e th!t m!"es us stron.4 "eeps us res*l*ent4 !nd te!%hes us to e;ol;e.9 FOA; 9+t h!s e;er(th*n. to do w*th ! %h!n.*n. world $*n!n%*!l !r%h*te%ture. And + h!;e to !dm*tE *$ (ou h!ted our l!st one4 (ou w*ll no doubt h!te th*s new one4 too. /owe;er4 T!nd here,s the !ll7*mport!nt %!;e!tU e;er(one th!t *s pos*t*oned *n ph(s*%!l .old w*ll %!rr( th*s storm *n $!nt!st*% sh!pe.9 S*n%erel(4 FOFOA T1U Note to +I!bell!E 2hen + use (ou *n ! post l*"e th*s (ou shouldn,t t!"e *t person!ll(. + ne;er e?pe%t to %h!n.e ! $*?ed m*nd. You were s*mpl( used !s ! l*ter!r( de;*%e4 so ple!se don,t t!"e *t person!ll(. Or doL th!t %ould be $un!

'!.e 1>:

Sunday, Ju'y 1, 2012


6nter9$e)

Three wee"s !.o A*;e" O!ul %ont!%ted me re6uest*n. !n *nter;*ew $or the D!*l( News !nd An!l(s*s 5DNA84 !n #n.l*sh newsp!per publ*shed out o$ s*? %enters *n +nd*! *n%lud*n. Mumb!* !nd 3!n.!lore. The *nter;*ew %omes out tod!( 5Mond!( morn*n.8 *n +nd*!. You %!n downlo!d the pd$ here. 3elow *s the *nter;*ew Cust !s *t !ppe!rs *n the p!per. 5The( !lw!(s *n%lude ! %!r*%!ture m!de $rom ! photo o$ the *nter;*ewee wh*%h *s wh( he ment*oned someth*n. !bout me re$us*n. to be photo.r!phed. N8 WWWWWWWWWWWWW

An interview with the mysterious, reclusive Fofoa


The dollar is as safe as a bomb shelter that's rigged to blow up once everyone is "safely" inside... Gold will be repriced somewhere around $55, power per ounce in today's purchasing

Half way through the interview, I ask him where does he see the price of gold reaching in the days to come. ell, I don!t see gold!s tra"ectory #eing typical of what you!d e$pect to see in a #ull market%.And I e$pect that physical gold will #e repriced somewhere around &'',((( per ounce in today!s purchasing power. I have to add that purchasing power part #ecause it will likely #e concurrent with currency devaluation,) he replies. *eet Fofoa, an anonymous #logger whose writings on fofoa.#logspot.com have taken the world #y storm over the last few years. In a rare interview + one of his preconditions was he won!t #e photographed + he talks to ,ivek -aul on paper money, the fall of the dollar, the '!.e 1>-

coming hyperinflation and the rise of !physical! gold. The world is printing a lot of paper money to solve the economic problems. But that doesnt seem to be happening. What are your views on that? .aper money #eing printed to solve the pro#lems% this was /always/ in the cards. It doesn!t surprise me, nor does it anger me, #ecause I understand that it was always to #e e$pected. 0he monetary and financial system we!ve #een living with1immersed in like fish in water1for the past 2( years uses the o#ligations of counterparties as its foundation. 0hese o#ligations are noted on paper. In descri#ing the specific o#ligations these papers represent, we use well3 known words like dollars, euro, yen, rupees and yuan. 4ut what do these purely sym#olic words really mean5 hat are these paper o#ligations really worth in the physical world5 6ltimately, after 2( years, we have arrived at our inevita#le destination7 the intracta#le pro#lem of an unimagina#ly intertwined, interconnected 8ordian knot of purely sym#olic o#ligations. A 8ordian knot is like an unsolva#le pu99le. It cannot #e untangled. 0he only solution comes from :thinking outside the #o$.: ;ou!ve got to cut the knot to untangle it. <o the endgame was always going to #e de#asing these purely sym#olic units. Anyone who e$pected anything else simply fooled themselves into #elieving the rules wouldn!t #e changed. Do you see the paper money continuing in the days to come? ;es, of course= .aper money, or today!s e>uivalent which is electronic currency, is the most efficient primary medium of e$change ever used in all of human history. 0o see this you only need to a#andon the idea of accumulating these sym#olic units for your future financial security. 0hey aren!t meant for that= 0hey are great for trading in the here3and3now, not for storing for the unknown future. 0o paraphrase <ilvio 8esell, an economist in favor of sym#olic currency almost a century ago, :All the physical assets of the world are at the disposal of those who wish to save, so why should they make their savings in the form of money5 *oney was not made to #e saved=: In hindsight, this statement is true whether money is a hard commodity like gold or silver, or a sym#olic word like dollar, euro or rupee. In #oth cases, saving in :money: leads to monetary tension #etween the de#tors and the savers. hen money was a hard commodity, this tension was sometimes even released through #loodshed, like the French ?evolution. <o no, I don!t think we!re swinging #ack to a hard currency this time. Do you see the world going back to the gold standard? @o, of course not= :0he gold standard: means different things depending on which period you are talking a#out. 4ut in all cases it used gold to denominate credit, the economy!s primary medium of e$change. 0oday we have a really efficient and ultimately fle$i#le currency. 4ank runs like the A2B(s are a thing of the past. 4ut that!s not to say that gold will not play a central role in the future. It will= 0he signs of it already happening are everywhere= 8old is not going to replace our primary medium of e$change which is paper or electronic units with those names I mentioned a#ove. Instead, physical gold will replace paper o#ligations as the reserves 1or store of value1within the system. .hysical gold in unam#iguous ownership has no counterparty. 0his is a much more resilient foundation than the tangled we# of o#ligations we have today. '!.e 1>>

Can you give an e ample? If you!d like to see this change in action, go to the CD4 ECuropean Dentral 4ankF we#site and look at the euro3system!s #alance sheet. Gn the asset side gold is on line A and o#ligations from counterparties are #elow it. Additionally, they ad"ust all their assets to the market price every three months. I have a chart of these *0* Emarked to marketF ad"ustments on my #log. Gver the last decade you can see gold rising from around B(H of total reserves to over I(H while paper o#ligations have fallen from J(H to less than K(H. I e$pect this to continue until gold is more than 2(H of the reserves #ehind the euro. Where do you see all this money printing heading to? Will the world see hyperinflation? ;es, this will end. I am pretty well known for predicting dollar hyperinflation. As controversial as that prediction is, I think it is a fairly certain and o#vious end. I don!t like to guess at the timing #ecause there are so many factors to consider and I!m no supercomputer, #ut ever since I started following this stuff I!ve always said it is overdue in the same way an earth>uake can #e overdue. As for other currencies, I don!t know. .erhaps yes for the 6- pound and the yen, #ut I don!t know a#out the rupee. 0he important things to watch are the #alance of trade and the government!s control over the printing press. If you!re running a trade deficit and your government can Eand willF print, then you are a candidate for hyperinflation. !n that conte t what price do you see gold going to? ell, I don!t see gold!s tra"ectory #eing typical of what you!d e$pect to see in a #ull market. Instead it will #e a reset of sorts, kind of like an overnight revaluation of a currency. I!m sure some of your readers have e$perienced a #ank holiday followed #y a devaluation. 0his will #e similar. And I e$pect that gold will #e repriced somewhere around &'',((( per ounce in today!s purchasing power. I have to add that purchasing power part #ecause it will likely #e concurrent with currency devaluation. <o, in rupee terms, I guess that!s a#out ?sB.L million EBL lakhF per ounce at today!s e$change rate. The price of gold has been rather flat lately. What are the reasons for the same? Where do you see the price of gold going over the ne t couple of years? :0he price of gold: is an interesting turn of phrase #ecause I use it often to e$press :all things goldish: in the gold market. In today!s market, :gold: is very loosely defined. hat passes for :gold: in the financial market is mostly the paper o#ligations of counterparties. 0hese include forward sales, futures contracts, swaps, options and unallocated accounts. I often use the a##reviation :&.o8: to refer to the going dollar price for this loose financial :gold:. 0he M4*A EMondon 4ullion *arket AssociationF recently released a survey of the total daily trading volume of unallocated EpaperF gold. 0hat survey revealed a trading flow of such magnitude that it compares to every ounce of gold that has ever #een mined in all of history changing hands in "ust three months, or a#out L'( times faster than gold miners are actually pulling metal out of the ground. C>ually stunning were the net sales during the survey period. '!.e &

0he rate at which the #anking system created :paper gold: was AA times faster than real gold was #eing mined. What is the point you are trying to make? 0he point is that gold is #eing used #y the glo#al money market as a hard currency. 4ut it is #eing treated #y the marketplace as #oth a commodity that gets consumed and also as a fiat currency that can #e credited at will. It is neither, and gold!s glo#al traders are in for a rude awakening when they find out that ounce3denominated credits will not #e e$changea#le for a price anywhere near a physical ounce of gold in e$tremis1ironically failing at the very stage where they were e$pected to perform. "o what are you predicting? 4ut don!t get me wrong. It is not a short s>uee9e that I am predicting. In a short s>uee9e, the paper price runs up until it draws out enough real supply to cover all of the paper. 4ut this paper will not #e covered #y physical gold in the end. It will #e cash settled, and it will #e cash settled at a price much lower than the price of a real ounce of gold, like a check written #y an overstretched counterparty. It is a tough "o# to make my case for the future of the &.o8 in "ust a few paragraphs. 0he &.o8 will fall and then some short time later we will find that the market has changed out of necessity into a physical3only market at a much higher price. If you were holding paper you will #e sad. If you were holding the real thing you!ll #e very happy. Why is the gold price so flat these days? 0oday!s surprisingly sta#ilised &.o8 tells me that someone is throwing money into the fire to delay the inevita#le. here do I see the &.o8 going over the ne$t couple of years5 *ay#e to &'(( or less, #ut you won!t #e a#le to get any physical at that price. I think that today!s price of &A,'J' is still a fantastic #argain for physical gold. #ranklin $oosevelt had confiscated all the gold that %mericans had in &'((. Do you see something similar happening in the days to come? @ot at all= 0he purpose of the confiscation was to stop the #ank run epidemic at that time. 0here!s no need to do it again. 0he dollar is no longer defined as a fi$ed weight of gold, so the reason for the last confiscation1and su#se>uent devaluation1no longer e$ists. 8old that!s still in the ground is a different story, however. 8old mines will likely #e considered strategically important national assets after the revaluation, and will therefore fall under tight government control. The irony of the entire situation is that a currency like )dollar* which is being printed big time has become the safe haven. +ow safe do you think is the safe haven? Indeed, everyone seems to #e piling into the dollar. Cspecially on the short end of the curve, helping drive interest rates ridiculously low. 0he dollar is as safe as a #om# shelter that!s rigged to #low up once everyone is :safely: inside. ;ou can go check it out if you want to Esure, '!.e & 1

from the outside it might look like shelterF, #ut you don!t want to #e in there when it #lows up. ;ou!ve got to reali9e that it is #oth economically and politically undesira#le for any currency to appreciate against its peer currencies due to its use as a safe haven. ?emem#er the <wiss franc5 As soon as it started rising due to safe haven use they started printing it #ack down. 0he dollar is no different e$cept that it!s got a whole world full of paper o#ligations denominated in it. <o when it #lows, the fireworks will #e something to #ehold. What will change the confidence that people have in the dollar? Will there be some catastrophic event? 0hat!s the &'',((( >uestion. It is impossi#le to predict the e$act pin that will pop the #u##le in a world full of pins, #ut I have an idea that it will #e one of two things. I think the two most likely pro$imate triggers to a catastrophic loss of confidence are a ma"or failure in the Mondon gold market, or the 6.<. government!s response to an une$pected #udget crisis due to consumer price inflation. *ost people who e$pect a catastrophic loss of confidence in the dollar seem to think it will #egin in the financial markets, like a stock market crash or a 0reasury auction failure or something like that. 4ut I think it is more likely to come from where, as I like to say, the ru##er meets the road. And here I!m talking a#out what connects the monetary world to the physical world7 prices. I think these :worlds: are connected in two ways. 0he first is the general price level of goods and services and the second is the price of gold. If one of these two connections is #roken #y a failure to deliver the real3world items at the financial3system prices, then we suddenly have a real pro#lem with the monetary side. <o I think it will #e a relatively >uick and catastrophic event, #ut may#e not as dramatic as a ma"or stock market crash. It will #e confusing to most of the pundits as to what it really means, so it will take a little while for reality to sink in. The $omans debased the denarius by almost &,,- over a period of .,, years. The dollar on the other hand has lost more than '.- of its purchasing power since the #ederal $eserve of /nited "tates was established in &'&(0 nearly &,, years back. Do you think the #ederal $eserve has been responsible for the dollar losing almost all of its purchasing power in hundred years? ;es, inflation was a lot slower in ?oman times #ecause it entailed the physical melting and reissuing of coins of a certain face value with less metal content than previous issues. 0his was a physical process so it occurred on a much longer time scale. 0he dollar, on the other hand, has lost nearly 2JH of its purchasing power in roughly a hundred years. No I think the Federal ?eserve is responsi#le for this5 ell, given that the lendingO#orrowing dynamic causes e$pansion of the money supply, I think the government and the people of the world share in the responsi#ility. 4ut "ust #ecause the dollar has lost 2JH of its purchasing power doesn!t mean that any individual lost that much. How many people do you think are still holding onto dollars today that they earned a hundred years ago5 How long would you hold dollars today5 As long as the prices of things you want to #uy don!t change during the time you are holding the currency, what have you lost5 <o imagine that you simply use currency for earning, #orrowing and spending, #ut not for saving. ill it matter how much it falls over a hundred years5 ;our earning and spending will happen within a month or so, and prices won!t change much in a month. Also, your #orrowing will #e made easier on you as your currency depreciates. And your gold savings will rise. <o with the proper use of money, there is no need '!.e & &

for alarm if the currency is slowly falling at, say, LH or BH per year. Do you see %merica repaying all the debt that they have taken from the rest of the world? 1r will they 2ust inflate it away by printing more and more dollars? 0he de#ts that e$ist today can never #e repaid in real terms. And as I mentioned #efore, they are all denominated in sym#olic words like dollars, euro, yen, yuan and rupees. 0he de#t of the 6< 0reasury, most of all, will of course #e inflated away. What does #ofoa stand for? I remain anonymous #ecause my #log is not a#out me. It is a tri#ute to :Another: and :Friend of Another: or :FGA: who wrote a#out this su#"ect from A22J through L((A. <o FGFGA could stand for Friend of FGA or Follower of FGA or Fan of FGA. I never really stated what it stands for, so you can decide for yourself= <incerely, Fofoa. EInterviewer -aul is a writer and can #e reached at vivek.kaulPgmail.comF

'!.e & 0

"hur%day, Ju'y 12, 2012


Fa''a.$e% & 1. 4aper Go'd $% Mu%t '$+e 4aper Anyth$n#

Th*s *s the $*rst *n ! new ser*es +,ll be return*n. to o%%!s*on!ll(. + h!;e re%entl( %ome !%ross ! number o$ $!ll!%*es rel!t*n. to the subCe%t m!tter o$ th*s blo. !nd m( pl!n *s to %omp*le them !nd then %orre%t them one !t ! t*me. 1. 4aper Go'd $% Mu%t '$+e 4aper Anyth$n# Th*s $*rst $!ll!%( !*ms to underm*ne ! .ood de!l o$ wh!t Another !nd FOA wrote !bout b( %l!*m*n. th!t the p!per .old m!r"et h!s the s!me e$$e%t on .old !s !n( p!per m!r"et h!s on *ts underl(*n. %ommod*t(. Th*s $!ll!%( %l!*ms th!t the s!me !r.uments m!de $or !n e?plos*;e re;!lu!t*on o$ ph(s*%!l .old %ould be m!de $or !n(th*n. else4 there$ore the( must be wron.. =ommenter 9For)*bert(9 put *t th*s w!(E 3-his whole 4paper gold is holding the price down4 argu#ent #akes @ero sense to #e. !t is ;ust a logical nonsense. :ll paper trades ha e two parties - $idup and $iddown. : paper gold trade could ha e ne er taken place if no$od+ wanted to short it. -his is how all #arkets work. -here are paper to#atoes sold too. !s there a conspirac+ there too83 For)*bert( w!s !pp!rentl( p!r!phr!s*n. M!rt*n Armstron. who wrote someth*n. rem!r"!bl( s*m*l!rE 3-he+ argue that toda+ gold is reall+ paper gold, and the #arket ha e #ultiplied that #an+ ti#es. -he+ argue that the real gold is onl+ a$out N $illion ounces. -he+ then argue that the paper gold depresses the price of gold and this is wh+ it is not where it should $e right now. :ll this sound nice, howe er, +ou can #ake the sa#e argu#ent a$out an+thing traded toda+ fro# wheat to stocks and $onds gi en the deri ati e #arkets. So#e see conspirac+ $ehind e er+thing.3 '!.e & 4

+s he %orre%t@ No he,s not. =!n we re!ll( m!"e the s!me !r.ument $or !n(th*n. else@ No we %!n,t. -he paper #arket for co##odities is ;ust as likel+ to ha e a le itating effect as a suppressing one $ecause it allows for financial participation $+ those who ha e no need or a!ility to hold the actual commodity. Gold *s the onl( one th!t *s une6u*;o%!ll( suppressed b( the e?*sten%e o$ ! p!per m!r"et. No %onsp*r!%(. The mere e?*sten%e o$ ! %ommod*t(7l*"e p!per m!r"et $or .old suppresses the pr*%e n!tur!ll(4 s(stem*%!ll(. )on. term s(stem*% suppress*on o$ .old *s someth*n. tot!ll( sep!r!te !nd d*$$erent $rom short term pr*%e m!n*pul!t*on or d*stort*on wh*%h %!n o%%ur *n !n( %ommod*t( or p!per m!r"et. /ere,s ANOT/#R e?pl!*n*n. th!t the 3+S 5pr*m!r*l( #urope!n %entr!l b!n"s !t the t*me8 not onl( !nt*%*p!ted th!t ! p!per .old m!r"et would lower the pr*%e o$ .old4 but th!t *n the 1>- s the( supported the %re!t*on !nd e?p!ns*on o$ th*s m!r"et for that er+ purposeE D!teE Mon Feb 16 1>>- 14E4 A O",1R E",O<G,"S!G +D\6 &10E 9The 3+S le!ds the %re!t*on o$ ! p!per .old m!r"et that )$'' 'o)er the )or'd pr$.e o2 #o'd to the e?tent th!t *t rem!*ns !bo;e 9produ%t*on %osts9. Guess wh!t4 *t wor"ed! =ontr!r( to !ll e?pe%t!t*ons o$ o*l short!.es4 *n$l!t*on4 debt %oll!pse !nd wh!t h!;e (ou4 +t 2or"ed! 3ut4 there *s one sm!ll problem@ The 3+S !nd other ;!r*ous .o;ernments th!t de;eloped th*s tr!de 5not*%e + d*dn,t use %onsp*r!%( !s *t w!s .ood bus*ness4 !s the world .!*ned ! lot84 thou.ht th!t the p!per .old $orw!rd m!r"et would h!;e !llowed the .old *ndustr( to e?p!nd produ%t*on some $*;e t*mes o;er! Don,t !s" where the( .ot th*s4 !s the( !re the s!me people th!t br*n. us .o;ernment $*n!n%e !nd su%h.9 +n other pl!%es ANOT/#R e?pl!*ns th!t we should not be upset w*th the =3s be%!use the( were Cust bu(*n. us t*me. And l!ter he e?pl!*ns wh!t the( were bu(*n. t*me $orRto m!"e *t to the l!un%h o$ the euro. /e !lso muses !bout the $!%t th!t *t,s the 2esterners pl!(*n. *n th*s new p!per .old m!r"et who !re most upset !bout the low pr*%e. The ph(s*%!l bu(ers *n the #!st see *t !s ! .*$t. 3ut + d*.ress. Nobod( *s %l!*m*n. there !re more th!n 1 b*ll*on oun%es o$ p!per .old. +n $!%t4 there *s prob!bl( $!r more ph(s*%!l *n the world th!n p!per .old. #nou.h ph(s*%!l .old to %o;er !ll o$ the p!per ! $ew t*mes o;er perh!ps. 3ut th!t doesn,t m!tter4 *t *s onl( the $low th!t m!tters. +t,s the s!me w*th %ommod*t*es th!t .et produ%ed !nd then %onsumed. +t,s the $low between produ%t*on !nd %onsumpt*on where the pr*%e *s d*s%o;ered *n the p!per m!r"ets. 3ut .old doesn,t .et %onsumed !t ! r!te !n(where %lose to *ts ne?t %losest %ompet*tor. +t Cust !%%umul!tes. '!.e & 1

+n %ommod*t*es the p!per m!r"et re.ul!tes the $low between the produ%ers !nd %onsumers4 !%t*n. !s ! "*nd o$ ! sho%" !bsorber !.!*nst une?pe%ted suppl( !nd dem!nd sho%"s. 3ut .old *s d*$$erent be%!use *t Cust !%%umul!tes. There !re two m!*n d*$$eren%es between .old !nd e;er(th*n. else. The $*rst *s th!t .old Cust !%%umul!tes r!ther th!n .ett*n. %onsumed4 so there *s no re!son $or there to e;er be ! suppl( s*de sho%"4 e;en *$ !ll the m*nes suddenl( stopped produ%*n.. +n $!%t4 tod!( we h!;e ! 6 (e!r 9suppl( o;erh!n.9 *n .old. Noth*n. else %omes %lose. One o2 "he%e "h$n#% E9$deoG The se%ond d*$$eren%e *s th!t the ;!st m!Cor*t( o$ dem!nd $or .old *s *n %urren%( terms4 not we*.ht terms. Th*s *s not true $or %ommod*t*es. +$ (ou need ! ton o$ %opper $or ! %onstru%t*on s*te4 (ou need ! ton o$ %opper. Th!t,s we*.ht7denom*n!ted dem!nd. 3ut .old dem!nd *s o;erwhelm*n.l( *n %urren%( terms. +$ (ou need ! tonne o$ .old4 wh!t (ou re!ll( need *s P1 4 4 worth o$ .old. +t doesn,t m!tter how mu%h *t we*.hs be%!use (ou,re Cust .o*n. to st*%" *t *n ! ;!ult. /!;*n. ! p!per m!r"et !s ! sho%" !bsorber $or the .old m!r"et onl( h!s the e$$e%t o$ "eep*n. the pr*%e too low. M( e?pl!n!t*on $or the )3MA sur;e( d*s%rep!n%( *s ! per$e%t e?!mple. S*n%e .old *s not %onsumed b( %onsumers or *ndustr( the w!( %orn4 o*l4 %opper !nd .r!*ns !re4 !nd be%!use *t s*mpl( !%%umul!tes4 suppl( sho%"s !re not e%onom*%!ll( %r*t*%!l. On the dem!nd s*de4 .old *s !pp!rentl( used !s ! 9s!$e h!;en %urren%(9. And we !pp!rentl( h!d ! dem!nd sho%" o$ !round :41:1 tonnes *n Y1 & 11. The norm!l suppl( $or th!t per*od would h!;e been !round : 71 tonnes4 so the p!per .old m!r"et !%ted !s ! sho%" !bsorber !nd !bsorbed th!t dem!nd sho%" b( e?p!nd*n.. Th!t w!( the pr*%e o$ .old onl( rose P0 *n ! 6u!rter w*th ! dem!nd sho%" o$ 1 t*mes the norm!l ph(s*%!l suppl( $low. 3ut th!t w!sn,t re!ll( dem!nd $or :41:1 tonnes o$ .old. +t w!s dem!nd $or P00:3 worth o$ .old. /(pothet*%!ll(4 *$ the pr*%e o$ .old h!d been P114 GoI. *n Y1 & 114 th!t dem!nd would st*ll h!;e been $or P00:3 worth o$ .old4 the onl( d*$$eren%e be*n. th!t the P00:3 dem!nd %ould h!;e been suppl*ed b( onl( 1> tonnes 5! m*ld & Q *n%re!se *n $low r!ther th!n !n e?treme 14 Q *n%re!se8 !nd the pr*%e o$ .old would there$ore h!;e b!rel( $elt ! bump *n the ro!d4 e;en w*thout ! p!per m!r"et sho%" !bsorber. There$ore4 h!;*n. !n el!st*% p!per m!r"et sho%" !bsorber $or .old *s onl( ne%ess!r( *$ the pr*%e *s too low4 be%!use there w*ll !lw!(s be plent( o$ suppl( *$ the pr*%e *s h*.h enou.h 56 (e!r suppl( o;erh!n.4 remember@8. At tod!(,s pr*%e4 h!;*n. ! p!per m!r"et sho%" !bsorber *s !pp!rentl( ne%ess!r( to "eep the .old m!r"et $rom blow*n. up. +t lo.*%!ll( $ollows th!t *t *s the ;er( e?*sten%e o$ the p!per .old m!r"et wh*%h *s "eep*n. the pr*%e too low4 be%!use *$ (ou too" *t !w!(4 pr*%e !lone would h!;e to re.ul!te the $low. T!"e the p!per m!r"et !w!( $rom other %ommod*t*es !nd (ou s*mpl( remo;e the *n;estorGspe%ul!tor mone( *n the m*ddle thereb( e?pos*n. produ%ers 5!nd %onsumers8 to unple!s!nt sho%"s. 2e h!;e no *de! wh!t the 9sto%"9 o$ p!per .old *s. The )3MA sur;e( onl( .!;e us ! .l*mpse o$ the $low 5p!per .old turno;er8 o;er ! .*;en t*me per*od 5Y1 & 118 !nd *n ! .*;en m!r"et 5lo%o )ondon spot4 $orw!rds4 opt*ons !nd sw!ps4 w*th spot tr!ns!%t*ons be*n. > Q o$ the reported tr!des8. Th!t turno;er w!s &4: 9tonnes9 o$ p!per .old per da+ w*th 64Q o$ the )3MA members report*n.. 2e onl( .ot ! lu%"( .l*mpse be%!use the l!r.est b!n"s *n the world 5bull*on b!n"s l*"e D' Mor.!n =h!se4 '!.e & 6

Goldm!n S!%hs4 /S3=4 3!r%l!(s4 Deuts%he 3!n"4 =red*t Su*sse !nd F3S8 !re lobb(*n. $or ! te%hn*%!l rule %h!n.e th!t w*ll m!"e the*r o;er!ll 3!sel +++ %ompl*!n%e e!s*er. S*n%erel(4 FOFOA M$''$on 4$e.e% ESon# 2or the Sa9er%G ;*deo

'!.e & :

Monday, Ju'y 23, 2012


Je22 T *'ond$e-% Open Forum

Th!t p*%ture *s not re!ll( De$$ !nd 3lond*e. +t *s De$$ !nd Dord!n $rom 3*. 3rother4 !nd (es4 + !m ! 33 $!n! 3lond*e pet*t*oned me $or th*s open $orum !$ter one o$ De$$,s %omments 6uot*n. me. + !.reed4 so here (ou .o. WWWWWWWWW Ad9o.atu%D$abo'$ )rote; 3<lah $lah $lah the cra@+ 2:-:C92 assu#ption is so#ehow $lah $lah $lah.3 WWWWWWWWW Je22 re%ponded; 3)nl+ a fool would lu#p 2:-: and the hard #one+ crowd with 9)9):Q FOFOA 5$rom Fn!mb*.uous 2e!lth &8E One o$ the b*..est stru..les + obser;e *n new*sh ;*s*tors to m( blo. *s th!t the( *nst*n%t*;el( tr( to re%on%*le e;er(th*n. the( le!rned $rom the h!rd mone( %!mpRZ/ !nd GATA be*n. two br*.ht st!rs thereRw*th wh!t the( re!d here. The*r e$$ort *ne;*t!bl( le!ds to %ontr!d*%t*ons th!t %!nnot be resol;ed. And be%!use Z/4 GATA !nd the rest o$ the h!rd mone( %!mp *s so mu%h more ub*6u*tous th!n m( l*ttle blo.4 the( w*n b( de$!ult *n m*nds th!t !re un!ble to th*n" $or themsel;es. /ere !re ! %ouple o$ the *rre%on%*l!ble %on%epts $ound on th*s blo. th!t noobs must e*ther reCe%t or *.nore *n order to h!n. on to the*r Z/GGATA =3 thes*s. 1. Remember when Ar*stotle wrote th*s@ 9+n wor"*n. on th*s proCe%t4 6 )a% per%ona''y %ho.+ed )hen 6 d$%.o9ered that )e ab%o'ute'y 11D1D paper .urren.y $n order to %et Go'd 2ree. +n the per$e%t world (ou l!pse *nto *n (our %omments4 e;er(th*n. (ou s!( *s well !nd .ood. 2e don,t l*;e *n th!t world4 howe;er. M( b*..est %h!llen.e *n p*e%*n. to.ether m( pro$$ered solut*on w!s to !%%ept wh!t th*s re!l world h!d to o$$er !nd !;o*d $o*st*n. m( own pre$eren%es onto the world l*"e ! s6u!re pe. *n ! round hole.9

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/!;e (ou e;er seen !n(one *n the h!rd mone( %!mp wr*te !n(th*n. l*"e th*s@ Or %!n (ou *m!.*ne them e;er do*n. so@ Yet th*s *s one o$ the %ore $und!ment!ls ne%ess!r( to underst!nd*n. Free.old. &. And FOA wrote th*sE 9Se;er!l (e!rs !.o4 m!n( .old bu.s !nd .old !d;o%!tes m*ssed the p!th !s the tr!*l turned.9 9Yes4 the w!r now *s between the #uro !nd the doll!r! The 2!sh*n.ton A.reement T! =entr!l 3!n" !.reementU pl!%ed .old ,on the ro!d to h*.h pr*%es,.9 9The w!r between .old !nd the doll!r h!s been o;er $or ! wh*le nowL )e!;*n. .old bu.s w*th ! lot o$ 6uest*ons th!t !s" wh( th*sE both s(stems w*ll str*;e $or ! h*.her %urren%( pr*%e $or .oldN one do*n. *t be%!use the( h!;e toN the other do*n. *t be%!use the( w!nt to! The %!su!lt( on th*s b!ttle$*eld w*ll be the world .old m!r"et !s we "now *t. A m!r"et %!u.ht between how 2estern per%ept*on th*n"s .old,s pr*%e should be 9d*s%o;ered9 !nd !t wh!t pr*%e le;el tr!d*n. *n ph(s*%!l .old %r!ters the ent*re p!per stru%tureL Th*s p!per .old m!r"et w*ll be %!shed out !t pr*%es $!r below re!l bull*on tr!d*n. so !s to *n$l!te $urther the boo"s o$ the 3ull*on 3!n"s444444 not destro( them. At le!st th*s *s how the FS s*de w*ll pro%eed.9 A.!*n4 h!;e (ou e;er seen !n(one !t GATA or Z/ wr*te !n(th*n. l*"e th*s@ Or %!n (ou *m!.*ne them e;er do*n. so@ F*rst let me st!te th!t Zero /ed.e !nd GATA both pro;*de ! .re!t ser;*%e !nd the( both do $!nt!st*% wor"4 Z/ %omments se%t*on notw*thst!nd*n.. +t *s the*r underl(*n. thes*s !bout $*!t %urren%*es !nd %entr!l b!n"s *n .ener!l th!t + h!;e ! problem w*th. And th*s *s not ! problem w*th onl( Z/ !nd GATA4 *t *s ! problem w*th the ent*re h!rd mone( %!mp. The*r $ound!t*on!l thes*s *s th!t $*!t %urren%*es !nd the =3s th!t m!n!.e them !re the most $und!ment!l $l!w *n tod!(,s s(stem $rom wh*%h !ll other problems $low. Th*s d*re%tl( %on$l*%ts w*th m( thes*s th!t us*n. the s!me med*um *n both the pr*m!r( !nd se%ond!r( monet!r( roles *s the $und!ment!l $l!w $rom wh*%h !ll other problems $low. M( thes*s !ppl*es to both h!rd !nd e!s( mone( s(stems. The*r thes*s po*nts to the =3s !s the b!d .u(s. M( thes*s holds up ! m*rror !nd s!(s4 92e h!;e met the enem(4 !nd *t *s us.9 WWWWWWWWW *'ond$e pet$t$oned; 32ood one Jeff, -hat 9)9): .uote should $e a stand-alone post on this $log, ;ust so it can $e linked to regularl+. -he difference in thesis reall+ is as si#ple as that co##ent statesQ all our #onetar+ pro$le#s 6and the pro$le#s that those pro$le#s then cause7 all stem %rom the single act o% using the medium o% e"change as a store o% alue. Geriod.3 WWWWWWWWW Doob*e 3rothers B 2h!t ! Fool 3el*e;es 5;*deo8

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"ue%day, Au#u%t (, 2012


A p$.ture )orth a thou%and )ord%

Jewelr+ and sil er and gold coins dating $ack to the Ro#an period that were recentl+ disco ered at an exca ation site near kir+at 2at, in Jerusale# are displa+ed on June U, (>%(. 5Sh!ron G!lGAF'GGett(+m!.es8 )*n" 'osted b( FOFOA !t 1E&1 'M

'!.e &1

"hur%day, Au#u%t @, 2012


Ma.ro2ree#o'd-nom$.%

"!t times, when all the world's asleep, the "uestions run so deep, for such a simple man..." 2e h!;e h!d some d*s%uss*on !bout *ntern!t*on!l m!%roe%onom*%s under ! $uture Free.old s(stem *n the l!st two thre!ds. And (esterd!( DR reposted !n old %omment o$ m*ne on the subCe%t. As ! %omp!n*on p*e%e to th!t %omment4 !nd !lso to !dd ! new d*mens*on to the d*s%uss*on4 +,d l*"e to *ntrodu%e ! %ouple o$ new %on%epts. )et,s %!ll the $*rst one 9us!ble ;ersus useless we!lth9 !nd the se%ond %on%ept we,ll %!ll 9or.!n*% ;ersus *nor.!n*% s!;*n.s9.

'!.e &11

<%ab'e 9er%u% <%e'e%% 0ea'th For 9us!ble9 !nd 9useless9 we!lth +,m %!ll*n. e;er(th*n. *n the ph(s*%!l pl!ne except gold 9us!ble we!lth.9 9Fseless we!lth9 would there$ore be .old !nd p!perGele%tron*% s!;*n.s. So ob;*ousl( + !m re$err*n. to the e%onom*% or l*;*n. st!nd!rd ut*l*t( o$ someth*n. *n the present. Gold would be the ph(s*%!l pl!ne represent!t*on o$ 9useless we!lth9 !nd p!perGele%tron*% s!;*n.s would be monet!r( pl!ne 9useless we!lth9 be%!use the( both h!;e l*ttle or no e%onom*% or st!nd!rd o$ l*;*n. ut*l*t( to the s!;er. All the( do *s store pur%h!s*n. power 5more or less8 w*th the prom*se o$ potent*!l $uture pur%h!s*n. power. )et,s loo" !t !n e?!mple. =ost!t! wroteE 3!n other words ! can4t find an exa#ple of a countr+ $eco#ing rich ia the #onetar+ plane and then $eco#ing wealth+ in the ph+sical plane.3 +n terms o$ 9be%om*n. we!lth(9 *n the ph(s*%!l pl!ne4 + th*n" we should d*st*n.u*sh between 9us!ble9 we!lth 5.oods !nd ser;*%es8 !nd 9useless9 ph(s*%!l we!lth 5.old8. One *s us!ble r*.ht now $or e*ther produ%t*on or %onsumpt*on !nd the other *s not. +t seems th!t the FS be%!me we!lth( *n 9us!ble9 we!lth ;*! the monet!r( pl!ne e?orb*t!nt pr*;*le.e .r!nted b( the RO2 *n 1>&&. +t d*d h!;e ! per*od *n the m*ddle where *t !%6u*red ! bun%h o$ 9useless9 we!lth 5.old8 wh*le *t pro;*ded the world w*th 9us!ble9 we!lth *n return4 but l!tel( th!t trend h!s re;ersed. And b( l!tel(4 + me!n the p!st h!l$ %entur(. So then the 6uest*on would be how do (ou de$*ne 9be%om*n. we!lth(9@ Do (ou de$*ne *t b( h!;*n. the most us!ble 5*n the present8 we!lth4 or b( $ore.o*n. us!ble we!lth now *n order to store useless 5*n the present8 we!lth $or the $uture. /ere,s one more e?!mple wh*%h DR sent me. +t w!s publ*shed dur*n. the Gre!t Depress*on on Dul( 114 1>01 *n the M!.!I*ne o$ 2!ll StreetE Gold Does Not M!"e 'rosper*t( To men4 !s to n!t*ons4 the possess*on o$ .old *s ! s(mbol o$ prosper*t(. )et,s see. The Fn*ted St!tes h!s more .old th!n *t e;er h!d7!nd less prosper*t(. The b!n"s !re burst*n. w*th .old !nd b!rel( meet*n. the*r d*;*dends. Our .re!t %orpor!t*ons h!;e *mmense reser;es o$ .old !nd the*r bus*ness *s dw*ndl*n.. All the n!t*ons !re send*n. .old to us !nd our bus*ness w*th them *s $!d*n. !w!(. The truth *s th!t l!r.e !%%umul!t*ons o$ .old !re !n *n;erse me!sure o$ prosper*t(. 'rob!bl( $our7$*$ths o$ the .old *n the Feder!l Reser;e b!n"s *s *dle 7 !nd nobod( e;er %ontended th!t *dleness m!"es $or prosper*t(. The $!%t *s th!t e?%ept !s *t *s used !s the b!s*s o$ b!n" %red*t4 .old h!s no rel!t*on to prosper*t(. 3ut when there *s no bus*ness4 there *s no %red*t !nd .old *s useless. +n other words4 bus*ness .*;es .old ! ut*l*t( ;!lue. Gold *s de!d unt*l ;*t!l*Ied b( %ommer%e. The p*l*n. up o$ .old *n !n( %ountr( does not s*.n*$( th!t *t *s prosperousN *t merel( shows th!t the %ountr( *s .*;*n. other %ountr*es more .oods th!n *t re%e*;esN that $t $% part$n# )$th more u%ab'e )ea'th than $t $% #ett$n# ba.+. Tod!( the Fn*ted St!tes *s re%e*;*n. .old !nd .o*n. w*thout .oods *t would l*"e to h!;e. '!.e &1&

And be%!use *t *s re%e*;*n. .old *t *s sell*n. less th!n *t would l*"e to. 2hen we !re prosperous4 wh*%h me!ns th!t %red*t *s be*n. $reel( e?tended4 we need .old be%!use *t *s the one %ommod*t( th!t m!n"*nd h!s !.reed to !%%ept on b!l!n%e *n pl!%e o$ the .oods *t would r!ther h!;e. +t *s merel( ! b!l!n%*n. *tem *n the o$$sett*n. o$ %red*ts !.!*nst deb*ts. +t m*.ht be ep*.r!mm!t*%!ll( s!*d th!t prosper*t( 9m!"es9 .old !nd 9unm!"es9 *t *nste!d o$ .old m!"*n. or unm!"*n. prosper*t(. O"!(4 so th!t,s the 9us!ble ;ersus useless9 %on%ept. You %!n d*s!.ree w*th m( sem!nt*%s *$ (ou w!nt be%!use +,m onl( tr(*n. to .et the %on%ept !%ross. Or#an$. 9er%u% 6nor#an$. Sa9$n#% 2h!t +,d l*"e to %!ll 9or.!n*% s!;*n.s9 *s when e%onom*% !%tors net7produ%e 5produ%e more th!n the( %onsume8. 9+nor.!n*% s!;*n.s9 *s when the monet!r( !uthor*t( *n ! %urren%( Ione *n%re!ses *ts reser;es. And here reser;es me!n .old or $ore*.n %urren%( reser;es. Assets denom*n!ted *n ! =3,s own %urren%( !re not reser;es. 5+ wrote more !bout the d*st*n%t*on o$ reser;es *n th*s post.8 For th*s %on%ept + would l*"e to dr!w (our !ttent*on to ! st!tement +,;e m!de m!n( t*mes th!t !n( .old *ns*de ! %urren%( Ione4 publ*% or pr*;!te4 *s ! ;*!ble reser;e. Th!t *s4 !n( .old *ns*de ! Ione *s 9s!;*n.s9. 3ut now +,d l*"e to d*st*n.u*sh publ*% !nd pr*;!te .old !nd we,ll %!ll the pr*;!te .old 9or.!n*% s!;*n.s9 !nd the publ*% .old 5held b( the =3 or the .o;ernment8 9*nor.!n*% s!;*n.s9. Th*s %on%ept wor"s $or p!per s!;*n.s !s well !s $or .old s!;*n.s4 but we,ll be loo"*n. !t the $uture Free.old 3O' m!%h*n!t*ons $rom ! ph(s*%!l perspe%t*;e wh*%h w*ll e?%lude p!per s!;*n.s. So 9or.!n*% ph(s*%!l s!;*n.s9 would be .old *n pr*;!te h!nds wh*%h *s the produ%t o$ !n e%onom*% !%tor produ%*n. more th!n she %onsumes !nd pur%h!s*n. 9useless ph(s*%!l we!lth9 5.old8 w*th the e?%ess %urren%( le$t o;er $rom 9under%onsum*n.9. 9+nor.!n*% ph(s*%!l s!;*n.s9 on the other h!nd would be .old pur%h!sed b( the =3 b( pr*nt*n. %urren%(. 9+nor.!n*% p!per s!;*n.s9 would be l*"e the '3o= pur%h!s*n. FS Tre!sur*es b( pr*nt*n. (u!n. 93ut w!*t9 (ou s!(4 9the '3o= pur%h!ses Tre!sur*es w*th FS doll!rs *t re%e*;ed throu.h tr!de.9 Th*s *s true4 but *t !lso pr*nted (u!n *n e?%h!n.e $or those doll!rs re.!rdless o$ (our perspe%t*;e on the me%h!n*sm dr*;*n. th!t tr!ns!%t*on. You see4 *$ the =h*nese e?porter h!d bou.ht those Tre!sur*es $or h*s own s!;*n.s4 no (u!n would h!;e been pr*nted. Th!t would h!;e been 9or.!n*% p!per s!;*n.9. 3ut b( e?%h!n.*n. pr*nted (u!n $or the doll!rs the '3o= *s m!"*n. those s!;*n.s 9*nor.!n*%9 !nd !t the s!me t*me *t *s m!n!.*n. the e?%h!n.e r!te o$ *ts %urren%(. Th*s e6u!tes to the '3o= pr*nt*n. (u!n to bu( .old !s ! %urren%( m!n!.ement tool *n Free.old. The re!son + !m m!"*n. th*s d*st*n%t*on *s th!t + pl!n to show (ou th!t4 *n Free.old4 the =3,s *nor.!n*% 9s!;*n.9 !nd 9d*sho!rd*n.9 !%t*ons w*ll .ener!ll( be the oppos*te o$ 5or %ounter%(%l*%!l to8 the net7 !%t*ons o$ or.!n*% s!;ers *n *ts %urren%( Ione when *t m!n!.es *ts %urren%(. Free.old w*ll be mu%h more smooth !nd b!l!n%ed 5th!n the P+MFS8 e;en w*thout =3 *nter$eren%e4 but we !ll "now th!t *n the re!l world =3s .ott! do someth*n. to Cust*$( the*r e?*sten%e4 r*.ht@ So + hope to show th!t the*r n!tur!l response w*ll !%tu!ll( smooth %(%les out e;en more th!n the( would be w*thout the =3s. And th!t,s w*th e;er(one !%t*n. *n the*r own sel$7*nterest.

'!.e &10

Free#o'd *O4 The monet!r( pl!ne *s merel( ! re$le%t*on o$ the unsettled port*on o$ the ph(s*%!l pl!ne. +t *s s*mpl( remembered debtN *t re$le%ts un%ompleted ph(s*%!l7pl!ne tr!de. +t4 the 9m7pl!ne94 re$le%ts open tr!ns!%t*ons4 those not (et e?t*n.u*shed. And the 3O'4 or 3!l!n%e o$ '!(ments *s the m7pl!ne !%%ount $or show*n. wh!t h!s tr!nsp*red !nd e?pl!*n*n. wh!t *s presentl( h!ppen*n. $rom ! m!%ro perspe%t*;e. +t *s o$ten s!*d th!t the 3!l!n%e o$ '!(ments must b!l!n%e. Th*s *s ! t!utolo.(. +t *s l*"e s!(*n. ! sphere must be spher*%!l. 2h!t *t me!ns *s th!t *$ the 3O' doesn,t b!l!n%e4 (ou,;e m!de !n error *n (our %!l%ul!t*ons4 not th!t someth*n. needs to be done to br*n. *t *nto b!l!n%e. The 3O' ne;er b!l!n%es per$e%tl( be%!use the( use !..re.!ted4 .o;ernment7%olle%ted d!t! wh*%h *s *nherentl( *mper$e%t. +t *s onl( ! tool th!t helps us underst!nd wh!t,s h!ppen*n. out there *n the re!l world b( %omp*l*n. m!%ro d!t!. +t *s ! lens $or see*n.4 not !n !%t*;e p!rt*%*p!nt. +n ! pre;*ous thre!d %ost!t! %!lled %urrent 3O' !%%ount*n. methods !n !n!%hron*sm. Th!t m!( well be true4 but + th*n" he w!s tr(*n. to *mpl( th!t *t h!s some ne.!t*;e e$$e%t on re!l*t(. + don,t th*n" *t does. And whether or not the( %h!n.e 3O' !%%ount*n. *n Free.old4 + th*n" we %!n st*ll use the %urrent methodolo.( to e?pl!*n wh!t w*ll be h!ppen*n. *n Free.old $rom ! m!%ro perspe%t*;e. A.!*n4 th!t,s !ll the 3O' *sR! lens th!t helps us underst!nd wh!t,s .o*n. on. + h!;e done the 9Free.old 3O'9 e?er%*se ! number o$ d*$$erent w!(s !nd *t seems to be hopelessl( %on$us*n. tr(*n. to %on%eptu!ll( tr!;erse ! p!r!d*.m sh*$t o$ th*s m!.n*tude $rom ! monet!r( pl!ne perspe%t*;e. 2h!t + h!;e $ound *s th!t the !..re.!ted m!r.*n!l !%t*ons o$ the ;!r*ous pl!(ers *n Free.old !re %ounter*ntu*t*;e .*;en our *mmers*on *n the %urrent p!r!d*.m. So + th*n" we need to be.*n w*th the ph(s*%!l pl!ne *n order to underst!nd how the m!%ro m7pl!ne w*ll loo" *n Free.old. F*rst o$ !ll4 9useless9 .old w*ll $low *n the oppos*te d*re%t*on o$ us!ble .oods !nd ser;*%es !t the m!r.*n. +t,s Cust l*"e Another s!*d4 3gold and oil will ne er flow in the sa#e direction.3 The s!me *s true o$ the net7$low o$ 9us!ble we!lth9 5.oods !nd ser;*%es8 ;ersus 9useless we!lth9 5.old8 *n Free.old. 9Fs!ble we!lth9 !nd 9useless we!lth9 w*ll $low *n oppos*te d*re%t*ons !t the m!r.*n 5de$*%*tGsurplus re.*on8. T1U 3ut ph(s*%!l .old e?*sts *n ! 5ne!rl(8 $*?ed !mount 5b( we*.ht84 so we %!n *m!.*ne *t 9slosh*n.9 b!%" !nd $orth 5b( we*.ht8 l*"e the o%e!n mo;es b!%" !nd $orth e?pressed *n the t*des. 2h!t w*ll pre;ent !ll .old $rom $low*n. un%ontroll!bl( *nto one %ountr( *s the pr*%e o$ .old *n th!t %ountr(. And *t *s *mport!nt to underst!nd th!t s!;ers !lone determ*ne the tr!de surplus. Non7s!;ers tr!de .oods $or .oods4 but s!;ers !re the ones who 9under%onsume9 thereb( %re!t*n. ! tr!de surplus. 2e !lso need to d*st*n.u*sh between or.!n*% s!;ers 5(ou !nd +8 !nd *nor.!n*% s!;ers 5=3s l*"e the 'eople,s 3!n" o$ =h*n!8. +n Free.old these two t(pes o$ s!;ers w*ll !%t *n oppos*n. w!(s wh*%h w*ll h!;e ! d!mp*n. e$$e%t wh*%h w*ll smooth out the %(%les4 s*m*l!r to the w!( oppos*n. w!;es %!n%el e!%h other out. 2hen (ou pro;*de more us!ble we!lth to the e?tern!l world th!n (ou enCo( $or (oursel$ 5%onsume84 (ou w*ll re%ord the d*$$eren%e b( bu(*n. .old. So when we see someone !%%umul!t*n. ! lot o$ .old4 we should th*n"4 .ood lord he,s pro;*d*n. ! lot o$ us!ble we!lth *n e?%h!n.e $or 9useless9 (ellow met!l. 3ut on !n !..re.!te 5n!t*on!l or re.*on!l8 s%!le4 someth*n. l*"e th*s %ould not .o on $ore;er or else !ll the .old would $low *nto th!t re.*on. 2h!t stops th*s $rom h!ppen*n. *s th!t .old,s pr*%e w*ll r*se4 '!.e &14

rew!rd*n. the e!rl*er s!;ers wh*le 9pun*sh*n.9 the on.o*n. 5newest8 s!;ers 5under%onsumers8 w*th less .old b( we*.ht. At some po*nt the e!rl( s!;ers w*ll see enou.h rew!rd 5h*.h pr*%ed .old8 wh*le the on.o*n. 5new8 s!;ers w*ll sense ! 9top9 *n .old !nd the $low w*ll re;erse. S!;ers *n !..re.!te w*ll st!rt net7 d*sho!rd*n.. So how does th*s tr!nsl!te *nto the m7pl!ne *n Free.old@ )et,s ;*ew th*s !s the or.!n*% ho!rd7d*sho!rd cycle w*th*n ! %urren%( Ione. The uple.4 when or.!n*% s!;ers !re !%%umul!t*n. .old !nd .old *s $low*n. *n4 wh*le the pr*%e o$ .old *s r*s*n. !nd the %ountr( *s e?port*n. more 9us!ble we!lth9 th!n *t *s *mport*n.4 we,ll %!ll )e. A o$ the %(%le. Then )e. 3 w*ll be the d*sho!rd le. o$ the %(%le4 when the Ione *s *mport*n. more us!ble we!lth !nd e?port*n. .old !s the s!;ers net7d*sho!rd. 5Th*s *s %ounter*ntu*t*;e r*.ht now be%!use we,re th*n"*n. *n terms o$ =h*n! !nd the FS under the P+MFS. Seems l*"e .old should be r*s*n. 5doll!r $!ll*n.8 *n the FS r*.ht now4 but under Free.old *t would be the oppos*te 77w %ounter*ntu*t*;e! 77w be%!use the tr!de de$*%*t 5more .oods $low*n. *n8 would me!n th!t s!;ers !re d*sho!rd*n. 5.old $low*n. out8!8 Free#o'd Jurren.y Mana#ement +n Free.old4 ! %urren%( m!n!.er w*ll *n$luen%e e?%h!n.e r!tes b( bu(*n. or sell*n. .old. +$ ! %urren%( *s tr!d*n. h*.her th!n he w!nts4 he,ll pur%h!se .old on the open m!r"et 5doesn,t m!tter where th!n"s to !rb*tr!.e8 w*th $reshl( pr*nted %urren%( to we!"en h*s %urren%(. Th*s w*ll e?ert pressure $or .old to $low *nto h*s Ione !nd us!ble we!lth to $low out. Norm!ll( he,ll do th*s *n ! %ounter%(%l*%!l w!( to wh!t,s h!ppen*n. w*th the 9or.!n*%9 s!;ers. So our %urren%( m!n!.er would most l*"el( be *n$l!t*n. the %urren%( 5pr*nt*n.8 !nd us*n. th!t new %urren%( to bu( .old 5we!"en the %urren%( wh*le *n%re!s*n. reser;es8 dur*n. )e. 3 o$ the %(%le des%r*bed !bo;e 5where the s!;ers !re stren.then*n. the %urren%( 5to ! po*nt !bo;e where *t 9should9 be .*;en some me!sure o$ 'ur%h!s*n. 'ower '!r*t( w*th *ts tr!d*n. p!rtners8 b( d*sho!rd*n. .old8. +$ ! %urren%( *s show*n. unwel%ome we!"ness4 he %!n sell h*s .old reser;es on the open m!r"et. Th*s w*ll e?ert pressure $or .old to $low out o$ h*s Ione 5or !t le!st %ounter!%t the on.o*n. *n$low dr*;en b( or.!n*% s!;*n.8 !nd $or us!ble we!lth to $low *n 5or !t le!st slow down the on.o*n. out$low 5tr!de surplus88. /e would do th*s dur*n. )e. A o$ the %(%le des%r*bed !bo;e4 so !s to be %ounter%(%l*%!l to the or.!n*% s!;ers. 5A.!*n4 th*s *s %ounter*ntu*t*;e .*;en our present *mmers*on *n the P+MFS. 2ho,d e?pe%t the '3O= to be %e''$n# o$$*%*!l .old r*.ht now to redu%e the tr!de surplus. Yet th!t,s wh!t the(,d be do*n. *n Free.old.8 So ob;*ousl( ! %urren%( m!n!.er h!s ne!rl( unl*m*ted !b*l*t( to we!"en h*s %urren%( 5to %ounter!%t )e. 3 o$ the s!;ers, ho!rdGd*sho!rd %(%le8 but he *s %onstr!*ned b( h*s !%%umul!ted reser;es !s to how mu%h he %!n stren.then 5de$end8 *t 5dur*n. )e. A8. Th*s !%tu!ll( m!"es sense be%!use )e. 3 *s when s!;ers *n the Ione h!;e stopped bu(*n. .old *n !..re.!te 5so th!t .old *s no lon.er $low*n. *n8 !nd the pr*nter %!n .et them to st!rt !.!*n b( deb!s*n. the*r %urren%( wh*le s*mult!neousl( dr*;*n. up the pr*%e o$ .old. +n e?trem*s the pr*nter %!n stop the out$low o$ .old $rom d*sho!rd*n. s!;ers 5!nd stop the *n$low o$ .oods !nd ser;*%es8 b( bu(*n. e;er( oun%e sold b( domest*% 5or.!n*%8 s!;ers w*th $reshl( pr*nted %urren%(. + don,t "now *$ + would %!ll th!t 9pe..*n.9 ! %urren%( s*n%e .old *s not the %urren%( o$ ! spe%*$*% '!.e &11

tr!d*n. p!rtner. 3ut *$ (ou w!nt to "now how *t would loo" on the FOR#]4 Cust *m!.*ne ! ste!d( .old pr*%e *n the tr!d*n. p!rtner,s %urren%( !nd ! r*s*n. .old pr*%e *n (our %urren%(. The ob;*ous !rb*tr!.e would lower (our %urren%( on the FOR#] rel!t*;e to the tr!d*n. p!rtner,s %urren%( w*th ! st!ble .old pr*%e. Arbs would bu( .old *n the tr!d*n. p!rtner,s Ione !nd sell *t *n (our Ione del*;er*n. (ou !n *n$low o$ .old !nd the re6u*s*te out$low o$ 9us!ble we!lth9. + hope *t *s ob;*ous to (ou th!t ! Ione wh*%h *s e?per*en%*n. !n *n$low o$ .old 5*n Free.old8 *s !lso e?per*en%*n. !n out$low o$ us!ble we!lth. Gold *s the s(mbol*% to"en th!t *mpl*es (ou !re pro;*d*n. more us!ble we!lth to e?tern!ls th!n (ou !re us*n. $or (oursel$. =ounter*ntu*t*;el(4 the tr!ns!%t*on!l %urren%( o$ ! Ione e?per*en%*n. th*s 5*n Free.old8 *s l*"el( lower th!n *t deser;es to be on the FOR#]. Th!t,s wh( *ts e?ports seem %he!p to $ore*.ners. So $ore*.ners !re bu(*n. more us!ble stu$$ $rom th*s %ountr( th!n the( !re sell*n. to *t. The %urren%( m!n!.er would res*st th*s b( sell*n. h*s own .old lo%!ll( to stop the *n$low o$ 59useless98 .old wh*%h re$le%ts the out$low o$ us!ble we!lth. /e *s stren.then*n. h*s %urren%( b( do*n. th*s !nd slow*n. e?ports o$ re!l .oods 5wh*le !lso slow*n. *mports o$ .old8. A %urren%( m!n!.er %!n *ndu%e e?ports o$ re!l us!ble we!lth !nd *mports o$ 59useless98 .old b( *n$l!t*n. h*s %urren%( to bu( .old. Th*s we!"ens the %urren%( *ndu%*n. the *n$low o$ .old !nd the out$low o$ e?ports o$ re!l us!ble we!lth. + re!l*Ie th*s *s %ounter*ntu*t*;e 5*t seems ob;*ous th!t ! stron. %urren%( should bu( more .old84 but the e!s*est w!( to p*%ture *t *s to *m!.*ne ! %urren%( m!n!.er do*n. th*s *n *sol!t*on. /e,s pr*nt*n. !nd bu(*n. .old to we!"en h*s o;er;!lued %urren%(. Th*s *s .o*n. to $*rst %!use .old to $low *n but then the pr*%e o$ .old w*ll r*se. The %urren%( m!n!.er %ould %ont*nue bu(*n.4 s!( P1 3 *n .old e;er( d!( $ore;er. And we %ould s!( th!t P1 3 *n .old would $low *nto h*s reser;es e;er( d!( $ore;er. 3ut the re!l*t( *s th!t the $low o$ .old !y weight would slow !nd stop ;er( 6u*%"l( be%!use the pr*%e o$ .old would r*se so r!p*dl(. At some po*nt (our P1 3Gd!( *n$low o$ .old would be ! $r!%t*on o$ !n oun%e. So .old st!rts $low*n. out o$ ! Ione 5!nd 9us!ble we!lth9 st!rts $low*n. *n8 when the pr*%e o$ .old pe!"s !nd st!rts $!ll*n.. The %urren%( m!n!.er %!n %ounter th*s 5$or st!b*l*t(8 b( *n$l!t*n. the %urren%( !nd bu(*n. some o$ th!t .old th!t the s!;ers !re d*sho!rd*n.4 slow*n. the e?port o$ .old !nd thereb( slow*n. the *mport o$ 9us!ble we!lth9. SoL 2hen s!;ers !re ho!rd*n. .old4 the =3 *s d*sho!rd*n.. 2hen s!;ers !re d*sho!rd*n.4 the =3 *s bu(*n. the*r .old w*th $resh %urren%(. O;er t*me th*s w*ll m*n*m*Ie the $low o$ .old between %urren%( Iones !nd be%!use the $low o$ .old *s ! re$le%t*on o$ the $low o$ 9us!ble we!lth9 we %!n dedu%e th!t tr!de w*ll be b!l!n%ed !nd d*srupt*;e %(%les !nd %orre%t*ons w*ll be m*n*m*Ied. 2*ll there be some p!per debt *n;ol;ed !%ross Iones@ Yes4 be%!use there *s ! t*me l!. *n;ol;ed. 3ut !s lon. !s s!;ers !nd =3s !ren,t us*n. th!t debt !s the*r lon. term reser;esGs!;*n.s4 *t won,t bu*ld up !nd *t w*ll re;erse s*des re.ul!rl(. + th*n" th!t th*s short term debt 5%!ll *t the bu$$er8 w*ll st*ll be re$le%ted *n the 9=!p*t!l A%%ount9 o$ the Free.old 3O' !nd the %ross7border $low o$ .old w*ll be re$le%ted !s ! norm!l tr!de .ood. + don,t th*n" Free.old requires ! re;*sed 3O' methodolo.(. As ! p!rt*n. thou.ht4 Cust remember th!t th*s 3O' d*s%uss*on *s loo"*n. !t Free.old $rom ! m!%ro 5!..re.!ted8 perspe%t*;e wh*%h *s d*$$erent $rom the person!ll( subCe%t*;e 5m*%ro8 perspe%t*;e *n wh*%h *t *s usu!ll( d*s%ussed here. Th*n.s !ppe!r ;er( d*$$erent $rom the mount!*n top on the other s*de o$ ! s*n.ul!r*t(. N8 '!.e &16

S*n%erel(4 FOFOA T1U A rel!t*;el( t*n( !mount o$ .old w*ll $low !s ! 9us!ble9 .ood !lon. w*th the rest o$ the 9us!ble we!lth9. There !re ! $ew ele%tron*% uses $or wh*%h .old *s *rrepl!%e!ble. At the %urrent pr*%e there !re !bout 0 tonnes %onsumed e;er( (e!r *n ele%tron*%s. 3ut4 e;en !t tod!(,s pr*%e4 subst*tutes !re be*n. %re!ted $or the less *mport!nt ones. M( brother *s ! m!ter*!ls en.*neer wor"*n. $or ! m!Cor med*%!l e6u*pment m!nu$!%turer. /e person!ll( !dm*n*sters the ph(s*%!l !ppl*%!t*on o$ .old to these ;*t!l ele%tron*%s. The( %o!t ;*t!l ele%tron*%s w*th .old not be%!use .old *s ! .ood %ondu%tor 5s*l;er !nd %opper !re mu%h better8 but be%!use ! ;er( th*n l!(er o$ .old pre;ents the lesser met!ls $rom %orrod*n.. =orros*on *nh*b*ts %ondu%t*;*t(. +n one produ%t he m!"es there *s 1 7%ents7worth o$ .old !t tod!(,s pr*%e. Th!t produ%t %osts P&41 to m!nu$!%ture !nd sells to med*%!l pro$ess*on!ls $or P1 4 L !nd *t %ont!*ns 1 %ents o$ .old. #;en w*th ! 4 ] re;!lu!t*on the .old %omponent w*ll onl( be P4. On these h*.h7end med*%!l !ppl*%!t*ons the( use soph*st*%!ted te%hn*6ues $or !ppl(*n. the .old. Mu%h more soph*st*%!ted th!n the .old pl!t*n. used on %ell phones !nd thumb dr*;es. M( brother uses e;!por!t*on !nd sputter*n. wh*%h depos*ts ! l!(er onl( ! $ew !toms th*%". Gold ele%tropl!t*n. $rom ! l*6u*d onto %he!p ele%tron*%s depos*ts ! mu%h th*%"er l!(er4 !nd those lesser ele%tron*% uses w*ll l*"el( be subst*tuted w*th someth*n. l*"e th*s. +t,s "*nd o$ $unn( th!t ! P1 %ell phone tod!( %ont!*ns 1 7%ents7worth o$ .old wh*le the .old7pl!ted p*eIoele%tr*% %!p!%*tor *n ! P1 4 p*e%e o$ med*%!l e6u*pment onl( %ont!*ns 1 %ents. Th!t,s r*.ht4 !n oun%e o$ .old *s re6u*red $or e;er( 164 o$ these de;*%es. And th!t p!rt*%ul!r %!p!%*tor re6u*res ! lot o$ .old4 !bout 1 s6 %m o$ sur$!%e !re! to be %o!ted. For %omp!r*son4 !n *nte.r!ted %*r%u*t %h*p re6u*res !n(where $rom .1 to & s6 %m o$ sur$!%e !re! to be %o!ted *n .old. An oun%e o$ .old %o;ers !bout 16 4 s6 %m us*n. these h*.h7end te%hn*6ues !t ! th*%"ness o$ 1 !n.stroms 5 .1 m*%ron4 . 1 %m8. M( po*nt *s th!t + $oresee the !mount o$ .old be*n. used *n ele%tron*% !ppl*%!t*ons dropp*n. s*.n*$*%!ntl( to m!(be 1 tonnes per (e!r *n Free.old. Th!t,s out o$ the 1: 4 tonnes o$ .old *n stor!.e. A 14: (e!r suppl( o;erh!n. perh!ps@ Somehow + don,t th*n" Free.old w*ll *nter$ere w*th !n( ;*t!l *ndustr*!l uses $or .old. ON# OF T/#S# T/+NGS 5;*deo8 'S. +,d l*"e to t!"e the opportun*t( o$ ! posts%r*pt *n ! $resh post to h*.hl*.ht A*%tor the =le!ner,s e?pl!n!t*on o$ wh!t M!r*o Dr!.h* me!nt when he s!*d 9wh!te;er *t t!"es9. Reposted $rom S%rewt!pe F*lesE +t seems th!t most people don,t underst!nd the #=3. +$ Dr!.h* s!(s 9w*th*n the*r m!nd!te94 he *s re$err*n. to the*r *n$l!t*on t!r.et 9below but %lose to &Q !nnu!ll(9 *n the med*um term 5*.e. &70 (e!r !;er!.e8. /e s!*d he would s!;e the #uro 9wh!te;er *t t!"es9. /e d*dn,t s!( he would s!;e .o;ernment debt '!.e &1:

wh!te;er *t t!"es. Some people seem not to .et *t th!t these two !re %ompletel( d*$$erent .o!ls. +$ (ou t!"e the &Q *n$l!t*on t!r.et ser*ousl( 5!nd e;er( s*n.le step b( the #=3 *s %ons*stent w*th the !ssumpt*on th!t the( do84 (ou %on%lude th!tE 18 The #=3 w*ll pr*nt mone( *n order to %re!te *n$l!t*on !s soon !s the med*um7term *n$l!t*on r!te .ets subst!nt*!ll( below &Q. &8 +n order to %re!te th*s *n$l!t*on4 the #=3 w*ll h!;e to pur%h!se %onsumer debt w*th new b!se mone( 5th*s *s how (ou %re!te pr*%e *n$l!t*on8. So the*r st!nd!rd %ho*%e w*ll be to bu( .o;ernment debt 7 .o;ernment e?pend*tures !re l!r.el( %onsumpt*on4 e*ther d*re%tl( or throu.h s!l!r*es4 pens*ons4 bene$*ts. 08 +n the *n$l!t*on r!te drops subst!nt*!ll( below &Q *n some %ountr*es4 but not *n others 59pol*%( tr!nsm*ss*on d*storted984 the #=3 w*ll bu( .o;ernment debt o$ these %ountr*es4 but not o$ others 7 most .o;ernments spend m!*nl( *n the*r own e%onom( wh*%h !llows the #=3 to t!r.et where the( w!nt to %re!te *n$l!t*on 48 The #=3 h!s no m!nd!te to %re!te more *n$l!t*on th!n the ment*oned &Q !nnu!ll(. So the( w*ll m!"e sure th*s doesn,t h!ppen e*ther. 18 /ow w*ll the( do *t@ 2ell4 th!t,s e!s(. A lot o$ debt *s be*n. wr*tten o$$ 5Sp!n*sh home owners de$!ult*n. on the*r mort.!.es et%.84 !nd se;er!l .o;ernments h!d to sh!rpl( %ut down on the*r de$*%*t spend*n.. 3oth !re de$l!t*on!r(. So the #=3 %ould s*mpl( le!;e the m!r"et !lone4 !nd the #uro Ione would .et some pr*%e de$l!t*on. So the #=3 h!s enou.h tools to l*m*t the *n$l!t*on r!te !t &Q !nnu!ll(. 68 2h!t *s the m!*n me%h!n*sm th!t m*.ht %!use !n *n$l!t*on r!te h*.her th!n &Q *n the med*um run@ Th*s would h!ppen *$ the %ommer%*!l b!n"*n. s(stem or the #=3 monet*Ie the runn*n. bud.et de$*%*t o$ the*r .o;ernments or *$ the( monet*Ie other %onsumer debt be(ond !bout &70Q o$ GD' !nnu!ll(. :8 /ow %!n th*s be pre;ented@ 2ell4 some .o;ernments h!;e .otten *nto ser*ous d*$$*%ult*es r!*s*n. $und*n.4 !nd +rel!nd4 'ortu.!l4 Gree%e4 Sp!*n !re $or%ed to %ut down on publ*% spend*n.. /ow pre%*sel(@ The *nterest r!tes the( would h!;e to p!( $or !dd*t*on!l debt !re .o*n. up. See@ Some *d*ots %l!*m 9Dr!.h* w!nts to pr*nt !nd bu( !ll .o;ernment debt *n order to lower the *nterest r!tes9 !nd then 9#=3 *s too stup*d to re!ll( lower *nterest r!tes9@ /ow !bout th*sE #=3 h!s pur%h!sed some .o;ernment debt *n order to %re!te *n$l!t*on *n those %ountr*es *n wh*%h *n$l!t*on w!s dropp*n. too mu%h below &Q4 but #=3 ne;er *ntended to lower *nterest r!tes@ Mu%h e!s*er e?pl!n!t*on4 *sn,t *t@ -8 So wh!t do we %on%lude *$ we !ssume th!t the #=3 *s do*n. noth*n. other th!n the*r Cob4 *.e. to m!*nt!*n the*r &Q *n$l!t*on t!r.et@ -.18 The( w*ll bu( .o;ernment debt *$ the *n$l!t*on r!te drops too mu%h below &Q !nnu!ll(. +n '!.e &1-

p!rt*%ul!r4 *$ th*s h!ppens *n some %ountr*es4 the #=3 w*ll bu( the .o;ernment debt o$ these spe%*$*% %ountr*es 5SM'8. -.&8 Althou.h the #=3 m!( bu( .o;ernment bonds $or th*s re!son4 the( w*ll m!"e sure the( do not !rt*$*%*!ll( suppress the *nterest r!tes 5*n %ontr!st to the Fed or the 3o#8. -.08 As lon. !s the *n$l!t*on r!te st!(s !round &Q4 the #=3 w*ll not monet*Ie .o;ernment debt4 s*mpl( be%!use th*s would %re!te more *n$l!t*on. +n p!rt*%ul!r4 th*s *nd*%!tes ! l*m*t o$ the !nnu!l bud.et de$*%*ts th!t w*ll end up on the b!l!n%e sheet o$ the %omb*ned b!n"*n. se%tor 5%ommer%*!l b!n"s !nd #=38E no more th!n !round &70Q o$ GD' wh*%h would %!use !bout 1.47&.1Q %onsumer pr*%e *n$l!t*on *n the ste!d( st!te 5!ssum*n. rou.hl( : Q o$ .o;ernment e?pend*tures *s %onsumpt*on 7 (ou %!n !dCust these $*.ures *$ (ou h!;e better d!t!4 the #=3 %ert!*nl( do h!;e better d!t!8. -.48 So wh*le some debt w*ll be bou.ht b( the #=3 *n order to m!*nt!*n &Q *n$l!t*on4 some other debt w*ll most l*"el( be de$!ulted on. /ow mu%h@ + .uess th*s w*ll st*ll be ! lot. -.18 +$ some pol*t*%*!ns tr( to .*;e the #SFS or #SM ! b!n"*n. l*%ense or to use .o;ernment run b!n"s *n order to monet*Ie the*r own debt4 the #=3 w*ll h!;e to obstru%t these !ttempts4 $or e?!mple4 b( %h!n.*n. the re6u*rements on the %oll!ter!l the( !%%ept $rom these b!n"s. Also4 the northern %ountr*es w*ll not l*"e th*s !nd presum!bl( !lre!d( be *n$luent*!l enou.h to stop *t. A*%tor T/# )OG+=A) SONG 5;*deo8 2hen + w!s (oun.4 *t seemed th!t l*$e w!s so wonder$ul4 ! m*r!%le4 oh *t w!s be!ut*$ul4 m!.*%!l. And !ll the b*rds *n the trees4 well the(,d be s*n.*n. so h!pp*l(4 Co($ull(4 pl!($ull( w!t%h*n. me. 3ut then the( send me !w!( to te!%h me how to be sens*ble4 lo.*%!l4 respons*ble4 pr!%t*%!l. And the( showed me ! world where + %ould be so depend!ble4 %l*n*%!l4 *ntelle%tu!l4 %(n*%!l. There !re t*mes when !ll the world,s !sleep4 the 6uest*ons run too deep $or su%h ! s*mple m!n. 2on,t (ou ple!se4 ple!se tell me wh!t we,;e le!rned + "now *t sounds !bsurd but ple!se tell me who + !m. Now w!t%h wh!t (ou s!( or the(,ll be %!ll*n. (ou ! r!d*%!l4 l*ber!l4 $!n!t*%!l4 %r*m*n!l. 2on,t (ou s*.n up (our n!me4 we,d l*"e to $eel (ou,re !%%ept!ble4 respe%!ble4 present!ble4 ! ;e.t!ble! At n*.ht4 when !ll the world,s !sleep4 '!.e &1>

the 6uest*ons run so deep $or su%h ! s*mple m!n. 2on,t (ou ple!se4 ple!se tell me wh!t we,;e le!rned + "now *t sounds !bsurd but ple!se tell me who + !m. 'osted b( FOFOA !t 11E1> 'M

'!.e &&

Thursd!(4 Au.ust &04 & 1&

Four!

Four (e!rs !nd three months !.o + stumbled upon !n e?tens*;e !r%h*;e o$ ten7(e!r7old posts b( !non(mous wr*ters w*th n!mes l*"e ANOT/#R4 FOA !nd AR+STOT)#. 'r*or to th!t momentous stro"e o$ lu%"4 +,d been por*n. o;er !n(th*n. !nd e;er(th*n. + %ould $*nd th!t w!s !ttempt*n. to e?pl!*n ! ser*es o$ e;ents th!t + $ound ;er( troubl*n.. + h!d !lre!d( been e?posed to person!l losses ! (e!r e!rl*er due to the re;ers!l o$ the re!l est!te m!r"et wh*%h *n*t*!ll( %!used me to s*t up !nd p!( !ttent*on. And so + w!s h(per7!w!re dur*n. ! str*n. o$ !l!rm*n. e;ents rel!ted to sub7pr*me !nd *ts se%ur*t*es *n Au.ust !nd September o$ & :. As t*me wore on + st!rted to t!"e not*%e o$ other odd o%%urren%es *n the m!r"ets. +n l!te & : the =!n!d*!n doll!r suddenl( be%!me more ;!lu!ble th!n the FS doll!rL $or the $*rst t*me *n 0 (e!rs. Then *n Febru!r( o$ & - !n ent*re m!r"et %oll!psed $or ! spe%*$*% "*nd o$ se%ur*t( th!t h!d been m!r"eted to %onser;!t*;e *n;estors !s 9s!$e !s %!shR"*nd o$ l*"e mone( m!r"ets but w*th h*.her *nterest r!tes49 %utt*n. l*ttle old l!d*es o$$ $rom the*r s!;*n.s. And then one month l!ter 3e!r Ste!rns %oll!psed. + 6u*%"l( re!d !n( boo" + %ould $*nd *n the sm!ll 5but .row*n.8 $*n!n%*!l %r*s*s se%t*on !t m( lo%!l boo" store. + re!d 9Amer*%!,s 3ubble #%onom(94 9=r!sh 'roo$9 !nd 9F*n!n%*!l Arm!.eddon9 *n e!rl( & -. Onl*ne + spent ! lot o$ t*me re!d*n. the l*"es o$ D*m S*n%l!*r4 'eter S%h*$$4 *Tul*p !nd !n(th*n. th!t %!me up on $orums l*"e the old Gold +s Mone( $orum. 3ut + h!d (et to pur%h!se m( $*rst .old %o*n. 2*th su%h ! rush o$ new *de!s %om*n. *n o;er m!(be ! s*? month per*od4 + $ound m(sel$ stru..l*n. to m!"e sense o$ *t !ll. The mess!.e + w!s re%e*;*n. seemed %ompl*%!ted !nd d*sCo*nted. + "new there w!s someth*n. *mport!nt *n there4 but $or some re!son *t $elt l*"e !n *n%omplete puIIle. Someth*n. w!s m*ss*n.. Then one d!( someone posted !n e?%erpt o$ ANOT/#R 5T/OFG/TS!8 on the G+M $orum w*th ! l*n" to the !r%h*;es. +t w!s ! str!n.e 6uote4 but someth*n. *n *t %!u.ht m( !ttent*on l*"e ! be!%on !s br*.ht !s the sun4 so + %l*%"ed on the l*n". And $or the ne?t two months + stopped re!d*n. e;er(th*n. else +,d '!.e &&1

been re!d*n. wh*le + wor"ed m( w!( throu.h m!(be ! thous!nd p!.es7worth o$ FSAGO)D !r%h*;es. Then + went b!%" !nd re!d *t !.!*n. +n Au.ust o$ & -4 wh*le st*ll d*.est*n. *t !ll4 + w!nted to t!l" to someone !bout the most !m!I*n. !nd m*nd7blow*n. *de!s + h!d e;er re!d. The m!r"ets were teeter*n. on the pre%*p*%e o$ !n !b(ss4 /!n" '!ulson h!d h*s new 9b!Ioo"!94 !nd !ll + w!nted w!s to t!l" to someone !bout Free.old. So $our (e!rs !.o tod!(4 + st!rted th*s blo.. Four (e!rs4 0: posts4 0:4 %omments !nd m*ll*ons o$ h*ts l!ter !nd we,re st*ll t!l"*n.. All + %!n re!ll( s!( *s T/ANO YOF to e;er(one who showed up to %h!t! 2ell4 !lmost e;er(one. ND Those o$ (ou who h!;e been here !n( len.th o$ t*me "now th!t + %ert!*nl( !ttr!%t m( $!*r sh!re o$ detr!%tors. And + do re!l*Ie th!t the subCe%ts + wr*te !bout !re %ontro;ers*!l. +t,s not e!s( to en%ounter ! $oolproo$ !r.ument $or someth*n. (ou ne;er e;en %ons*dered be$ore. +t,s not e!s( be%!use *t runs %ounter to !ll the b!..!.e (ou,;e p*%"ed up elsewhere. +,;e seen the b!..!.e4 so + "now wh!t *t loo"s l*"e. There !re m(r*!d mor!l*t( pl!(s b!sed on ! poor underst!nd*n. o$ mone(4 !nd wonder$ul stor*es o$ monet!r( !nd $*n!n%*!l *ntr*.ue4 depr!;ed *ntent !nd %onsumm!te4 destru%t*;e %omeupp!n%e !ll o;er the *nternet. 3ut the truth4 !s *t *s re;e!led $*rst lo.*%!ll( !nd then emp*r*%!ll(4 *s so mu%h more rem!r"!ble4 so utterl( !m!I*n.4 ! be!%on !s br*.ht !s the sun. These !re not #+ $oolproo$ !r.uments. + t!"e no %red*t $or them. The( %ome $rom ANOT/#R !nd FOA !nd + s*mpl( d*st*ll !nd e?tr!pol!te $rom the*r posts be%!use the( !re no lon.er do*n. *t themsel;es. M( blo. *s ! tr*bute to them. +$ (ou bel*e;e the !r.uments !re not so $oolproo$4 then b( !ll me!ns4 br*n. *t! + h!;e ne;er sh*ed !w!( $rom ! worth( deb!te4 but + do tend to *.nore t*red old !r.uments wh*%h + !lre!d( de!lt w*th so !s not to w!ste !n( more pre%*ous t*me. 3ut *$ (ou !re one o$ the m!n( people who *n%ess!ntl( em!*l me re6uest*n. th!t + !ddress M!rt*n Armstron.,s $!*led !ttempts to br*n. *t4 +,ll w!ste ! l*ttle t*me $or (ou now. + h!;e re!d ! $ew o$ h*s re%ent posts !nd *t *s %le!r th!t he th*n"s + !m us*n. h(per*n$l!t*on !s the re!son to bu( .oldE The presumpt*on here *s (ou mo;e *n ! str!*.ht l*ne unt*l /Y'#R+NF)AT+ON somehow m!"es .old P1 4 !nd oun%e4 e;er(th*n. else rem!*ns the s!me4 !nd th*s *s better th!n ! M*r!%le o$ 04th Street. Th*s *s be*n. m!r"eted tr(*n. to su%" people *n l*"e those who !re bro"e s*tt*n. *n ! %!s*no desper!tel( tr(*n. the pull th!t le!;er !nd be%ome ! m*ll*on!*re. Th*s ! Cust p!thet*% pre(*n. upon those who %!n !$$ord b!d !d;*%e the le!st. T sicU Th*s4 l*"e h*s m!n( other rem!r"s d*re%ted th*s w!(4 *s so preposterousl( o$$ the m!r" th!t *t *s not e;en worth ! %omment. /e !pp!rentl( %ons*ders pred*%t*ons o$ doll!r h(per*n$l!t*on to be ! s%!re t!%t*% me!nt to $r*.hten (ou *nto bu(*n. .oldE So DonMt 2orr( B 3e /!pp(. Gold *s not .o*n. up be%!use o$ !ll the %onsp*r!%( %l!*ms nor be%!use the re!l .old w*ll %on6uer the p!per .old. Th*s *s !ll !bout re!l*t(. 3ut then he del*;ers h*s own 5less s%!r(@8 pred*%t*onE +t *s notL /Y'#R+NF)AT+ON we need to worr( !bout. /ow !bout pl!*n old $!sh*oned '!.e &&&

e?t*n%t*on o$ so%*et( !s we "now *t tod!(@ Th!t,s not s%!r(@ 2ell4 $e!r not4 be%!use three p!r!.r!phs l!ter he lets (ou "now th!t (ou,ll soon be !ble to pur%h!se h*s $!med %omputer pred*%t*on s(stem so (ou,ll "now when the pl!*n old $!sh*oned e?t*n%t*on o$ so%*et( w*ll !rr*;eE +nst*tut*on!l %l*ents see"*n. the st!nd7!lone s(stems to mon*tor the ent*re .lob!l port$ol*o !re ne!rl( re!d(. 2e w*ll be pro;*d*n. those s(stems !t P&1 m*ll*on !nnu!ll(. 2e w*ll be pro;*d*n. onl( three .lob!l s(stems $ull( %o;er*n. e;er(th*n. worldw*de $or P1 m*ll*on. 2e .u!r!ntee th!t the lon.7term $ore%!sts w*ll be %orre%t or (our mone( b!%". Fmm4 .*;e me ! bre!"@ As $or h*s !r.ument th!t h(per*n$l!t*on *s *mposs*ble *n ! %ore e%onom(4 he *s not onl( w!( too $o%used on the monet!r( pl!ne 5bondholders4 $*n!n%*!l !ssets4 %!p*t!l $lows84 l*"e the de$l!t*on*st th!t he *s4 but he *s !lso !pp!rentl( %ompletel( un!w!re o$ FOA,s sl!m7dun" ro%"7sol*d re!son*n. $or *ne;*t!ble doll!r h(per*n$l!t*on wh*%h + e?tr!pol!ted *n these posts !mon. m!n( othersE 'e!" #?orb*t!nt 'r*;*le.e +n$l!t*on or /(per*n$l!t*on@ Another one o$ m( more not!ble 5!lbe*t *nd*re%tRhe s*mpl( d*sm*sses me !s !n !non(mous blo..er !nd then s!(s +,m wron.8 detr!%tors *s G!r( North4 e;er s*n%e + %!u.ht h*s !ttent*on b( e?tr!%t*n. ! %on%ess*on $rom ! prom*nent de$l!t*on*st w*th whom G!r( h!d !r.ued $or (e!rs. You %!n re!d more !bout *t 5!lon. w*th re$eren%es to me8 *n these two postsE R*%" A%"erm!n De$e%ts to the /(per*n$l!t*on*st =!mp A$ter 0 Ye!rs b( G!r( North 2here*n G!r( North R!ll*es M( De$l!t*on*st S*de b( R*%" A%"erm!n An(w!(4 G!r( *s !n *n$l!t*on*st !nd he there$ore !r.ues !.!*nst both de$l!t*on !nd h(per*n$l!t*on. Dust th*s month he wrote sep!r!te posts !.!*nst the !r.uments $or de$l!t*on !nd h(per*n$l!t*on. + ment*on th*s m!*nl( to demonstr!te how those !r.u*n. !.!*nst doll!r h(per*n$l!t*on $rom !n( s*de !re !pp!rentl( %ompletel( un!w!re o$ FOA,s sl!m7dun" re!son*n.. +$ th*s w!s not the %!se4 +,d e?pe%t so#eone %red*ble to %r*t*6ue *t. M( %!se *n po*nt *s th!t G!r(,s l!test 5!nd there$ore presum!bl( tou.hest8 !r.ument !.!*nst h(per*n$l!t*on *s th!t the Fed %!nnot sol;e the FSG,s problem o$ un$unded $uture l*!b*l*t*es o$ P&&&T throu.h h(per*n$l!t*on !nd *t there$ore w*ll not !dopt ! pol*%( o$ h(per*n$l!t*on. Furthermore4 he bel*e;es th!t the Fed w*ll be !ble to somehow res*st the FSG,s spend*n. !dd*%t*on *$ push %omes to sho;e. /e wr*tesE + !m %on;*n%ed th!t4 unless =on.ress n!t*on!l*Ies the Feder!l Reser;e4 the Feder!l Reser;e w*ll not !dopt ! pol*%( o$ h(per*n$l!t*on. Th!t would be to the detr*ment o$ the b!n"*n. s(stem *n .ener!l.

'!.e &&0

Now + re!l*Ie th!t h*s post w!s not d*re%ted !t me be%!use +,m Cust !n !non(mous blo..er who,s wron.4 but *$ *t h!d been4 Cust l*"e M!rt*n Armstron.,s !ttempt4 *t,s so $!r o$$ the m!r" *t,s h!rd to "now where to be.*n. M( 5wh*%h *s FOA,s8 h(per*n$l!t*on re!son*n. *s not !bout ! Fed 5or FSG8 pol*%( de%*s*on to sol;e the debt problem. +t *s s*mpl( the %orner th!t the doll!r *s b!%"ed *nto !nd there,s onl( one w!( out. The r!t*on!le *s so rem!r"!bl( s*mple th!t +,m surpr*sed no one l*"e G!r( or M!rt*n who bel*e;es doll!r h(per*n$l!t*on *s !n(th*n. less th!n %ert!*n h!s !ttempted to t!%"le *t. +t,s not ! d*$$*%ult !r.ument to underst!nd. +t,s b!s*%!ll( th!t the onl( th*n. pre;ent*n. h*.h r!tes o$ doll!r pr*%e *n$l!t*on *s $ore*.n support $or the doll!r. T!"e th!t !w!( !nd (ou,ll h!;e ! h*.h r!te o$ doll!r pr*%e *n$l!t*on. And then4 p!rtl( be%!use the FSG bud.et de$*%*t e%l*pses the tr!de de$*%*t tod!(4 the .o;ernment w*ll be $or%ed to 6u*%"l( h(per*n$l!te the doll!r s*mpl( to m!*nt!*n *ts st!tus 6uo. The !ltern!t*;e would re6u*re the .o;ernment to shut down4 but *t won,t e;en %ons*der th!t opt*on. S*mple. +,ll !dd one other post to m( !bo;e re%ommend!t*ons $or !n(one who w!nts to 9br*n. *t9E Mone(ness 'e!" #?orb*t!nt 'r*;*le.e +n$l!t*on or /(per*n$l!t*on@ )*"e + s!*d4 these !re not #+ $oolproo$ !r.uments. + t!"e no %red*t $or them. To pro;e *t4 here !re ! $ew 6u*%" 6uotes $rom FOA *n & !nd & 1E So4 doll!r h(per *n$l!t*on ne;er !rr*;ed !nd .old d*d not m!"e *ts run be%!use world =3s bet (our produ%t*;e e$$orts on support*n. the doll!r reser;e. +n the pro%ess4 the FS st!nd!rd o$ l*;*n. w!s r!*sed tremendousl( on the b!%"s o$ most o$ the world,s wor"*n. poor. 3ut th*s *s not !bout to l!st! 777 =entr!l b!n"s .or.ed themsel;es w*th worthless doll!r reser;es !nd pre;ented ! h(per*n$l!t*on o$ the doll!r *n the pro%ess. The( d*d th*s4 be%!use the( "new th!t .old h!d the !b*l*t( to %ompletel( repl!%e !n( !nd !ll loss o$ doll!r reser;e ;!lue on%e ! new s(stem w!s *n oper!t*on. 777 2e !re onl( Cust now !rr*;*n. !t ! t*me per*od th!t w*ll br*n. !bout 9The =urren%( 2!rs9. #;er(th*n. pr*or to th*s w!s onl( ! prep!r!t*on per*od to bu*ld !n !ltern!t*;e %urren%(. The (e!rs spent tr!;el*n. th*s ro!d were done to prep!re the world $or !n es%!pe med*um when the doll!r $*n!ll( be.!n *ts 9pr*%e9 h(per7*n$l!t*on st!.e. Few *n;estors %!n 9.r!sp9 th!t *n re!l*t(4 our doll!r h!s !lre!d( been h(per *n$l!ted4 but w*thout the h*.her pr*%e e$$e%ts. Ye!rs o$ de$*%*t spend*n.4 o;er7borrow*n.4 debt e?p!ns*on h!;e %re!ted !n *llus*on th!t the doll!r w!s *mmune to pr*%e *n$l!t*on. Th*s *llus*on *s e;*dent *n our m!ss*;e tr!de de$*%*t !s *t %!rr*es on w*th no ne.!t*;e e$$e%ts on doll!r e?%h!n.e r!tes. =le!rl( other *n;estors4 outs*de the =entr!l 3!n"s were help*n. *n the doll!r support pro%ess w*thout "now*n. the( were bu(*n. *nto ! d(*n. %urren%( s(stem. The onl( th*n. th!t "ept th*s pro%ess $rom show*n. up *n the pr*%es o$ e;er(d!( .oods w!s the support other =entr!l 3!n"s showed $or our %urren%( throu.h e?%h!n.e *nter;ent*on. As + po*nted out *n m( other wr*t*n.s4 th*s support w!s %on;oluted !t best !nd done o;er 11 to & (e!rs. St*ll4 *t,s been done '!.e &&4

w*th ! purpose !ll th*s t*me. 777 A .r!nd h(per *n$l!t*on o$ pr*%es *s now d*re%tl( !he!d on the tr!*l. +t should be ushered *n w*th ! l!r.e 9%r!%"up9 *n the %urren%( der*;!t*;es m!r"et. On%e th*s e;ent *s 9*n pro%ess9 the p!per .old m!r"ets w*ll 6u*%"l( rush to d*s%ount !.!*nst ph(s*%!l .old. A d*s%ount th!t w*ll bre!" our .old m!r"et pr*%*n. !nd ph(s*%!l !llo%!t*on s(stem. 777 Th*s %ountr( *s d*;*n. he!d $*rst *nto ! .r!nd h(per *n$l!t*on !nd no !mount o$ Fed m!neu;ers w*ll stop *t. 'eople th!t le!rn th*s e!rl( on4 be$ore the ph(s*%!l %omes *nto short suppl(4 w*ll be m*les !he!d. 3u(*n. .old between P4 !nd P& w*ll be l*"e "now*n. ! member w*th M!sters T*%"ets. 777 Our re%ent Amer*%!n e%onom*% e?p!ns*on h!s4 !ll !lon.4 !%tu!ll( been the result o$ ! worldl( pol*t*%!l 9w*ll9 th!t supported doll!r use !nd doll!r %red*t e?p!ns*on so !s to bu( t*me $or Another %urren%( blo%" to be $ormed. 2*thout th!t *ntern!t*on!l support4 th*s de%!des7lon. doll!r der*;!t*;e e?p!ns*on %ould not h!;e t!"en pl!%e. 777 For !nother %urren%( blo%" to be bu*lt4 o;er (e!rs4 the %urrent world e%onom( h!d to be "ept $un%t*on*n.. To th*s end the doll!r reser;e s(stem h!d to be stru%tur!ll( m!*nt!*ned 777 The .!me *s to let the FS e%onom( su$$er $rom *ts own blo!ted e?p!ns*on b( mo;*n. slowl( !w!( $rom support*n. $ore*.n doll!r settlement w*th =3 stor!.e. Th*s *s more th!n enou.h to end the doll!rs t*mel*ne !s we !re !lre!d( stret%hed to the le;er!.e l*m*t. The( "now th!t Greensp!n h!s but one pol*%( to use !nd th!t w*ll be super pr*nt*n.. /e *s do*n. *t now4 r*.ht on 6ue! 777 A.!*nN th*s !ll wor"s !s lon. !s the world 9bu(s *nto9 us*n. our doll!rs. As + s!*dN !n e?p!nd*n. $*!t wor"s to .row the e%onom( thru e?p!nd*n. %red*t bu(*n. power be%!use the $ed %!n support the s(stem w*th %red*t %re!t*on th!t h!s no 9*n$l!t*on prem*um9. Th!t l!%" o$ prem*um onl( e?*sts !s lon. !s Amer*%!ns %!n e?%h!n.e $ree %red*t $or re!l ph(s*%!l .oods. On%e th*s per%ept*on %h!n.es *t,s o;er. On%e the world underst!nds th!t *t,s not lo%!l FS .oods th!t st!nds beh*nd doll!r .rowth4 but less e?pens*;e $ore*.n .oods4444444444 the st!.e *s set $or our 9supporters9 to sell to themsel;es! 777 The e;olut*on o$ 'ol*t*%!l w*ll *s now dr*;*n. the doll!r *nto !n end t*me h(per *n$l!t*on $rom where we w*ll not return. Th!t *s our %!ll. 3et (our we!lth on the other theor*st,s %!ll *$ (ou w!nt more o$ the*r l!st 0 (e!rs o$ h!rd mone( su%%ess. O$ %ourse4 !s + ment*oned e!rl*er4 h(per*n$l!t*on *s not the m!*n re!son to bu( .old. You %!n .et the s!me 9h(per*n$l!t*on!r( .!*n9 b( bu(*n. !rtwor"4 !nt*6ues4 %l!ss*% %!rs4 b!seb!ll %!rds or !n( other h!rd !sset. The re!son to bu( .old o;er those other %ho*%es *s Free.old. Free.old *s .old re;!lued *n re!l terms4 *ndependent o$ h(per*n$l!t*on. Those !re m( two m!*n top*%s4 Free.old !nd h(per*n$l!t*on4 be%!use those were ANOT/#R !nd FOA,s two m!*n top*%s. +,m not re!ll( .o*n. *nto Free.old *n th*s post but + w*ll .*;e (ou ! 6uote th!t ! re!der n!med Ste;e sent me. +t %omes $rom 3*ll / !t )emetropole =!$d !nd + th*n" *t %!ptures the rele;!n%e o$ Free.old to shr*mps l*"e usE 2e used to be ! n!t*on o$ 9%ho*%es9. M!n( m!n( %ho*%es4 .ood ones4 b!d ones4 wh!te;er4 but there were mult*ple %ho*%es !t e;er( turn. Now4 do we !s *nd*;*du!ls h!;e 9mult*ple %ho*%es9@ Not m!n(. M!n( !re unemplo(ed4 '!.e &&1

m!n( h!;e ne.!t*;e e6u*t( *n the*r homes !nd %!nnot mo;e e;en *$ the( w!nt to4 m!n( rel( on $ood st!mps to e!t4 s!;ers !re be*n. $or%ed to 9e!t9 the*r b!l!n%es or t!"e on the h*.her r*s"s o$ the r*..ed sto%" !nd bond m!r"ets. The onl( 9%ho*%es9 th!t we !s *nd*;*du!ls h!;e le$t !re those *n;ol;ed w*th prote%t*n. oursel;es !nd $!m*l*es. +t *s no lon.er !bout l*;*n. the Amer*%!n dre!m4 l*;*n. w*th*n (our me!ns !nd enCo(*n. (our 9.olden (e!rs9. No4 *t *s now !bout 9"eep*n. wh!t (ou h!;e9 or Cust pl!*n outr*.ht sur;*;!l. + bel*e;e th!t e;en tod!(,s %urrent %*r%umst!n%es w*ll be loo"ed upon *n the $uture w*th 9too b!d *t %!n,t be l*"e *t w!s b!%" *n & 1&9. +t *s not howe;er A)) b!d4 we w*ll 9reset9 !nd hope$ull( .o b!%" to ! rule o$ l!w !nd respe%t where e;er(one *s not loo"*n. to r*p e;er(one else o$$. R*.ht now *t *s *mper!t*;e th!t (ou be re!d( $or th*s %om*n. reset be%!use on%e *t h!ppens there w*ll be no 9do o;ers9. You w*ll 9h!;e wh!t (ou h!;e9 to st!rt out *n the new s(stem !nd noth*n. more. Th*n" !bout *t4 how m!n( t*mes h!;e (ou thou.ht b!%" !nd s!*d 9.ee4 *t re!ll( would h!;e been n*%e *$ m( Gre!t Gr!nd$!ther h!d *n;ested *n o*l wells9 or 9*$ m( p!rents h!d *n;ested *n %o!st!l re!l est!te or +3M b!%" *n the 1>1 ,s9. 2h!t *$ (ou h!d the sm!rts to *n;est *n Gold b!%" *n 1>:1@ As + s!*d4 there !re no 9do o;ers9 but *t would be n*%e. 2h!t we h!;e %om*n. *n our *mmed*!te $uture *s not onl( 9one9 o$ these p!st opportun*t( moments *n t*me4 th*s er!4 r*.ht now4 *s T/# moment *n t*me where $utures w*ll be !ltered... perm!nentl(. You !re e*ther lo%"ed !nd lo!ded...or (ou !re lo%"ed out. Th*s !s + see *t *s the l!st 9%ho*%e9 th!t *n;estors %!n st*ll m!"e th!t w*ll !$$e%t the rest o$ the*r l*;es !nd prob!bl( se;er!l .ener!t*ons to $ollow. And l!stl(4 (ou M!rt*n Armstron. $!ns m*.ht be *nterested *n th*s. FOA %r*t*6ued M!rt*n,s publ*%Gpr*;!te d*%hotom(4 one o$ the %ore $ound!t*ons o$ h*s #%onom*% =on$*den%e ModelL b!%" *n 1>>>! And *$ that doesn,t dr!w some *re4 + .*;e up! So th!t,s b!s*%!ll( wh!t + do4 !nd wh!t +,;e been do*n. here $or $our (e!rs now. 'le!se %l*%" on the .old b!r below *$ (ou,d l*"e to send me ! l*ttle blo. b*rthd!( present !nd en%our!.e me to "eep th*s th*n. .o*n. $or !nother (e!r. Or4 *$ (ou,d pre$er th!t + 9m!"e l*"e ,N S(n% !nd 6u*t wh*le +,m !he!d9 5wh*%h someone !%tu!ll( su..ested b( em!*l th*s month84 then don,t %l*%" on the .old b!r. + h!;e onl( been here th*s lon. be%!use o$ (our .enerous support. + h!;e no other *n%ome.

Th!n" (ou! FOFOA 4'ay'$%t A> As *t h!s be%ome ! person!l tr!d*t*on4 + per*od*%!ll( .!ther m( $!;or*te YouTube son. sele%t*ons $rom '!.e &&6

the l!st $ew months *nto ! pl!(l*st w*th l*n"s to the posts. /ere *s where (ou %!n $*nd m( \14 \& !nd \0 pl!(l*sts. And here,s \4. #nCo(!

Gl*mps*n. the /ere!$ter


Lth*s *s ! deep %on%ept4 ! t*meless truth4 ! l*ttle b*t o$ w*sdom $rom the !.es. S!;ers !re not *n;estors4 tr!ders or spe%ul!tors. And s*n%e th*s post *s !bout .l*mps*n. the here!$ter4 .*;e me ! $ew m*nutes wh*le + %onsult m( %r(st!l b!ll. /ere,s some mus*% wh*le (ou w!*tL )eon!rd =ohen 7 The Future 5;*deo8 Lm( %r(st!l b!ll does wor" $or the monet!r( !nd $*n!n%*!l $uture. +t p!*nts ! n*%e4 %le!r p*%ture4 (et on t*m*n. *t,s st*ll ! l*ttle h!I(. 3ut one th*n. *t does m!"e per$e%tl( %le!r *s th!t *t,s Cust ! 6uest*on o$ t*me. Depe%he Mode 7 A Yuest*on o$ T*me 5;*deo8

Superor.!n*sm Open Forum


L*n ! w*ld %olon( o$ !nts these *nd*;*du!ls end up spe%*!l*I*n. *n wh!t the( do best wh*%h le!ds to ! %olle%t*;e *ntell*.en%e $!r .re!ter th!n the *ntell*.en%e o$ !n( *nd*;*du!l !nt. L!n Je?tr!ord*n!r( m*r!%le L m*ll*ons o$ t*n( "now7hows %on$*.ur!t*n. n!tur!ll( !nd spont!neousl( *n response to hum!n ne%ess*t( !nd des*re !nd *n the !bsen%e o$ !n( hum!n m!ster7m*nd*n.!K The 3e!tles 7 )et *t 3e 5;*deo8

S!;*n.s < =!p*t!l Theor( Open Forum


LThe Superor.!n*sm,s n!tur!l dr*;e *s tow!rd e%onom*% sust!*n!b*l*t( wh*le the P+MFS *s ! ped!l7to7 the7met!l %onsumpt*on b*n.e thr*ll r*de tow!rd e%onom*% %oll!pse. S!;ers dr*;e the e%onom(4 the Superor.!n*sm or.!n*Ies *t4 !nd the P+MFS "*lls *t so$tl(. Fu.ees 7 O*ll*n. Me So$tl(

3!ll o$ Tw*ne Open Forum


FOA; 9The( w*ll not be push*n. on ! str*n.N r!ther p*%"*n. up the b!ll o$ tw*ne !nd throw*n. *t!9 + m!( be %r!I(4 but *$ there w!s ! %ont*n.en%( pl!nGhow7to m!nu!l on throw*n. the world,s l!r.est b!ll o$ tw*ne4 *t m*.ht Cust loo" l*"e th*sE

'!.e &&:

#MF 7 Fnbel*e;!ble 5;*deo8

'e!" #?orb*t!nt 'r*;*le.e


LTh!t,s r*.ht4 + s!;ed the 9%r!I( super7h(per*n$l!t*on t!l"9 $or the t!*l end o$ ! re!ll( lon. post. 3e%!use A8 people who th*n" the( h!;e *t !ll $*.ured out !lre!d( tend to !b!ndon ! post on%e the( re!d the word 9h(per*n$l!t*on94 !nd 38 the stu$$ *n th*s post re!ll( h!ppened !nd *s st*ll h!ppen*n. so *t,s onl( $!*r to (ou4 the re!der4 to .*;e *ts *ne;*t!ble denouement the !ppropr*!te we*.ht o$ ! bold %on%lus*on. +$ + d*dn,t do th!t4 + would not h!;e done m( Cob4 now would +@ N8 Fpr*s*n.

+n$l!t*on or /(per*n$l!t*on@
LThe doll!r *s so ;!stl( o;er;!lued tod!( be%!use the rest o$ the world h!s "ept *t on l*$e support $or 0 (e!rs p!st *ts e?p*r!t*on d!te. +t *s the st!b*l*t( o$ doll!r pr*%es !t th!t sm!ll m!r.*n!l $low th!t sust!*ns the *llus*on o$ we!lth *n the ent*re4 m!ss*;e monet!r( pl!ne. And (et the modern 9h!rd mone( th*n"ers9 th*n" th!t we %!n somehow ret!*n th*s le;el *n re!l terms b( s*mpl( de;!lu*n. the doll!r !.!*nst .old !nd then m!n!.*n. th!t new 9.old ;!lue9. + w*sh !ll the modern h!rd mone( th*n"ers B (ou "now who the( !re so + don,t need to ment*on !n( n!mes B would Cust t!"e ! $ew m*nutes !nd l*sten to FOA !nd m!(be4 Cust m!(be4 see how wron. the( !reL 2e D*dn,t St!rt the F*re 7 5;*deo8

The Debtors !nd the S!;ers & 1&


LTh*n"*n. $or (oursel$ p!(s. See"*n. re!ssur!n%e $eels .ood4 but *t doesn,t p!(. 2!*t*n. $or o$$*%*!l %on$*rm!t*on *s !lso rew!rd*n.4 but the rew!rd *sn,t mone(. 9=h!n.e *sn,t e!s(. More o$ten4 *t,s wren%h*n. !nd d*$$*%ult. 3ut m!(be th!t,s ! .ood th*n.. 3e%!use *t,s %h!n.e th!t m!"es us stron.4 "eeps us res*l*ent4 !nd te!%hes us to e;ol;e.9 2*nd o$ =h!n.e 7 S%orp*ons 5;*deo8

F!ll!%*es B 1. '!per Gold *s Cust l*"e '!per An(th*n.


L*t *s the ;er( e?*sten%e o$ the p!per .old m!r"et wh*%h *s "eep*n. the pr*%e too low4 be%!use *$ (ou too" *t !w!(4 pr*%e !lone would h!;e to re.ul!te the $low. M*ll*on '*e%es 5Son. For The S!;ers8 B ;*deo As ! bonus tr!%" + thou.ht +,d *n%lude Free.oldtube,s l!test %re!t*on4 e;en thou.h *t d*dn,t m!"e *t *nto ! post. /ere,s No T*me to )oseE

'!.e &&-

No T*me To )ose 7 ;*deo S*n%erel(4 FOFOA

'!.e &&>

Monday, September 1(, 2012


Go'd hoarder d$e% a'one 8 R64 0a'ter Sama%+o Jr.

De!d Ne;!d! m!n,s home $*lled w*th .old


=ARSON =+TY4 Ne;.4 Sept. 16 5F'+8 77 A Ne;!d! re%luse le$t beh*nd ! stunn*n. tre!sure when he d*ed th*s spr*n. 77 o$$*%*!ls s!( the( d*s%o;ered P: m*ll*on *n .old b!rs !nd %o*ns *n h*s home. 2!lter S!m!s"o Dr. d*ed *n h*s =!rson =*t( home *n M!(. /*s bod( w!sn,t $ound unt*l Dune !$ter h*s ne*.hbors %ompl!*ned o$ the odor em!n!t*n. $rom the house. Th!t,s when the .old w!s $ound stored *n h*s house !nd .!r!.e4 the )!s Ae.!s Sun reported Sund!(. =!rson =*t( =ler" Al!n Glo;er used ! wheelb!rrow to s%hlep the .old4 wh*%h *n%luded %o*ns $rom Me?*%o4 #n.l!nd4 Austr*! !nd South A$r*%! d!t*n. to 1-:&4 to h*s tru%" $or the tr*p to ! s!$e lo%!t*on. The newsp!per s!*d S!m!s"o h!dn,t wor"ed s*n%e 1>6- !nd w!s l*;*n. o$$ h*s *n;estments4 wh*%h *n%luded sto%" !%%ounts o$ P14 4 !nd P&14 . 9Nobod( h!d !n( %lue he w!s ho!rd*n. the .old49 Glo;er s!*d. S!m!s"o4 whose !.e w!sn,t reported4 h!d no w*ll !nd d*d not !ppe!r to h!;e !n( %lose rel!t*;es4 thou.h ! $*rst %ous*n4 subst*tute te!%her Arlene M!.d!nI4 w!s tr!%"ed down *n S!n R!$!el4 =!l*$. 9Oh4 m( God. Oh4 m( God49 she told ! l!w(er who w!s the $*rst to .*;e her the word !bout the tre!sure.

Gold worth m*ll*ons $ound *n =!rson =*t( m!n,s house !$ter he d*ed
=ARSON =+TY R 2!lter S!m!s"o Dr.4 ! re%luse4 d*ed !t home *n M!(4 but h*s bod( w!snMt d*s%o;ered unt*l Dune4 when ne*.hbors %ompl!*ned o$ the smell %om*n. $rom h*s house. There w!s onl( P& *n h*s b!n" !%%ount. 3ut there w!s ! P: m*ll*on surpr*se !t home. '!.e &0

As the house w!s be*n. %le!ned $or s!le4 o$$*%*!ls d*s%o;ered .old b!rs !nd .old %o*ns stored *n bo?es *n the .!r!.e !nd *n the house. There were so m!n( %o*ns th!t =!rson =*t( =ler" Al!n Glo;er used ! wheelb!rrow to h!ul the .old to h*s tru%" !nd depos*t *t $or s!$e"eep*n.. WWWWWWWW 9Nobod( h!d !n( %lue he w!s ho!rd*n. the .old9 Zens%re!mer wrote4 92ell4 m!(be h*s %o*n de!ler d*d..... N789 Th*s rem*nded me o$ ! .re!t %o*n de!ler stor(E

Aer( th!n" (ou B The Stor( o$ Mr. =h!n.,s Gold


The $ollow*n. *s !n e?%erpt $rom ! & & spee%h .*;en b( %o*n shop owner4 3urton S. 3lumert4 t*tled 9The O*n. DoesnMt )*"e Gold4 Ne;er /!s4 Ne;er 2*ll B Fnl*"e Mr. =h!n.9. WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW The l!st sm!ll r!ll( th!t .old enCo(ed %!rr*ed *t to P0 6 per oun%e 5*t h!s s*n%e $!llen b!%" to P&> 8. One o$ the re!sons .*;en $or the run7up w!s th!t new mone( w!s pour*n. *nto .old $rom D!p!n !nd =h*n!. 2e donMt .et mu%h rel*!ble *n$orm!t*on !bout those m!r"ets but +M;e e?per*en%ed ;er( stron. *n%l*n!t*on !mon. As*!ns tow!rds .old. 2h*%h rem*nds me o$ m( $!;or*te =h*nese %ustomer4 Mr. =h!n.. + donMt remember when he $*rst be%!me ! %ustomer but *t h!d to be ! de%!de be$ore 1>:4. /e b!rel( spo"e #n.l*sh4 !nd +Mm not e;en sure he w!s le.!ll( *n the FS. /e wor"ed *n $ood ser;*%e !t Fn*ted A*rl*nes4 !nd h*s w!rdrobe w!s Sh!n.h!* %.1>0 . 2e d*dnMt h!;e mu%h *n %ommon. /*s #n.l*sh w!s pr*m*t*;e !nd m( =h*nese non7e?*stent. The onl( th*n. we sh!red w!s h*s *nterest *n .old !nd m( des*re to sell *t to h*m. +n those d!(s we were proh*b*ted $rom sell*n. !n(th*n. th!t %ould be %ons*dered ! bull*on %o*n. Th!t d*dnMt m!tter to Mr. =h!n.. There w!s onl( one %o*n he would bu( !nd th!t w!s the FS P& )*bert( /e!d %o*n. /e w!s $!m*l*!r w*th *t $rom =h*n! !nd to h*m the )*bert( P& .old %o*n w!s .old !nd .old w!s the )*bert( P& .old %o*n. An( other .old *tem m*.ht !s well be %ounter$e*t. Throu.h the (e!rs + s!w h*m !lmost monthl(. /e brou.ht h*s p!(%he%"4 would ne.ot*!te pr*%e4 !nd then de%*de how m!n( %o*ns he w!nted. 5The P& )*bert( %ost !bout P1 e!%h.8 + would .*;e h*m %h!n.e !.!*nst h*s %he%".

'!.e &01

Or*.*n!ll(4 + w!s !mused th!t he %!me w*th h*s own b!l!n%e s%!le. +t w!s m!de o$ b!mboo w*th ! pl!te !t one end !nd ! we*.hted ro%" !t the other. +t w!s des*.ned to b!l!n%e the P& )*bert(. +$ ! %o*n $!*led4 *t w!s e*ther sh!;ed or %ounter$e*t. A$ter !bout ! de%!de + be%!me !nno(ed w*th h*s s%!le. 9Mr. =h!n.4 when *n he!;enMs n!me w*ll (ou trust me !nd not need ! s%!le@9 /e %ons*dered the s%!le Cust p!rt o$ do*n. bus*ness4 but he .ot m( mess!.e !nd w!s emb!rr!ssed. Althou.h h*s s%!le w!s present $or the ne?t pur%h!se4 + ne;er s!w *t !.!*n !$ter th!t. +n those d!(s *t w!snMt e!s( .ett*n. *n$orm!t*on !bout the .old pr*%e. There w!s no FS m!r"et !nd the )ondon AM !nd 'M $*?*n.s were somet*mes !;!*l!ble on the r!d*o but *t o$ten re6u*red see"*n. the $*n!n%*!l p!.es o$ the 2!ll Street Dourn!l to le!rn the ;!lue o$ !n oun%e o$ .old. Mr. =h!n. $ollowed the pr*%e ;er( %losel(. /e would %!ll !lmost d!*l(4 !nd !s"4 92udd!h pr*%! )ondon .ol@9 Fpon .ett*n. the *n$orm!t*on he would respondE 9Aer( th!n" (ou49 !nd th!t w!s th!t. There w!s ne;er !n( doubt !bout *t. +t w!s Mr. =h!n. on the phone. Then we d*dnMt he!r $rom Mr. =h!n. $or months. 9/!s !n(one he!rd $rom Mr. =h!n.94 + !s"ed@ + w!s sure he w!s *ll or worse. Then one d!( there he w!s. 92udd!h pr*%! )ondon .ol@9 + h!d !nswered h*s %!ll !nd !s"ed4 9Mr =h!n.4 h!;e (ou been *ll@ 2eM;e m*ssed he!r*n. $rom (ou.9 De!d s*len%e. /ow *n he!;enMs n!me d*d + "now *t w!s h*m4 he wondered. Gold de!lers !re !m!I*n.4 w*th wondrous per%ept*ons. + .uess he bel*e;ed th!t e;er( %ustomer s!*d4 9Aer( th!n" (ou.9 Mr. =h!n. ret*red. + donMt "now *$ he h!d so%*!l se%ur*t( %he%"s %om*n. *n4 but h*s .old %o*ns pro;*ded $or h*s ret*rement. /e %!me *n !s re.ul!rl( !s when he w!s ! bu(er. Onl( th*s t*me w*th one or two .old %o*ns to sell. As he %!me *n the $ront door4 + noted he h!d %o*ns *n h*s h!nd4 wr!pped *n t*ssue p!per. /e pretended he m*.ht be bu(*n. to "eep me honest4 but o$ %ourse + "new th!t w!s not the %!se. Then we le!rned $rom one o$ h*s old =h*nese %ron*es th!t Mr. =h!n. h!d p!ssed on. +n $!%t he h!d .*$ted se;er!l %o*ns to the $r*end who .!;e us the s!d news. 2e de!rl( m*ssed Mr. =h!n.4 !lthou.h 9Aer( th!n" (ou9 h!d be%ome ! p!rt o$ the l!n.u!.e *n our o$$*%e. Some (e!r or two l!ter ! (oun. =h*nese wom!n4 whom + l!ter le!rned w!s Mr. =h!n.Ms .r!nd n*e%e4 %!me *n. She w!s !n !%%ount!nt !nd e;*dentl( h!d $ound Mr. =h!n.Ms %he%" stubs w*th =h*nese %h!r!%ters on them bre!"*n. down how he h!d spent e!%h %he%". She w!s %on;*n%ed there were .old %o*ns some pl!%e !nd wondered *$ we were !%tu!ll( stor*n. them. +t '!.e &0&

w!s %le!r th!t she w!s not p!rt o$ Mr. =h!n.Ms *nner %*r%le. She le$t rude !nd !n.ered. As *$ rehe!rsed4 m( emplo(ees loo"ed !t me !nd *n un*son we !ll s!*dE 9Aer( th!n" (ou.9 WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW + $*rst posted th*s stor( ! $ew d!(s !$ter 3urt 3lumert p!ssed !w!( *n & S*n%erel(4 FOFOA >. /ere,s the or*.*n!l post.

'!.e &00

"ue%day, September 18, 2012


Deut%.he *an+ e/p'a$n% )hy )e hoard #o'd

Deuts%he 3!n"E GO)D +S MON#Y


M!tthew 3oeslercSep. 1-4 & 1&4 1E10 'M 3us*ness +ns*der 5A*deo < *m!.es !dded b( me8 +s .old mone(@ +t,s be%ome ! t*reless deb!teE .oldbu.s seem to %l*n. to the sh*n( (ellow met!l w*th ! rel*.*ous $er;or not usu!ll( d*spl!(ed b( !n(one tow!rd other !sset %l!sses4 !nd *t,s been "nown to $rustr!te some who don,t sh!re the*r ;*ews. Gold o$ten .ets lumped *n to *n;estment $ore%!sts w*th other 9%ommod*t*es9 B re!l4 %onsum!ble th*n.s l*"e o*l or $ood. 3ut Deuts%he 3!n" !n!l(sts D!n*el 3rebner !nd ]*!o Fu s!( .old *s ser*ousl( m*sunderstood4 !nd *n ! new report B where*n the( upd!te the*r .old t!r.et to P& GoI somet*me *n the $*rst h!l$ o$ & 10 B the( e?pl!*n th!t 9.old *s not re!ll( ! %ommod*t( !t !ll.9 One o$ These Th*n.s *s Not )*"e the Other 5A*deo8

The und*sput!ble e;*den%e $or the %!se th!t .old *s mone(4 !%%ord*n. to the Deuts%he 3!n" !n!l(stsE 2h*le *t *s *n%luded *n the %ommod*t*es b!s"et *t *s *n $!%t ! med*um o$ e?%h!n.e !nd one th!t *s o$$*%*!ll( re%o.n*sed 5*$ not publ*%!ll( used !s su%h8. 0e %ee #o'd a% an o22$.$a''y re.o#n$%ed 2orm o2 money 2or one pr$mary rea%on; $t $% )$de'y he'd by mo%t o2 the )or'd:% 'ar#er .entra' ban+% a% a .omponent o2 re%er9e%.

'!.e &04

69ro# /uro

2old7

Th!t,s the*r t!"e. 3ut there,s more B the !n!l(sts d*$$erent*!te between 9.ood mone(9 5.old8 !nd 9b!d mone(9 5$*!t p!per %urren%(8E 2e would .o $urther howe;er4 !nd !r.ue th!t .old %ould be %h!r!%ter*sed !s a.oodM mone( !s opposed to ab!dM mone( wh*%h would be represented b( m!n( o$ tod!(Ms $*!t %urren%*es. +n des%r*b*n. .old !s su%h we re$er to Gresh!mMs )!w B when ! .o;ernment o;er;!lues one t(pe o$ mone( !nd under;!lues !nother4 the under;!lued mone( 5.ood8 w*ll le!;e the %ountr( or d*s!ppe!r $rom %*r%ul!t*on *nto ho!rds4 wh*le the o;er;!lued mone( 5b!d8 w*ll $lood *nto %*r%ul!t*on.

2h!t,s *nterest*n. *s th!t !ll o$ the !r.uments !.!*nst .old propo.!ted b( the !nt*7.oldbu.s B th!t *t,s not re!ll( ! %onsumpt*on .ood4 th!t *t ser;es no *ndustr*!l purpose4 et%. B !re !ll the e?!%t re!sons wh( 3rebner !nd ]*!o %!ll .old 9.ood mone(.9 The !n!l(sts el!bor!te on th*s po*nt *n the reportE +n our ;*ew the *de!l med*um o$ e?%h!n.e must b!l!n%e the p!r!do? o$ represent*n. ;!lue wh*le h!;*n. l*ttle *ntr*ns*% ;!lue *tsel$. There !re ;er( $ew med*! wh*%h %!n do th*s. F*!t %urren%*es ph(s*%!ll( h!;e no use other th!n th!t wh*%h *s pres%r*bed to them b( .o;ernment !nd !%%epted b( the publ*%. Th!t $*!t %urren%*es %ost l*ttle to produ%e *s o$ ! se%ond!r( %on%ern !nd we bel*e;e4 6u*te *rrele;!nt to the pr*m!r( purpose. Gold *s ne*ther produ%t*on .ood nor %onsumpt*on .ood. Deweller( we see !s ! $orm o$ stor!.e or ho!rd*n. 5the people o$ 'ortu.!l h!;e !ll but e?h!usted the*r person!l .old stores B ho!rded *n the $orm o$ Ceweller( B h!;*n. %on;erted them to sur;*;e the %r*s*s8. 62 #o'd d$d ha9e a mean$n#2u' .ommer.$a' u%e )e be'$e9e that $t )ou'd ma+e the meta' 'e%% '!.e &01

attra.t$9e a% a med$um o2 e/.han#e a% the 9a'ue o2 the meta' $n )hate9er mar+et $t )a% u%ed $n .ou'd per$od$.a''y $nter2ere )$th $t% med$um8o28e/.han#e ro'e... Other %h!r!%ter*st*%s !re *mport!nt o$ %ourse *n $ul$*ll*n. the re6u*rements $or a.oodM mone(E *ndestru%t*b*l*t(4 d*;*s*b*l*t(4 tr!nsport!b*l*t( !nd un*;ers!l !%%ept!b*l*t(.

/!t t*pE Ron!ldD!mes'!d!;on! xRJ4ada9ona Deuts%he 3!n" bo(s been re!d*n. FOFOA@ re!d.b*GF!1D4( 1- Sep 1& WWWWWWWWWWWWWWWWWWW From O*%"*n. the /ornets, NestE +n Gresh!m,s l!w there *s .ood mone( !nd b!d mone(. There !re two mone(s4 not three. Good !nd b!d4 not .ood4 so7so4 !nd b!d. The b!d mone( dr*;es the .ood mone( out o$ %*r%ul!t*on. +n other words4 the b!d mone( %*r%ul!tes 5!nd be%omes the med*um o$ e?%h!n.e8 !nd the .ood mone( l*es ;er( st*ll 5be%om*n. the store o$ ;!lue8. )oo" !t th*s l!test #uros(stem 6u!rterl( report !.!*nE

And $rom The Return to /onest Mone(E As + ment*oned !bo;e4 *n the s!me w!( th!t ! med*um o$ e?%h!n.e *s to one e?tent or !nother !lso ! store o$ ;!lue4 stores o$ ;!lue !re !lso to one e?tent or !nother med*! o$ e?%h!n.e. The 6uest*on *s one o$ de.ree4 !nd th*s *s how4 throu.h m!r"et $or%es4 we end up w*th 9two mon*es.9 3e*n. the $o%!l store o$ ;!lue does not m!"e someth*n. the best med*um o$ e?%h!n.e4 !nd ;*%e ;ers!.

'!.e &06

Th*s m*.ht be ! .ood t*me to t!"e !nother loo" !t the #=3 6u!rterl( st!tement. There *t *s4 two mon*es. One on the le$t4 one on the r*.ht. Sep!r!te roles. TLU "h$% $% ho) you ha9e a true .ompet$n# .urren.y. ot t)o .urren.$e% .ompet$n# 2or the med$um o2 e/.han#e .ro)n. *ut a %eparate med$um o2 %a9$n#% .ompet$n# a#a$n%t the med$um o2 e/.han#e 2or Cpo'e po%$t$onC on the -"$meNt- a/$%;

Th*s *s Free.old4 !nd *t *s un$old*n. tod!(. +t re6u*res no !%t*;*sm or pol*t*%!lGle.!l %h!n.es !t th*s po*nt. +t *s4 how do (ou s!(4 b!"ed *nto the %!"e !lre!d(@ And on%e !.!*n4 these posts br*e$l( e?pl!*n how we !ren,t 6u*te there (et4 how Free.old *s d*$$erent $rom wh!t he h!;e tod!(4 e;en thou.h *t *s 9!lre!d( *n the p*pel*ne.9 S*n%erel(4 FOFOA

'!.e &0:

Monday, O.tober 8, 2012


"h$n+ '$+e a G$ant

9ootstep of a 2iant - Photo of 9raser !sland dunes in :ustralia. <+ Yann :rthus-<ertrand fro# his $ook /arth fro# :$o e.

+n h*s *nter;*ew4 A6u*lus t!l"ed !bout our re%ent em!*l e?%h!n.e !nd how he h!d en%our!.ed me to turn *t *nto ! post. So4 w*th h*s perm*ss*on4 here *t *s. There !re three se%t*onsE 1. Th*n" l*"e ! G*!nt &. +t *s .old th!t denom*n!tes %urren%( 0. Y#0 "h$n+ '$+e a G$ant FromE A6u*lus SentE Fr*d!(4 Dune &>4 & 1& ToE FOFOA SubCe%tE M!r.*n!l Ft*l*t( Y As + w!s plow*n. throu.h the %omments 5!nd .ett*n. !nno(ed !t t*mes8 + thou.ht E wh( don,t people underst!nd the %on%ept o$ m!r.*n!l ut*l*t( o$ .old $or re!ll(4 re!ll( we!lth( ent*t*es@ 2h( don,t the( .et th!t *$ s!(4 (ou .et 1 M *n e;er( d!(4 th!t !$ter (ou,;e bou.ht (our (!%hts4 !*rpl!nes4 %!rs4 houses4 *sl!nds4 et%4 the onl( *tem whose m!r.*n!l ut*l*t( does not d*m*n*sh *n t*me *s .old. 2h( %!n,t the( see th!t4 but the( th*n" th!t the onl( th*n. w*th *n$*n*te m!r.*n!l ut*l*t( *s the doll!r 5or $*!t mone(8@ 2h( don,t + turn *t !round !nd !s" themE wh!t *s the m!r.*n!l ut*l*t( o$ ! doll!r when (ou,re ! .*!nt@ 2ould the( .et *t more *$ th!t 6uest*on w!s !s"ed@ + "now (ou wrote !n e?%ellent p*e%e on m!r.*n!l ut*l*t( ! wh*le b!%" 5the one w*th the 3M2 e?!mple84 but do (ou th*n" there,s !n( more %l!r*t( to be .!*ned $or people $rom th*s !n.le@ WWWWWW FromE 9FOFOA9 D!teE Dun &>4 & 1& SubCe%tE M!r.*n!l Ft*l*t( Y '!.e &0-

ToE 9A6u*lus9 /ello A6u*lus4 Do + th*n" people would underst!nd m!r.*n!l ut*l*t( better *$ *t w!s e?pl!*ned us*n. doll!rs *nste!d o$ .oods@ + donMt "now. + th*n" most people %!nnot put themsel;es *n the th*n"*n.7shoes o$ ! G*!nt no m!tter wh!t. The( %!rr( too mu%h b!..!.e. 'erh!ps the( th*n" the G*!nts !re l*"e e;*l Roths%h*ld 3*lderber. *llum*n!t*s or someth*n.4 so the( put on those shoes !nd st!rt th*n"*n. !bout how to pl!n the ne?t $!lse $l!. to "eep the m!sses ensl!;ed *n the*r own $*lth. Or m!(be the( th*n" th!t thereMs not re!ll( !n( old mone( Jsuper produ%erK G*!nts per se4 but th!t !ll old mone( w!s e!rned the old $!sh*oned w!(4 *t w!s stolen. Those t(pes donMt e;en th*n" o$ the S!ud*s !s G*!nts *n the sense th!t the( !re super7produ%ers be%!use the( !re too obsessed w*th the*r own Cud.ment o$ the mor!l*t( o$ or*.*n!l !%6u*s*t*on. M( po*nt *s th!t + donMt th*n" the problem *s the med*um *n wh*%h the( !re %ons*der*n. the %on%ept o$ m!r.*n!l ut*l*t(4 but *t *s *n th*n"*n. l*"e ! G*!nt. Th*n"*n. l*"e ! G*!nt *s ! ;er( h!nd( tool *n do*n. wh!t + do *n wr*t*n. th*s blo.. 3ut *t *s ! s"*ll th!t must be le!rned !nd then pr!%t*%ed. + th*n" m!r.*n!l ut*l*t( *s ! .ood step *n le!rn*n. th!t s"*ll4 but (ou %!n see th!t th*n"*n. l*"e ! G*!nt *s the re!l pr*Ie4 not underst!nd*n. m!r.*n!l ut*l*t(. You %!n underst!nd m!r.*n!l ut*l*t( but not be !ble to th*n" l*"e ! G*!nt. 3ut (ou %!nnot not underst!nd m!r.*n!l ut*l*t( *$ (ou !re !ble to th*n" l*"e ! G*!nt. See the d*$$eren%e@ + remember re!d*n. somewhere th!t the Roths%h*ld d(n!st( owns someth*n. l*"e 1& %!stles !round #urope. Th!tMs ! lot o$ propert( to m!*nt!*n. + *m!.*ne !t le!st some o$ those %!stles were prob!bl( !%6u*red dur*n. the l!st 1 (e!rs w*th*n 5!nd be%!use o$8 the P+MFS. +$ weMd h!d Free.old 5*.e.4 $ree $lo!t*n. .old8 $or the l!st 1 (e!rs4 + *m!.*ne th!t the Roths%h*lds would h!;e $ewer %!stles (et the( would st*ll be e6u!ll( !s we!lth(. See@ 2*thout Free.old4 (ou .ott! put (our mone( somewhere. So $*rst (ou put *t *n propert( w*th ! house4 then (ou stu$$ th!t house w*th $*ne ru.s4 %urt!*ns4 $urn*sh*n.s4 !rt !nd %l!ss*% %!rs4 then (ou bu*ld ! pool !nd ! .!rden4 !nd then wh!t@ You .ott! bu( !nother %!stle !nd st!rt o;er. And th!tMs ! re!l G*!nt who "nows how to s!;e. 2*th Free.old4 + %!n *m!.*ne the Roths%h*lds downs*I*n. ! b*t4 m!(be to - %!stles or someth*n. more re!son!ble l*"e th!t. 3ut unless (ou %!n th*n" l*"e ! G*!nt4 (ouMd ne;er underst!nd 2TF +Mm t!l"*n. !bout. S*n%erel(4 FOFOA WWWWWW FromE A6u*lus SentE Fr*d!(4 Dune &>4 & 1& ToE FOFOA SubCe%tE R#E M!r.*n!l Ft*l*t( Y On the Roths%h*lds under $ree.old4 + !ssume the po*nt (ou,re m!"*n. *s th!t under %ont*nuous $ree.old4 the s!me we*.ht o$ .old would h!;e lo%"ed *n ! lot more o$ the*r net surplus4 !nd there$ore le$t less '!.e &0>

%!sh $or %!stles4 er.oE onl( - *nste!d o$ 1& %!stles. On underst!nd*n. m!r.*n!l ut*l*t(4 (es4 (ou m!"e !n e?%ellent d*st*n%t*on !bout *t be*n. ! ne%ess!r( e$$e%t o$ th*n"*n. l*"e ! .*!nt4 *nste!d o$ underst!nd*n. m!r.*n!l ut*l*t( le!d*n. to underst!nd*n. how .*!nts th*n"! A%tu!ll(4 + w!s not su..est*n. e?pl!*n*n. m!r.*n!l ut*l*t( us*n. doll!rs4 + Cust d*d not e?pl!*n m(sel$ properl(. 2h!t + w!s !$ter4 w!s e?pl!*n*n. to people FROM the po*nt o$ ;*ew o$ ! G*!nt wh!t the m!r.*n!l ut*l*t( o$ %urrent th*n.s !re4 *n%lud*n. the doll!r. Fnl*"e (our e?%ellent e?*st*n. m!r.*n!l ut*l*t( !rt*%le4 th*s t*me howe;er + w!s th*n"*n. o$ re!ll( h!mmer*n. the po*nt home ON)Y $rom the po*nt o$ ;*ew o$ ! G*!nt4 !nd us*n. some sho%" !nd !we numbers 5sho%"*n. $or !nts th!t *s8. So $or e?!mple4 st!rt out w*th ! G*!nt th!t h!s 1 .et the !nts, !ttent*on! m*l p*l*n. up on h*s doorstep e;er( d!(. Th!t should

2h!t *s the m!r.*n!l ut*l*t( o$ %!rs4 (!%hts4 et% !$ter ! re!son!ble number@ /ow !bout %!stles@ O"4 on%e we est!bl*sh th!t4 s!(4 1 d!(s worth o$ *n%ome t!"es %!re o$ !ll th!t4 !nd !dd*t*on!l *tems h!;e d*m*n*sh*n. ut*l*t(4 let,s mo;e on. /ow !bout the ult*m!te l*6u*d +MFS SoA4 the doll!r@ 2h!t,s the m!r.*n!l ut*l*t( o$ hold*n. 011 ? 1 m*l doll!rs th!t depre%*!te 56ueue *n$!mous doll!r pur%h!s*n. power o;er t*me %h!rt8. 011 be*n. 06171 ob;*ousl(. Not to ment*on ho!rd*n. the ;er( Mo# th!t %ommer%e needs! 2h!t *$ + used doll!r surro.!tesE tre!sur*es@ S!me e$$e%t4 plus + !m the m!r"et !$ter ! wh*le.. No .ood. 2h!t other opt*ons do + h!;e@ =ommod*t*es@ And %re!te *ndustr( short!.es@ +,d .et sl!mmed prett( $!st. So wh!t,s le$t@ Yu*%"! Th*n"4 be%!use tomorrow + .et !nother 1 m*l p*l*n. on top o$ wh!t + %urrentl( h!;e... And no4 + !m not o" w*th los*n. pur%h!s*n. power *n the lon. run. As ! m!tter o$ $!%t4 *t,s prob!bl( 074 .ener!t*ons be$ore th*s should e;en be needed. Th!t,s ! r!w dr!$t o$ the "*nd o$ s%en!r*o th!t + h!d *n m*ndE $or%e7put the !nt *n the pl!%e o$ the G*!nt4 no *n"l*n. !s to where the mone( %omes $rom 5so to not .et *nto rent7see"*n.84 !nd FOR=# them to p*%" ! pl!%e $or ! mult* .ener!t*on *n;estment th!t "eeps *ts pur%h!s*n. power. M!"e them $eel the power o$ the d!*l( doll!r !;!l!n%he %om*n. *n so th!t the( underst!nd the s%!le !t wh*%h th*s .!me *s pl!(ed. Does *t m!"e !n( sense !t !ll4 or h!s th!t been doneGbe!ten to de!th enou.h *n (our op*n*on@ A6u*lus WWWWWW On Dun 0 4 & 1&4 9FOFOA9 wroteE /ello A6u*lus4 You wroteE 3)n the Rothschilds under freegold, ! assu#e the point +ou4re #aking is that under continuous freegold, the sa#e weight of gold would ha e locked in a lot #ore of their net surplus, and therefore left less cash for castles, ergoQ onl+ & instead of %( castles.3 The( donMt w!nt 1& %!stles4 ne;er d*d. And the( %ert!*nl( donMt need 1& %!stles. So wh( d*d the( bu(4 '!.e &4

$urn*sh !nd per$e%t 1& %!stles@ 2hen d*d the m!r.*n!l ut*l*t( o$ %!stles drop o$$ $or them@ A$ter 1 m!(be@ So wh( d*d the( "eep bu(*n. so m!n( %!stles@ =ouldnMt the( h!;e Cust bou.ht .old *nste!d@ 2h( do (ou th*n" the( d*dnMt bu( .old *nste!d o$ more %!stles !$ter the( !lre!d( h!d 1 !nd the m!r.*n!l ut*l*t( o$ more %!stles dropped@ Answer th!t 6uest*on be%!use *t le!ds then to wh!t (ou w!nt to t!l" !boutL 9! G*!nt th!t h!s 1 p*l*n. up on *ts doorstep e;er( d!(.9 m*l

)etMs *m!.*ne the Roths%h*lds h!d th*s ;er( problem! So wh( d*d the( bu( %!stles *nste!d o$ .old or other th*n.s the( %ould h!;e bou.ht@ + th*n" (ou brushed p!st the Roths%h*ld e?!mple too $!st. Your !nswerE 3! assu#e the point +ou4re #aking is that under continuous freegold, the sa#e weight of gold would ha e locked in a lot #ore of their net surplus and therefore left less cash for castles, ergoQ onl+ & instead of %( castles.3 L *s not e?!%tl( wh!t + h!d *n m*nd4 !nd th!tMs not how + would e?pl!*n *t. S*n%erel(4 FOFOA WWWWWW On Dun &>4 & 1&4 9A6u*lus9 wroteE 2ell4 let me seeE 1. 2h( not Cust bu( .old @ +mo be%!use !t th*s pr*%e4 dump*n. 1 e?h!ust the ph(s*%!l suppl(. m*l ! d!( *n !llo%!ted ph(s*%!l (ou upset the !pple7%!rt !nd

&. 2h( %!stles !nd !rt !nd %olle%t*ble %!rs4 et%@ 3e%!use under +MFS the( !re ! de%ent lon.7term SoA. !s the( !re %ompletel( *n the ph(s*%!l pl!ne4!re un*6ue4 !nd there$ore !re me!nt to be ho!rded !nd "eep the*r ;!lue lon. term. Fnl*"e s!(4 M%M!ns*ons *n the suburb or =!m!ros E78 Am + e;en %lose@ WWWWWW FromE A6u*lus SentE Fr*d!(4 Dune &>4 & 1& ToE FOFOA SubCe%tE R#E M!r.*n!l Ft*l*t( Y 2ell4 + th*n" (ou h!;e me the !nswer !lre!d( here E 32olds alue reall+ co#es fro# intergenerational 2iants who ha e no need to e er sell it. -he+ reall+ ;ust net-produce and net-produce and the+ do it willingl+ for #ore and #ore gold, and then ;ust sit on that gold until the+ die and pass it on to the next generation. :nd the+ will keep doing this no #atter what the MPo2 does. -he+4re not $u+ing it for its weight, $ut for pro en long run currenc+ exchange '!.e &41

alueD <ut if theres no flow for the# to get so#e, then the+ ha e to $u+ things like extra castles and cars and stuff that dri es up prices and dri es down e er+one elses purchasing power.3 WWWWWW On Dun 0 4 & 1&4 9FOFOA9 wroteE DonMt $or.et th!t the( bou.ht most o$ those %!stles be$ore 1>:1! 2h( not .old then@ WWWWWW FromE A6u*lus SentE S!turd!(4 Dune 0 4 & 1& ToE FOFOA SubCe%tE R#E M!r.*n!l Ft*l*t( Y E78 Th!n"s $or (our p!t*en%e w*th me. 1. 'h(s*%!l suppl(E M( *nst*n%t tells me th!t *t,s be%!use the $low w!s so mu%h more restr*%ted be$ore 1>:1. 'rodu%t*on w!s mu%h lower .*;en the pr*%eGoIE httpEGGwww..oldsheetl*n"s.%omGprodu%t*on&.htm 3ut th!t %!n,t be *t b( *tsel$... )et,s see... 'ol*t*%!ll(4 ho!rd*n. .old would be ho!rd*n. 9the mone( o$ the st!te9 be$ore 1>:1 !nd pre;ent mone( e?p!ns*on when needed. The Roths%h*lds m!( h!;e to %!re !bout th!t4 but wh( would the S!ud*s@ /mm... 2h!t,s le$t@ 2h!t !m + m*ss*n. $rom m( !nt perspe%t*;e@ )et,s see4 how !bout + re;*s*t m( prem*sesN *t,s usu!ll( where m*st!"es or*.*n!teE *t,s 1>: 4 +,m ! Roths%h*lds G*!nt4 the doll!r *s m!ss*;el( o;er;!lued %omp!red to the $*?ed .old pr*%e4 .old $lows !re sm!ll4 so;ere*.ns l*"e Fr!n%e !re redeem*n. the*r doll!rs $or .old4 Rue$$ *s m!"*n. h*s !r.uments.. So do + o;erl( %orner the restr*%ted .old $low $rom m*nes !nd m!"e =entr!l 3!n"s p*ssed be%!use the( would h!;e to d*s7ho!rd *n order to "eep the $low .o*n.@ Or do + t!"e the %hun" o$ o;er;!lued doll!rs th!t + %!nnot bu( .old w*th4 !nd ho!rd other *tems th!t !re me!nt to be ho!rded4 th!t "eep the*r ;!lueE !rt !nd un*6ue propert*es@ The( %!n so!" up ! lot o$ ;!lue o;er t*me ;er( well *$ + %hoose un*6ue ones4 noth*n. e!s*l( reprodu%edN b!s*%!ll( th*n.s !nother G*!nt would re%o.n*Ie !s des*r!ble *n the $uture when + would l*"e to unlo%" the pur%h!s*n. power $or wh!te;er re!son. 3ut then !.!*n4 %!stles !re h*.hl( ;*s*ble !nd m( we!lth *s on $ull d*spl!(. 2h(4 wh(4 would + %hoose th*s opt*on !nd not someth*n. more d*s%rete@ Fnless 5!8 ;*s*b*l*t( *s not th!t %on%ern*n.4 5b8 noth*n. more d*s%reet e?*sts4 l*"e !rt $or e?!mple4 *n the 6u!nt*t*es + re6u*re. And + %!n,t $or.et th!t *$ + own most o$ 9someth*n.9 *n the world4 th!t someth*n. *s not th!t ;!lu!ble !n( lon.er !s *t loses *ts networ" e$$e%t ;!lue... O" +,ll stop here. + $eel l*"e +,m m*ss*n. someth*n. *mport!nt4 (et *t should be ob;*ous. '!.e &4&

+ !ppre%*!te (ou te!%h*n. me how to $*sh4 not Cust .*;*n. me the $*sh to e!t. '.S. sorr( $or the o%%!s*on!l %lump o$ words th!t m!( not m!"e sense. +,m us*n. m( t!blet,s so$t "e(bo!rd to 9Sw(pe9 5httpEGGwww.sw(pe.%omG8 the words *n !nd the !uto%orre%t de%*des *t "nows better th!n me !t t*mes. 2ell4 on se%ond thou.ht4 (ou "now4 m!(be *t,s r*.ht E78 WWWWWW On S!t4 Dun 0 4 & 1&4 FOFOA wroteE /ello A6u*lus4 Th!tMs .ood! + th*n" (ouMre .ett*n. %lose! Now4 *$ (ouMre ! .*!nt on the Roths%h*ld s%!le4 !nd (ouM;e .ot P1 M per d!( %om*n. *n $rom (our ;!r*ous bus*nesses4 wh!t !re (ou .o*n. to do w*th !ll th!t mone(@ Are (ou .o*n. to tr( to m!"e mone( w*th (our mone(@ 3u( sto%"s !nd bonds4 pl!( ! l*ttle *n the d*$$erent se%tors@ Sure4 (ou m*.ht bu( *nto some more bus*nesses4 but (ouM;e !lre!d( .ot plent( o$ bus*nesses. Your bus*nesses !re !lre!d( br*n.*n. *n P1 M per d!( !nd (our b*..est problem r*.ht now *s $*.ur*n. out the sm!rtest th*n. to do w*th th!t mone(. So *$ (ou bu( more bus*nesses4 th!tMs onl( .onn! .row (our problem b*..er. Your w*$e does the %h!r*t( %*r%u*t4 but th!tMs onl( .ood $or ! $ew m*l ! month4 !nd (ouM;e .ot P1 per d!( %om*n. *n. So wh!t do (ou do w*th *t@ 2h!t !re (ou b*..est %on%erns when %ons*der*n. wh!t to do w*th *t@ You prob!bl( h!;e more mone( th!n !n(one else. At le!st (ou h!;e more th!n >>.>>>>>Q o$ e;er(one else. So would (ou l*"e to double (our mone(@ + th*n" not. At some po*nt (ouMre l*"e Jhol( sh*t4 loo" wh!t + .otK !nd (ou donMt d!re w!nt to bu( !n(th*n. th!tMs l*"el( to del*;er (ou !nother w*nd$!ll !nd dr!w more !ttent*on to (our we!lth th!n (ouMre !lre!d( .ett*n.. So *$ (ou he!r !bout Free.old4 !re (ou .onn! p*le *n@ Your b*..est worr( *s "eep*n. wh!t (ouM;e !lre!d( .otL not .ett*n. more. YouMre e;en w*ll*n. to lose some Cust to "eep (our pro$*le !s low !s poss*ble. The w*$eMs %h!r*t( wor" helps w*th th!t4 but !.!*n4 (ou donMt e;en w!nt to .*;e too mu%h !w!( be%!use th!t dr!ws !dd*t*on!l !ttent*on to (our we!lth. +$ (ou ho!rd ph(s*%!l %ommod*t*es (ouMll p*ss o$$ the people4 r*.ht@ And *$ (ou ho!rd p!per %ommod*t*es (ouMll dr*;e up the pr*%e !nd (ouMll p*ss the people o$$! YouMre so b*. th!t (ou mo;e m!r"ets b( Cust loo"*n. !t them. YouMre so b*. th!t (ouM;e .ot to spend (our mone( %om*n. *n !s $!st !s poss*ble or else the mone( suppl( w*ll st!rt %ontr!%t*n. be%!use (ouM;e .ot too mu%h o$ *t! 5Th!t m!( be ! l*ttle b*t o$ !n e?!..er!t*on4 but not under the .old st!nd!rd!8 M

'!.e &40

So tell me4 d*d the( h!;e ANY %ho*%e !t !ll bes*des wh!t the( !%tu!ll( d*d@ And e;en th!t4 !t some po*nt4 st!rts dr!w*n. th!t ne.!t*;e !ttent*on. You %!n onl( h!;e so m!n( %!stles be$ore people st!rt wonder*n. *$ (ou h!;e too mu%h mone(. So wh!t to do@ At some po*nt4 the onl( th*n. to do m*.ht be to slow down ! b*t. Yu*t wor"*n.. +s th!t wh!t our world desper!tel( needs@ For the super7produ%ers to 6u*t wor"*n. so mu%h@ S*n%erel(4 FOFOA WWWWWW FromE A6u*lus SentE Mond!(4 Dul( &4 & 1& ToE FOFOA SubCe%tE M!r.*n!l Ft*l*t( Y FOFOA4 1. So the !nswer to bu(*n. %!stles pre 1>:1 5!nd !$ter8 w!sE the( h!d no other %ho*%e. Th!t or stop produ%*n.. &. +,m sure +,m not tell*n. (ou !n(th*n. new4 but p!rts o$ th*s thre!d would m!"e the "ernel $or ! .re!t post! See*n. the world $rom th*s perspe%t*;e *s d*!metr*%!ll( opposed to wh!t most people e?per*en%e 5The AntE how %!n + .et MOR# %!sh G The G*!ntE how do + m!n!.e !ll th*s %!sh %om*n. *n@8. +t h!s onl( been t!n.ent*!ll( tou%hed upon *n d*$$erent !rt*%les4 ne;er !s the m!*n $o%us o$ ! post. 3lond*e tr*ed to e?pl!*n *n l!tel(4 but th!t w!s 9theor(94 to s!( so. Some e?!mples l*"e we h!;e here !re "e( to most people,s underst!nd*n. +M/O. You "now how (ou h!d 9)*$e *n the Ant F!rm@9 th*s %ould be someth*n. l*"e 92h!t %ho*%es does ! G*!nt h!;e@9 or 9 Me!nwh*le4 *n G*!nt l!nd9 or 9The ;*ew o$ ! G*!nt9. +,m sure (ou %!n %ome up w*th better t*tles th!n th*s. Ser*ousl(4 *t would be ! d(n!m*te post! A6u*lus WWWWWW 6t $% #o'd that denom$nate% .urren.y FromE A6u*lus SentE Fr*d!(4 Au.ust 04 & 1& ToE FOFOA SubCe%tE 2h( does o*l not pr*%e %urren%*es

'!.e &44

/* FOFOA4 +$ (ou h!;e t*meG$eel l*"e *t4 + w!nted to run some thou.hts b( (ou on 9.old pr*%es %urren%*es4 but o*l does not9. /ere,s wh!t + h!;eE 3e%!useE 1. O*l *s mostl( ph(s*%!l m!r"et w*th some $utures. '!per o*l m!r"et not stru%tured !s d!n.erous to %urren%*es 5no $r!%t*on!l reser;e8 &. +$ o*l $low stops4 M!d M!? world ensues !nd re!l e%onom( %oll!pses. 'ol*t*%!ll( not !%%ept!ble 7 *mmed*!te w!rs. +$ .old $low stops4 %urren%*es %!n m!"e themsel;es des*r!ble !.!*n4 re!l world pl!ne not hurt. 0. O*l *s not %ornered 5no e?pe%ted del*;er*es !s ! mult*ple o$ e?*st*n. $low84 6u*te the oppos*te. So best o*l %!n do *s *ns*st th!t pr*%e *n %urren%*es ensure .old !%6u*s*t*on $or o*l e?tr!%ted o;er wh!t S!ud*s need $or bud.et e?penses f l*$est(le e?penses. Am + !n(where %lose to the r*.ht tr!%"@ A6u*lus WWWWWW On Au. 04 & 1&4 9FOFOA9 wroteE /ello A6u*lus4 O*l *s ! me!ns o$ produ%t*on. +$ (ou $*nd (oursel$ s*tt*n. on top o$ 5!nd thereb( own*n.8 the l!r.est under.round o*l $*eld *n the world4 (ou $*nd (oursel$ on top o$ ! .re!t sto%"p*le o$ %!p*t!l 5me!ns o$ produ%t*on used b( the ent*re world8. Altern!t*;el(4 there !re 1: 4 tonnes o$ .old out there4 !ll *n someoneMs ownersh*pGpossess*on. All th*s .old m!r"s the net7produ%t*on o$ someone *n the p!st. +$ (ou see someone s*tt*n. on ! l!r.e p*le o$ .old (ou %!n th*n" J.oll(4 he sure .!;e !w!( ! lot o$ use$ul we!lth *n e?%h!n.e $or !ll th!t JuselessK met!l th!t Cust s*ts there *n ! ;!ult.K So there now4 (ou h!;e one .u( s*tt*n. on top o$ th*s o*l $*eld4 !nd !nother .u( s*tt*n. on top o$ th*s .old. 2h!tMs the d*$$eren%e@ +s the .u( s*tt*n. on the o*l .o*n. to sell th!t to ! net7produ%er *n e?%h!n.e $or h*s e?%ess produ%t*on@ Nope. A net7produ%er h!s no need $or th!t o*l *n e?%h!n.e $or h*s Junder%onsumpt*onK. /e w!nts .old. So we %!n see th!t the .u( w*th the o*l !nd the .u( w*th the .old h!;e d*$$erent %ustomers. The o*l .u(Ms %ustomers !re e;er(one *n the e%onom(4 !nd the .old .u(s %ustomers !re net7produ%ers 5s!;ers8. '!.e &41

The net7produ%er m*.ht bu( some o$ the o*l .u(Ms o*l $or h*s produ%t*on purposes4 but then w*th h*s e?%ess produ%t*on he bu(s $rom the .old .u(. 3ut the o*l .u(Ms o;erhe!d *s soooo %he!p %omp!red to the %ommer%*!l ;!lue o$ h*s o*l4 he too *s ! net7 produ%er *n %urren%( terms w*thout e;en tr(*n.4 !nd w*thout !n( !uster*t(. 2hen we he!r the word Jo;erhe!dK we .ener!ll( th*n" o$ *t *n terms o$ the %osts o$ runn*n. ! bus*ness. 3ut *t %ould !lso !ppl( to the %osts o$ runn*n. ! st!nd!rd o$ l*;*n.. #;er(th*n. use$ul th!t (ou bu( !nd use *n m!*nt!*n*n. (our l*$est(le *s (our o;erhe!d. An(th*n. be(ond th!t *s (our s!;*n.s. To !n o*l she*"h ! p*mped out :4: !nd - Rolls Ro(%es m*.ht be p!rt o$ h*s o;erhe!d. Also4 !n *ndoor s"* slope !nd the worldMs t!llest bu*ld*n. *n the m*ddle o$ the desert *s p!rt o$ h*s o;erhe!d. +tMs the %ost o$ be*n. ! r*%h o*l she*"h. S!;*n.s *s !n(th*n. o;er !nd !bo;e th!t. And l*"e + s!*d4 the she*"h h!s s!;*n.s e;en w*thout an+ !uster*t( *n h*s l*$est(le. Those o$ us *n the re!l world h!;e to %hoose between !uster*t( !nd less s!;*n.s. 2e %!n redu%e our !uster*t( !nd !lso redu%e our s!;*n.s4 or we %!n *n%re!se !uster*t( !nd *n%re!se our s!;*n.s. 3ut the she*"h !lmost l*ter!ll( h!s s!;*n.s no m!tter how well he %hooses to l*;e. So *n th*s e?!mple4 Jo;erhe!dK *s th!t port*on o$ mone( th!t e;er(one spends on the*r l*$est(le !nd bus*ness oper!t*ons et%L !nd s!;*n.s *s th!t sm!ller port*on o;er !nd !bo;e Jo;erhe!dK th!t 5onl(8 some people put *nto presentl( useless th*n.s l*"e tre!sur*es4 !%%ounts or JuselessK .old. Now th!t +M;e d*st*n.u*shed Jo;erhe!dK !nd Js!;*n.sK4 *t should be %le!r to (ou th!t !ll o*l pur%h!ses $!ll under Jo;erhe!dK wh*le !ll .old pur%h!ses $!ll under Js!;*n.sK. And l*"e o*l4 e;er(th*n. else *n the world 5e?%ept .old8 !lso $!lls under Jo;erhe!dK wh*le 5*n the ph(s*%!l pl!ne8 onl( .old $!lls under Js!;*n.sK. So now th!t weM;e *dent*$*ed the m!*n d*$$eren%e between o*l !nd .old4 we %!n s!( th!t Js!;*n.s pr*%e %urren%*es4 o;erhe!d doesnMt.K Now !lon. th*s s!me l*ne o$ th*n"*n.4 we %!n !lso s!( th!t surpluses !re ent*rel( !ttr*but!ble to s!;ers. +n !n( Ione th!tMs runn*n. ! tr!de surplus 5on !n( s%!le84 the ent*ret( o$ th!t surplus *s e6u!l to s!;*n.s *n th!t Ione4 so the surplus *s attri$uta$le to the s!;ers. =!n (ou see ! p!ttern st!rt*n. to emer.e here@ The rele;!n%e o$ s!;*n.s !nd s!;ers to e;er(th*n.@ 5!nd +Mm not m!"*n. ! mor!l*t( pl!( here4 be%!use l*"e + s!*d4 those r*%h o*l she*"hMs !re !utom!t*%!ll( s!;ers no m!tter how b*. o$ ! h!rem the( m!*nt!*n !s p!rt o$ the*r l*;*n. st!nd!rd4 so the( rem!*n rele;!nt to e;er(th*n.8 3ut $or the*r s!;*n.s4 those o*l she*"hs !re not *nterested *n ho!rd*n. %urren%(. The( w!nt .old4 !s do !ll the b*. s!;ers 5!nd surplus Iones8 *n the world. So *n the Jo;erhe!d dep!rtmentK we h!;e !ll the re!l .oods !nd ser;*%es *n the world tr!ded b!%" !nd $orth "*nd o$ l*"e b!rter4 w*th %urren%( !s the lubr*%!nt. 3ut then we h!;e th*s l*ttle port*on on top we %!ll s!;*n.s. +t *s the s!;ers 5net7produ%ers8 th!t run the show. '!.e &46

Sorr(4 but th!tMs !ll the t*me + h!;e $or now. D*dnMt 6u*te .et to m( po*nt4 but hope$ull( + .!;e (ou some more thou.hts to %ons*der. S*n%erel(4 FOFOA WWWWWW FromE A6u*lus SentE Mond!(4 Au.ust 64 & 1& ToE FOFOA SubCe%tE R#E 2h( does o*l not pr*%e %urren%*es F*rst o$ !ll4 th!n" (ou $or those thou.hts. + would l*"e to t!"e th*s %on;ers!t*on down th*s p!thE Js!;*n.s pr*%e %urren%*es4 o;erhe!d doesnMt.K + $eel th!t + !m !t the ed.e o$ re!ll( underst!nd*n. th*s *de!4 but h!;e not 6u*te !rr*;ed there (et. Are s!;*n.s pr*%*n. %urren%*es be%!use the( !re ! %l!*m on $uture produ%t*on th!t m!( or m!( NOT be deplo(ed thou.h %urren%(@ 3e%!use most 5s*Ie!ble8 s!;ers %!n e!s*l( e?*st %om$ort!bl( $rom o;erhe!d w*thout e;er d*sho!rd*n. !n( s!;*n.s unless the %urren%( pr*%e o$ s!;*n.s *s s!t*s$!%tor(@ +s th!t re!ll( wh!t m!"es s!;*n.s pr*%e %urren%*es@ WWWWWW On Mon4 Au. 64 & 1&4 FOFOA wroteE + donMt th*n" *tMs th!t s*mple. There !re m!n( mo;*n. p!rts. +t *s ! d(n!m*% s(stem. +n terms o$ Jo;erhe!dK4 *tMs re!ll( Cust ! .oods $or .oods tr!deL b!rter *$ (ou w*ll4 w*th %urren%( s*mpl( lubr*%!t*n. the tr!de. Goods pr*%e other .oods. An !pple *s worth two b!n!n!s. DoesnMt m!tter wh!t %urren%( (ou use. 3ut *tMs when (ou tr( to be !ustere 5to s!;e4 to under%onsume8 th!t *tMs no lon.er J.oods pr*%*n. .oodsK. T*me be%omes ! $!%tor when (ou s!;e. Remember th!t the d*$$eren%e between ! med*um o$ e?%h!n.e !nd ! store o$ ;!lue *s onl( ! sl*d*n. s%!le *n the t*me d*mens*on. An( med*um o$ e?%h!n.e *s !lso ! store o$ ;!lue to some e?tent4 !nd !n( store o$ ;!lue *s ! med*um o$ e?%h!n.e to ! de.ree. Those who use %urren%*es *n the here !nd now Jo;erhe!d d*mens*onK e?ert l*ttle e$$e%t on th!t t*me d*mens*on. 3ut th!t doesnMt me!n (ou w!nt s!;ers hold*n. the %urren%( $or ! lon. t*me. 2hen th!t h!ppens 5l*"e *t *s tod!(84 ! %urren%( be%omes o;er;!lued !nd unst!ble4 sus%ept*ble to ! d*srupt*;e %oll!pse. 2h!t (ou w!nt4 *nste!d4 *s ! he!lth( b!l!n%e on th!t Jsl*d*n. s%!le *n the t*me d*mens*onK. '!.e &4:

WWWWWW FromE A6u*lus SentE Tuesd!(4 Au.ust :4 & 1& ToE FOFOA SubCe%tE ReE 2h( does o*l not pr*%e %urren%*es /mmm4 + re!l*Ie now th!t wh!t + "eep m*ss*n. *s the A=TFA) de$*n*t*on o$ 9pr*%*n. ! %urren%(9. +t "eeps %h!n.*n. !nd morph*n. *n m( he!d $rom4 !nd th!t m*.ht be wh( + don,t .r!sp *t. /ere,s wh!t + see r*.ht now4 us*n. ! muddled 9pr*%*n. ! %urren%(9 2hen t!l"*n. 9o;erhe!d9 *n the %onte?t o$ pr*%*n. %urren%*es4 be%!use *n the here !nd now4 the Mo# re!ll( does not m!tter4 *t %ould be !n(th*n. $rom the !%%ept!ble plethor! !ll the w!( to pseudo or $ull b!rter. So 9pr*%*n.9 ! Mo# on ! short t*me s%!le *s s*mpl( obser;*n. wh!t !mount o$ th!t Mo# *s ne%ess!r( $or m( produ%t so th!t the r!t*o o$ wh!t +,m sell*n. to wh!t +,m pl!nn*n. to %onsume shortl(4 st!(s *n !n !%%ept!ble r!n.e. On ! lon.er t*me s%!le pur%h!s*n. power %omes *nto pl!(4 !s + would l*"e th!t r!t*o to st!( *n r!n.e $or ! lon. t*me. So the %ho*%e o$ SoA *s %ru%*!l. + !lso need to be !ble to !%6u*re th!t SoA w*th m( %urren%(. 3ut *$ + %!nnot !%6u*re the SoA *n m( %urren%( 5 $low84th!t does not me!n th!t the SoA *s worthless4 but r!ther th!t m( %urren%( h!s utterl( $!*led !s !n Mo#4 !s + %!nnot e?%h!n.e *t $or m( SoA. S!me SoA th!t + %!n !%6u*re !nd tr!de *n ! d*$$erent %urren%(. So *n th*s e?tended t*me s%en!r*o4 + th*n" + underst!nd the pr*%*n. $or the e?treme m!r.*n 5l*"e *n %!l%ulus when (ou h!;e ! l*m*t problem 7 *n th*s %!se P ;!lue .oes to !s Au $low *n P !re! .oes to 8. 2h!t + don,t 6u*te .et *s the *de! o$ .old pr*%*n. ! %urren%( !w!( $rom th!t l*m*t. =!n (ou help me w*th wh!t th!t pr*%*n. *s 5%ert!*nl( *s not the number o$ %urren%( un*ts per we*.ht4 r*.ht@8 Th!n"s 5!nd + hope th!t +,m not bu..*n. (ou too mu%h 7 ple!se let me "now *$ (ou,d me r!ther post these *n %omments8 A6u*lus WWWWWW On Tue4 Au. :4 & 1&4 FOFOA wroteE +tMs s*mpl( th*s. You s!*d *t r*.ht hereE JSo the %ho*%e o$ SoA *s %ru%*!l. + !lso need to be !ble to !%6u*re th!t SoA w*th m( %urren%(. 3ut *$ + %!nnot !%6u*re the SoA *n m( %urren%( 5 $low84th!t does not me!n th!t the SoA *s worthless4 but r!ther th!t m( %urren%( h!s utterl( $!*led !s !n Mo#4 !s + %!nnot e?%h!n.e *t $or m( SoA. S!me SoA th!t + %!n !%6u*re !nd tr!de *n ! d*$$erent %urren%(.K

'!.e &4-

2*th th!t *n m*nd4 re!d wh!t + !nd ANOT/#R wroteL Date; Fr$ Jan 23 1@@8 1@;01 A O",1R E",O<G,"S!G 6DA=0233; A'' modern d$#$ta' .urren.$e% do not #o $nto an $n9e%tment, they mo9e ",R< $t... "here $% an a'ternat$9e. Go'd! 6t $% the on'y med$um that .urren.$e% do not Cmo9e thruC. 6t $% the on'y Money that .annot be 9a'ued by .urren.$e%. 6t $% #o'd that denom$nate% .urren.y. 6t $% to %ay C#o'd mo9e% thru paper .urren.$e%C. -his is the ke+ to /J/RY-1!G2DDD !t is not 3gold li.uidit+3 that the $ullion $anks create... it is ")LL:R L!Y5!"!-Y. "ollars $idding on 0S9- stock set the alue of that stock. !f dollars are franticall+ $idding on 0S9- 6high elocit+7, the stock sk+rockets. !f dollars stop $idding for 0S9- all at once 6low elocit+7, the price falls to @ero. -his is true for e er+thing in the world except gold. 2old $ids for dollars. !f gold stops $idding for dollars 6low gold elocit+7, the price 6in gold7 of a dollar falls to @ero. WWWWWW FromE A6u*lus SentE Tuesd!(4 Au.ust :4 & 1& ToE FOFOA SubCe%tE ReE 2h( does o*l not pr*%e %urren%*es 3e!ut*$ul4 the l*.ht bulb Cust st!(ed on when *t %!me to .old denom*n!t*n. %urren%*es! E78 Now + h!;e one more th*n. + need h!nd7hold*n. on the $ollow*n. 5m( underl*n*n.8E On the one h!nd 5Another8E +old7 ;t is the only medium that currencies do not "mo e thru". !nd on !nother 5$rom httpEGG$o$o!.blo.spot.%omG& 1&G &Gtod!(s76uoteun6uote7.old.html8 3currenc+ flows through assets, not into the#. !n fact, a li#ited a#ount of dollars can flow through the sa#e gold #an+ ti#es, o er and o er, dri ing it higher and higher with each pass3 3oth p!ss!.es4 where!s t!l"*n. !bout %urren%( throu.h .old !nd !t $*rst .l!n%e %ontr!d*%tor(4 %!nnot poss*bl( t!l" !bout the s!me th*n.. 2here!s + do underst!nd wh!t (ou,re t!l"*n. !bout w*th the repe!ted $low *n (our post4 + must be m*ss*n. someth*n. ;er( ob;*ous *n Another,s st!tement4 or o;er7 th*n"*n. *t. So4 !.!*n4 let me b!%" *t up to prem*ses 5th!t,s how + le!rn8. 2hen A bu(s .old $rom 34 ! %ert!*n !mount o$ %urren%( $lows $rom A to 3 !nd .old $rom 3 to A. +s Another,s *de! o$ %urren%( not mo;*n. throu.h .old the $!%t th!t A now "eeps the .old !s lon. term s!;*n.s 5!nd thus %urren%( $low $or A stopped84 !nd unl*"e th*n.s th!t !re %onsumed4 the .old !%ts l*"e '!.e &4>

! stor!.e t!n" $or the pur%h!s*n. power @ To be stored $or lon. term !nd rele!sed *nto %urren%( o$ d*$$erent pur%h!s*n. power !t ! d*$$erent t*me@ And *$ so4 !ll other poss*ble s!;*n. med*ums would $!*l the un*6ueness test4 not be%!use the( do not hold ;!lue4 but be%!use the( %!nnot 9bottle up9 the pressure needed $rom the %urren%( s*de 5h!;*n. *ndustr*!l uses !nd not be*n. ! 9$o%!l po*nt98@ A6 WWWWWW On Tue4 Au. :4 & 1&4 FOFOA wroteE 3! #ust $e B o er-thinking it.3 Yes. 3currenc+ flows through assets, not into the#.3 Are we !.reed on th*s p!rt@ ThereMs no J%urren%(K *n the sto%" m!r"et. +$ (ou bou.ht P1 O *n sto%"s (our %urren%( $lowed throu.h those sto%"s4 not *nto them4 !nd now (ou hold !ssets4 not %urren%(. A.reed@ And how do we "now the ;!lue 5pr*%e8 o$ those !ssets@ 2e "now *t b( *ts %urren%( pr*%e4 r*.ht@ =h*n!Ms Tre!sur*es !re not %urren%(. The %urren%( =h*n! re%e*;es throu.h *ts tr!de surplus *t .*;es to the FSG to spend. The %urren%( $lows throu.h those Tre!sur*es to the debtor. Now =h*n! holds those !ssets4 not %urren%(4 r*.ht@ C.urren.y 2'o)% throu#h a%%et%, not $nto them.C O"!(4 !s lon. !s weMre !.reed on th*s p!rt4 letMs loo" !t .old. 2e %ould s!( the s!me th*n. !bout .old. +$ (ou bou.ht P1 O worth o$ .old (our %urren%( $lowed throu.h to the seller o$ th!t .old !nd now (ou onl( hold !n !sset4 r*.ht@ The .old. And how do we "now the ;!lue 5pr*%e8 o$ th!t .old@ Do we "now *t !s ! %urren%( pr*%e@ +s th!t %orre%t@ +$ the FSG .oes b!ll*st*% de$end*n. *ts *n$low o$ re!l .oods !nd ser;*%es w*th the Y# pr*nt*n. press4 who *s .o*n. to d*sho!rd some .old $or doll!rs@ No one4 (ou s!(@ So *$ thereMs no doll!rs !nd .old be*n. e?%h!n.ed4 how do we "now the ;!lue 5pr*%e8 o$ th!t .old@ +s *t ;!lueless now th!t there *s no doll!r pr*%e $or *t@ Or *s *t pr*%eless@ /ow !bout (our sto%"s@ /ow !bout (our Tre!sur*es@ O$ %ourse we %ould run the s!me e?er%*se w*th ! t!n"er $ull o$ o*l th!t (ou Cust pur%h!sed $or P1 M ;ersus P1 M *n %urren%( !ssets. +t doesnMt be%ome ;!lueless Cust be%!use the doll!r loses ;!lue be%!use we "now o*l,s ;!lue rel!t*;e to other .oods !nd ser;*%es. 3ut .oldMs ;!lue does not rel!te to other .oods !nd ser;*%es be%!use *ts m!*n use *s SoA. Gold ;!lue 9*s !rb*tr!r(!9 So w*th the o*l4 !s lon. !s we %ould determ*ne the doll!r pr*%e o$ someth*n.4 !n(th*n.4 we %ould "now '!.e &1

the .o*n. pr*%e o$ o*l4 r*.ht@ Dust l*"e *n Z*mb!bwe. =urren%( st*ll pr*%ed e..s e;en when three e..s %ost ! b*ll*on Zdoll!rs. =urren%( pr*%es o*l Cust l*"e %urren%( pr*%es e;er(th*n. *n the Jo;erhe!dK re!lm. 3e%!use %urren%( *s onl( the m*ddlem!n between these th*n.sM rel!t*;e ;!lue to e!%h other. Onl( .oldMs ;!lue *s not rel!t*;e to e;er(th*n. else *n the ph(s*%!l pl!ne. GoldMs ;!lue *s !rb*tr!r(. +t h!s no e%onom*% or ut*l*t( metr*%s b( wh*%h to %omp!re *t to the rest o$ the ph(s*%!l pl!ne. =urren%( pr*%es e;er(th*n. 5but .old8 be%!use %urren%( *s s*mpl( th!t m*ddlem!n between the*r "nown rel!t*;e ;!lues. #;er(one "nows th!t !n !pple *s worth two b!n!n!s. So %urren%( between !pples !nd b!n!n!s pr*%es those *tems. 3ut there *s no *ntr*ns*%4 %!l%ul!ble rel!t*;e ;!lue between !n oun%e o$ .old !nd ! men,s su*t. The*r rel!t*onsh*p *s !rb*tr!r(L *t %!n be wh!te;er subCe%t*;e ;!lue the superor.!n*sm t!"es *t to w*thout !$$e%t*n. !n(th*n. else. No %h!*n re!%t*on w*ll h!ppen. Go'd! 6t $% the on'y med$um that .urren.$e% do not Cmo9e thruC. 6t $% the on'y Money that .annot be 9a'ued by .urren.$e%. 6t $% #o'd that denom$nate% .urren.y. 6t $% to %ay C#o'd mo9e% thru paper .urren.$e%C. Get the %on%ept!!! DonMt .et too hun. up on the words. +tMs !ll !bout %on%epts4 not ne%ess!r*l( the words. 2ords !re $!ll*ble !nd l*m*ted *n s%ope. =on%epts 5*$ the( !re true8 h!;e *n$*n*te resolut*on. Test the *n$*n*te resolut*on o$ th*s %on%eptE 6t $% #o'd that denom$nate% .urren.y. WWWWWW FromE A6u*lus SentE Tuesd!(4 Au.ust :4 & 1& ToE FOFOA SubCe%tE ReE 2h( does o*l not pr*%e %urren%*es SM+)#! Got *t. +t,s n*%e to see how s*mple *t *s re!ll(. #;er(th*n.,s ;!lue *s rel!ted to e;er(th*n. else4 e?%ept $or the one 9useless9 SoA $o%!l po*nt. + h!;e to s!(4 the words 9.old mo;*n. thru %urren%*es9 *s de$*n*tel( not *ntu*t*;e 5to me8. The 9Gold denom*n!tes %urren%*es9 e?press*on *s mu%h more on t!r.et. +$ (ou don,t h!;e !nother post re!d(4 (ou m*.ht w!nt to %ons*der putt*n. up th*s l!st e?pl!n!t*on !s ! pl!%eholder. #?pl!*n*n. th*s %on%ept p!st where the or*.*n!l words m*.ht be %on$us*n. *s done ;er( well *n th*s l!st em!*l. +t,s str!*.ht $orw!rd4 $ull o$ re!l world !sset e?!mples4 *d*ot7proo$ + m*.ht s!(. Dust wh!t,s needed. Dust m( &%. Th!n"s !.!*n $or t!"*n. the t*me to %l!r*$( !ll th*s $or me! A6u*lus '.S. S*n%e M!(4 +,;e been tr(*n. to .et throu.h !ll the posts $rom the be.*nn*n. o$ the blo. 5*n m( sp!re momentsGt*me8. +,m now up to 9=red*b*l*t( +n$l!t*on9 *n & 1 . +t,s 6u*te !n e?per*en%e to underst!nd ! lot o$ the m!ter*!l be$ore re!d*n. the posts 7 so mu%h more enCo(!ble. 3ut !t the s!me t*me4 + .et these '!.e &11

un%le!r th*n.s th!t +,;e been bu..*n. (ou !bout E78 And + st*ll h!;e not m!de *t throu.h the or*.*n!l Tr!*l. + th*n" FreeGold w*ll be upon us be$ore + do !t th*s p!%e. WWWWWW 713 +n th*s %!se someone else em!*led me ! 6uest*on $*rst. + !nswered *t !nd s*mult!neousl( A6u*lus w!s tweet*n. s*m*l!r thou.hts4 so + $orw!rded m( %orresponden%e w*th the other re!der to A6u*lusE On Thu4 Sep 104 & 1&4 FOFOA wroteE /ello A6u*lus4 + thou.ht (ou would !ppre%*!te th*s. N*%e tweets tod!(. FromE T SentE Thursd!(4 September 104 & 1& ToE FOFOA SubCe%tE Yuest*ons /* FOFOA4 + "now (ou,;e .ot ! $ew .re!t posts up %om*n.4 !nd + *m!.*ne th!t (ou were r*.ht on top o$ the F#D,s !nnoun%ement tod!(. M( 6uest*on rel!tes to M3S pur%h!ses !nd + h!;e h!d th*s thou.ht $or some t*me now. The F#D *s %le!rl( out to .obble up th*s m!r"et4 !s *t re!ll( *s runn*n. out o$ th*n.s to bu( w*thout l*m*t*n. *tsel$ to onl( : Q m!r"et sh!re4 howe;er4 how does the pro%ess o$ M3S pur%h!ses help to $und the Go;@ The F#D *s pur%h!s*n. these se%ur*t*es4 but wouldn,t th*s $und the b!n"s !s opposed to the Tre!sur(@ As $und*n. the Go;,t *s re!ll( the bottom l*ne here4 how do these pur%h!ses wor" tow!rds $und*n. the n!t*ons (e!rl( de$*%*ts@ 2h*%h4 !s outl*ned pr*or4 *s re!ll( the !*m o$ Y#@ Th!n"s $or !ll th!t (ou do. 7T FromE FOFOA SentE Thursd!(4 September 104 & 1& ToE T SubCe%tE R#E Yuest*ons /ello T4 All the mone( the Fed pr*nts $or M3S pur%h!ses w*ll be %(%led throu.h the FSG Tre!sur( !%%ount 5spent *nto the e%onom( b( the FSG8. At le!st !n !mount e6u!l to the *ssu!n%e o$ new Tre!sur*es. Most people th*n" th!t mone( $rom the sto%" !nd bond m!r"ets %!n .et 9s%!red9 !nd run to Tre!sur*es $or s!$et(. 3ut the $!%t o$ the m!tter *s th!t there *s no 9mone(9 *n the sto%" !nd bond m!r"ets. There '!.e &1&

!re onl( !ssets. The FSG %!nnot spend !ssets4 *t %!n onl( spend b!se mone(4 !nd b!se mone( *s e*ther e!rned *n the ph(s*%!l pl!ne or *t *s pr*nted b( the Fed. So *t %!nnot be the %!se th!t ! bun%h o$ 9mone(9 would e;er $lee the sto%" m!r"et !nd .o to the FSG 5to h*de *n Tre!sur*es8 $or s!$et(. +$Gwhen th!t e;er h!ppens4 someone who e!rned !%tu!l b!se mone( *n the ph(s*%!l pl!ne would be bu(*n. those 9$r*.htened sto%"s9 !t b!r.!*n b!sement pr*%es !nd then the sellers would .*;e th!t mone( to the FSG to spend. The mone( h!s to %ome $rom somewhere4 !nd *t doesn,t %ome $rom *ns*de the sto%"s or bonds. + repe!t4 there,s no 9mone(9 *n the sto%" !nd bond m!r"etsRonl( !ssets. There h!s to be mone( %om*n. *n $rom the ph(s*%!l pl!ne 5or $rom the Fed,s pr*nt*n. press8 !t !ll t*mes. So wh!t the Fed *s do*n. *s *nCe%t*n. !%tu!l b!se mone( $low *nto th*s p!per !sset 9!ren!94 s*n%e the ph(s*%!l pl!ne e!rners 5both $ore*.n !nd domest*%8 !re not %om*n. *n 5*n su$$*%*ent 6u!nt*t(8. A%tu!l b!se mone( *s the onl( 9$uel9 the FSG %!n burn. +t needs re!l b!se mone( %om*n. *n4 e*ther $rom $ore*.ners ;*! the tr!de de$*%*t or $rom new domest*% s!;ers who e!rned th!t mone(4 e!rned not throu.h !sset !ppre%*!t*on *n the sto%" !nd bond m!r"ets4 but throu.h re!l ph(s*%!l pl!ne produ%t*on. You %!n th*n" o$ the sto%" !nd bond m!r"ets 5*n%lud*n. the Tre!sur( m!r"et8 !s ! b*. 9!ren!9. Mone( 5b!se mone(8 $lows throu.h *t4 but *t ne;er res*des *n *t. Some %omes *n4 some .oes out. And whene;er new p!per !ssets !re !dded !s *n the %!se o$ re.ul!r Tre!sur( !u%t*ons4 th!t *s one o$ the !;enues where mone( $lows out o$ the !ren!. Th*s out$low must be m!t%hed b( *n$low4 per*od. +$ there,s not ! su$$*%*ent *n$low4 then the Fed must pr*nt4 wh*%h *t *s do*n. now. O$ %ourse the( !re !lso hop*n. to .oose the hous*n. m!r"et4 but underst!nd th!t new mort.!.e %re!t*on does not re6u*re ! %onst!nt $low o$ b!se mone( the w!( new Tre!sur( %re!t*on does. The b*. b!n"s h!;e plent( o$ reser;es r*.ht now so the onl( th*n. l*m*t*n. new mort.!.e %re!t*on *s dem!nd $rom borrowers4 not suppl( o$ b!se mone( reser;es. And mort.!.es !re %re!ted 9out o$ th*n !*r9. Tre!sur*es !re not. Tre!sur*es re6u*re 1 Q b!se mone( $low. And th!t,s wh!t the Fed *s *nCe%t*n. *nto th*s 9!ren!9. S*n%erel(4 FOFOA WWWWWW FromE A6u*lus SentE Mond!(4 September &44 & 1& ToE FOFOA SubCe%tE ReE F2E Yuest*ons FOFOA4 + do h!;e ! 6uest*on on the stu$$ below4 when (ou .et ! %h!n%e. For pur%h!s*n. Tre!sur*es4 + !m not see*n. someth*n. *mport!ntE + %!n see wh( Tre!sur( %pend% b!se mone(4 Cust not wh( the mone( bu(*n. tre!sur*es %!nnot be %red*t. + %!n *m!.*ne !n( FS b!n" %re!t*n. %red*t to bu( tre!sur*es4 !nd hold*n. those tre!sur*es on the b!l!n%e sheet !s r*s"7$ree !ssets. + .uess + don,t see *s wh( *s *t ne%ess!r*l( b!se mone( th!t $lows *nto Tre!sur*es@ '!.e &10

=!n (ou help me out w*th th*s ple!se@ Th!n"s A6u*lus WWWWWW On Sep &44 & 1&4 9FOFOA9 wroteE O"!(4 s!( ! %ommer%*!l b!n" e?p!nds *ts b!l!n%e sheet $or the purpose o$ bu(*n. Tre!sur*es. +t h!s %re!ted new l*!b*l*t*es wh*%h *t h!s tr!ns$erred to the Tre!sur(. The Tre!sur( 9b!n" !%%ount9 *s !t the Fed4 so those l*!b*l*t*es .et %le!red w*th 1 Q reser;es. +n theor(4 the %ommer%*!l b!n" wh*%h e?p!nded *ts b!l!n%e sheet now owes 5h!s l*!b*l*t*es to8 the FSG,s b!n"4 wh*%h *s the Fed. 3ut the %ommer%*!l b!n" !lso h!s !n !%%ount !t the Fed4 *ts reser;e !%%ount4 %ons*st*n. o$ l*!b*l*t*es o$ the Fed to the %ommer%*!l b!n"4 *ts reser;es. So there,s ! 1E1 5non7$r!%t*on!l8 %orrel!t*on between the new !sset !nd the number o$ reser;es re6u*red to %le!r th!t tr!ns!%t*on. +n other words4 *$ the %ommer%*!l b!n" bou.ht P14 4 *n Tre!sur*es4 *ts reser;e !%%ount would be deb*ted P14 4 *n reser;es wh*%h would be tr!ns$erred o;er to the Tre!sur(,s !%%ount. The %ommer%*!l b!n" l*!b*l*t*es would !ll be %le!red. Then when the FSG spends those doll!rs *nto the e%onom(4 the reser;es would reenter the %ommer%*!l b!n"*n. s(stem !nd the l*!b*l*t( would re!ppe!r !t wh!te;er b!n" the FSG stoo.e depos*ted h*s %he%". Th!t b!n" l*!b*l*t( would now be ! l*!b*l*t( to the Stoo.e4 unt*l he spends *t p!ss*n. *t on to someone else. So4 now4 loo"*n. !t the or*.*n!l %ommer%*!l b!n",s b!l!n%e sheet4 the one who 9bou.ht tre!sur*es $rom th*n !*r94 the Tre!sur*es were !dded to the !sset s*de o$ the b!l!n%e sheet but the( were not m!t%hed w*th !dded l*!b*l*t*es. +nste!d4 the( s*mpl( d*spl!%ed e?*st*n. reser;es wh*%h were remo;ed !nd .*;en to the FSG to spend. =!n (ou see the d*$$eren%e@ +$ the b!n" h!d *nste!d or*.*n!ted ! new home lo!n 9$rom th*n !*r94 th!t new !sset 5the mort.!.e8 would be o$$set w*th new l*!b*l*t*es. The mort.!.or would then spend those l*!b*l*t*es !nd the(,d be tr!ns$erred to !nother %ommer%*!l b!n" so the(,d %le!r $r!%t*on!ll( !lon. w*th other tr!ns!%t*ons. +t,s !ll ! b*. %hurn o$ !;!*l!ble $unds. For us *n the re!l world4 the pr*;!te se%tor4 we %hurn b!n" %red*t !nd then the b!n"s *n turn %hurn reser;es $r!%t*on!ll( !mon. themsel;es to %le!r our tr!ns!%t*ons. 3ut !ll spend*n. th!t .oes throu.h the .o;ernment %!rr*es ! un*t o$ b!se mone( 5reser;es8 w*th *t. 2hen the FSG spends4 some stoo.e .ets ! p!(%he%". 2hen he depos*ts th!t p!(%he%"4 the b!n" .ets ! l*!b*l*t( 5to the stoo.e8 !nd ! reser;e 5$rom the Fed8 !dded to *ts b!l!n%e sheet. So4 *n re!l*t(4 our b!n" !t the top d*d not 9e?p!nd *ts b!l!n%e sheet9. +t s*mpl( sw!pped ! reser;e o$ one "*nd 5b!se mone(8 $or ! reser;e o$ !nother "*nd 5Tre!sur(8. +t w!s s*mpl( !n !sset sw!p. So the mone( bu(*n. the Tre!sur*es w!s the b!n",s b!se mone( reser;es4 not pure %red*t. 3;ust not wh+ the #one+ $u+ing treasuries cannot $e credit.3 +m!.*ne ! b!n" w*th *nsu$$*%*ent reser;es tr(*n. to bu( Tre!sur*es w*th onl( *ts %red*t. +t w*ll tr!ns$er *ts l*!b*l*t*es to the Tre!sur(,s !%%ount !t the Fed !nd now *ts l*!b*l*t*es to the Fed w*ll e?%eed the Fed,s '!.e &14

l*!b*l*t*es to the b!n". Th*s b!n" w*ll now be essent*!ll( reser;e7less. +n $!%t4 *t w*ll be *n ! pos*t*on o$ ne.!t*;e reser;es. The onl( w!( $or *t to .et reser;es b!%" would be $or the Fed to bu( some o$ *ts !ssets. So now4 who !%tu!ll( $unded the Tre!sur( *n th*s %!se@ The Fed d*d b( %re!t*n. new reser;es $or the b!n" wh*%h bou.ht the Tre!sur*es. The "e( to p!( !ttent*on to *s th!t e;er( doll!r the FSG spends *nto the e%onom( %omes w*th 1 un*t o$ %red*t mone( f 1 un*t o$ b!se mone(. +n other words4 the FSG em*ts ! l*!b*l*t( !lon. w*th ! reser;e *nto the %ommer%*!l b!n"*n. s(stem. An(one other th!n the .o;ernment who spends mone( onl( em*ts 5tr!ns$ers8 ! %ommer%*!l b!n" l*!b*l*t(. 3ut the FSG em*ts !n !tt!%hed p!*r4 l*"e ! mole%ule w*th two !tt!%hed !toms. The monet!r( s(stem *s s*mpl( the re%ord "eeper o$ wh!t,s .o*n. on. 2e th*n" o$ the .o;ernment t!"*n. *n mone( !nd then spend*n. *t. 3ut *n re!l*t(4 the .o;ernment *s not %onstr!*ned. +t w*ll "eep on spend*n. no m!tter wh!t. The onl( th*n. th!t %!n stop *t $rom spend*n. *s ! %r!sh *n the ;!lue o$ *ts un*t 5h(per*n$l!t*on8. So we loo" !t 9wh!t,s .o*n. *n9 !nd %omp!re *t to 9wh!t,s %om*n. out9 o$ the FSG spend*n. m!%h*ne. 9Mone( .o*n. *n9 %omes $rom three sour%esE 1. T!?es4 &. 3orrow*n.4 0. 'r*nt*n.. 2h!t we,re *nterested *n 5or wh!t we should be *nterested *n8 *s whether th!t 9mone( .o*n. *n9 *s ! $ull( $ormed mole%ule w*th two !toms or s*mpl( ! lone !tom wh*%h the FSG then %on;erts *nto ! mole%ule. +n the %!se o$ t!?es *t,s !ll mole%ules .o*n. *n. +n the %!se o$ borrow*n.4 *t,s !ll mole%ules !s lon. !s the pur%h!ser o$ the Tre!sur*es *s spend*n. ! %ommer%*!l b!n" l*!b*l*t( 5%red*t !tom8 he e!rned. As th!t %red*t mone( p!sses to the FSG !%%ount !t the Fed4 *t !tt!%hes *tsel$ to ! %ommer%*!l b!n" reser;e un*t wh*%h tempor!r*l( le!;es the %ommer%*!l b!n"*n. s(stem unt*l the FSG l!ter spends *t b!%" *nto the %ommer%*!l b!n"*n. s(stem. Onl( the Fed %!n %re!te new un!tt!%hed4 *nd*;*du!l 5b!se mone(8 !toms. )*"e + s!*d4 the FSG,s spend*n. *s te%hn*%!ll( un%onstr!*ned. +t %!n !nd w*ll s*mpl( "eep on spend*n.. 3ut *$ *ts spend*n. e?%eeds the mone( %om*n. *n $rom t!?es plus e!rned %red*ts lent to the FSG4 then the !..re.!te b!l!n%e sheet o$ the monet!r( s(stem w*ll $!ll out o$ b!l!n%e. To "eep *t *n b!l!n%e4 the Fed %re!tes new !toms. 2h*%h the FSG %on;erts *nto mole%ules. S!( the Fed does P6 3 *n Y# but onl( bu(s M3S $rom the %ommer%*!l b!n"s. The Fed h!s %re!ted P6 3 new !toms 5reser;es8 wh*%h onl( be%ome mole%ules on%e the( p!ss throu.h the FSG spend*n. m!%h*ne. All the Fed h!s done w*th the %ommer%*!l b!n" b!l!n%e sheets *s !n !sset sw!p4 ! new reser;e $or !n !sset. No new %red*t mone( 5%ommer%*!l b!n" l*!b*l*t*es8 h!s been %re!ted. New %red*t mone( *s %re!ted when the FSG spends *n e?%ess o$ the %red*t mone( %om*n. *n4 e*ther throu.h t!?es or borrowed $rom re!l s!;ers. Th*s %ommer%*!l b!n" who Cust sw!pped M3S w*th the Fed $or new b!se mone( %ould now sw!p th!t b!se mone( !sset w*th the Tre!sur( $or ! Tre!sur( !sset. And (et st*ll4 no new %red*t mone( h!s been %re!tedL unt*l the FSG spends *t. So4 *n essen%e4 the %ommer%*!l b!n"*n. s(stem %re!ted new %red*t mone( 5%ommer%*!l b!n" l*!b*l*t*es8 when *t or*.*n!ted the home lo!ns wh*%h %re!ted the M3S. Th!t *s now %*r%ul!t*n.. Then the Fed %re!ted new b!se mone( wh*%h *t sw!pped $or the M3S. Now the %ommer%*!l b!n" *s $ree to sw!p th!t b!se mone( w*th the Tre!sur( who w*ll %re!te more new %red*t mone( b( spend*n. *t.

'!.e &11

3! can i#agine an+ 5S $ank creating credit to $u+ treasuries, and holding those treasuries on the $alance sheet as risk-free assets. ! guess ! don4t see is wh+ is it necessaril+ $ase #one+ that flows into -reasuries83 =!n (ou see now how !n( FS b!n" %!nnot %re!te %red*t wh*%h the FSG %!n spend@ The FSG %!n onl( spend e!rned %red*t 5e!rned throu.h produ%t*on *n the ph(s*%!l pl!ne8 or else the FSG *s !%tu!ll( %re!t*n. new %red*t mone( when *t spends4 w*thout !n( o$$sett*n. produ%t*on *n the ph(s*%!l pl!ne. The mone( the FSG spends e*ther %omes $rom t!?es4 net7produ%ers 5re!l s!;ers84 or else *t *s *n$l!t*on!r(. A b!se mone( un*t p!sses throu.h the FSG w*th e;er( doll!r *t spends. A %red*t mone( un*t e?*ts !lon. w*th th!t b!se mone( un*t !s well. The onl( 6uest*on *s whether th!t %red*t mone( un*t 5%ommer%*!l b!n" l*!b*l*t(8 w!s surrendered to the Tre!sur( $rom someone who e!rned *t4 or %re!ted $rom th*n !*r b( the ;er( !%t o$ the .o;ernment wr*t*n. ! %he%" to ! .o;ernment stoo.e. +n e?trem*s4 tr( to *m!.*ne A)) %ommer%*!l b!n"s sw!pp*n. A)) e?%ess reser;es held !t the Fed w*th the FSG *n e?%h!n.e $or Tre!sur*es. )et,s loo" !t the*r b!l!n%e sheets. The*r l*!b*l*t*es would rem!*n e?!%tl( the s!me4 but the*r !ssets would h!;e %h!n.ed s*.n*$*%!ntl( $rom ! he!lth( reser;e r!t*o to ! none?*stent reser;e r!t*oL no reser;es4 !ll !ssets. Now the FSG spends !ll those reser;es b!%" *nto the e%onom( !lon. w*th new %red*t mone( un*ts 5%ommer%*!l b!n" l*!b*l*t*es8. The reser;es reenter the b!n"*n. s(stem but the l*!b*l*t*es *n%re!se 1E1 w*th the !mount o$ reser;es. R*nse !nd repe!t. 2h*le + suppose th*s *s theoret*%!ll( poss*ble4 *t,s not ;er( pr!%t*%!lN Cust th*n" !bout how d*re%tl( *n$l!t*on!r( *t would be! +,m not loo"*n. !t monet!r( !..re.!tes $or the *n$l!t*on. +,m loo"*n. !t d*re%t spend*n. th!t,s not o$$set b( ph(s*%!l pl!ne produ%t*on. And + th*n" !nother problem th!t,s prob!bl( pre;ent*n. someth*n. l*"e th*s *s the on.o*n. dele;er!.*n. w*th*n the b!n"s. Th*s dele;er!.*n. *s %ompet*n. w*th the Tre!sur( $or spend!ble reser;es4 wh*%h *s !nother re!son the Fed h!s to *nCe%t new reser;es. Th!t Z/ !rt*%le l*n"ed b( M*%h!el dA s!*d th!t the 9sh!dow b!n"*n. s(stem9 5wh*%h *s re!ll( Cust 9mone( m!r"ets9 w*th no re!l mone( *n them4 onl( !ssets8 h!s under.one P0 3 *n dele;er!.*n. so $!r *n & 1&. You h!;e the FSG wh*%h needs to e?tr!%t P0.63 per d!( $rom these m!r"ets %ompet*n. !.!*nst the dele;er!.*n. $or the s%!nt 9new *n$low9 o$ mone(. The tr!de de$*%*t seems to be suppl(*n. P1.13 per d!(4 domest*% 9s!;ers9 5pens*on $unds8 must be suppl(*n. some !mount4 !nd the Fed seems to be p*%"*n. up the sl!%". Remember4 *t,s mone( *n4 mone( out. There,s no !%tu!l mone( 9*n9 these m!r"ets. Onl( !ssets w*th pr*%es. And dele;er!.*n. *s essent*!ll( 9mone( out9 %ompet*n. !.!*nst Tre!sur( $or the new mone( %om*n. *n4 e*ther $rom s!;ers or $rom the Fed. M( sense *s th!t the %urrent r!te o$ Y# *s s*mpl( not enou.h. The FSG *s not .o*n. to stop spend*n.4 so someth*n. h!s to .*;e. #*ther *nterest r!tes e?plode upw!rd 5not .o*n. to h!ppen84 the sto%" m!r"et %oll!pses *n $ree $!ll 5m*.ht h!ppen4 but then the(,ll pr*nt *mmed*!tel(84 or the Fed r!mps up Y# somehow. #;en *$ the( m!n!.e to do th*s w*thout ! press %on$eren%e4 *t w*ll show up *n the doll!r e?%h!n.e r!te !ndGor ='+ pr*%e *n$l!t*on. Th!t,s where the de!th sp*r!l be.*ns. Other !n!l(sts seems to w!nt to loo" !t 6u!nt*t!t*;e me!surements to determ*ne t*m*n.. The( w!nt to see ] h*t YQ or wh!te;er. 3ut th!t,s not how *t h!ppens. +t h!ppens where the rubber meets the ro!dL !t the m!r.*ns where the FSG spends. +t h!ppens where the monet!r( pl!ne *s e?%h!n.ed w*th the ph(s*%!l pl!ne4 be%!use th!t,s the onl( e?%h!n.e r!te th!t m!tters. +t h!ppens *n ph(s*%!l pl!ne pr*%es. And th!t ro!ds*de +#D *s ;er( unst!ble4 +M/O. +t m*.ht t!"e ! b*. tru%" h*tt*n. *t4 or *t m*.ht Cust blow '!.e &16

*$ (ou loo" !t *t too %losel(. WWWWWW FromE A6u*lus SentE Mond!(4 September &44 & 1& ToE FOFOA SubCe%tE R#E F2E Yuest*ons Th!n" (ou!!! Aer( %le!r. More $eedb!%" tomorrow !$ter + re7re!d. A6. 'SE *t m!"es so mu%h sense th!t + "*%" m(sel$ $or not h!;*n. t!"en th!t one e?tr! ment!l step !nd !s"ed 9who *s the Tre!sur(,s b!n"@9 More tomorrow4 but th!n"s !.!*n! WWWWWW On 2ed4 Sep &64 & 1&4 FOFOA wroteE Th!n" (ou4 A6u*lus. 3T24 + h!;e ! bold new %on%ept +,m wor"*n. on r*.ht now4 wh*%h w*ll *n%lude ! propos*t*on $or (ou. +,ll present (ou w*th the det!*ls soon. ND S*n%erel(4 FOFOA 'S. /!;e (ou e;er used S"(pe@ WWWWWW FromE A6u*lus SentE 2ednesd!(4 September &64 & 1& ToE FOFOA SubCe%tE ReE S"(pe@ O$ %ourse. Dust let me "now when. + $*.ured (ou,d be up to someth*n.. You,;e been 6u*et !s ! mouse $or m!n( wee"s now ED )oo" $orw!rd to *t. '.S. + !m not Co"*n. when + s!( th!t l!st em!*l e?p!nded perspe%t*;e !bout the $low o$ b!se mone(G%red*t when *t m!de me $ollow the tr!ns!%t*ons. + re!l*Ied how *ntelle%tu!ll( l!I( + h!d been 7 stopp*n. !t the *n*t*!l %on%ept o$ %red*t %re!t*on4 .o; spend*n. th!t (ou spoon7$ed us *n the posts !nd not t!"*n. th!t dedu%t*on $urther m(sel$. Dust be*n. honest w*th m(sel$ here. + l*"e the 9mole%ule9 ;s 9!tom9 des%r*pt*on. WWWWWW On Sep &64 & 1&4 9FOFOA9 wroteE '!.e &1:

Yes4 the mole%uleG!tom !n!lo.( *s ! .ood one! + %!me up w*th th!t one Cust $or (ou! N78 + th*n" the "e( *s th!t 9the m!r"ets9 5me!n*n. the sto%"4 bond4 tre!sur( !nd mone( m!r"ets4 *n%lud*n. wh!t Z/ %!lls the 9sh!dow b!n"*n. se%tor98 !re !ll Cust !ssets w*th no 9mone(9 *n them. There,s 9mone( *n9 !nd 9mone( out9. +t,s ;er( s*m*l!r to ! 'onI* s%heme *n th!t no one %!n t!"e out ! s*n.le doll!r unless ! doll!r *s .o*n. *n on the other s*de. Onl( mone( %om*n. *n suppl*es the dr!*n o$ mone( .o*n. out. 3ut unl*"e ! 'onI* s%heme where !t some po*nt there,s not enou.h new mone( .o*n. *n to $und the redempt*ons4 the Fed %!n !%tu!ll( put br!nd new mone( *n !t !n( t*me. +m!.*ne *$ 3ern*e M!do$$ h!d ! pr*nt*n. press. /*s 'onI* s%heme would ne;er h!;e needed to %oll!pse. +t,s "*nd o$ l*"e the $!%t th!t 1>0 ,s st(le b!n" runs won,t e;er h!ppen !.!*n. +nste!d4 th*s t*me4 the ;!lue o$ the doll!r w*ll %oll!pse. Mone( *s $un.*ble4 so *t doesn,t m!tter where the Fed *s *nCe%t*n. *t4 *nto M3S4 or AA')4 doesn,t m!tter. +t,s !ll p!rt o$ the 9mone( *n9 to the !ren! !nd the FSG *s the m!*n 9mone( out9 so un!tt!%hed new !toms !ll .et %omb*ned throu.h the FSG. 9Mone( *n9 $rom s!;ers 5domest*% or $ore*.n8 *s !ll $ull mole%ules. 9Mone( *n9 $rom the Fed *s un!tt!%hed !toms !nd the FSG *s un*6ue !mon. the ;!r*ous dr!*ns on the s(stem *n th!t *t %!n turn !toms *nto mole%ules. So th!t,s how FSG de$*%*t spend*n. *s d*re%tl( *n$l!t*on!r( *n the !mount put *n b( the Fed4 no m!tter where *t put the new mone(. S*n%erel(4 FOFOA WWWWWW The $ollow*n. !re !ll Roths%h*ld propert*es4 both p!st !nd present4 $rom 2*"*ped*!. Some were s*mpl( don!ted to %h!r*t(E

'!.e &1-

'!.e &1>

'!.e &6

'!.e &61

'!.e &6&

'!.e &60

'!.e &64

0edne%day, O.tober 31, 2012


An Amer$.an ,orror Story

'!.e &61

An Amer*%!n /orror Stor( $or /!lloween...


De!r D*!r(4 Tod!( + !wo"e to the news th!t the doll!r *s no lon.er !%%ept!ble *n settlement $or the pur%h!se o$ $ore*.n .oods $rom $ore*.ners. Th*s news w!s *mmed*!tel( d*s%on%ert*n. be%!use + h!;e hundreds o$ thous!nds o$ these doll!rs s!;ed up o;er the p!st 0 f (e!rs4 !nd +,m pl!nn*n. to ret*re soon. The 'res*dent w!s on !ll %h!nnels !ssur*n. us th!t th*s *s not ! b*. de!l4 !nd %ert!*nl( me!n*n.less unless we,re pl!nn*n. to bu( ! $ore*.n %!r or tr!;el !bro!d. M( doll!rs4 he s!*d4 w*ll st*ll be 9!s .ood !s .old9 here *n the Fn*ted St!tes. The FS4 he s!*d4 h!s the most *mport!nt e%onom( *n the world4 !nd the doll!r *s our %urren%(. The .o;ernment4 he s!*d4 would not m*ss ! be!t. The .o;ernment4 he s!*d4 %!n ne;er run out o$ mone(. Our doll!rs !re s!$e. The 'res*dent s!*d th!t th*s news tod!( w!s onl( be%!use o$ the *ntern!t*on!l mone( spe%ul!tors who4 be%!use the( thr*;e on %r*ses4 help to %re!te them. /e s!*d th!t these 9spe%ul!tors9 h!;e de%l!red w!r on the Amer*%!n doll!r. /e s!*d th!t th*s *s e?tremel( $ool*sh be%!use the Amer*%!n e%onom( h!s the l!r.est GD' !nd !lso be%!use the Amer*%!n .o;ernment %!n ne;er run out o$ mone(. So4 *n response4 he h!s d*re%ted h*s people to h!lt !ll *ntern!t*on!l p!(ments e?%ept those deemed to be *n the ;*t!l *nterest o$ the Fn*ted St!tes. And $or those deemed ;*t!l4 he s!*d th!t !n( .o;ernment !.en%( %!n *ndependentl( !uthor*Ie p!(ments o$ !n( s*Ie needed to "eep the ;*t!l $ore*.n .oods $low*n. *n. Amer*%! won,t be held host!.e b( e*ther our own *ntern!l bud.ets or $ore*.n %urren%( e?%h!n.es4 he s!*d. +,m not .ener!ll( one to p!n*% !t !n(th*n.4 but e;en !s re!ssur*n. !s the 'res*dent,s words were4 + st!rted to p!n*%. So !$ter ! l*ttle re$le%t*on + de%*ded th!t + needed to %!ll *n s*%" to wor" !nd run out to sto%" up on ! $ew l!st7m*nute ne%ess*t*es4 Cust *n %!se. 2h!t + $ound w!s deepl( troubl*n.. M!n( stores were s*mpl( %losed $or the d!(4 !nd the ones th!t were st*ll open were o;errun w*th people who4 + .uess4 h!d the s!me *de! !s me. Most o$ the stu$$ on m( l*st w!s !lre!d( .one $rom the shel;es. '!.e &66

So + went b!%" home to %!ll m( bro"er. +,;e been t!l"*n. !bout ! doll!r %oll!pse !nd bu(*n. .old $or wee"s now. F.h. And +,;e been re!d*n. !bout *t $or months4 but + w!s so sure th!t th*s w!s Cust one o$ m!n( poss*b*l*t*es. And e;en *$ *t h!ppened4 !ll s*.ns seemed to be po*nt*n. to & 14 or l!ter4 so + w!s .odd!m %o%"sure th!t + h!d plent( o$ t*me be$ore m!"*n. ! b*. mo;e. To m( %red*t4 + d*d !t le!st h!;e m( bro"er sell !ll o$ m( bonds !nd put the pro%eeds *nto %!sh !nd mone( m!r"ets4 Cust so + %ould mo;e 6u*%"l( *nto .old on ! .ood d*p. + %!lled m( bro"er to m!"e sure *t w!s st*ll l*6u*d4 wh!t w*th the news !nd !ll. /e s!*d *t *s4 !s lon. !s +,m not pl!nn*n. !n *ntern!t*on!l tr!ns$er. Ne?t + %!lled the l!r.est .old de!ler *n m( st!te4 the one th!t h!d been re%ommended to me. 3ut he s!*d th!t he *s onl( bu(*n. tod!(4 not sell*n.. /e s!*d he %ouldn,t m!"e !n( s!les be%!use h*s suppl*ers !ren,t 6uot*n. sell pr*%es tod!( to repl!%e h*s *n;entor(. /e s!*d + should tr( !.!*n tomorrow. + tr*ed ! %ouple more de!lers !nd .ot the s!me run7!round. 2TF@ So here + s*t4 wr*t*n. th*s p!thet*% entr(. +,m not sure wh!t %omes ne?t4 !nd + !m l*ter!ll( bes*de m(sel$ *n %on$us*on4 d*sm!(4 dre!d4 desp!*r !nd re.ret. + %!nnot de%*de wh!t to $eel. + h!;e th*s deepl( $orebod*n. sense th!t + re!ll( s%rewed up th*s t*me. + .uess +,ll Cust h!;e to w!*t !nd see wh!t tomorrow w*ll br*n.. 3ut + th*n" + !lre!d( "now. The doll!r *s %r!sh*n. !bro!d !nd m( .o;ernment,s response *s .o*n. to %ompound the problem t!"*n. *t to depths ne;er be$ore *m!.*ned *n ! .lob!l reser;e %urren%(. M( ret*rement mone( *s !lre!d( !s .ood !s .one. +t,s not .one4 but *t *s now tr!pped wh*le be*n. s!pped o$ !ll re!l ;!lue. +t *s tr!pped be%!use + w!*ted one d!( too lon.4 e;en thou.h + "new wh!t + w!nted to do w*th *t. Th*s *s the re!l world4 !nd there *s no rew!rd $or "now*n.4 onl( $or do*n.. + d*dn,t do4 !nd now + w*ll h!;e to $!%e wh!te;er re!l*t( del*;ers wh*le "now*n. wh!t + "new. 2h!t !n !bsolute horror.

'!.e &6:

Saturday, o9ember 10, 2012


Moneyne%% 2; Money $% Jred$t

32old is the onl+ #one+ the world has e er known3 Sounds like a si#ple thought, $ut it isn4t. -o understand the following +ou #ust rethink +our $asic knowledge of #one+ and in est#ents. 2et +our aspirin read+. *:G)-1/R What will change is how we view money and wealth Everything else in Freegold flows from that! M( purpose *n wr*t*n. th*s post *s to st!te m( person!l ;*ew o$ the %on%epts o$ mone( !nd we!lth !s %le!rl( !s poss*ble. + th*n" th!t m( ;*ew *s use$ul *n both underst!nd*n. our un$old*n. present l!nds%!pe !s well !s pro$*t*n. $rom th!t e!rl( underst!nd*n.. There !re other ;*ews o$ mone( !nd we!lth wh*%h !re mu%h more w*del( !%%epted4 !nd + hope to e?pl!*n wh( + th*n" the*r b*..est $l!ws !re $ound *n the*r useless %on%lus*ons !nd the destru%t*;e pres%r*pt*ons to wh*%h the( lo.*%!ll( le!d. An(one who %hooses to re!d th*s post *s $ree4 o$ %ourse4 to t!"e *t or le!;e *t4 be%!use !ll + %!re *s th!t (ou see !nd %ons*der *t. +$ there,s one th*n. + "now4 *t,s th!t + %!nnot %l!*m %red*b*l*t( $or m(sel$4 th!t Cud.ment *s up to (ou. So th*n" o$ th*s post !s ! 9st!%" o$ ro%"s9 m!r"*n. th*s spot on the tr!*l. And s*n%e + %!n,t s!( *t !n( better th!n FOA d*d ! de%!de !.o4 here,s wh!t +,m tr(*n. to s!(E FOAE 3! 6we7 expect none of +ou to consider an+thing said here as credi$le. / er+thing is gi en as ! understand it. !f +ou ca#e with a notion that ! a# so#eone who sees the future, gra$ the children and run far awa+. 9or these -houghts, and #+ ongoing co##entar+, are #eant to i#pact exactl+ as the 3gentle#an3 said the+ would. People hear the#, and whether $elie ed or not, the words lea e a #ark. : #ental #ark on the trail, if +ou will. :nd later, after the world turns, our little 3stacks of rocks3 will $e easier to understand next ti#e +ou are passing this wa+. !n fact, +our a$ilit+ to find +our own wa+ will fore er $e enhanced for ha ing seen this path in a different light.3 "here $% no author$ty 2or the money .on.ept The $*rst th*n. th!t *s *mport!nt to underst!nd *s th!t mone( 5!nd l!ter b!n"*n.8 w!s ne;er des*.ned4 p!tented4 *n;ented !nd then rolled out su%h th!t we %!n pull up the or*.*n!l pl!ns !nd put %entur*es7old '!.e &6-

deb!tes to rest. +t s*mpl( emer.ed o;er thous!nds o$ (e!rs. There *s no or*.*n!l set o$ rules !nd de$*n*t*ons. There *s onl( re!l*t(4 ! menu o$ d*$$erent perspe%t*;es $rom wh*%h (ou %!n %hoose to ;*ew re!l*t( !nd the %on%lus*ons th!t !re lo.*%!ll( dr!wn $rom e!%h perspe%t*;e4 !nd then how use$ul those %on%lus*ons end up be*n. *n h*nds*.ht. #%onom*sts !nd ph*losophers4 $rom Dohn )o%"e to Ad!m Sm*th !nd De!n73!pt*ste S!(4 to M!r? !nd Men.er4 M*ses !nd Oe(nes4 Fr*edm!n !nd /!(e"4 to M*ns"( !nd Rothb!rd4 h!;e4 $or %entur*es4 been !dd*n. the*r perspe%t*;es to the deb!te !nd %olle%t*;e underst!nd*n. o$ the emer.ent %on%epts o$ mone( !nd b!n"*n.. Th*s h!s led to se;er!l $orm!l s%hools o$ thou.ht on the subCe%t wh*%h + !r.ue %!n be .ener!ll( d*;*ded *nto two %!mpsRthe e!s( mone( %!mp !nd the h!rd mone( %!mp. +,ll tell (ou r*.ht up $ront th!t + th*n" m( perspe%t*;e *s $!r more use$ul4 espe%*!ll( r*.ht now4 th!n those o$$ered b( e*ther %!mp. 3ut one o$ the re;el!t*ons th!t + $ound most ;e?*n. wh*le w!l"*n. th*s tr!*l w!s th!t4 *n terms o$ des%r*b*n. mone(4 the e!s( mone( %!mp h!s !lw!(s been %loser to re!l*t( th!n the h!rd mone( %!mp. #;en so4 the use$ulness o$ the 5m!%ro and m*%ro8 %on%lus*ons 5!nd pres%r*pt*ons8 %om*n. out o$ both %!mps h!s run the .!mut o;er the l!st $ew %entur*es due to wh!t + th*n" *s ! $und!ment!ll( $l!wed ;*ew o$ the b*. p*%tureR! $l!w wh*%h4 *n !nd o$ *tsel$4 h!s set the two %!mps perpetu!ll( !nd unne%ess!r*l( !t odds w*th e!%h other. + m!"e no pres%r*pt*ons here4 onl( obser;!t*ons. #;en the person!l !%t*on + endorse $or s!;ersRbu(*n. ph(s*%!l .old bull*on %o*ns !nd b!rsR*s not re%ommended be(ond wh!t (ou underst!nd. +n other words4 + don,t e;en need to re%ommend *t. +$ (ou underst!nd4 (ou w*ll do. 3ut *$ (ou do w*thout underst!nd*n.4 (our results m!( ;!r(._ So +,m onl( sh!r*n. m( perspe%t*;e !nd4 *$ *t m!"es sense to (ou4 (ou,ll "now wh!t to do w*th *t. The .o!l o$ th*s post *s to present ! lens throu.h wh*%h (ou %!n see the true role o$ mone( !nd we!lthGs!;*n.s *n (our d!*l( l*$e tod!( !nd *n the Free.old $uture. Onl( t*me re;e!ls !ll th*n.s4 *n%lud*n. the $ull e?tent o$ !n( rew!rd $or underst!nd*n. %h!n.es !he!d o$ t*me !nd then !%t*n. w*th the $ull $or%e o$ th!t underst!nd*n.. 3ut + %!n tell (ou4 $rom person!l e?per*en%e4 th!t there *s !n *mmed*!te rew!rd $rom underst!nd*n. someth*n. !nd then !%t*n. upon th!t underst!nd*n.. And th!t rew!rd *s pe!%e o$ m*nd. 6n a% 2e) )ord% a% po%%$b'e S*n%e +,m wr*t*n. !t len.th here4 + thou.ht +,d st!rt out w*th ! "*nd o$ !bstr!%t $or those who %!n,t st!nd lon. posts. 3lond*e on%e !s"ed me how + would des%r*be mone( *n !s $ew words !s poss*ble. M( !nswer w!sE 9Mone( *s %red*t.9 + $ollowed th!t up w*th ! l*ttle more det!*lE 9More spe%*$*%!ll(4 *t *s the re%ord*n. o$ %urrent b!l!n%es o$ %red*t. +t %!n be re%orded *n (our he!d4 represented on !n *nst*tut*on!l led.er4 or %!rr*ed *n (our po%"et !s p*e%es o$ p!per or met!l w*th numbers re%orded on them. 3ut not*%e th!t *t,s the re%orded numbers !nd not the p!perGmet!l *n (our po%"et th!t %onst*tutes the mone(.9 3ut (ou %!n,t poss*bl( underst!nd the pure mone( %on%ept w*thout !lso underst!nd*n. the we!lth %on%ept. The pure %on%ept o$ we!lth *s re!ll( s*mple. +t,s onl( !ttr*bute *s possess*on 5or !t le!st un!mb*.uous ownersh*p o$ someth*n. t!n.*ble4 *$ *t,s not *n (our *mmed*!te possess*on8. Your we!lth *n%ludes !ll o$ (our owned possess*ons4 $rom the !*r (ou bre!the down to (our %om$(4 worn7out sl*ppers. A!lue *s subCe%t*;eR*t,s *n the e(e o$ the beholder. A!lue %omes $rom ut*l*t( 5use$ulness8 to the user. +$ someth*n. *n (our possess*on h!s no use to (ou4 no ;!lue4 then *t *s l*"el( th!t (ou won,t .o '!.e &6>

to the h!ssle !nd e?pense o$ %ont*nu*n. to possess *t. You,ll prob!bl( Cust throw *t !w!(. So possess*on *s the d*st*n.u*sh*n. %h!r!%ter*st*% o$ we!lth4 wh*%h !lso puts we!lth s6u!rel( *n the ph(s*%!l pl!ne. 2h!t sets (our .old !p!rt $rom (our st*n"( sl*ppers !nd other *tems (ou possess *s th!t *t *s the most tr!d!bleRtr!d!ble we!lth! +m!.*ne th!t! +t *s tr!d!ble be%!use someone else ;!lues *t too4 unl*"e (our sl*ppers. 3ut not onl( does someone else ;!lue *t4 but !lmost !n(one !n(where *n the world ;!lues *t ne!rl( e6u!ll(4 e;en the G*!nts! /ow m!n( o$ (our other possess*ons would me!sure up to the 6u!l*t( st!nd!rds o$ ! G*!nt@ None4 + *m!.*ne. Th*s *s wh!t FOA me!nt b( 9e6u!l $oot*n.9. Th!t,s b!s*%!ll( *t *n ! nutshell. Those who h!;e been $ollow*n. the %omments "now th!t 3lond*e pre$ers the term 9%red*b*l*t(9 more th!n 9%red*t9. +t,s ! $*ne l*ne4 !nd + %ould .o e*ther w!(. +n th*s post +,ll use both words al#ost *nter%h!n.e!bl(4 but + th*n" +,ll st*%" w*th 9%red*t9 !s the %losest pro?( $or the pure %on%ept o$ mone(. O+ay, 6 #ue%% a 2e) more )ord% are needed Th*n" o$ *t l*"e th*s. A!lue *s subCe%t*;eR*t,s *n the e(e o$ the beholder. You ;!lue (our sl*ppers4 but no one else does. Gold *s the one *tem *n the world th!t %omes %losest to h!;*n. ! rel!t*;el( obCe%t*;e ;!lue be%!use (our "nowled.e th!t others ;!lue *t $or the s!me re!sons (ou do *s the ;er( re!son (ou ;!lue *t *n the $*rst pl!%e. +t,s the re!son beh*nd .old,s ut*l*t( !s ! store o$ ;!lue or4 phr!sed !nother w!(4 ! we!lth reser;e. S!l*en%e *s ! .ood des%r*ptor. =red*b*l*t(4 l*"e ;!lue4 *s !lso subCe%t*;e. 3ut unl*"e ;!lue *t,s not someth*n. (ou %!n %l!*m $or (oursel$. Onl( someone else %!n Cud.e (ou %red*ble. #r.o4 %red*b*l*t( must be e!rned. +t *s subCe%t to the Cud.ment o$ others. =red*t *s l*"e spend!ble %red*b*l*t(. Mone( *s the $un.*ble e?er%*se o$ %red*t 5!%%epted e;er(where4 e;en b( those who don,t underst!nd wh( (ou,re so d!rn %red*ble e;en when (ou,re we!r*n. su%h u.l( sl*ppers8. A b!n" doesn,t re!ll( .*;e (ou %red*t. You e!rn *t be$ore (ou e;er w!l" *nto the b!n". +$ (ou w!nt to bu( ! house4 (ou don,t need to h!;e s!;ed the $ull pr*%e o$ the house. All (ou need to h!;e *s e!rned %red*tG%red*b*l*t(. You w!l" *nto the b!n"4 the b!n" %he%"s (our %red*t !nd4 *$ *t *s not $ound w!nt*n.4 $!%*l*t!tes the $un.*ble e?er%*se o$ (our %red*tG%red*b*l*t(. And then4 be%!use *t,s now $un.*ble4 *t %*r%ul!tes! The re!l world oper!tes on m!ss*;e !mounts o$ %red*t. And b( re!l world4 + me!n the bus*nesses th!t m!"e e;er(th*n. *n (our l*$e. =red*t *s not Cust !bout %onsumer %red*t %!rds4 e;*l spe%ul!tors m!?*n. out the*r m!r.*n !nd hous*n. bubbles. And the h!rd mone( ;*ew o$ 9mone(9 !s someth*n. we !ll w!nt to ho!rd *s Cust !s pedestr*!n ! ;*ew !s th*n"*n. %red*t 5or debt8 *s someth*n. *ntr*ns*%!ll( b!d. Mone( h!s !lw!(sRA)2AYSRbeen %red*tGdebt. Th!t,s not b!d !t !ll. Debt *s s*mpl( %red*t 5or %red*b*l*t(8 $un.*bl( $!%*l*t!ted !nd then e?er%*sed! Short po%t 2an% .an %top read$n# here FOA wrote so mu%h .ood stu$$ on th*s subCe%t o$ wh*%h + e?%erpted some !nd e?tr!pol!ted more !nd %!rr*ed on *nto MMT !nd h(per*n$l!t*on *n m( $*rst Mone(ness post th!t + *mplore !n( new re!ders to stop here !nd .o re!d the $*rst one $*rst. +,m not .o*n. to reh!sh !n(th*n. $rom th!t post4 so *$ (ou h!;en,t re!d *t4 *t,s l*"e (ou,re st!rt*n. *n the m*ddle o$ ! boo". '!.e &:

<%e'e%% .on.'u%$on% + w!nt to st!rt b( det!*l*n. how ! $!ult( prem*se %!n lo.*%!ll( le!d to useless %on%lus*ons !nd worseR o%%!s*on!ll( to destru%t*;e pres%r*pt*ons. The $!ult( prem*se + w!nt to d*s%uss *s one th!t *s !lmost un*;ers!ll( !%%epted *n tod!(,s h!rd mone( %!mp. +t *s Cust one e?!mple !mon. so m!n( th!t + %!n,t %ount them !ll4 but *t w*ll !lso set us up to d*s%uss wh( mone( *s4 !nd !lw!(s h!s been4 %red*t. Th*s prem*se w!s posted here *n the %omments ! $ew d!(s !.o b( ! re!der n!med /erb. So +,ll Cust %ut !nd p!ste *t here $rom /erb,s %ommentE -he reason gold is #one+ is $ecause it has the pre#ier attri$utes of #one+. You know, the good old text$ook .ualities of fungi$ilit+, di isi$ilit+, porta$ilit+, etc, etc. You can no #ore den+ gold is #one+ than +ou can den+ that a dog is canine or a cat is feline. !t si#pl+ is what it is. +ndeed4 those !re .re!t !ttr*butes4 !lon. w*th dur!b*l*t(4 e!s( re%o.n*t*on !nd ! rel!t*;el( st!ble suppl(! 3ut !re those trul( the !ttr*butes o$ the or*.*n!l mone( %on%ept4 or !re the( more be$*tt*n. the %on%ept o$ ! s!l*ent tr!d!ble we!lth reser;e@ 6% there a d$22eren.e bet)een money and a tradab'e )ea'th re%er9eD And $2 %o, )hy $% $t $mportant to under%tand th$% d$22eren.eD The !nswer *s th!t not underst!nd*n. the d*$$eren%e le!ds to useless %on%lus*ons !bout mone( !nd b!n"*n. !nd terr*ble pres%r*pt*ons $or remed*es whene;er problems !r*se. Ob;*ousl( + !m s*mpl( des%r*b*n. two d*$$erent perspe%t*;es here. And hope$ull( we %!n !ll !.ree th!t %ommon sense s!(s /erb,s l*st o$ 9te?tboo" 6u!l*t*es9 !t le!st !ppl*es to the ;er( best tr!d!ble we!lth reser;e 5or reser;e !sset8. So then the m!*n d*$$eren%e between perspe%t*;es *s whether or not the %on%ept o$ mone( *s the s!me !s the %on%ept o$ ! tr!d!ble we!lth reser;eGreser;e !sset. The h!rd mone( %!mp s!(s (esN + s!( no. And to Cud.e th*s d*st*n%t*on + th*n" we need to loo" !t the %on%lus*ons dr!wn $rom these two d*$$erent prem*ses. FOA wrote th!t4 *n !nt*6u*t(4 .old w!s used !s ! tr!d!ble we!lth reser;e4 not !s mone(. From Mone(nessE FOAE 2old, that wonderful #etal that has all the uni.ue .ualities to function as our one and onl+ wealth #ediu#, and we ;ust can4t use it without altering its purpose. You know, the L+dians had it right, $ack around U,> <I. -he+ didn4t struggle with the concepts of #one+, like we do toda+. -he+ ;ust sta#ped whate er pieces of gold the+ found la+ing around and kept it for trade. -here was no need to clarif+ for certain that their gold #one+ needed properties of 3utilit+3, store of alue, #ediu# of exchange, etc. etc.. -he+ didn4t need to identif+ these .ualities were in gold $efore the+ stopped .uestioning if it was safe to use gold as sa ings. 2old was owned and the knowledge that people owned it and carried it for trade was alone enough to #ake it 3worth its weight as wealth3. You see, $ack in anti.uit+ there existed another propert+ that could o erride our need for #odern definitions of trada$le wealth. -hat propert+ was found in the one identif+ing #ark of wealth that transcended all ages= real possessionD6s#ile7 -his factor and this one factor alone had the a$ilit+ to acti ate all the other #odern attri$utes of #one+ properties, e en when the knowledge of these attri$utes was unknown in the ancient era.

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+t w!s onl( when .o;ernments st!mped o$$*%*!l denom*n!t*ons !nd numbers onto p*e%es o$ .old th!t we %!n s!( the mone( %on%ept w!s !ppl*ed to .old. 3ut !s + s!*d e!rl*er4 *t w!s the number re%orded on the met!l4 not the p*e%e o$ met!l *tsel$4 wh*%h %onst*tuted the use o$ the mone( %on%ept. FOA ment*oned th*s !s well. A.!*n4 $rom Mone(nessE -o understand gold we #ust understand #one+ in its purest for#= apart fro# its #an#ade con oluted function of $eing so#ething +ou sa e. 0one+ in its purest for# is a #ental association of alues in trade= a concept in #e#or+ not a real ite#. !n proper ernacular= a %',>s st+le 5S gold coin was stamped in the act o% applying the money concept to a real piece o% trada!le wealth. -ot the !est way to use gold, considering our hu#an nature. There *s ! "e( %on%ept h*dden *n th!t p!r!.r!ph. +$ we loo" !t !ll o$ h*stor( we $*nd ! whole host o$ m!ter*!ls th!t h!;e been used to re%ord the mone( %on%eptRele%trum4 .old4 s*l;er4 %opper4 *ron4 n*%"el4 I*n%4 p!per4 wooden t!ll( st*%"s4 Y!p stones4 e;en s*l*%on m*%ro%h*ps bur*ed *n se%ure %omputer ser;ers $or the l!st 4 (e!rs or so. 3ut e;en $rom the ;er( be.*nn*n. th*s w!s ! sub7opt*m!l use o$ .old *n p!rt*%ul!r4 be%!use *t h!d n!tur!ll( emer.ed !s the le!der o$ the p!%" o$ tr!d!ble we!lth reser;e *tems due to our l*st o$ 9te?tboo" 6u!l*t*es9.

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3ut let,s s!( th!t (ou reCe%t th*s not*on th!t mone( *s re!ll( onl( the %red*t not!t*on !nd *ns*st th!t *t *s4 *nste!d4 the ph(s*%!l *tem *tsel$. 2h!t *s the h!rm *n th!t@ 2ell4 + th*n" *t le!ds to some horr*bl( wron. %on%lus*ons4 espe%*!ll( !bout how b!n"s wor". 3!n"s $!%*l*t!te the $un.*ble e?er%*se !nd %*r%ul!t*on o$ %red*t. +$ + h!;e plent( o$ %red*t4 + %!n w!l" *nto !n( b!n" !nd .et ! lo!n. Then + %!n spend th!t lo!n !nd m( %red*t 5mone(8 w*ll be.*n to %*r%ul!te throu.hout the e%onom( !s ! med*um o$ e?%h!n.e. 3ut *$ + !m to !%%ept th!t mone( *s !%tu!ll( some t!n.*ble we!lth reser;e *tem4 then + h!;e to be s"ept*%!l !bout the sour%e o$ th!t b!n" lo!n. +$4 on %!re$ul e?!m*n!t*on4 the b!n" h!s less o$ these ph(s*%!l we!lth *tems *n reser;e th!n *t h!s *n outst!nd*n. l*!b*l*t*es4 + m*.ht %r!$t the %ommon des%r*pt*on o$ $r!%t*on!l reser;e b!n"*n. to e?pl!*n wh!t + $ound. Th*s would le!d me to the %(n*%!l not*on th!t b!n"s !re somehow %he!t*n. b( %ounter$e*t*n. the re!l mone( th!t the( h!;e on depos*t or *n reser;e. +t would prob!bl( Cust rem!*n m( theor( unt*l some sort o$ %r*s*s h!ppened4 !nd then *t %ould m!ture *nto !n outr*.ht !%%us!t*on o$ $r!ud. Reser;es4 o$ %ourse4 h!;e !lw!(s been ;*t!l to the bus*ness o$ b!n"*n.. The( !re how b!n"s settle up !mon.st themsel;es4 !nd *n the %!se th!t ! b!n" %ustomer de%*des to tr!ns!%t *n ! d*st!nt l!nd outs*de o$ h*s lo%!l s(stem o$ b!n" settlement 5or lo%!ll( *n ! bl!%" m!r"et84 reser;es !re wh!t the b!n" .*;es the %ustomer to t!"e w*th h*m. 3ut th*s *de! th!t the reser;es !re the re!l mone( !nd the %red*t *s some sort o$ %ounter$e*t or $r!udulent mone( le!ds to horr*bl( wron. %on%lus*ons !nd destru%t*;e pres%r*pt*ons whene;er ! b!n"*n. %r*s*s o%%urs. There *s ! b*. hump to .et o;er here *$ (ou !re *n the h!rd mone( %!mp. S*mpl(4 .et o;er th*s *de! th!t b!n"s need to h!;e someth*n. to lend. Th*s *s the $!ult( prem*seE th!t b!n"s lend so#ething to the borrower. The( do not. The borrower !lre!d( h!s the %red*b*l*t(4 the %red*t4 !nd the b!n"s !re s*mpl( $!%*l*t!t*n. the e?er%*se o$ th!t %red*t so th!t *t %!n be used *n tr!ns!%t*ons4 !nd so th!t the %ounterp!rt( to those tr!ns!%t*ons doesn,t need to underst!nd the borrower,s %red*b*l*t(. The b!n" h!s !lre!d( ;er*$*ed *t !nd now st!nds beh*nd *t. Th*s *s the ;er( essen%e o$ mone(.

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+n $!%t4 b!n"s !re not 5!nd should not be8 %onstr!*ned b( the !mount o$ reser;es or %!p*t!lGe6u*t( the( h!;e. 3ut th!t,s not to s!( the( !re not %onstr!*ned. The( !re4 Cust not b( reser;es !nd %!p*t!l !s th*s $!ult( prem*se le!ds some to bel*e;e. +nste!d4 the( !re pro$*t %onstr!*nedN the( w!nt to m!"e ! pro$*t. And be%!use o$ th*s4 the( !re e?perts !t ;er*$(*n. %red*t !nd m!n!.*n. the*r reser;es. + re!l*Ie th*s *s d*$$*%ult to see .*;en the %urrent st!te o$ the modern b!n"*n. !nd $*n!n%*!l l!nds%!pe4 but worse4 *t *s *mposs*ble to see w*thout ! proper perspe%t*;e on mone(. 2*thout ! re!l*st*% ;*ew o$ mone(4 ! proper underst!nd*n. o$ b!n"*n. *s *mposs*ble. And w*thout th!t4 *$ (ou h!ppen to be one o$ the $ew w*th the dr*;e to be hero*%4 (ou,ll be sp*nn*n. (our wheels on 9solut*ons9 5pres%r*pt*ons8 th!t r!n.e $rom useless to d*s!strous. +,m not des%r*b*n. the %urrent st!te o$ b!n"*n.. + !m des%r*b*n. the t*meless st!te o$ the emer.ent b!n"*n. model. There *s noth*n. wron. w*th *t. You %!n h!n. b!n"ers $rom l!mpposts !nd r!.e !.!*nst 9$r!udulent th*n !*r debt7b!sed mone(9 !nd 9$r!%t*on!l reser;e lend*n.9 !ll (ou w!nt4 but th!t w*ll do noth*n. hero*%. The solut*on to th*s %r*s*s *s !lre!d( un$old*n.4 !nd !n(th*n. short o$ rel!?*n. *n (our l!wn %h!*r !nd e?pl!*n*n. the show to (our ne*.hbors wh*le w!t%h*n. *t un$old *s the oppos*te o$ hero*%. The l!test !nt*hero mo;ements +,;e seen h!;e %ome $rom some who re!d th*s blo.. 'erh!ps + *sol!te m(sel$ 5+ do84 but th!t,s wh( +,m wr*t*n. th*s post r*.ht nowRbe%!use o$ these 9mo;ements9 wh*%h %rossed m( h*.hl(7$*ltered $*eld o$ ;*ew. Free.old %omb*ned w*th $ull7reser;e b!n"*n. ! l! the =h*%!.o 'l!n wh*%h %ompletel( m*sunderst!nds mone( w!s one4 !nd Free.old %omb*ned w*th =3,s t!s"ed w*th %entr!l*Ied 9%ontrol o;er the %red*t ;olume %re!ted b( the*r %ommer%*!l b!n"s9 w!s the other. Th*s *s wh( + th*n" *t *s ;er( use$ul 5!t le!st *n the pe!%e o$ m*nd dep!rtment84 e;en $or re.ul!rs o$ m( blo. who presum!bl( underst!nd .old4 to !lso h!;e ! deep underst!nd*n. o$ mone(. And th*s *s wh( + !m wr*t*n. th*s d*$$*%ult post. Don,t sp*n (our wheels unne%ess!r*l(. #mbr!%e the ;*ew th!t mone( *s %red*t4 to the $ull e?tent poss*ble! Free.old *s !ll !bout en!bl*n. s!;ers w*th ! re!l*st*% underst!nd*n. o$ mone( !nd we!lthL e;er(th*n. else $lows $rom th!t. Mone( *s not we!lth4 no m!tter how st!ble *t *s.

Money $% .red$t Mone( *s %red*tN *t *s 6u*te l*ter!ll( 9mone( o$ the m*nd.9 Mone( *s one o$ those *nt!n.*ble th*n.s4 ;er( '!.e &:4

power$ul4 but not someth*n. to be s!;ed $or the un"nown $uture. + should st!te r*.ht up $ront th!t + h!;e no problem w*th $r!%t*on!l reser;e b!n"*n. or $r!%t*on!l reser;e lend*n.4 e?%ept when we do *t w*th .old. + th*n" th!t e;en us*n. the term $r!%t*on!l reser;e b!n"*n. re;e!ls someone who doesn,t underst!nd mone( ;er( well. + went *nto some det!*l on *t *n m( /onest Mone( post. +tMs ! lon. post4 but here !re the $*rst %ouple o$ p!r!.r!phs sett*n. the st!.eE What is honest #one+8 :nd what does it #ean 3to return to honest #one+83 -he #ost co##on answers to these .uestions ha e roots in the :ustrian School of /cono#ics, de eloped and #ade fa#ous $+ the :ustrian econo#ists Iarl 0enger 6%&U>-%'(%7, Ludwig on 0ises 6%&&%-%'R,7 and 9riedrich 1a+ek 6%&''-%''(7. :t least the #ost co##on answers toda+ co#e fro# #odern followers of the :ustrian School. :nd #odern practitioners will tell +ou that gold and sil er are honest #one+, and that the wa+ to return to honest #one+ is to #ake #one+ harder andCor to li#it or eli#inate fractional reser e $anking. <ut this #e#e of honest #one+ has $een canoni@ed in such a si#plistic wa+ that its proliferation has $eco#e a $it of a credi$ilit+ pro$le# for those who pro#ote it, and a source of confusion a#ong their #ore credulous followers. So ! ha e a slightl+ different take on honest #one+ that !4d like to share with +ou. Th!t old stor( !bout how the b!n"er lends out more p!per re%e*pts th!n the .old he h!s on depos*t h!s done ! .re!t de!l o$ d!m!.e to the %olle%t*;e underst!nd*n. o$ mone(4 *n m( op*n*on. + th*n" th*s *s wh( FOA spent so mu%h t*me d*s%uss*n. the pure %on%ept o$ mone(4 wh!t *t *s4 how we use *t4 where *t %!me $rom !nd how *t h!s been %orrupted o;er the (e!rs to $*t ! h!rd mone( !.end! wh*%h led to ! modern underst!nd*n. o$ mone( *n the h!rd mone( %!mp th!tMs not %ons*stent w*th re!l*t(. /*s d*s%uss*on be.*ns *n Gold Tr!*l +++ B The S%en*% O;er;*ew w*th 9The Gold o$ Tro(9 !nd %ont*nues onto the ne?t p!.e. + *n%luded se;er!l e?%erpts $rom h*s d*s%uss*on *n Mone(ness. The *de! th!t 9$r!%t*on!l reser;e b!n"*n.9 *s b!d4 wron.4 or the $l!w *n the s(stem4 *s s*mpl( wron. *n m( op*n*on. The w!( the re!l e%onom( h!s !lw!(s used 9the pure %on%ept o$ mone(9 *s4 *n one s*mple word4 %red*t. 2hen ph(s*%!l .old emer.ed !s the most ;ers!t*le *tem $or lon.7d*st!n%e tr!de4 th!t w!s not re!ll( the use o$ mone( per se. +t w!s st*ll Cust ! tr!d!ble *tem4 one o$ m!n(4 !nd s*mpl( the best on the ro!d. 2hen *t w!s used !s mone( w!s when we st!rted tr!d*n. us*n. %red*t deno#inated *n *t. 3ut th!t doesnMt me!n th!t there w!s !n oun%e o$ .old $or e;er( 9oun%e o$ %red*t9 *n e?*sten%e. Th!t e!rl( b!n"er who *ssued more re%e*pts th!n the .old he h!d on depos*t *ssued those re%e*pts 5lent them out8 !.!*nst the %red*b*l*t( or the character o$ the borrowerR!nd h*s prom*se to rep!( the debt. 2e do th*s !ll the t*me *n the re!l e%onom(R*ssue %red*t to our %l*ents !nd re%e*;e %red*t $rom our ;endors b!sed on the*r "nown %red*b*l*t( or %h!r!%ter !nd th*s *s wh!t "eeps the e%onom( runn*n.. There *s not ! monet!r( b!se un*t set !s*de $or e!%h un*t o$ %red*t we e?tend to our %l*ents. +$ there h!d to be4 the e%onom( would .r*nd to ! st!ndst*ll. =entr!l*I*n.4 !..re.!t*n. !nd h!rmon*I*n. th*s s(stem o$ %red*t 5mone(!8 w!s !n e;olut*on!r( le!p *n the r*.ht d*re%t*on. 3!n"s %re!ted ! $un.*ble %red*t s(stem th!t %ould be %entr!ll( %le!red. No lon.er d*d '!.e &:1

+ need to e?tend %red*t d*re%tl( to m( %l*ent 5!lthou.h + st*ll do to some e?tent84 but he %ould .et some o$ the %red*t needed to .et the Cob done $rom h*s b!n" !nd p!( me ! depos*t so th!t + %ould .*;e m( ;endors ! depos*t. "h$% $% ho) money 'ubr$.ate% the e.onomy! And th*s %red*t 5mone(!8 *s not b!%"ed pr*m!r*l( b( .old4 propert( or !n( "*nd o$ %oll!ter!l. +t *s b!%"ed $*rst !nd $oremost b( the %h!r!%ter o$ the borrower !nd the %red*b*l*t( o$ h*s prom*ssor( note. Add*t*on!l b!%"*n. 5l*"e %oll!ter!l8 %!n lower the r*s" o$ loss throu.h de$!ult !nd %!n thereb( lower the *nterest r!te. 3ut %oll!ter!l b!%"*n. *s *n no w!( ! un*;ers!l element o$ %red*t 5the pure %on%ept o$ mone(8. /ereMs ! .re!t e?%erpt b( R!nd( Str!uss $rom m( & > Gold *s Mone( B '!rt 0 post th!t w!s espe%*!ll( re;el!tor( to me *n underst!nd*n. th!t mone( *s %red*t4 not the reser;es used $or %le!r*n. !nd settl*n. %red*t4 !nd re%o.n*I*n. ! $l!w *n the 9$r!%t*on!l reser;e b!n"*n. *s b!d9 meme B mone( *s %red*t b!%"ed b( %h!r!%ter4 not b( reser;es. Not*%e th!t *t t!"es pl!%e *n 1> :4 be$ore the Feder!l Reser;e e;en e?*sted !nd wh*le we were st*ll on ! .old %o*n st!nd!rd4 (et top b!n"ers o$ the t*me l*"e D' Mor.!n !nd Geor.e F. 3!"er h!d the s!me4 deep underst!nd*n. o$ mone( th!t + !m des%r*b*n. *n th*s postE 9The $ollow*n. *s ! post b( R!nd( 5x The Tower8 des%r*b*n. the end o$ the .old %o*n st!nd!rd !nd the d!wn o$ the Feder!l Reser;e S(stemE =ont*nu*n. our *n;est*.!t*on *nto the me!n*n.Gessen%e o$ 9mone(9... +n 1> : Amer*%! w!s on the Gold st!nd!rd !nd 2+T/OFT !n( %entr!l b!n". M!n( modern .oldbu.s m*.ht be *n%l*ned to (e!rn $or those 9.ood olM d!(s9 when 9mone( w!s mone( !nd b!n"*n. w!s !s *t should be!9 /owe;er4 th!t (e!r *s best "nown b( the '!n*% o$ 1> : *n wh*%h the people,s e%onom( w!s pl!.ued b( runs on trust %omp!n*es4 b!n"*n. p!n*%s4 !nd ! be!r m!r"et *n sto%"s. A%ross the n!t*on4 b!n"s were un!ble 5!nd re$used8 to del*;er .old %o*ns !nd %urren%( to s!t*s$( the re6uests o$ depos*tors $or w*thdr!w!ls o$ mone( $rom the*r own !%%ounts 77 !nd &46 b!n"s %oll!psed. +t *s not d*$$*%ult to see how the $rustr!t*on o$ depos*tors un!ble to obt!*n %urren%( $rom b!n"s 5e;en sol;ent ones!8 hold*n. the*r depos*ts would le!d to pressure $or pol*t*%!l *nter;ent*on !nd %h!n.e. For ! 6u*%" e?er%*se *n perspe%t*;e4 *m!.*ne wh!t (ou would do tod!( *$ $!%ed w*th the s!me s*tu!t*on *n wh*%h (our b!n" %ould not .*;e (ou !n( %urren%( 5P1s4 P1s4 P1 s4 P& s P1 or P1 s8 to %!rr( !w!( w*th (ou !s ! represent!t*on o$ the mone( res*d*n. *n (our b!n" !%%ount. No problem. You would s*mpl( wr*te ! person!l %he%" to meet (our spend*n. needs4 or perh!ps !s" $or ! b!n" dr!$t4 or w*re the mone( where;er *t needed to .o. Am!I*n.! 2h!t +S mone(@@@ /ow d*d (ou .et (oursN where d*d *t %ome $rom@ /ow do (ou "now wh!t *ts ;!lue *s@@ 'onder th!t4 !nd now we return to our .l*mpse !t h*stor(...

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'!n*% o$ 1> : +n the w!"e o$ th*s b!n"*n. p!n*%4 ! N!t*on!l Monet!r( =omm*ss*on w!s $ormed to undert!"e ! s%hol!rl( loo" !t the $!*l*n.s o$ Amer*%!,s $*n!n%*!l s(stem. O$ these4 the $our m!Cor $l!ws %*ted were th!t the b!n"s were de%entr!l*Ied4 %le!r*n. methods were *ne$$*%*ent4 the hu.e %!sh hold*n.s o$ the $eder!l .o;ernment were not d*str*buted where most needed4 !nd the %urren%( suppl( w!s *nel!st*%. E4'ea%e ponder 2or a moment ho) or )hy the J<RR1 JY %upp'y )ou'd e9er be an $%%ue $2 the amount o2 MO 1Y 2ound $n ban+% )ere at a one8to8one rat$o )$th the .urren.y E#o'dG that repre%ented $t. Surel(4 *n th*s !bsen%e o$ ! %entr!l b!n" there %ouldn,t be more mone( th!n .old %o*n! Th!t,s *mposs*ble!! 8 3( 1>114 the =omm*ss*on h!d re%ommended ! pl!n $or ! 9Reser;e Asso%*!t*on o$ Amer*%!9 !s the solut*on to these de$e%ts4 .*;*n. r*se two (e!rs l!ter to wh!t be%!me our %entr!l b!n" 77 The Feder!l Reser;e S(stem. /owe;er4 th!t,s !nother stor( $or !nother t*me. Throu.h the %oord*n!ted st!b*l*I*n. !%t*ons o$ three prom*nent NY b!n"ers to !rrest the b!n"*n. p!n*% TD.'. Mor.!n4 Geor.e F. 3!"er 5F*rst N!t*on!l 3!n"84 !nd D!mes St*llm!n 5N!t*on!l =*t( 3!n" G =*t*b!n"8U4 the*r we!lth !nd power w!s perh!ps m!de more %onsp*%uous *n the e(es o$ the n!t*on th!n perh!ps *t would otherw*se h!;e been. A prom*nent 2!ll Street l!w(er n!med S!muel Fnterm(er su..ested th!t there w!s ! 9Mone( Trust94 !nd The 2!ll Street Dourn!l !lso too" not*%e o$ !$$!*rs !nd wrote4 9So lon. !s =on.ress w*ll not .*;e us wh!t e;er( other %*;*l*Ied %ountr( possesses4 ! %entr!l b!n"4 *t $or%es 2!ll Street to *mpro;*se someth*n. o$ the "*nd *tsel$.9

'!.e &::

S!muel Fnterm(er The /ouse 3!n"*n. !nd =urren%( =omm*ttee $ormed !n *n;est*.!t*;e sub%omm*ttee to determ*ne whether ! Mone( Trust e?*sted *n NY. The %h*e$ %ounsel w!s S!m Fnterm(er4 and 6 th$n+ you m$#ht #a$n %ome $n%$#ht% about the true nature o2 money $rom the test*mon( del*;ered b( Mor.!n !nd 3!"er be$ore the %omm*ttee *n 2!sh*n.ton D= !t the be.*nn*n. o$ 1>10.

+n 6uest*on*n. 3!"er !bout the propos!l $or b!n"*n. re$orm re.!rd*n. e?p!nded d*s%losure o$ b!n" !ssets !nd *n;estments4 Fnterm(er probed4 92h( should not the !ssets4 !nd the det!*led !ssets4 be ! m!tter o$ publ*% "nowled.e@9 3!"er repl*ed4 93us*ness would %ome to r!ther ! st!ndst*ll.9 Fnterm(er dem!nded4 9+ w!nt (ou to e?pl!*n to the %omm*ttee wh(.9 3!"er de%l*ned4 9+ %!n not e?pl!*n *t.9 Fnterm(er pressed $urther4 9You me!n (ou %!n .*;e us no re!son@9

'!.e &:-

3!"er !dm*tted4 9+t would be e?pos*n. !ll the det!*ls o$ th!t bus*ness to the whole world.9 A$ter $ollow*n. ! s*detr!%" *n 6uest*on*n.4 Fnterm(er returned to th*s *ssue4 !s"*n.4 92h( should the publ*% do bus*ness on %on$*den%e when *t %!n .et the $!%ts@9 To wh*%h 3!"er pro%l!*med4 9Mr. Fnterm(er4 T/# FFNDAM#NTA) 'R+N=+')# OF 3ANO+NG4 perh!ps more th!n some others4 *s =R#D+T.9 Temph!s*s !ddedU +t seems th!t Geor.e 3!"er sensed 5r*.htl(@8 th!t the publ*%4 $!m*l*!r w*th the*r =urren%( be*n. ! t!n.*ble !sset 5.old %o*n84 )ou'd O" be read$'y .om2ortab'e )$th the truth about Money. "hat $% to %ay, that they m$#ht %tru##'e to a..ept the rea'$ty that the$r Money Supp'y, a% repre%ented on the boo+% o2 the ban+, )a% .reated by .red$t, and e/$%ted throu#h the #ra.e o2 .on2$den.e. 6n e22e.t, the tan#$b'e Jurren.y had be.ome a mere %ymbo' 2or the Money E.red$tG $t repre%ented )h$'e .$r.u'at$n# out%$de o2 ban+ a..ount 'ed#er%.

Dohn '*erpont Mor.!n +$ (ou don,t %!re to bel*e;e m( !ssessment4 + h!;e !nother po*nt $or (ou. 2hen Fnterm(er h!d D.'. Mor.!n on the w*tness st!nd4 he !s"ed h*m4 9+s not %ommer%*!l %red*t b!sed pr*m!r*l( upon mone( or propert(@9 T+n th*s e?%h!n.e4 *t !ppe!rs th!t Fnterm(er *.nor!ntl( used the word 9mone(9 !s e6u*;!lent to .old %o*n4 ! us!.e wh*%h Mor.!n pl!(s s*m*l!rl( unt*l h*s %on%lud*n. po*nt !bout .r!nt*n. =R#D+T.U 9Mor.!n responded4 9No4 s*r4 the $*rst th*n. *s =/ARA=T#R.9 Temph!s*s !ddedU Fnterm(er4 sho%"ed4 re*ter!ted4 93e$ore mone( or propert(@9 Mor.!n re!ssured4 93e$ore mone( or !n(th*n. else. Mone( %!nnot bu( *t. T%red*tU9 Fnterm(er rem!*ned obst*n!te !.!*nst th*s not*on4 !s thou.h there were %ommun*%!t*on d*$$*%ult*es4 !nd pressed !.!*n on th*s po*nt.

'!.e &:>

Mor.!n then %on%lus*;el( st!ted h*s %on;*%t*on on the po*nt th!t %ommer%*!l =R#D+T *s b!sed on %h!r!%terE 93e%!use ! m!n + do not trust %ould not .et MON#Y $rom me on !ll the bonds *n =hr*stendom.9 From two em*nent b!n"ers who surel( "new the*r bus*ness4 (ou now h!;e *t th!t the %re!t*on or .r!nt*n. o$ Mone( 5the e?tens*on o$ =red*t8 h!s more to do w*th the %red*tworth*ness o$ the borrowers th!n the %oll!ter!l th!t se%ures !.!*nst poss*ble de$!ult. And re%!ll4 these %omments o%%urred wh*le on ! .old st!nd!rd AND *n tot!l !bsen%e o$ ! .o;ernment7sponsored %entr!l b!n" 77 wh*%h w!s !uthor*Ied 5!.!*nst 3!"er,s pre$eren%e8 ! (e!r l!ter. As (ou %ome to underst!nd how Mone( !nd =red*t !re *nterrel!ted4 the more (ou w*ll underst!nd the sep!r!te 2e!lth o$ .old !nd wh( (ou need *t now more th!n e;er.9 +t m*.ht be tempt*n. !$ter re!d*n. th!t to th*n" th!t the b!n"s4 throu.h the*r 9$r!%t*on!l reser;e b!n"*n.94 caused the '!n*% o$ 1> :. 3ut4 !.!*n4 th!t would be to m*sunderst!nd how the e%onom( h!s used 9mone(9 s*n%e the be.*nn*n. o$ t*me. +$ th!tMs !ll (ou .et $rom R!nd(Ms post4 then perh!ps (ou !re one who4 !s Geor.e 3!"er sensed4 !nd be%!use o$ (our h!rd mone( upbr*n.*n.4 would G)- $e readil+ co#forta$le with the truth a$out 0one+. "he $n.'u%$on o2 %a9$n#% $n the money .reat$on pro.e%% $% the 9ery root o2 the prob'em Tod!( !ll mone( *s %red*t4 e;en the monet!r( b!se. Tod!( we use .o;ernment %red*t !s ! b!se re$eren%e po*nt $or the pr*;!te e%onom(Ms %red*t. To ;*ew th*s *n the proper l*.ht4 + l*"e to th*n" o$ the b!se4 or the .o;ernmentMs %red*t4 !s ! ne.!t*;e to the s(stem4 !nd the e%onom(Ms %red*t !s ! pos*t*;e. 2hen the .o;ernment borrows to spend *t ne;er re!ll( p!(s b!%" *n re!l terms4 be%!use .o;ernments !re !lw!(s net7%onsumers. 2e en!ble essent*!l .o;ernment $un%t*ons throu.h t!?es4 the p!rts o$ .o;ernment wh*%h !re ! ne%ess!r( $ound!t*on $or ! $un%t*on*n. e%onom(4 but be(ond wh!t pol*t*%*!ns %!n .et !w!( w*th throu.h d*re%t t!?!t*on4 the rest o$ .o;ernment *s essent*!ll( ! ne.!t*;e $or%e on the monet!r( s(stem. Th!tMs wh!t + me!n b( .o;ernment %red*t *s ! ne.!t*;e !s opposed to pr*;!te %red*t wh*%h *s e%onom*%!ll( pos*t*;e. +tMs ! tou.h %on%ept to sw!llow r*.ht now be%!use e;er(th*n. *s so tops( tur;( on both the .o;ernment !nd pr*;!te b!n"*n. s*des4 but th!tMs re!ll( the .*st o$ *t. 2h!t !llowed *t !ll to .et so out o$ wh!%" to the po*nt th!t *t *s tod!( *s ;er( s*mpl( the *n%lus*on o$ s!;ers, s!;*n.s *n the monet!r( pro%ess. Th*s *n%lus*on %!n be most %le!rl( seen w*th the emer.en%e o$ debt se%ur*t*I!t*on *n the : s !nd - s. 3!n"s e?tend %red*t4 but se%ur*t*I!t*on !llowed them to sell the*r *n%ome stre!m to s!;ers $or ! $ee. Th*s %le!red the*r boo"s $or more lend*n.. #;entu!ll( lend*n. st!nd!rds h!d to be redu%ed *n order to $eed the dem!nd $or se%ur*t*Ied debt $rom the s!;ers. The !dded r*s" o$ lower lend*n. st!nd!rds w!snMt ! b*. %on%ern be%!use the b!n"s ne;er pl!nned to s*t on th!t r*s"N the( pl!nned to o$$lo!d *t to s!;ers4 =h*n! !nd Germ!n pens*on $unds. Th*s led to sub7pr*me !nd ult*m!tel( to %oll!pse. +t *s not th!t se%ur*t*I!t*on redu%es the b!n"s, r*s" !nd l*!b*l*t*es. +t *s !n on.o*n. pro%ess wh*%h .r!du!ll( *n%re!ses the r*s" b!n"s $!%e wh*le redu%*n. the pro$*t!b*l*t( o$ the*r pr*m!r( bus*ness model Rlend*n. !t *nterestR$or%*n. them to rel( too he!;*l( on $ees !nd spe%ul!t*on $or *n%ome. The( !re sell*n. the*r pro$*t!ble lo!ns $*rst wh*le !dd*n. new r*s"*er ones $or the ne?t round o$ se%ur*t*I!t*on. '!.e &-

2h!t se%ur*t*I!t*on does o;er t*me *s m!"e the r*s" o$ de$!ult $rom poor 6u!l*t( lo!ns s(stem*% so th!t *t must be so%*!l*Ied *n the end. There !re onl( so m!n( pro$*t!ble lo!ns th!t %!n be m!de !t !n( .*;en po*nt *n t*me. #;entu!ll( (ou run out o$ respons*ble people w*th .ood %red*t w*th whom to e?tend lo!ns. 2*th se%ur*t*I!t*on4 the b!n"s st!rted m!"*n. more pro$*ts $rom the $ees $rom sell*n. se%ur*t*Ied bonds to s!;ers 5mostl( pens*on $unds !nd $ore*.n =3s8 th!n $rom the*r norm!l bus*ness. So on%e (ou,;e run throu.h !ll the .ood borrowers w*th %red*t4 where do (ou .o@ You %re!te new borrowers b( lower*n. lend*n. st!nd!rds4 espe%*!ll( *$ (our pro$*t *s now %om*n. more $rom s!les %omm*ss*ons th!n $rom *nterest. Th*s w!s dem!nd7dr*;en4 not b!n"ster7.reed7dr*;en. The b!n"s met the dem!nd !nd m!de ! pro$*t $rom the $ees wh*le be*n. spurred on b( *.nor!nt pol*t*%*!ns. The b!n"s ne;er w!nted to %!rr( sub7pr*me mort.!.es on the*r boo"s to m!tur*t(4 but on%e the %oll!pse be.!n the( h!d no %ho*%e. Ne*ther d*d the Fed. 2*thout se%ur*t*I!t*on4 b!n"s would ne;er .et down to the sub7pr*me 9bottom7o$7the7b!rrel9 borrowers 5!nd purel( spe%ul!t*;e borrowers8. There !re plent( o$ .ood4 %red*t7worth( 5produ%*n.8 borrowers to "eep the b!n"s *n bus*ness4 but not *$ the s!;ers !re ho..*n. !ll the pr*me 9*n%ome stre!ms9. #;entu!ll(4 e;en the s!;ers st!rted bu(*n. up the sub7pr*me M3S .!rb!.e !nd then4 when ! $ew debtors st!rted de$!ult*n.4 *t too" down s!;ers4 b!n"s4 hed.e $unds !nd d!(7tr!ders !l*"e. T!"e !w!( the dem!nd $rom s!;ers !nd the b!n"s w*ll st*%" to the pr*me borrowers so th!t the( %!n turn ! pro$*t $rom the*r pr*m!r( bus*ness. Th*s *s !lso how we de;ol;ed *nto su%h ! debt7dr*;en %onsumpt*on e%onom(L be%!use o$ the s(stem*% dem!nd $or our debt. Debt *s not b!d b( n!ture. +t *s the n!tur!l essen%es o$ mone(4 per*od! Mone( *s debt. Th!t,s not ! b!d th*n.! 3ut (es4 be%!use debt *s the essen%e o$ mone(4 b!d debt le!ds to b!d mone(. And *t,s more th!n Cust se%ur*t*Ied debt held b( s!;ers th!t brou.ht us to th*s po*nt. +t *s s(stem*% *n th!t our *ntern!t*on!l tr!d*n. p!rtners l*"e =h*n! st!%"ed up our debt r!ther th!n settl*n. tr!de *mb!l!n%es b( pur%h!s*n. ! t!n.*ble reser;e !sset on the open m!r"et w*th the le$t7o;er %urren%(. +t *s the st!%"*n. o$ debt wh*%h !llowed $or the non7*n$l!t*on!r( e?p!ns*on o$ the FS .o;t. 5FSG8 %onsumpt*on m!%h*ne Cust l*"e the st!%"*n. o$ M3S b( s!;ers !llowed $or the e?p!ns*on o$ sub7pr*me !nd %onsumpt*on7b!sed debt. Th*s led to ! FSG !dd*%ted to !n !rt*$*%*!ll( h*.h r!te o$ %onsumpt*on wh*%h led to the ne%ess*t( o$ Y# on%e the bud.et de$*%*t e?%eeded the tr!de de$*%*t. There *s no need $or b!n" depos*ts to be !n( more th!n the mone( we !ll e!rn !nd then spend w*th*n ! norm!l per*od o$ ! $ew months. Th!tMs !ll o$ the mone( !n(w!(. Th*n" !bout *t! And *$ no one *s s*tt*n. on 9mone(9 5%red*t8 $or more th!n ! $ew months4 then m*ld *n$l!t*on 5l*"e &Q p.!.8 *s not onl( *n%onse6uent*!l4 but *t be%omes e%onom*%!ll( bene$*%*!l !nd des*r!ble. The *n%lus*on o$ the s!;ers, s!;*n.s *n th*s pro%ess onl( d!m!.es the s!;ers d*sproport*on!tel( to e;er(one else. And *t d!m!.es the s!;ers more the more the( s!;e. +n$l!t*on 9t!?es9 s!;ers d*sproport*on!tel(. 3ut not *n Free.old. As + s!*d !bo;e4 Free.old *s !ll !bout en!bl*n. s!;ers w*th ! re!l*st*% underst!nd*n. o$ mone( !nd we!lthL e;er(th*n. else $lows $rom th!t. Mone( *s not we!lth4 no m!tter how well *t *s m!n!.ed. Th*n"*n. !bout the b!n" runs o$ the 1>0 s *n terms o$ $r!%t*on!l reser;e b!n"*n. *s !n *nterest*n. '!.e &-1

e?er%*se. +t %ert!*nl( w!s ! problem *n 1>004 !nd *t w!s pre%*sel( th*s problem th!t w!s the re!son beh*nd the FDR %on$*s%!t*onRto stem the t*de o$ b!n" runs. Tod!( th!t "*nd o$ ! b!n" run *s ! th*n. o$ the p!st. Th!tMs not to s!( *t %!nnot h!ppen4 but th!t e;en *$ *t d*d4 e;er(one would .et the*r mone( *n the end4 unl*"e the 0 s. And th!t *s be%!use tod!( the =3 %!n %re!te %ommer%*!l b!n" reser;es !t w*ll. Opponents o$ $r!%t*on!l reser;e b!n"*n. 5FR38 bl!me the b!n"s !nd the pr!%t*%e o$ FR3 $or the short!.e o$ reser;es *n the 0 s. 3ut + th*n" th!t m*sses the b*..er *ssue. +$ the s(stem,s store o$ ;!lue s*mpl( $lo!ted *n ;!lue !nd w!s !;!*l!ble to !n(one !t !n( t*me !t the %urrent pr*%e4 the runs would h!;e ne;er o%%urred. The( o%%urred pre%*sel( $ecause mone( 5%red*t8 w!s denom*n!ted *n the store o$ ;!lue4 the s(stem,s ult*m!te reser;es. +t *s the lend*n. o$ %red*t denom*n!ted *n4 !nd redeem!ble !t ! $*?ed e?%h!n.e r!te $or4 t!n.*ble reser;es th!t *s the problem. Tod!( we h!;e ! better s(stem. Flo!t*n. .old !s reser;es beh*nd the =3 mone( 5#uros(stem model8 !nd the =3 mone( 5=3 %red*t8 !s reser;es beh*nd the e%onom(Ms mone( 5%ommer%*!l b!n" %red*t8. So the ult*m!te reser;es *n the s(stem $lo!t *n ;!lue !.!*nst e;er(th*n. else !nd $lo!t *n pr*%e !.!*nst the mone(4 !nd !re there$ore !;!*l!ble to !n(one4 !n(where4 !n(t*me. Tr( to *m!.*ne the .old oun%es !t the b!n"s *n the 0 s $lo!t*n. *n ;!lue rel!t*;e to p!per doll!rs r!ther th!n be*n. $*?ed *n ;!lue. You m*.ht h!;e ! depos*t o$ P]4]]]4 but th!t number onl( re$eren%es ! $*?ed number o$ p!per doll!rs4 not ! $*?ed number o$ .old oun%es. +n the %!se o$ ! b!n" run4 *$ e;er(one w!nted to w*thdr!w the*r depos*ts4 perh!ps pre$err*n. ! w*thdr!w!l *n .old4 then the b!n" would do ! sel$7e;!lu!t*on !nd l*"el( render o;er the re6uested depos*ts *n doll!rs tell*n. the %ustomers to .o !nd shop $or the .old themsel;es. The pr*%e o$ .old would s*mpl( r*se. 3!%" *n Dul(4 )ee Yu!*nt!n%e !s"ed me th*sE 3!f de$tors seek to $orrow in the #ediu# which the+ plan to spend 6fiat paper #one+7 and lenders seek to lend 6sa e7 onl+ in a #ediu# which the+ $elie e will #aintain its purchasing power 6gold7, does not the entire $orrowingClending platfor# si#pl+ $reak down8 -his see#s to $e a #anifestation of 2resha#s Law, no8 Ian the spending and sa ings #ediu# trul+ then $e separated if no one is irrational enough to lend in paper #one+ ter#s83 Trul(4 *t *s supremel( rational to lend 5.r!nt %red*t8 onl+ *n terms o$ p!per un*ts. +t *s l*"ew*se irrational to $ors!"e the subl*me p!per un*t !;enue !nd opt *nste!d to put (our t!n.*ble reser;es out on lo!n where the( w*ll then be subCe%t to both de;!lu!t*on !nd r*s" o$ non7rep!(ment. Remember4 !nd th*s *s ! "e( po*nt4 b!n"s onl( re6u*re nom*n!l per$orm!n%e. +$ ! prom*ssor( note held b( ! b!n" de;!lues *n re!l terms4 the b!n",s l*!b*l*t*es de;!lue e6u!ll(. So there *s no loss to the b!n" throu.h %urren%( de;!lu!t*on. 39or #ore a$out wh+ 9R< and ti#e deposit #aturit+ transfor#ation are not the root of the pro$le#O the root is si#pl+ the lending of the #onetar+ reser e, a pro$le# that would still exist e en with Roth$ard4s %>>P reser e $ankingOplease see #+ Repl( to 3ron. 1ere4s a short excerptQ XX Spending 2old into the #arketplace, whether $+ the owner or $+ a $orrower, would tend to result in prices 3that weigh #ore3--cost #ore 2old, that is. XX :s e er #ore 2old is $orrowed out of other people4s sa ings to $e spent into the econo#+, the 2old4s purchasing power is lessened fro# what it otherwise would $e...hurting those who ha e elected to hold their 2old instead of risking it $+ lending it out as a source of inco#e. '!.e &-&

Knotice in the a$o e that we ha e all the $ad de aluation effects without a single $ank entering the e.uationDL XX 9or 2old to find its truest alue, all sa ers #ust retain their 2old for their own use. !ts properl+ retained alue will #ore than #ake up for the foregone interest inco#e. 2old #ust not $e lentD K2resha#4s law alone is ade.uate to achie e this.L3 0hat about ban+ re%er9e rat$o% and .ap$ta' reFu$rement%D 2h!t !bout them@ /!terI .onn! h!te4 lo;erI .onn! lo;e4 !nd %entr!l pl!nnerI .onn! pl!n4 r*.ht@ 3ut th!t st*ll doesn,t %h!n.e the essen%e o$ mone(. =red*tG%red*b*l*t( e?*sts w*th*n the e%onom( *n !mounts th!t !re un%onne%ted to the %!p*t!l or reser;es !t the b!n"s. +t *s the b!n"s, bus*ness to en!ble the $un.*ble e?er%*se 5!nd %*r%ul!t*on8 o$ th!t !lre!d(7e?*stent %red*t whene;er *t shows up w!nt*n. to be e?er%*sed. Th!tMs how b!n"s %ontr*bute to so%*et(. A re!der !s"ed me ! 6uest*on !bout !n !rt*%le th!t someone posted *n the %omments. The t*tle o$ the !rt*%le *s 9The M(th o$ the Mone( Mult*pl*er9 but *t %ould Cust !s e!s*l( h!;e been %!lled 9The M(th th!t =entr!l 'l!nners A%tu!ll( =ontrol the S*Ie o$ the Mone( Suppl( throu.h the Tr!nsm*ss*on o$ Monet!r( 'ol*%(9. +nterest*n.l(4 the !uthor o$ the !rt*%le4 Ste;e Oeen4 m!"es some o$ the s!me obser;!t*ons + !m m!"*n. here4 l*"e 9+n the re!l world4 b!n"s e?tend %red*tL !nd loo" $or the reser;es l!ter9 !nd 9b!n" lend*n. %re!tes depos*tsL reser;es !re l!r.el( *rrele;!nt.9 The term he l*"es $or th*s *s endo.enous mone(4 wh*%h *s rem!r"!bl( %lose to how + !m des%r*b*n. th!t 9mone( *s %red*t9 *n th*s post. 3ut e;en thou.h he seems to underst!nd mone( !nd b!n"*n. ;er( well4 there,s ! ;*t!l *n.red*ent m*ss*n. $rom h*s mone( model wh*%h + th*n" le!ds to $!ult( %on%lus*ons !nd pres%r*pt*ons. /*s po*nt *n the !rt*%le *s th!t 3ern!n"e *s now push*n. on ! str*n. th!t *s not .o*n. to tr!nsl!te *nto %red*t *n$l!t*on or re;*;e %onsumer dem!nd. + !.ree. 3ut h*s *mpl*ed %on%lus*onGpres%r*pt*on *s !pp!rentl( th!t4 be%!use 9the te?tboo" tre!tment o$ mone( *n the tr!nsm*ss*on me%h!n*sm9 5me!n*n. how =3s purport to %ontrol %ommer%*!l b!n" mone( %re!t*on8 doesn,t !%tu!ll( wor" the w!( other people s!( *t does4 we need to $*nd ! new w!( $or %entr!l pl!nnerI to %onstr!*n these b!n"s .one w*ld !nd th!t we would h!;e ne;er .otten to the po*nt o$ %oll!pse *$ we h!dn,t let =!p*t!l*sm run !wr( throu.h !n emp*r*%!ll( un%onstr!*ned b!n"*n. s(stem. So4 wh*le he underst!nds 9modern monet!r( theor(9 ;er( well4 he doesn,t underst!nd the we!lth %on%ept 5un!mb*.uous ownersh*p o$ someth*n. t!n.*ble8 !nd there$ore he st*ll e6u!tes mone( !nd we!lth 5!lon. w*th most e;er(one else8 wh*%h le!ds h*m to the %on%lus*on th!t monet!r( reser;es !re the re!l mone( wh*le 9endo.enous mone(9 *s Cust ! problem o$ =!p*t!l*sm th!t needs ! new %entr!l*Ied re.ul!t*on model. /e sees 9debt de$l!t*on9 B ! %ontr!%t*on *n 9endo.enous mone(9 wh*%h h!s been o;ere?tended due to the re!sons + %*ted !bo;e B !nd %on%ludes th!t the l!%" o$ !n obser;!ble %onstr!*nt on the b!n"s 5he doesn,t see th!t b!n"s !re !%tu!ll( pro$*t %onstr!*ned *n the !bsen%e o$ the s(stem*% dem!nd $or debt se%ur*t*I!t*on %*ted !bo;e8 *s respons*ble $or booms !nd busts4 *n%lud*n. the %!t!stroph*% bust we !re st*ll he!d*n. *nto tod!(.

'!.e &-0

2h!t +,m tr(*n. to s!( *s th!t4 be%!use he doesn,t h!;e ! $ull underst!nd*n. o$ mone( 5remember !t the top o$ the post + proposed th!t (ou %!nnot properl( underst!nd mone( w*thout !lso underst!nd*n. the pure we!lth %on%ept84 he dr!ws the %on%lus*on th!t the b!n"*n. model *s to bl!me4 !nd !lso th!t de$l!t*on w*ll be the out%ome. +4 on the other h!nd4 %on%lude th!t the s(stem*% choice to use debt !s s!;*n.s !nd reser;es *s the pr*m!r( %!use4 !nd th!t there,s noth*n. $und!ment!ll( wron. w*th the b!n"*n. s(stem. + !lso %on%lude th!t FSD h(per*n$l!t*on w*ll be the out%ome. More on th!t *n ! moment. An(w!(4 m( re!der,s 6uest*on w!s th*s4 $*rst 6uot*n. $rom the !rt*%leE 30( a eraged a$out MR.(N trillion in (>>R B $ank loans for (>>R were a$out MH.(N trillion... if we consider the fact that reser e $alances held at the 9ederal Reser e were a$out M%N $illion and re.uired reser es were a$out MU, $illion, the tight link drawn in the text$ook trans#ission #echanis# fro# reser es to #one+ and $ank lending see#s all the #ore tenuous.3 +$ re6u*red reser;es were P40 3*ll*on !nd b!n" lo!ns were P6.&1 tr*ll*on does th!t me!n the re6u*red reser;e r!t*o w!s .6>Q 540G64&1 84 or to put *t !nother w!(4 th!t the mone( mult*pl*er w!s 141 564&1 G408@ /ow %!n th!t be@ Do b!n"s h!;e ! %!p*t!l %ush*on on top o$ reser;es4 wh*%h !t .6>Q s(stem7w*de would be r!Ior th*n@ +s m( th*n"*n. %orre%t !bout the mone( mult*pl*er be*n. 141 *n the e?!mple Oeen %*tes. Th*s would put the Reser;e re6u*rement r!t*o below 1Q4 e$$e%t*;el( un%onstr!*ned. + !m .uess*n. th*s *s poss*ble be%!use %!p*t!l !de6u!%( r!t*os !re ! better metr*% th!n the reser;e re6u*rement r!t*o@ + repl*ed (es4 (ou !re b!s*%!ll( %orre%t4 but + s!( 9so wh!t@9 You !re t!l"*n. !bout the mone( mult*pl*er4 reser;e r!t*os !nd %!p*t!l !de6u!%( re6u*rements !s *$ the( !re %onstr!*nts. As + s!*d4 the( !re not. 3!n"s !re not lend*n. depos*ts. The( !re not lend*n. anything. The( !re s*mpl( $!%*l*t!t*n. the e?er%*se o$ %red*tG%red*b*l*t( th!t !lre!d( e?*sts *n the e%onom(. You e!rn %red*t4 !nd then *n order to e?er%*se *t (ou .o to the b!n" wh*%h $!%*l*t!tes (our des*re to e?er%*se (our %red*t 5pur%h!s*n. power8. The problem *s th!t some people who d*dn,t h!;e %red*t were $!%*l*t!ted !n(w!( 5sub7pr*me4 $or e?!mple84 be%!use the s(stem tod!( dem!nds debt well be(ond wh!t b!n"s would norm!ll( $!%*l*t!te .*;en th!t the( !re n!tur!ll( pro$*t %onstr!*ned !nd would otherw*se h!;e to %!rr( the debt on the*r boo"s. 2ho %!res !bout the reser;e r!t*o@ The =3 %!n %re!te %ommer%*!l b!n" reser;es w*th the %l*%" o$ ! mouse tod!(. The( %!n sw!p ! b!n",s !ssets 5prom*ssor( notes8 w*th reser;es4 tempor!r*l( or perm!nentl(4 *n !n( !mount4 !t !n( t*me. =ommer%*!l b!n" reser;es were more *mport!nt b!%" *n 1>00 when the( *n%luded .old %o*ns. 3ut tod!( the( !re not. Dust loo" !t the %h!n.es s*n%e Ste;e Oeen,s & : e?!mple. Tod!(4 re6u*red reser;es !re P1 :3 !nd reser;es held !t the Fed !re P1.1T4 $or e?%ess reser;es o$ P1.4T w*th !n M& o$ P1 .&T. So wh!t,s the b*. de!l@ +$ (our mone( mult*pl*er o$ 141 !nd reser;e r!t*o o$ .6>Q m!ttered4 then tod!( the problem *s $*?ed! Tod!(,s mult*pl*er4 us*n. (our s!me m!th $rom !bo;e4 *s 6.-4 down $rom (our 141 *n & :. And (our .6>Q reser;*n. *s b!%" up to ! ;er( %om$ort!ble 14.:Q tod!(. So problem sol;ed4 r*.ht@

'!.e &-4

Remember wh!t + wrote *n m( $*rst em!*l@ 9There *s Cust wh!t emer.ed 5wh!t *s84 the perspe%t*;e $rom wh*%h (ou %hoose to ;*ew *t4 the %on%lus*ons (ou dr!w $rom th!t perspe%t*;e4 !nd how use$ul those %on%lus*ons end up be*n. *n the lon. run.9 2h!t %on%lus*ons were (ou dr!w*n. $rom th!t & : d!t! !nd how use$ul d*d the( turn out to be *n & 1&@ +$ the( were *mport!nt4 then the problem seems to be resol;ed4 r*.ht@ Or m!(be the problem *s someth*n. else. M!(be the problem *sn,t th!t the b!n"s !re un%onstr!*ned !nd don,t "now when to stop m!"*n. lo!ns. Maybe the prob'em $% that the $n%at$ab'e %y%tem$. hun#er 2or ne) debt a% re%er9e%K%a9$n#% dro9e 'end$n# %tandard% and $ntere%t rate% do)n to the po$nt o2 .o''ap%e. +t,s ! l*ttle b*t o$ ! d*$$erent perspe%t*;e $rom Ste;e Oeen,s4 don,t (ou th*n"@ Say )hatD S*n%e +,m !lre!d( t!l"*n. !bout Ste;e Oeen4 + w!nt to t!"e th*s opportun*t( to po*nt out how the w*despre!d m*sunderst!nd*n. o$ mone( !nd we!lth le!ds to %on$l*%t4 m!%roe%onom*% problems !nd $l!wed !n!l(s*s. And the %oroll!r( to th*s po*nt *s th!t the emer.ent w*despre!d underst!nd*n. o$ these %on%epts th!t Free.old w*ll n!tur!ll( usher *n w*ll sol;e these s!me %on$l*%ts !nd problems. +n Nud.e Nud.e4 2*n" 2*n"4 S!( No More4 Ste;e Oeen4 !uthor o$ 9Debun"*n. #%onom*%s94 debun"ed S!(,s l!w wh*%h4 ;er( rou.hl( st!ted4 s!(s suppl( e6u!ls dem!nd *n the ph(s*%!l pl!ne e;en w*th the *n%lus*on o$ mone(. Or4 perh!ps4 suppl( %omes $rom dem!nd wh*le dem!nd *s suppl*ed b( suppl( wh*%h %omes $rom dem!nd %re!ted b( suppl(. A %*r%ul!r lo.*% no doubt4 but pro$ound nonetheless. From 2*"*ped*!E +n S!(,s l!n.u!.e4 9produ%ts !re p!*d $or w*th produ%ts9 51- 0E p. 1108 or 9! .lut %!n t!"e pl!%e onl( when there !re too m!n( me!ns o$ produ%t*on !ppl*ed to one "*nd o$ produ%t !nd not enou.h to !nother9 51- 0E p. 1:-7>8. #?pl!*n*n. h*s po*nt !t len.th4 he wrote th!tE +t *s worthwh*le to rem!r" th!t ! produ%t *s no sooner %re!ted th!n *t4 $rom th!t *nst!nt4 !$$ords ! m!r"et $or other produ%ts to the $ull e?tent o$ *ts own ;!lue. 2hen the produ%er h!s put the $*n*sh*n. h!nd to h*s produ%t4 he *s most !n?*ous to sell *t *mmed*!tel(4 lest *ts ;!lue should d*m*n*sh *n h*s h!nds. Nor *s he less !n?*ous to d*spose o$ the mone( he m!( .et $or *tN $or the ;!lue o$ mone( *s !lso per*sh!ble. 3ut the onl( w!( o$ .ett*n. r*d o$ mone( *s *n the pur%h!se o$ some produ%t or other. Thus the mere %*r%umst!n%e o$ %re!t*on o$ one produ%t *mmed*!tel( opens ! ;ent $or other produ%ts. 5D. 3. S!(4 1- 0E pp.10-B>8 Oeen %orre%tl( notes th!t S!(,s )!w *s w*del( d*sre.!rded *n e%onom*%s tod!(4 so + .uess *t w!s !n e!s( t!r.et to debun". A %ommon %r*t*%*sm o$ S!(,s )!w *s th!t *t onl( !ppl*es to ! s*mple b!rter e%onom(4 !nd th!t he d*dn,t re!ll( underst!nd mone( s*n%e he w!s !pp!rentl( des%r*b*n. !n e%onom( de;o*d o$ the %!p*t!l*st dr*;e to !%%umul!te we!lth. 3ut *t seems to me th!t S!( m*.ht h!;e understood mone( !nd we!lth on ! mu%h deeper le;el th!n !n( o$ h*s %r*t*%s.

'!.e &-1

+ don,t "now4 but let,s t!"e ! %loser loo" !nd (ou %!n de%*de $or (oursel$. /ere !re ! $ew e?%erpts + too" $rom Ste;e Oeen,s p!per debun"*n. S!(,s )!w. + tr*ed to %!pture the essen%e o$ h*s !r.ument here4 but +,d st*ll re%ommend re!d*n. the $ull !rt*%le l*n"ed !bo;e. 3el*e$ *n S!(Ms )!w *s ! m*nor*t( pos*t*on *n e%onom*%s tod!(. Those who !dhere to *t !ppe!r to bel*e;e th!t *t *s ! sel$7e;*dent truth th!t *s m*sunderstood b( modern e%onom*sts o$ !ll persu!s*ons4 !nd th!t properl( understood *t *s not onl( true4 but the $ound!t*on o$ !n !%%ur!te !ppre%*!t*on o$ the $un%t*on*n. o$ ! m!r"et e%onom( !nd the phenomenon o$ the tr!de %(%le. + %on%ur w*th the m!Cor*t( perspe%t*;e th!t S!(Ms )!w *s $!ll!%*ous4 but not $or re!sons th!t m!"e me ! member o$ !n( de$*ned m!Cor*t( *n e%onom*%s !t l!r.e. TLU As M!r? showed $!r better th!n d*d Oe(nes4 the %ond*t*ons under wh*%h S!(Ms )!w *s %orre%t !re not those o$ ! %!p*t!l*st e%onom(. TLU Fse7;!lues must there$ore ne;er be loo"ed upon !s the re!l !*m o$ the %!p*t!l*st. Ne*ther must the pro$*t on !n( s*n.le tr!ns!%t*on. The restless ne;er7end*n. pro%ess o$ pro$*t m!"*n. !lone *s wh!t he !*ms !t. Th*s boundless .reed !$ter r*%hes4 th*s p!ss*on!te %h!se !$ter e?%h!n.e7;!lue4 *s %ommon to the %!p*t!l*st !nd the m*serN but wh*le the m*ser *s merel( ! %!p*t!l*st .one m!d4 the %!p*t!l*st *s ! r!t*on!l m*ser. The ne;er end*n. !u.ment!t*on o$ e?%h!n.e ;!lue4 wh*%h the m*ser str*;es !$ter4 b( see"*n. to s!;e h*s mone( $rom %*r%ul!t*on4 *s !tt!*ned b( the more !%ute %!p*t!l*st4 b( %onst!ntl( throw*n. *t !$resh *nto %*r%ul!t*on. 5M!r? 1-6:E 1118 S!(Ms a)!wM there$ore4 *s not ! re%ond*te *ns*.ht *nto the n!ture o$ ! m!r"et e%onom(4 but e;*den%e o$ ! b!s*% $!*lure to %omprehend %!p*t!l*sm. TLU 2h*le we ado not %onsume mone(M4 people %ert!*nl( do see" to a%on%e!lM 5or !%%umul!te8 *t. Thou.h ! %!p*t!l*st w*ll undoubtedl( %onsume w*th p!rt o$ the mone( he !%%umul!tes4 *t *s not true th!t ahe m!( be %ons*dered !s !lre!d( !s"*n. $or the mer%h!nd*se wh*%h he proposes to bu( w*th th*s mone(M s*n%e *$ he %on;erts !ll h*s pro$*t *nto %onsum!bles4 he h!s $!*led to !%%umul!te we!lth B to be ! %!p*t!l*st. As M!r? puts *t4 %!p*t!l*sts !re %h!r!%ter*sed not b( !n e6u!l*t( o$ the*r suppl*es !nd the*r dem!nds4 but b( !n ine.ualit+. Th*s *ne6u!l*t( *s poss*ble be%!use L produ%t*on produ%es ! ph(s*%!l surplus th!t the %!p*t!l*st hopes to turn *nto ! monet!r( surplusE The %!p*t!l*st throws less ;!lue *n the $orm o$ mone( *nto the %*r%ul!t*on th!n he dr!ws out o$ *t . . . S*n%e he $un%t*ons . . . !s !n *ndustr*!l %!p*t!l*st4 h*s suppl( o$ %ommod*t(7;!lue *s !lw!(s .re!ter th!n h*s dem!nd $or *t. +$ h*s suppl( !nd dem!nd *n th*s respe%t %o;ered e!%h other *t would me!n th!t h*s %!p*t!l h!d not produ%ed !n( surplus7;!lue . . . /*s !*m *s not to e6u!l*se h*s suppl( !nd dem!nd4 but to m!"e the *ne6u!l*t( between them . . . !s .re!t !s '!.e &-6

poss*ble. 5M!r? 1--1E 1& 71&18 T+ w!nt to p!use here to po*nt out th!t the 9net9 port*on o$ ! term + use $or s!;ersR9net7produ%ers9R represents the 9*ne6u!l*t(9 between wh!t *s produ%ed b( ! s!;er !nd wh!t he %onsumes.U Thus !s M!r? emph!s*ses *n the *mmed*!te term !nd Aeblen *n the lon. term4 ! %!p*t!l*stMs suppl(4 *$ he *s su%%ess$ul4 *s .re!ter th!n h*s dem!nd. TAlso4 ! net7produ%er,s produ%t*on *s .re!ter th!n h*s %onsumpt*on.U There *s !n *nherent *ne6u!l*t( !t the %ore o$ %!p*t!l*st so%*et(4 !nd the s*mple b!l!n%e o$ S!(Ms )!w %oll!pses. TLU M!r? !lso re!l*sed th!tL mone( h!s !n essent*!ll( new role *n !dd*t*on to those o$ med*um o$ e?%h!n.e !nd me!sure o$ !%%ountE *t *s now !lso ! me!sure o$ !%%umul!t*on. F!*lure *n !%%umul!t*on %!n now result *n mone( be*n. w*thdr!wn $rom %*r%ul!t*on4 wh*%h *n turn %!n le!d to de$*%*en%*es *n !..re.!te dem!ndE mone( $un%t*ons ne*ther onl( !s me!sure4 nor onl( !s med*um o$ e?%h!n.e4 nor onl( !s bothN but h!s (et ! th*rd 6u!l*t(L +t *s ;er( true th!t mone(4 *n so $!r !s *t ser;es onl( !s !n !.ent o$ %*r%ul!t*on4 %onst!ntl( rem!*ns en%losed *n *ts %(%le. 3ut *t !ppe!rs here4 !lso4 th!t *t *s st*ll someth*n. more th!n th*s *nstrument o$ %*r%ul!t*on4 th!t *t !lso h!s !n *ndependent e?*sten%e outs*de %*r%ul!t*on4 !nd th!t *n th*s new %h!r!%ter *t %!n be w*thdr!wn $rom %*r%ul!t*on Cust !s the %ommod*t( must de$*n*tel( be w*thdr!wn. 2e must there$ore obser;e mone( *n *ts th*rd 6u!l*t(. 5M!r? 1-1:E & &7 08 +n th*s ath*rd 6u!l*t(M4 mone( *s more th!n the mere lubr*%!nt $or b!rter th!t S!( per%e*;ed. +t *s !lso the $orm *n wh*%h we!lth *s !%%umul!tedE The th*rd !ttr*bute o$ mone(4 *n *ts %omplete de;elopment4 presupposes the $*rst two Tme!sure !nd med*um o$ e?%h!n.eU !nd %onst*tutes the*r un*t(. Mone(4 then4 h!s !n *ndependent e?*sten%e outs*de %*r%ul!t*on . . . !s mone(4 *t %!n be !%%umul!ted to $orm ! tre!sure . . . Th*s !spe%t !lre!d( l!tentl( %ont!*ns *ts 6u!l*t( !s %!p*t!l. 5M!r? 1-1:E &168 TLU #?p!nd*n. debt !lso be%omes !n essent*!l %h!r!%ter*st*% o$ ! .row*n. e%onom(4 !s M*ns"( re!l*sedL *n the !..re.!te there h!d to be !n *ne6u!l*t( between *n%ome !nd spend*n. *$ the e%onom( w!s to %ont*nue .row*n. *n the %onte?t o$ ! %onst!nt or r*s*n. pr*%e le;elE +$ *n%ome *s to .row4 the $*n!n%*!l m!r"ets4 where the ;!r*ous pl!ns to s!;e !nd *n;est !re re%on%*led4 must .ener!te !n !..re.!te dem!nd th!t4 !s*de $rom br*e$ *nter;!ls4 *s e;er r*s*n.. For re!l !..re.!te dem!nd to be *n%re!s*n.4 . . . *t *s ne%ess!r( th!t %urrent spend*n. '!.e &-:

pl!ns4 summed o;er !ll se%tors4 be .re!ter th!n %urrent re%e*;ed *n%ome !nd th!t some m!r"et te%hn*6ue e?*st b( wh*%h !..re.!te spend*n. *n e?%ess o$ !..re.!te !nt*%*p!ted *n%ome %!n be $*n!n%ed. +t $ollows th!t o;er ! per*od dur*n. wh*%h e%onom*% .rowth t!"es pl!%e4 !t le!st some se%tors $*n!n%e ! p!rt o$ the*r spend*n. b( em*tt*n. debt or sell*n. !ssets. 5M*ns"( 1>60 T1>-&UE 68 TLU All !ttempts to pro;*de ! $orm!l e?press*on o$ S!(Ms )!w rest on the s!me $!ll!%*ous propos*t*on th!t there *s ne*ther the des*re nor the poss*b*l*t( to !%%umul!te we!lth $or *ts own s!"e *n ! %!p*t!l*st e%onom(. TLU There$ore S!(Ms )!w B !nd S!(Ms 'r*n%*ple4 !nd 2!lr!sM )!w4 !nd !ll other %on%epts wh*%h portr!( the sum o$ !ll e?%ess dem!nds !s Iero B *s thus ! al!wM !ppl*%!ble onl( to ! m!r"et e%onom( w*thout %!p*t!l*sts !nd the !%%umul!t*on o$ we!lth. 2e l*;e *n ! m!r"et e%onom( w*th %!p*t!l*sts !nd w*th the !%%umul!t*on o$ we!lth4 !nd we w*ll %ont*nue to l*;e *n su%h ! so%*et( $or the $oresee!ble $uture. S!(Ms )!w *s thus *rrele;!nt to the world *n wh*%h we l*;e. R!ther th!n d*s%uss*n. S!(Ms a)!wM !n( $urther4 we should %ons*.n *t to the dustb*n o$ the h*stor( o$ e%onom*% thou.ht. Some *nterest*n. thou.hts *n there4 huh@ + th*n" *t,s %le!r $rom th*s !rt*%le th!t there,s not mu%h d*$$eren%e between mone( !nd we!lth *n h*s ;*ew. The 9!%%umul!t*on o$ we!lth9 wh*%h he s!(s *s %!p*t!l*sm me!ns the !%%umul!t*on o$ more !nd more mone(. And th*s4 he s!(s4 le!ds to ! suppl( .lut !nd *nsu$$*%*ent dem!nd wh*%h le!ds to de$l!t*on !nd depress*on. 3if Ka 3capitalist3L con erts all his profit into consu#a$les, he has failed to accu#ulate wealth * to $e a capitalist.3 3production produces a ph+sical surplus that the capitalist hopes to turn into a #onetar+ surplus3 3!f Ka 3capitalist4s3L suppl+ and de#and in this respect co ered each other it would #ean that his capital had not produced an+ surplus- alue3 2ould ! net7produ%er,s dem!nd e6u!l suppl( *$4 *n h*s 9!%%umul!t*on o$ we!lth9 he pur%h!sed Aeblen .oods !nd ph(s*%!l .old@ Someone h!s to suppl( those h!rd !ssets !nd .old4 r*.ht@ Mr. M!r"et !nd h*s pr*%e !dCustments would4 *n th*s s%en!r*o4 m!"e 9the sum o$ !ll e?%ess dem!nds e6u!l Iero9 !s !ll we!lth !%%umul!t*on would h!;e to be m!t%hed b( e*ther new we!lth produ%t*on or we!lth d*sho!rd*n. b( net7produ%ers o$ the p!st. 3-herefore Sa+s LawB is thus a Tlaw applica$le onl+ to a #arket econo#+ without capitalists and the accu#ulation of wealth.3 Fs*n. m( de$*n*t*on o$ we!lth4 wh*%h + propose *s ! ne%ess!r( element *n underst!nd*n. the re!l*t( o$ mone(4 th*s st!tement suddenl( !ppe!rs $!ll!%*ous. + honestl( wonder *$ Ste;e Oeen would !.ree. Or does h*s d*sd!*n $or 5h*s M!r?*!n *de! o$8 =!p*t!l*sm run too deep@ + don,t "now. 3ut enou.h !bout the '!.e &--

we!lth %on%ept. )et,s see *$ S!( understood mone(. S!( wrote th!t 9! produ%t *s no sooner %re!ted th!n *t4 $rom th!t *nst!nt4 !$$ords ! m!r"et $or other produ%ts to the $ull e?tent o$ *ts own ;!lue.9 /eMs t!l"*n. !bout the %re!t*on o$ %red*t4 !"! %red*b*l*t(4 !"! pur%h!s*n. power. +m!.*ne (ouM;e .ot ! %r!I( *n;entor wor"*n. $or (e!rs on ! %ontr!pt*on !nd e;er(one Cust l!u.hs !t h*m s!(*n. 9th!tMll ne;er wor". +tMll ne;er $l(.9 Then one d!( he $*n*shes h*s proCe%t !nd *t $l*es! +t,s .o*n. to %h!n.e the world4 !nd e;er(one !ppl!uds! /e h!s *nst!nt %red*b*l*t( 5pur%h!s*n. power8 th!t he d*dnMt h!;e be$ore. And the world *s !lso ! r*%her pl!%e $or *t. /e m!( not (et h!;e !%tu!l produ%t un*ts to sell4 but he %!n %ert!*nl( !$$ord to *mmed*!tel( *mpro;e h*s st!nd!rd o$ l*;*n. wh*le !lso $und*n. the produ%t*on o$ un*ts o$ h*s new *n;ent*on $or s!le to the m!r"etpl!%e. +n $!%t4 depend*n. on how e!rthsh!tter*n. h*s *n;ent*on *s4 he m!( h!;e more %red*t th!n he needs $or h*s st!nd!rd o$ l*;*n. !nd bus*ness o;erhe!d. Th*s *s surplus ;!lue4 wh*%h he *s unl*"el( to spend unt*l !$ter he st!rts sell*n. un*ts. At the po*nt th!t he sells un*ts wh*%h the publ*% ;!lues h*.her th!n h*s %ost o$ produ%t*on plus the %ost o$ h*s st!nd!rd o$ l*;*n.4 he w*ll st!rt to !%%umul!te we!lth $rom th!t surplus ;!lue. 3ut4 *n $!%t4 the pur%h!s*n. power used to !%%umul!te we!lth B the surplus ;!lue B w!s present lon. be$ore he !%tu!ll( e?er%*sed *t. Sure4 he %ould h!;e bou.ht .old on %red*t !s soon !s h*s *n;ent*on,s su%%ess re;e!led h*s %red*b*l*t(4 but th!t,s not usu!ll( the w!( *t,s done. +t seems %le!r4 !t le!st to me4 th!t the w*despre!d m*s%on%ept*onR!nd thereb( the m*suseRo$ the mone( !nd we!lth %on%epts .oes b!%" %entur*es !t le!st. And th!t th*s s*mple m*sunderst!nd*n. h!s led to some lon.st!nd*n. %on$l*%ts4 m!Cor m!%roe%onom*% $!*lures !nd ent*re s%hools o$ $l!wed e%onom*% !n!l(s*s4 some o$ wh*%h !re re$le%ted *n the !bo;e p!per. 5See !lso m( post The Debtors !nd the S!;ers8 + th*n" *t %!n be st!ted !s s*mpl( !s th*sE 2hen ! s*n.le med*um *s used !s both mone( !nd we!lth4 *t le!ds to ! %on$l*%t between those who %hoose to !%%umul!te we!lth !nd e;er(one else. Th*s !ppl*es to both h!rd !nd e!s( mone( s(stems. +t,s l*"e FOA s!*d4 !ppl(*n. the mone( %on%ept to .old %o*ns w!s 9not the best w!( to use .old4 %ons*der*n. our hum!n n!ture.9 The !%%umul!t*on o$ we!lth need not be ! dr!*n on !n(one. 2hen ;*ewed properl(4 *t *s !pp!rent th!t the 9we!lth %*r%u*t94 suppl*ed !nd dem!nded onl( b( those who !%%umul!te !nd d*sho!rd we!lth4 *s *sol!ted $rom the 9mone( %*r%u*t9 throu.h the m!.*% o$ Mr. M!r"et !nd h*s pr*%e !dCustments. +t,s onl( when we %!ll mone( we!lth4 !nd we!lth mone(4 th!t we Co*n the %*r%u*ts %re!t*n. %on$l*%t !nd %r!shes. And m( m!*n mess!.e here *s s*mple. No one needs to underst!nd th*s $or ! %h!n.e to t!"e pl!%e. 3e%!use4 when the %urrent s(stem %r!shes4 wh!t w*ll %h!n.e *s how we ;*ew mone( !nd we!lth. #;er(th*n. else + t!l" !bout $lows $rom th!t one %h!n.e. ,yper$n2'at$on =red*t re6u*res some un*t o$ re$eren%e. You %ould borrow !n e.. $rom (our ne*.hbor !nd (ou m*.ht s!(4 9th!n"s4 + owe (ou.9 +$ (ou h!ppen to t!"e th!t debt ser*ousl(4 (our un*t o$ re$eren%e m*.ht be one '!.e &->

e... Mone( *s essent*!ll( our sh!red use o$ ! %ommon re$eren%e po*nt wh*%h m!"es %red*t $un.*ble !nd !llows *t to %*r%ul!te. Th*s *s wh!t + wrote *n Mone(nessE The pure %on%ept o$ mone( *s our sh!red u%e o$ some thing !s ! re$eren%e po*nt $or e?press*n. the rel!t*;e ;!lue o$ !ll other th*n.s. Mone( *s the referencing o$ the th*n.4 not the th*n. *tsel$. As FOA s!*d4 mone( *s 9! ;!lue stored *n (our he!d!9 Mone( *s not someth*n. (ou s!;e. 9Mone( *n *ts purest $orm *s ! ment!l !sso%*!t*on o$ ;!lues *n tr!deN ! %on%ept *n memor( not ! re!l *temL the ;!lue *s *n (our !sso%*!t*on !b*l*t*es. Th*s *s the mone( %on%ept4 m( $r*ends.9 Mone( *s not someth*n. (ou s!;e. 2e!lth *s wh!t (ou s!;e. Yet mone( st*ll needs someth*n. to re$eren%e. 2hen h(per*n$l!t*on o%%urs4 *t o%%urs not *n mone( *tsel$4 but *n th!t re$eren%e un*t. +t *s true th!t4 when oun%es 5or !n( other un*t8 o$ .old *s used !s the sole re$eren%e *tem4 h(per*n$l!t*on per se *s unl*"el( be%!use .old h!s th!t propert( o$ ! rel!t*;el( st!ble suppl(. 3ut !.!*n4 th!t,s not the best use o$ .old be%!use o$ *ts *ntr*ns*% s!l*en%e !s the tr!d!ble we!lth *tem p!r e?%ellen%e. 3ut h(per*n$l!t*on *s not Cust !bout the suppl( o$ the re$eren%e un*t4 *t *s more !bout *ts per%e*;ed ;!lue rel!t*;e to e;er(th*n. else. /(per*n$l!t*on be.*ns when the per%e*;ed ;!lue o$ th!t %ommon re$eren%e po*nt .oes *nto $ree $!ll. Th*s %ould h(pothet*%!ll( h!ppen w*th someth*n. l*"e .old *$4 s!(4 !l*ens !rr*;ed !nd e?pl!*ned to us th!t e?posure to .old w!s somehow h!rm$ul4 perh!ps l*m*t*n. our l*$esp!ns to onl( one %entur(. Then (ou m*.ht see someth*n. like h(per*n$l!t*on !s hum!ns 6u*%"l( de;!lued the*r .olden re$eren%e po*nt !.!*nst !ll else. 3ut !.!*n4 +,m onl( t!l"*n. !bout the h(pothet*%!l here to m!"e the po*nt th!t h(per*n$l!t*on be.*ns w*th the per%e*;ed de;!lu!t*on 5%urren%( %oll!pse8 o$ the monet!r( re$eren%e po*nt. Tod!( we use the FS doll!r !s the %ommon monet!r( re$eren%e po*nt un*t. The FS doll!r .ets *ts ;!lue $rom pr*%e t!.s th!t l*st doll!r !mounts r!ther th!n $rom the %ost o$ m!"*n. ! doll!r. + re!l*Ie th!t th*s seems p!r!do?*%!l4 or some "*nd o$ %*r%ul!r lo.*%4 but *t,s !%tu!ll( 6u*te subl*me4 !nd *t wor"s! +t *s true4 howe;er4 th!t we onl( .et $ull7blown h(per*n$l!t*on4 l*"e we s!w *n 2e*m!r !nd Z*mb!bwe4 w*th .o;ernment 9$*!t mone(9. =*r%ul!t*n. re!l mone( 5b!n" %red*t!8 !ll but d*s!ppe!rs when $ull7 blown h(per*n$l!t*on t!"es hold. So (ou see4 h(per*n$l!t*on *s not re!ll( !bout mone(. +t *s !bout the loss o$ %on$*den%e *n our sh!red re$eren%e po*nt4 wh*%h *s usu!ll( be%!use *t h!s been !bused b( the .o;ernment4 !nd wh*%h o$ten le!ds to ! ;*%*ous $eedb!%" loop o$ $urther !buse b( the .o;ernment. +t,s ! sh!me th!t the most e$$*%*ent $orm o$ mone( e;er de;*sed b( m!n"*nd h!s th*s downs*de4 but + th*n" (ou,ll $*nd th!t the r*s" o$ !buse *s worth the *nnumer!ble bene$*ts4 espe%*!ll( on%e there *s ! s(stem!t*% !nd $oolproo$ w!( to prote%t (oursel$ $rom the worst o$ *t! And th*s *s wh( 2*m Du*senber. so proudl( st!ted th!t the euro 9*s the $*rst %urren%( th!t h!s not onl( se;ered *ts l*n" to .old4 but !lso *ts l*n" to the n!t*on7st!te.9 "r$ba' 5$2e T Go9ernment CF$at MoneyC 2*th the potent*!l $or !buse !nd the r*s" o$ h(per*n$l!t*on4 wh( do we "eep return*n. to .o;ernment 9$*!t mone(9@ 2h( do we4 the produ%t*;e e%onom(4 lend to our Tr*b!l =h*e$t!*n !nd Tr*b!l =oun%*l enou.h o$ our %red*b*l*t( to !llow them to pr*nt %urren%( $or the .ood o$ the tr*be !nd then use th!t %urren%( !s the re$eren%e po*nt $or mone(@ +s *t re!ll( $or%ed upon us !s some *n the h!rd mone( %!mp pro%l!*m@ The !nswer *s no4 we dem!nd *t. '!.e &>

S*n%e the be.*nn*n. o$ t*me4 m!n h!s been e?plor*n. !nd d*s%o;er*n. the !d;!nt!.es o$ tr*b!l l*$e. O$ %ourse we must .*;e up some me!sure o$ *nd*;*du!l $reedom to be p!rt o$ ! tr*be4 but *n most %!ses the bene$*ts h!;e $!r outwe*.hed the %osts. G*;en the %urrent st!te o$ 9tr*b!l le!dersh*p9 !nd 9.o;ernment mone(9 *n the FS4 + thou.ht *t 6u*te t*mel( to *n%lude ! $ew posts $rom FOA wh*%h %!n be $ound here. The( m*.ht e;en help us underst!nd the out%ome o$ th*s most re%ent ele%t*on. /!s the FS re!ll( p!ssed some d*s!strous t*pp*n. po*nt o$ hum!n des*re $or $ree stu$$4 or w!s th*s ele%t*on Cust bus*ness !s usu!l@ "ra$' Gu$de TFOAU 5&G1&G& Rea'$ty N >E1&E06MDT 7 Ms. +DE&110:8

/ello ORO4 2ell4 + "new th!t *$ + onl( !s"ed4 we would !ll re%e*;e! 3o( d*d (ou del*;er *n ORO 5Ms. +DE&11108. Good stu$$ $or e;er(one to re!d4 m( $r*end. You ment*onedN 999 The %omments below 7 p!rt*%ul!rl( those to Ar*stotle4 !re somewh!t h!rsh. + hope th*s *s t!"en *n the sp*r*t o$ $r*endl( %r*t*%*sm.999 S*r4 (ou %!n ser;e me 5!nd prob!bl( e;er(one here8 (our 9h!rsh9 !n(t*me. 2!*ter 44444444 +,ll h!;e ! double order o$ th!t ple!se! 5sm*le8 OO4 br!%e (oursel$ ORO 444444 ! b*. pl!te o$ m( 9Tr!*l9 h!rsh %om*n. up! HHHHHHHHHHHHHHHHHHHHHHHHHHHHH You wr*teE 7777777There !re %onse6uen%es to the e?*sten%e o$ ! $*!t %urren%( !nd $or the use o$ debt mone( $or tr!de settlement. F+AT /AS N#A#R 3##N T/# =/O+=# OF T/# '#O')# A=T+NG +N =OMM#R=# OF T/#+R O2N A==ORD. #;en when w*ldl( popul!r4 $*!t mone( h!s not h!d ! s*n.le *nst!n%e when *t h!d not been est!bl*shed b( $or%e 7 b( l!ws *mpos*n. *ts use.77777777777 ORO4 On ! l!r.er s%!le there w!s !lw!(s more to *t th!n th*s. /um!n so%*et( h!s $rom the ;er( be.*nn*n.s $ormed tr*bes !nd p*%"ed s*des !.!*nst e!%h other. 2hen we !re not b!ttl*n. n!t*on !.!*nst n!t*on4 we Co%"e( $or pos*t*on w*th*n our own .roups. R*.ht down to 9me !nd m( ne*.hbour !.!*nst the three houses down the street. As ! tr*be 444 !s ! n!t*on 444444 !s ! .roup 444444 our w!r *s re!ll( ! hum!n problem w*th e!%h other !nd !lw!(s h!s been. +n better %onte?tN the problems !re *n the w!( we use our l!ws !nd .o;ernments to .!*n !d;!nt!.e o;er the ne?t *n l*ne. 2hether throu.h $or%e 5w!r8 or demo%r!t*% me!ns4 )e %ubMe.t our%e'9e% to the order o$ .o;ernments. 2e r*.htl( per%e*;e th!t444444 the order .!*ned $rom th*s !%t*on 4444444 the se%ur*t( o$ ! .roup4 o;er%omes the r*.hts !nd propert( lost on !n *nd*;*du!l le;el th!t l*;*n. *n ! tr*be re6u*res. +t,s been th*s w!( throu.h the !.es. +t,s ! pol*t*%!l pro%ess th!t h!s !lw!(s h!d *ts *n7house b!ttles 44444 n!mel( port*ons o$ so%*et( tr( to %*r%um;ent the*r per%ent!.e o$ lost r*.hts !nd propert( b( m!neu;er*n. the rules 5l!ws8 *n the*r $!;or. Yes44444*$ + %!n .!*n the !d;!nt!.es o$ tr*be l*$e !nd st*ll "eep m( 9lost port*ons944444 +,m '!.e &>1

.!*n*n. we!lth to the d*s!d;!nt!.e o$ the .roup. Trul(4 the most ob;*ous !%t*on o$ not p!(*n. (our t!?es44444 !nd th!t,s onl( ! sm!ll *tem when ;*ew*n. the world b!ttle !s ! whole. So4 how does th*s !ppl( to mone(@ 2hen (ou !nd others s!( 999 F+AT /AS N#A#R 3##N T/# =/O+=# OF T/# '#O')# A=T+NG +N =OMM#R=# OF T/#+R O2N A==ORD 999 44444 th*s *s true. Th*s *s true4 but th*s w!s ne;er the thrust o$ the !r.ument. The use o$ mone( *n !n( %onte?t4 $*!t4 .old or se!shells4 ha% a')ay% enta$'ed the u%e o2 borro)$n# and 'end$n#... And !s lon. !s e%onom*es $un%t*on !t ! pro$*t4 debts !re m!de !nd p!*d b!%" w*thout !r.ument. /owe;er4 when the e;entu!l downturn !rr*;es4 some port*ons 5perh!ps ! l!r.e port*on8 o$ the owed we!lth 5debt8 %!nnot be returned. +t,s here4444 !t th*s po*nt *n tr*b!l l*$e4444444 th!t !ll o$ the %onte?t $rom !bo;e %omes *nto pl!(. The 9re!l*t(9 o$ l*$e on th*s e!rth *s th*sE 444444Some port*on o$ so%*et( w*ll use the*r *n$luen%e or %ontrol o$ the le!ders to m!"e the*r debts e!s*er to p!(. +n $!%t44444 *t,s t*mes & $or th!t number o$ .o;ernment *n$luen%ers 4444 be%!use e9en the one% that ha9e debt o)ed to them )$'' try to a''e9$ate an $mpo%%$b'e pay ba.+ %$tuat$on to %a9e the one% that o)e them 2a.e. You see44444 tr*b!l l*$e !nd the hum!n n!ture th!t %omes w*th *t 44444444 w*ll not !llow !n( mone( s(stem to 9%ompletel(9 destro( the we!lth o$ ! .ood port*on o$ so%*et(. #;en *$ e;er(one *s pl!*nl( shown th!t the( !re .o*n. to lose someth*n. 444444the( would st*ll opt $or the .ood o$ the o;er!ll tr*be. "h$% $% )hy )e return,,,, t$me and a#a$n to 2$at monetary %y%tem%. +n the $ew e?!mples where ! .old s(stem br*n.s the h!rsh re!l*t( o$ loses to be!r on ! n!t*on444444 usu!ll( w!r *s the result. Not ! .ood out%ome. Yes4 we %!n bre!" .old *nto m!n( sm!ll p!rts44444 ,st!mp *t *nto %o*ns !nd %*r%ul!te .old %ert*$*%!tes !s mone(. 2e %!n borrow *t4 lend *t !nd !lso %*r%ul!te .old bonds !s the e%onom( .rows. +t *s the per$e%t 9we*.hts !nd me!sures9 monet!r( s(stem. #?!%tl( represent*n. our produ%t*;e e$$orts *n e;er( $!%et o$ hum!n ende!;our. *ut, )hen the 'o%%e% mount, our tr$ba' human tenden.$e% )$'' not a''o) u% to %upport a #o9ernment or ban+$n# %y%tem that 2or.e% the%e rea' 'o%%e% on on'y a port$on o2 the #roup. e9er ha%,,,, and ne9er )$''! 0$thout th$% e%.ape 9a'9e, )e #o to )ar ,,,,,, $nterna''y or on a )or'd %.a'e,,, %o )e a'' .an %hare the 'o%%,,, one )ay or another. A% a human %o.$ety o2 thou%and% o2 year%,,, out%$de o2 )ar,,,,, )e ha9e 'earned to $n2'ate our 'o%e% upon e9eryone a% a )ho'e,,,,, 2or the #ood o2 the +eep$n# the )ho'e 2rom ea.h other% throat%. 19en to the po$nt o2 a tota' 'o%% o2 the .urrent %y%tem,,,,, and a'' the de%tru.t$on that enta$'% 2or e9eryone. Yes4 *ndeed4444444we w*ll tr!ns*t*on to the ne?t $*!t s(stem $rom the doll!r4 when the t*me %omes. 3el*e;e *t! FurtherE For m(sel$ !nd other obser;ers 44444 we "now !bout 9pe!%e on e!rth9 !nd l*;e our l*$e *n th*s %onte?t but4444 !s ! member o$ the world tr*be444444 !nd $ollow*n. our best *nterest444444 one mu%t %t$'' arran#e h$% a22a$r% to %h$e'd the$r 2am$'y 2rom the C6-m #o$n# to #et your%C t$me% )e '$9e $n. Should we .et our le!ders to help us@ 2ell4 the le!ders o$ th*s world %!n onl( be but ! re$le%t*on o$ us !s ! whole. Yes4 m!n( th*n.s !re not r*.ht4 but the( %!n onl( str*;e to do wh!t %!n be done4 not wh!t must be done.

'!.e &>&

=ons*der the d*lemm!E +$ ! sm!ll port*on o$ so%*et( tele.r!phs thou.hts th!t 9*$ we %!nnot h!;e our o*l we w*ll .o to w!r944444444 how would (ou $or%e them to not ele%t o$$*%*!ls th!t e!se the*r p!*n $rom ! .old mone( s(stem@ 2h!t,s r*.ht !nd wh!t,s wron. *s not the *ssue444444 *t,s wh!t th*s present .ener!t*on w*ll l*;e w*th th!t rules. +$ the( w*ll bre!" the .old (o"e4 no m!tter wh!t4444 then wh( pl!%e .old on them@ 6% $t not better to at 'ea%t 2ree the C+n$#htC E#o'dG 2or the #ood o2 tho%e that )ou'd %tand )$th h$mD Dur$n# the per$od )e are no) enter$n#,,,,,)e .an %ee a'' the u#'y a%pe.t% o2 a 2$at %y%tem that $% 2a$'$n# $t% tr$be. 5oo+ 2ar and )$de and )$tne%% the 9ar$ou% #roup% ,,,, a'' Mo.+ey$n# 2or po%$t$on a% they u%e )hate9er $n2'uen.e they ha9e to 'e%%en the$r o)n pr$9ate 'o%%e%. 62 th$% had been a #o'd %y%tem, the out.ome )ou'd be the %ame,,,,, a% p'ayer% 2or.e the$r 'eader% to 'e%%en the #o'd debt% that .ou'd not be pa$d. "hey )ou'd ra$%e the pr$.e o2 #o'd and $n2'ate the$r )ay out o2 $t,,,,,, 2or better or )or%e ,,,, .ome he'' or h$#h )ater. So, my 2r$end E%m$'eG,,,,,,, a% you .an %ee,,,,, 6 .omp'ete'y a#ree )$th a'' o2 your po%t. On'y, my tra$' $% h$+ed )$th a d$22erent m$nd. CAnotherC m$nd %et, $2 you )$''. 0e u%e the '$2e e/per$en.e% o2 man to d$.tate the be%t path to 2o''o). A% %u.h,,,,,, Go'd mu%t not be part o2 any money %y%tem,,,,,, $t mu%t re%$de a% a 2ree'y traded a%%et )$thout debt or paper to re%emb'e $t. 6n th$% po%$t$on ,,,,, $t% 9a'ue .an 2u''y repre%ent the ebb and 2'o) o2 the a22a$r% o2 man. And $n do$n# %o reta$n the wealth o% man as a holding o% things. "ru'y, the C0ea'th o2 at$on%C $n the peop'e-% hand%. 0e mo9e 2or)ard by %tart$n# at the be#$nn$n# o2 t$me. 2e,ll t!l" mu%h !bout th*s !nd !ll the !$$!*rs o$ the world444 *n%lud*n. .old4444 on the .old tr!*l. 92e w!l" th*s new .old tr!*l to.ether4 (es@9 + hope to see e;er(one there when + return. Tr!*l Gu*de "ra$' Gu$de 5&G14G& Go'd N -E -E1>MDT 7 Ms. +DE&10 &8

A)SOE The po*nt + w!s tr(*n. to m!"e *n \&110: 5!nd the 6uest*on + w!s !s"*n.8 w!s th*sN A $ull .old mone( s(stem wor"s dur*n. le;el !nd r*s*n. e%onom*% d(n!m*%s. +t !lso wor"s 9A#RY9 well dur*n. ! downturn. +n $!%t *t wor"s 9'er$e%tl(9 !ll the t*me! 6t-% the 'end$n# o2 money that .reate% debt, be $t #o'd debt or 2$at debt ,,,, and the 2a$'ure o2 that debt dur$n# a do)nturn $% )hat .au%e% the pa$n. 6 ,,,,, )e a% #o'd bu#% ,,,,,, mo%t 2$nan.$a' th$n+er% ,,,,, do not debate th$% po$nt. "he ar#ument $% that; 62 the pa$n dynam$. E'o%%e%G o2 a 2$nan.$a' do)nturn $% not CSome)hatC %hared by %o.$ety a% a )ho'e ,,,,, the e.onom$. d$%'o.at$on a')ay% $nten%$2$e% unt$' )e #o to .on2'$.t. E%ee my ear'$er po%tG 6t-% dur$n# the do)nturn% that %o.$ety $n #enera' )$'' not to'erate a 2u'' #o'd %y%tem be.au%e $t .on.entrate% the 'o%%e% upon the$r r$#ht2u' o)ner%. A% %u.h Cthe%e %ameC are u%ua''y C)$ped .omp'ete'y outC and the 2a''out e22e.t% on the %o.$a' and e.onom$. %tru.ture .an be )$de%pread and 9ery de%tru.t$9e to tr$ba' '$2e.

'!.e &>0

A#a$n, h$%tory ha% pro9en, t$me and t$me a#a$n that human% )$'' not a''o) the 2u'' Enatura'G e22e.t% o2 #o'd money ,,,,, $2 $t threaten% to .reate 2a.t$on%. "hey a..ept #o'd dur$n# 'on# per$od% unt$' .on2'$.t E$nterna''y po'$t$.a' or e/terna''y )arG 2or.e% a brea+ $n the #o'd bond. 0e, a% nat$on%, )$'' brea+ the C#o'd bondC by .a''$n# 2or the %hared pa$n o2 $n2'at$on. 0hether )e Ea% .ountrymenG under%tand the rea%on$n# beh$nd $t or notU .urren.y $n2'at$on Enot pr$.e $n2'at$onG $n the modern )or'd $% .arr$ed out unt$' $t% debt de%troy% the .urrent %y%tem ,,, thereby %har$n# a'' the pa$n o2 the 'o%%e% be2ore $t. 0e then mo9e $nto the ne/t 2$at %y%tem. "he Fue%t$on; 6% $t not better 2or a'' ,,,, $2 )e remo9e #o'd 2rom the o22$.$a' .urren.y %tru.ture by 2or.$n# der$9at$9e% 2a$'ure and .reat$n# a 2ree phy%$.a' on'y mar+etp'a.e,,,,, %o a% to +eep Cu%C ,,,,,, our%e'9e% ,,,,,, 2rom .ontro''$n# $t throu#h our po'$t$.$an%D "hrou#h C'e#a' tender 'a)%C .urrent'y $n p'a.e ,,, 'et-% 2or.e u% Eour%e'9e%G to .ont$nue to .reate debt% on'y $n paper. A% %u.h, CtheyC ,, C)eC .an man$pu'ate the 2$at a% needed 2or %o.$ety. Doe% th$% not p'a.e #o'd $n $t% r$#ht2u' po%$t$on o2 be$n# a Crea' .urren.y a%%etC a% $t )a% .ho%en to be u%ed 2rom the be#$nn$n# o2 t$meD A pr$9ate money 2or trade and %a9$n#% that-% out%$de the -.ontra.t K debt- %y%tem. Your thou#ht%D Tr!*l Gu*de Robert MundellE 77777777+ th*n" th!t le.!l tender *s ! ;er( old *nst*tut*on. +t %ert!*nl( .oes b!%" thous!nds o$ (e!rs !nd le.!l tender *s !n *nst*tut*on4 whether we l*"e *t or not *s .o*n. to st!(. 7777777777 Robert Mundell E 777777There,s no *nst*tut*on!l me%h!n*sm b( wh*%h we %ould e;er dupl*%!te the "*nd o$ $*n!n%*!l s(stem we h!;e under ! s(stem th!t rel*ed !lmost ent*rel( upon .old. O$ %ourse (ou %ould !lw!(s h!;e ! s(stem th!t used ! lot o$ p!per th!t w!s *n some sense %on;ert*ble *nto .old. You %ould !lw!(s $*nd ! pr*%e o$ .old th!t (ou %ould %on;ert th!t p!per theoret*%!ll( *nto .old. *ut 6 don-t th$n+ anyone ha% thou#ht $n term% o2 the enormou% pr$.e o2 #o'd that )ou'd be reFu$red $n order to a.h$e9e that.77777777777 )!rr( '!r"sE 777777777Geor.e Soros s!(s *n h*s boo" Soros on Soros th!t the .old st!nd!rd h!d to be .*;en up be%!use *t d*d not m!"e poss*ble ! lender o$ l!st resort. And s!(s Soros4 be%!use $*n!n%*!l m!r"ets !re *n h*s words 9*nherentl( unst!ble9 (ou h!;e to h!;e ! lender o$ l!st resort.7777777 "ra$' Gu$de 5&G14G& Free#o'd N 1-E& E11MDT 7 Ms. +DE&10018

Th!n"s $or (our repl(4 ORO. M( %omments presume th!t re!ders h!;e re!d our $ull posts. Your m!Cor po*nt4 lo.*% !nd %omments th!t + .ot $rom (our post 5&101 84 $ollowed b( m( %ommentsE '!.e &>4

ORO,s 'O+NTE + po*nted out th!t *t *s the e?*sten%e o$ ! 9lender o$ l!st resort9 th!t %!uses the debt boom ORO,s )o.*%E +t *s ob;*ous then4 th!t h!d there not been ! lender o$ l!st resort there would not h!;e been ! subst!nt*!l %red*t %run%h4 be%!use the lenders would not h!;e t!"en the s!me r*s"s the( !llowed themsel;es on%e ! prom*se o$ b!*lout w!s .*;en4 !nd thus would h!;e !;o*ded the %red*t boom. ORO,s =ommentsE The !r.ument *s $!lse *n th!t *t *s %*r%ul!r. 5FOA noteE + th*n" he *s re$err*n. to m( lo.*%@8 The lender o$ l!st resort w!s there *n the $*rst pl!%e4 the *ne;*t!ble %red*t boom $ollowed4 the %red*t %run%h $ollowed 7 Cust !s *ne;*t!ble 7 !nd ! $urther lender o$ l!st resort w!s needed. /*stor( shows th!t the %red*t pol*%*es o$ the 3O# led to *ts b!n"rupt%( be$ore 22+ !nd be$ore the Fed w!s %re!ted. Th*s w!s !mon. the re!sons $or the !r.ument $or the Fed be*n. pressed. All the pre;*ous lenders o$ l!st resort were t!pped out !nd ! new one w!s ne%ess!r(. +n 1>&>71>0 the Fed w!s t!pped out !nd the .old st!nd!rd obl*.!t*on w!s !bol*shed shortl( !$ter. M( 5FOA,s8 =ommentsE ORO4 + %!nnot !%%ept th!t ! 9lender o$ l!st resort9 %!uses ! debt boom. +t presumes th!t ! .re!t port*on o$ lend*n. *s done $or re%"less4 une%onom*% re!sons. Yet4 !t the end o$ .re!t e?p!ns*ons m!n( proCe%ts th!t were %ons*dered 9blue %h*p9 *n the be.*nn*n. st*ll .o b!d. Somet*mes4 the most ne%ess!r( e%onom*% !%t*;*t( *s %urt!*led be%!use people,s needs %h!n.e dur*n. the %ourse o$ l*$e 444 not to ment*on ! re%ess*on. Thus %h!n.*n. bus*ness d(n!m*%s. /ow m!n( *nst!n%es %!n we do%ument where b!n"s lent *nto re!l dem!nd 4444444 b!%"ed w*th the ;er( best demo.r!ph*% p!tterns 44444 onl( to $*nd the lo!n blow up $rom %h!n.*n. dem!nd. O*l *n the l!te se;ent*es would be ! %on;en*ent e?!mple $or us 5sm*le8. 'eople were bre!"*n. down the doors o$ the old 9Te?!s =ommer%e 3!n"9 *n /ouston 4444444 !ll *n !n e$$ort to $*n!n%e hu.el( pro$*t!ble petroleum proCe%ts. Th*s w!s no $l!sh *n the p!n4 !s the o*l *ndustr( h!d ! pro.ress*;e e?p!ns*on h*stor( o$ 11ff (e!rs be$ore th*s. "ru'y, a 'ender o2 'a%t re%ort )a% the 9ery 'a%t th$n# on the$r m$nd%. TFOFOAE Reser;es were the l!st th*n. on the*r m*nds.U )!ter4 e;en p!per b!sed on P1 produ%*n. reser;es w!s tr!shed! =ert!*nl( there !re m!n(4 m!n( other e?!mples44444444 most !re o$ ! more mund!ne4 un.l!morous n!ture4 but $*ne e?!mples. FurtherE 2!s th*s re!ll( %*r%ul!r th*n"*n. on our p!rt@ D*d the )ender o$ l!st resort e?*st dur*n. the ,South Se! 3ubble9 or the 9Tul*p m!n*!9444444 !nd d*d the 93l!%" 'l!.ue9 o$ #urope shut down ! $ew sound $*n!n%*!l s(stems then@ + th*n" .old w!s the norm *n th!t per*od@ ORO4 th*s port*on o$ (our th*n"*n. needs to *n%lude the other s*de o$ the lend*n. !spe%t444444 peop'e )ant and demand 'oan% 2or %ound, e.onom$.a''y Mu%t$2$ab'e, pro2$tab'e proMe.t%,,,, and they #et them on %ound 'end$n# pr$n.$p'e%. TFOFOAE Re!l %red*t e?*sts !nd then b!n"s $!%*l*t!te *tU St*ll4 some > Q o$ them %!n be%ome onl( 9!t the m!r.*n9 when dem!nd %h!n.es. And t(p*%!l o$ our hum!n so%*et(4 we !ll sh*$t !t on%e. Trul(4 m( $r*end4 b!n" lo!ns o$ten $!*l be%!use hum!n e;ents %h!n.e the %ourse o$ mone( '!.e &>1

d(n!m*%s 444444 !nd *t does so *n ! w!( th!t *s be(ond the ;*s*on o$ !n( lender. 3e the lender (ou4 me or ! .roup o$ people su%h !s ! b!n"4 l!r.e port*ons o$ de!ls .o b!d Cust !s mu%h $rom hum!n !$$!*rs !s $rom 9o;er lend*n.9. A$ter !ll4 the ent*re e%onom*% stru%ture o$ the world *s noth*n. more th!n ! people d(n!m*% 444444444 $n the 'on# run $t-% Mu%t too r$%+y to bet one-% phy%$.a' #o'd on Ehu#e %m$'eG! TFOFOAE $rom !bo;e B 9Trul(4 *t *s supremel( rational to lend 5.r!nt %red*t8 onl+ *n terms o$ p!per un*ts. +t *s l*"ew*se irrational to $ors!"e the subl*me p!per un*t !;enue !nd opt *nste!d to put (our t!n.*ble reser;es out on lo!n where the( w*ll then be subCe%t to both de;!lu!t*on !nd r*s" o$ non7rep!(ment.9 U Ye%, our pre%ent 2$nan.$a' %y%tem #$9e% the $mpre%%$on o2 tota' $n%an$ty,,,, but )e are 'oo+$n# at the 9ery Cend o2 the t$me'$neC,,,, not ho) $t be#an. +t !ll st!rts w*th the ;er( $*rst lo!n !nd pro.resses unt*l e;er(one h!s borrowed 9too mu%h94 but no one w!nts the mus*% to stop. )!st resort lenders then be%ome the norm be%!use so%*et( w*ll lose 9!%ross the bo!rd9 *$ e;er(th*n. *s 9m!r"ed to the m!r"et9. +t *s not ! %*r%le 5sm*le8 !s *t st!rts !nd ends w*th the %urren%( s(stem 5.old or $*!t8 e;er(one dem!nds to borrow *nto. +t !ll ends *n the sh!red p!*n o$ debt %oll!pse !s the debt *s d*s%ounted to Iero $rom pr*%e *n$l!t*on 4444 e;en *$ *t,s b!sed on .old 444444 .old th!t %!nnot be returned. Not mu%h d*$$erent $rom our present .old lo!n stru%ture. 2e w*ll mo;e on to the ne?t mone( s(stem when th*s one ends. 62 $t )ere #o'd )e %tarted )$thD "he ban+er )ou'd 'end h$% #o'd on'y to 2$nd the %ame meta' returned to h$% ban+ a% a ne) depo%$t. "he C%o.$ety at 'ar#eC )ou'd remo9e h$% 2ran.h$%e $2 he d$d not re8'end that %ame #o'd dur$n# C#ood t$me%C, Cboom$n# t$me%C no 'e%%! Round and round the #o'd #oe%. Re%er9e 'end$n# h$t% $t% '$m$t and %o.$ety demand% the '$m$t% be ra$%ed a#a$n ,,, and a#a$n ,,, and a#a$n! 5ender o2 'a%t re%ort ,,,,,, or not. 6n our modern )or'd )e mu%t remo9e #o'd 2rom the o22$.$a' money %y%tem, p'a.e $t $n a 2ree mar+et and peop'e )$'' u%e $t a% )ea'th money, not borro)$n# money. "hen the 2$at .an .ome and #o a% the )$nd! Ye%D You !.ree now! +,m so ;er( .l!d! Tr!*l Gu*de "ra$' Gu$de 5&G14G& Free#o'd #lwood4 + h!;e re!d mu%h o$ M*ses !nd e;en ! $ew others. A%tu!ll(4 + %ompletel( !.ree w*th them th!t the Gold mone( s(stems o$ the n*neteenth %entur( wor"ed ;er( well. As su%h we do not $!ll *nto !n( o$ the .roups th!t !r.ue !.!*nst th!t %on%ept. Our problem *s w*th people 5sm*le8. +n ! Mone( !nd Freedom spee%h !t ! M*ses meet*n. Mr. Doseph T. S!lerno m!de th*s po*ntE 7777777Fn$ortun!tel(4 the monet!r( $reedom represented b( the .old st!nd!rd4 !lon. w*th m!n( other $reedoms o$ the %l!ss*%!l l*ber!l er!4 w!s brou.ht to ! %!l!m*tous end b( 2orld 2!r One.7777777777 '!.e &>6 N &1E11E1:MDT 7 Ms. +DE&101 8

Further4 he st!tedE 7777772*th*n wee"s o$ the outbre!" o$ 2orld 2!r One4 !ll bell*.erent n!t*ons dep!rted $rom the .old st!nd!rd. Needless to s!( b( the w!rs end the p!per $*!t %urren%*es o$ !ll these n!t*ons were *n the throes o$ *n$l!t*on o$ ;!r(*n. de.rees o$ se;er*t(4 w*th the Germ!n h(per*n$l!t*on th!t %ulm*n!ted *n 1>&0 be*n. the worst.77777777 M( po*nt 5!s !n e?tens*on o$ e!rl*er posts8E No %ountr(4 howe;er r*%h *n .old or resour%es4 %!n %ont*nue to $*.ht ! w!r on%e the*r mone( runs out! =ons*der 4444444 You !nd (our $!m*l( !s ! %ountr(4 ! n!t*on 444444 (ou !re under !tt!%" !nd h!;e spent the l!st o$ (our .old 44444You w*ll pr*nt mone( !nd %ont*nue the e$$ort4 no m!tter the *n$l!t*on!r( %osts4444 %ome wh!t m!(! M!n( n!t*ons utterl( $!*led to return to the or*.*n!l .old st!nd!rd s*mpl( be%!use the( were mostl( t!pped out $rom the w!r. At the best4 the r*%her4 sur;*;*n. %ountr*es would h!;e t!"en ! m!Cor e%onom*% h*t b( .o*n. b!%" *nto ! $ull .old s(stem. All the e;entu!l .old de!ls !nd non7de!ls were l*ttle more th!n ! p!rt o$ the pro.ress*on o$ e;ents th!t led us here tod!(. All *n !n e$$ort to "eep $rom $ull( m!r"*n. to the m!r"et the %ost o$ ! sh!red loss *n w!r4 de$en%e !nd other $*n!n%*!l $!*lures. There *s not one person !mon. us th!t 444444444 *$ the*r $!m*l( w!s %ompletel( bro"en $rom the w!r e?per*en%e 4444444444 would h!;e !s"ed $or ! return to .old. +n $ull ! honest %onte?t4 m*ll*ons would h!;e st!r;ed *n the pro%ess. The world opted to sh!re the loss !nd spre!d *t out !s $!r !nd !s lon. !s poss*ble. The w!r e?per*en%e *s but one e?!mple o$ wh( so%*et( h!s su%h ! h!rd t*me w*th !n o$$*%*!l .old s(stem dur*n. t*mes o$ stress. O;er !nd o;er !.!*n we h!;e seen where .old *s the ;er( best hold*n. !nd de$en%e !.!*nst pr*;!te !nd publ*% $*n!n%*!l loss. Yet4 when l!r.e s%!le n!t*on!l loss thre!tens so%*et( !s ! whole 444444 *t,s !lw!(s the mone( s(stem th!t re%e*;es the brunt o$ the dem!nds $or %h!n.e. So%*et( dem!nds th!t wh!te;er mone( s(stem *s *n pl!%e !t the t*me o$ stress be sh*$ted so !s to spre!d the burden !mon.st !ll. +s *t r*.ht@444444 *s *t Cust@4444 + do not th*n" so. 3ut *t *s wh!t we do !nd h!;e done $or ! lon. t*me! Tod!(4 *$ .old %!n be $or%ed out o$ the o$$*%*!l mone( s(stem4 *t w*ll be to the bene$*t o$ e;er(one dur*n. t*mes o$ stress *n the $uture. +n t*mes o$ w!r people spend the le.!l tender *n %ommer%e. Yet the( s!;e the $ood4 l*6uor !nd ne%ess*t*es. A %ommon %urren%( o$ the world would be Cust su%h ! ne%ess*t( to hold !s p!rt o$ (our we!lth. Tr!*l Gu*de WWWWWWWWWWWW Money 9er%u% 0ea'th The essen%e o$ mone( *s %red*t4 wh*%h *s ! re$le%t*on o$ the !mount o$ %red*b*l*t( *n the e%onom( %urrentl( be*n. e?er%*sed !nd %*r%ul!ted. +n re!l*t(4 *n $!%t4 e;en *$ not *n the te?tboo"s4 mone( *s ! re$le%t*on o$ on.o*n. !nd pl!nned $uture produ%t*on. 2e!lth4 on the other h!nd4 wh*%h *s e;er(th*n. ph(s*%!l th!t *s owned !nd possessed4 *s the embod*ment o$ p!st produ%t*on. So here we h!;e ! ;er( s*mple d*%hotom(. Mone( re$le%ts present !nd $uture produ%t*on wh*le we!lth '!.e &>:

is4 *n $!%t4 produ%t*on $rom the p!st. 3ut there,s more. Mone( *s !n e?tremel( use$ul4 ;*t!l4 !nd ;er( power$ul tool used b( the Superor.!n*sm. 3ut *t *s !lso used b( those %entr!l pl!nnerI. 'r*%e s*.n!ls !re wh!t the Superor.!n*sm .ets $rom mone(4 !nd pr*%e s*.n!ls !re !lso wh!t %entr!l pl!nnerI tr( to %ontrol. Str!n.el(4 *t *s wh!t we dem!nd $rom them. +t *s the ;er( n!ture o$ our hum!n*t( th!t m!"es mone( ! poor subst*tute $or we!lth when s!;*n. $or !n un"nown $uture. And *t *s the n!ture o$ mone( *tsel$ th!t m!"es not underst!nd*n. th*s s*mple ;*ew so w*del( destru%t*;e *n the lon. run. The $!ll!%*ous prem*se th!t mone( !nd we!lth !reRor should beRone !nd the s!me 5or !t le!st m!n!.ed to !tt!*n p!r*t(8 *s the $l!w + ment*oned !t the top o$ the post 9wh*%h4 *n !nd o$ *tsel$4 h!s set the two %!mps perpetu!ll( !nd unne%ess!r*l( !t odds w*th e!%h other.9 The de $!%to !b!ndonment o$ th*s prem*se *n both %!mps *s wh!t + see %om*n.. There *s no need $or !n(one to %on;*n%e the %!mps th!t the( w*ll !b!ndon th*s prem*se. As ANOT/#R s!*d4 t*me w*ll pro;e !ll th*n.s. You %!nnot %on;*n%e them o$ th*s. Onl( the un$old*n. o$ t*me %!n. 2h!t (ou can do *s %ons*der B w*th ! me!sure o$ *ntelle%tu!l *nte.r*t( B the e$$e%ts th!t w*ll $low $rom ! more re!l*st*% w*despre!d ;*ew o$ the %on%epts o$ mone( !nd we!lth. And4 most *mport!ntl(4 how th!t ;*ew !ppl*es to (ou !nd how (ou use mone( !nd we!lthGs!;*n.s *n (our d!*l( l*$e. Tod!(4 mone( *s w*del( used !s we!lth4 or !t le!st !s ! me!sure o$ one,s we!lth. +$ (ou bel*e;e th!t the %urrent s(stem *s not sust!*n!ble4 perh!ps e;en !t the end o$ *ts t*mel*ne4 *t would be *n%on.ruent not to %ons*der the *mpl*%!t*ons o$ th*s s*mple %h!n.e *n w*despre!d per%ept*on. /ere !re ! $ew th*n.s ANOT/#R h!d to s!( !bout *t. + present these now be%!use + $*nd them to h!;e enh!n%ed me!n*n. *n the %onte?t o$ th*s postE 2hen !n *n;estment *n sto%"s4 bonds4 b!n" !%%ounts4 =AS/4 bus*nesses et%. *s pr*%ed *n FSP %urren%( (ou !re re!ll( hold*n. the 9*ntent*ons o$ pro;*d*n. ;!lue9 lo%"ed !w!( *n the thou.hts o$ !nother m*nd. WWWWW One d!( 5 *t h!s !lre!d( st!rted 8 ! t(pe o$ nu%le!r %h!*n re!%t*on w*ll o%%ur *n the %urren%( m!r"ets !s people st!rt 9un;!lue*n.9 the thou.hts o$ others. )*ttle b( l*ttle !ll debts owed w*ll be m!r"ed down. WWWWW The 9we!lth o$ n!t*ons9 !re held !s 9thou.hts o$ ;!lue9 not re!l ;!lue! And e;en these thou.hts !re 9*n debt9 !s the( !re owed to other n!t*ons. As *t h!s !lw!(s been4 t*me mo;es the m*nds o$ people to %h!n.e4 !nd w*th th*s4 the thou.hts o$ ;!lue !lso %h!n.e. +n th*s d!(4 !s not *n the p!st4 the loss o$ p!per ;!lue !s ! %on%ept w*ll destro( the ;er( $ound!t*on o$ we!lth th!t th*s e%onom*% s(stem *s bu*lt on. Th*s dr!m! h!s st!rted !nd *s well underw!(! WWWWW /ow %!n one "now ;!lue *n %urren%(4 when p!per does not l*e st*ll@ +t mo;es !t n*.ht4 where no one %!n see4 !nd th*s we hold to pro;e our worth@ Rea' th$n#% +no) not th$% paper 9a'ue, 2or they ho'd t$#ht $n the earth. 6n th$% t$me, )e do %tand 2$rm )$th 9a'ue and )at.h a% Cthou#ht% o2 other% .han#e $n the )$ndC!

'!.e &>-

"h$n+$n# ahead There h!s been some deb!te re%entl( *n the %omments !bout the $un%t*ons o$ .old 5!nd other less7 s!l*ent *tems o$ tr!d!ble we!lth8 !nd %urren%( !s *t rel!tes to s!;ers !$ter the tr!ns*t*on. +t h!s been su..ested th!t4 be%!use .old w*ll $*n!ll( be $un%t*on*n. properl(4 %urren%*es 5mone(8 w*ll be%ome rel!t*;el( st!ble !nd w*ll there$ore $un%t*on !s s!;*n.s $or the m!sses. /ere,s wh!t + th*n". 2h!t w*ll %h!n.e *s how we ;*ew mone( !nd we!lth. #;er(th*n. else $lows $rom th!t. 3ut *t *s not our %h!n.e *n ;*ew th!t *s %!us*n. the tr!ns*t*on. +t *s the other w!( !round. The tr!ns*t*on w*ll %!use ! w*despre!d %h!n.e *n ;*ew. 2h!t *s %!us*n. the tr!ns*t*on *s the de $!%to $!*lure o$ the present s(stem. +n the $uture4 + th*n" th!t *$ (ou !re s!;*n. $or someth*n. "nown4 espe%*!ll( someth*n. w*th ! "nown %urren%( pr*%e l*"e ! down p!(ment or ! %!r4 (ou,ll s!;e %urren%( or 9mone(9. 3ut *$ (ou,re s!;*n. $or the un"nown $uture4 (ou,ll !ppl( (our new$ound underst!nd*n. o$ the d*$$eren%e between mone( !nd we!lth !nd (ou,ll prob!bl( %hoose .old4 the most s!l*ent !nd l*6u*d o$ the tr!d!ble we!lth *tems. Th*s ;*ew e;en s%!les up $rom the *nd*;*du!l to the n!t*on!l or re.*on!l le;el. + th*n" th!t short7term tr!de *mb!l!n%esRdue to "nown $!%tors th!t !re e?pe%ted to be short7l*;edRw*ll be re%orded *n %urren%( or e;en debt terms. 3ut stru%tur!l or lon.7term *mb!l!n%es w*ll be settled *n .old throu.h the open m!r"et4 e$$e%t*;el( el*m*n!t*n. stru%tur!l or lon.7term *mb!l!n%es. Gold *s re!l4 tr!d!ble we!lth. Mone( *s not we!lth4 no m!tter how well *t *s m!n!.ed. You w*ll underst!nd th*s d*st*n%t*on *n the $uture !nd (ou w*ll !%t upon th!t underst!nd*n.. Tod!( + hold .old $or the e?pe%ted re;!lu!t*on4 be%!use the we*.ht o$ .old th!t + $*nd + %!n st*ll bu( be%!use the $ormer s(stem *s st*ll $un%t*on*n. *s so ;!stl( d*sproport*on!te to the rel!t*;e shr*mp + !m. 3ut e;en !$ter the tr!ns*t*on4 + e?pe%t th!t +,ll st*ll $eel the !mount o$ .old + possess *s ;!stl( d*sproport*on!te to m( 9s*Ie9. So + e?pe%t th!t + w*ll4 !t th!t t*me4 !ppl( m( new underst!nd*n. o$ we!lth !nd tr!de some o$ m( .old $or other tr!d!ble we!lth *tems th!t !re better su*ted $or d*spl!( !nd enCo(ment *n l*$e th!n .old. There,s ! re!son + "eep ment*on*n. other 9h!rd !ssets9 l*"e !nt*6ues4 $*ne !rt4 %l!ss*% %!rs !nd h*.h7end re!l est!te when t!l"*n. !bout G*!nts tod!(. Th!t,s be%!use those *tems !re the %losest th*n. we h!;e to 9Free.old7l*"e s!;*n.s9 tod!(. And (et the( !re onl( !%%ess*ble to the G*!nts be%!use o$ the*r nose7 bleed pr*%es. 3ut the( !re st*ll 6u*te *n$er*or to Free.old. The( !re not !s port!ble4 dur!ble or l*6u*d !s .old4 but most *mport!ntl(4 the( !re not d*;*s*ble l*"e .old wh*%h4 !s FOA s!*d4 puts us shr*mps 9on e6u!l $oot*n.9 w*th the G*!nts! Another re%ent deb!te *n the %omments w!s whether our %entr!l pl!nnerI o$ the $uture w*ll t!r.et %onsumer pr*%e *n$l!t*on4 monet!r( *n$l!t*on or the pr*%e o$ .old to !%h*e;e st!b*l*t(. /ere,s wh!t + th*n". + th*n" th!t th*s whole 6uest*on *s somewh!t 9old p!r!d*.m9 th*n"*n.. +n the 9new p!r!d*.m9 + th*n" +,d s!( th!t the re!l e%onom( w*ll m!n!.e the mone( suppl( s*n%e4 !s + proposed !bo;e4 9mone( *s ! '!.e &>>

re$le%t*on o$ the !mount o$ %red*b*l*t( *n the e%onom( %urrentl( be*n. e?er%*sed !nd %*r%ul!ted.9 O$ %ourse the monet!r( b!se w*ll st*ll be subCe%t to !buse b( .o;ernments *n pl!%es where4 unl*"e the #uroIone4 the .o;ernment ret!*ns ult*m!te %ontrol o$ the %entr!l b!n". 3ut l*"e + s!*d !bo;e4 + th*n" (ou,ll $*nd th!t the r*s" o$ $*!t %urren%( !buse *s worth the *nnumer!ble bene$*ts4 espe%*!ll( on%e there *s ! s(stem!t*% !nd $oolproo$ w!( to prote%t (oursel$ $rom the worst o$ *t! And remember4 th*s *s wh( 2*m Du*senber. so proudl( st!ted th!t the euro 9*s the $*rst %urren%( th!t h!s not onl( se;ered *ts l*n" to .old4 but !lso *ts l*n" to the n!t*on7st!te.9 + don,t re!ll( th*n" the euro !r%h*te%ts %!me up w*th th*s .round7bre!"*n. *de! be%!use the( thou.ht the( were sm!rter %entr!l pl!nnerI th!n the Superor.!n*sm! N8 6n Jon.'u%$on FOAE +n th*s l*.ht we should "now th!t our re!l th*n.s *n l*$e w*ll not %h!n.e !ll th!t mu%h. Your tools4 %h!*rs4 %lothes !nd %!rs w*ll rem!*n (ours. /ouses !nd l!nd4 TAs !nd bo!ts4 !ll w*ll ret!*n the e?!%t s!me 9;!lue9 the( !lw!(s h!d. 2h!t w*ll %h!n.e *s our !b*l*t( to use our %urren%( !nd p!per !ssets !s ! med*um to me!sure the 9re!l ;!lue9 th!t,s !lw!(s so *nherent *n these *tems4 (et so well h*dden *n our per%ept*on o$ tod!(. Yes4 the %urren%( pr*%e o$ th*n.s w*ll .re!tl( %h!n.e4 e;en !s the*r 9use ;!lue9 mo;es l*ttle. Su%h *s the n!ture o$ d(*n. p!per mone( s(stems. Su%h *s the end*n. o$ ! %urren%( t*mel*ne! Tr!*l Gu*de AR+E So (ou see4 le!rn*n. how the world wor"s *s !ll !bout e!%h m!n %om*n. to the underst!nd*n. !bout the re!l we!lth we !ll re6u*re to best ensure our sur;*;!l. Onow*n. th!t Gold *s the m!ster pro?( $or our l*$e,s d!(7to7d!( !nd (e!r7to7(e!r sh*$t*n. re6u*rements $or $ood4 %loth*n.4 shelter4 !nd ener.(4 *t s*mpl( m!"es more sense to .!ther *n Gold $or l!ter use th!n to .!ther *n %lothes 5th!t we m!( out.row48 $ood 5th!t m!( spo*l48 houses wh*%h !re more th!n our needs4 or ener.( 5th!t we %!n,t store.8 You see4 t*me be!rs w*tness to th*s unden*!ble $!%tE Gold %!n be %!lled we!lth be%!use *t *s !n endur*n. we!lth pro?( *n e?%h!n.e $or our l*$e,s needs. =urren%(4 on the other h!nd4 ser;es ! spe%*$*% modern e%onom*% purpose77to be borrowed !nd *n$l!ted *n pl!%!t*on o$ m!n,s *mmed*!te des*res. +t *s not we!lth4 *t $!*ls !s ! pro?( $or the Gold *t tr*es to *mm*t!te. Do not %on$use the two. Fnderst!nd*n. how the world wor"s *s e!s( !s soon !s (ou underst!nd the 2e!lth /*er!r%h(. )*"e th*sE #!rn mone(G%urren%(4 bu( wh!t (ou need4 s!;e Gold4 enCo( wh!t l*$e h!s to o$$er. Re!l we!lth. Get (ou some. 777Ar*stotle ANOT/#RE S*r4 Th!n" (ou $or re!d*n. m( thou.hts4 !s + do re!d (ours! As *n !ll l*$e4 9e;ents m!"e truths94 not the words o$ Another. 9t*me w*ll pro;e !ll th*n.s9 Th!n" You S*n%erel(4 FOFOA _+$ (ou bu( .old be%!use o$ m( blo. w*thout re!ll( underst!nd*n. m( ;*ew4 + th*n" *t *s poss*ble th!t (ou w*ll sell (our .old 9to lo%" *n ! pro$*t9 w*th the worst t*m*n. *n the l!st 14 (e!rs. You don,t w!nt '!.e 0

th!t on (our he!dstone4 now do (ou@ WWWWWWWWWWWW

2e .old4 we .old4 we sh*ne!


R*t! Or! B Sh*ne Y! )*.ht 5A*deo8 9Sh*ne Your )*.ht9 F7$$7$7$resshhhh mus*% $rom R*t! Or! 5hGt D'!8 2e .old4 we .old4 we sh*ne 2e .old4 we .old4 we sh*ne 2e .old4 we .old4 we sh*ne 2e .old4 we .old4 we sh*ne /e( there ro%" st!rs Turn up (our r!d*o + %!n he!r (ou %om*n. St!rt up the ;*deo You,re st*ll st!nd*n. The(,ll ne;er "no%" (ou down The be!t ne;er end*n. )et me he!r (our he!rt pound #h4 !h4 eh4 !h #h4 oh4 ! sh*n*n. st!r #h4 !h4 eh4 !h Don,t m!tter where (ou !re 2o7oh4 sh*ne (our l*.ht 2o7oh4 set the world on $*re 2o7oh4 sh*ne ton*.ht 2o7oh 5set the world on $*re8 2e .old4 we .old4 we sh*ne 2e .old4 we .old4 we sh*ne 2e .o*n. sol!r 'ush up (our l*.hts out F!ster !nd $!ster + see the sun r*s*n. h*.her #h4 !h4 eh4 !h #h4 oh4 ! sh*n*n. st!r #h4 !h4 eh4 !h '!.e 0 1

Don,t m!tter where (ou !re 2o7oh4 sh*ne (our l*.ht 2o7oh4 set the world on $*re 2o7oh4 sh*ne ton*.ht 2o7oh 5set the world on $*re8 2o7oh4 sh*ne (our l*.ht 2o7oh4 set the world on $*re 2o7oh4 sh*ne ton*.ht 2o7oh 5set the world on $*re8 And we don,t .*;e up t*ll we run out o$ des*re 2e see the $*n*sh !nd we ne;er .et t*red 2e !re the w*nners %!use we hold the world t*tle 2e st!rted slow4 but we be!t (ou *n the $*n!l #h4 !h4 eh4 !h #h4 oh4 ! sh*n*n. st!r #h4 !h4 eh4 !h Don,t m!tter where (ou !re 2o7oh4 sh*ne (our l*.ht 2o7oh4 set the world on $*re 2o7oh4 sh*ne ton*.ht 2o7oh 5set the world on $*re8 2o7oh4 sh*ne (our l*.ht 2o7oh4 set the world on $*re 2o7oh4 sh*ne ton*.ht 2o7oh 5set the world on $*re8 2e .old4 we .old4 we sh*ne 2e .old4 we .old4 we sh*ne 2e .old4 we .old4 we sh*ne 2e .old4 we .old4 we sh*ne

'!.e 0 &

0edne%day, o9ember 28, 2012


Re#u'ar Forum Ar.h$9e% 1@@882001

Two (e!rs !.o4 M!rt*Cn went throu.h rou.hl( 14& d!(s7worth o$ the re.ul!r FSAGO)D d*s%uss*on $orum !nd %omp*led 5most o$ _8 the *nterm*ttent %omments b( ANOT/#R !nd FOA4 !lon. w*th ! $ew others4 *nto ! 406 p!.e pd$. Th!t pd$ *s !;!*l!ble $or downlo!d on S%r*bd here. 3ut l!tel(4 the d*s%uss*on $orum !r%h*;e on the FSAGO)D webs*te !ppe!rs to be M+A. ANOT/#R 5T/OFG/TS!8 !nd The Gold Tr!*l !re st*ll there4 but not the re.ul!r $orum. All we h!;e !t the moment *s M!rt*Cn,s pd$ wh*%h *s not %o;ered when DR se!r%hes $or !ppl*%!ble 6uotes on Goo.le. So + put those 406 p!.es o$ %omments *nto two 5se!r%h en.*ne7$r*endl(8 p!.es l*n"ed *n the s*de b!r r*.ht under FOA. 3lo..er %ouldn,t h!ndle 406 p!.es *n one post4 but *t w!s $*ne w*th &1- 5m( new post len.th l*m*t N8. Th!t,s wh( + h!d to spl*t *t *nto AGFOA D*s%uss*on Forums 1 !nd &. There !re some .re!t posts *n these !r%h*;es. For e?!mple4 m( & 1 post FOA on /(per*n$l!t*on %!me ent*rel( $rom the d*s%uss*on $orum4 !s d*d FOA to M!rt*n Armstron.. /ere,s !nother .ood te!ser $or wh!t (ou,ll $*nd *n these !r%h*;es. +t,s ! post + h!ppened !%ross Cust the other d!( when M*%h!el / posted *t somewhere else 5th? M*%h!el /!8E FOA 51 G14G>>N >E& E 6MDT 7 Ms. +DE1601-8 =omment Str!d M!ster 51 G1&G>>N &0E4-E40MDT 7 Ms. +DE16&168 7777 M( $*rst 6uest*on4 thou.h4 *s th*sE +$ .old should r*se to4 s!(4 P0 4 per oI !s FOA pred*%ts4 how4 !t th!t t*me %ould one,s .old hold*n.s be unwound@ For wh!t@ P0 4 *n p!per mone(@ Or would the !%tu!l .old bull*on be%ome the onl( ne.ot*!ble %urren%(@ +$ so4 wh!t .ood would ! one oI. bull*on %o*n be@ +t %!n,t be %ut !p!rt *nto sm!ll p*e%es w*th ! p!*r o$ .!rden she!rs. 3e(ond th!t4 Goldbu.s !re notor*ous $or hold*n. onto the*r ph(s*%!l hold*n.s lon. p!st the t*me o$ m!?*mum return. 7777 555NOT#E Str!ndE + $*nd *t *nterest*n. th!t .oldbu.s h!;e be%ome 9notor*ous9 $or b!d mo;es when the*r present un*;erse h!s onl( e?*sted some & (e!rs@ !nd the l!d( h!s not s!n. the son. (et@888

'!.e 0 0

You %ont*nueE 777+n $!%t4 +,m sure th!t some older people who post !t th*s $orum h!;e held .old throu.h se;er!l 5!lbe*t rel!t*;el( m*nor b( %omp!r*son8 upmo;es *n .old onl( to "*%" themsel;es $or not h!;*n. sold !t or ne!r the top.7777 555NoteE + "now people th!t h!;e been bu(*n. throu.h th*s ent*re sp!n o$ t*me! True4 the( h!;e t*med the*r bu(*n. on ! %ost !;er!.*n. b!s*s4 but th!t %on%ept h!s m!de them !lmost e;en tod!(. +n the bel*e;e *t or not dep!rtment. As" MO !bout 9%ost !;er!.*n.9 us*n. ! $*?ed doll!r !mount. Then + su..est (ou see the show 9Rollo;er9 w*th D!ne Fond!. You would not bel*e;e how true *t *s!888 /ello Str!d4 +,m .o*n. to r!mble on ! b*t4 so + hope th*s helps (our perspe%t*;e. 3!%" *n the e!rl( o*l d!(s + w!s ;er( %lose to some o$ the l!r.est o*l men *n the %ountr(. 2hen *n Te?!s we would ;*s*t !t the %ountr( %lub !nd sh!red ! lot o$ our per%ept*ons. Fsu!ll( o;er ! po"er t!ble. )oo"*n. b!%"4 + $*nd the*r 5!nd m*ne8 ;*ewpo*nts h!d mu%h *n %ommon w*th the .old outloo" tod!(. 2hen o*l went $rom !round P0. to P1. e;er(one th!t h!d lo%!l reser;es thou.ht the( h!d m!de ! $ortune. You wouldn,t bel*e;e how m!n( sold o$$ not onl( the*r stor!.e b!rrels but the*r best 5lowest %ost produ%t*on8 reser;es $or %!sh. The $eel*n. w!s th!t o*l h!d Cust Ioomed *n pr*%e !nd would 6u*%"l( .o b!%" down. The per%ent!.e .!*n on those le;er!.ed !ssets w!s s*mpl( hu.e. Then o*l went up to !round P-. ! Good .od4 we were so stup*d to h!;e sold. 2h!t ! bun%h o$ bu(*n. $ools out there. Those *d*ots bu(*n. P- !re .o*n. to .et "*lled. #;er(bod( "nows the m!Cor produ%ers %!n pump $or P1. . Oh well4 *t Cust ! pol*t*%!l th*n.. 2hen o*l h*t P114 some o$ them "new the( h!d m*ssed out on ! tr!*n to P& . 3ut the( st*ll thou.ht o*l would one d!( return to !round P1. . So !s not to m*ss out %ompletel( m!n( o$ the e!rl( sellers Cumped on the N!tur!l G!s w!.on4 us*n. e;er(th*n. the( h!d .!*ned $rom the*r $*rst s!le. At $*rst th*s new mo;e m!de mone(4 b*. t*me. Then someth*n. $unn( h!ppened4 o*l so!red !nd l!ter returned to ! more norm!l P1- to P&1 r!n.e4 but .!s plun.ed $rom the h*.her suppl*es. The 9o*l bo(s9 turned 9.!s bo(s9 lost *t !ll. #;en *nto tod!(4 .!s h!s ne;er returned. Trul(4 the( used the s*l;er ;s .old %on%ept4 th*n"*n. the more le;er!.ed n!tur!l .!s would out run o*l !nd re.!*n the*r $ortunes. +t m!de sense !s .!s 5l*"e s*l;er8 w!s more *ndustr*!ll( use$ul !nd 9=/#A'#R9. You m*.ht e;en s!( *t w!s the 9poor m!n,s o*l9 5sm*le8! AlsoE Dust l*"e s*l;er4 .!s pro;ed to e?*st *n mu%h l!r.er !mounts th!t the 9st!t*st*%s9 demonstr!ted. As *ts pr*%e 9%o!t t!*led9 o*l4 *t brou.ht out the m!ss*;e *n%re!se *n produ%t*on th!t w!sn,t needed !s lon. !s o*l w!s !;!*l!ble. +n%red*bl(4 th*s w!s the e?!%t s!me stor( $or s*l;er. All the stor*es !bout people bu(*n. s*l;er !s .old went up s!w them sell the s*l;er !nd "eep the .old be%!use people Cust d*dn,t need both o$ them. The s!me w*ll h!ppen when .old runs th*s t*me. 'eople w*ll "eep the h*.h un*t %ost .old *n the*r ;!ults4 use the d*.*t!l %urren%*es $or tr!de !nd sell the s*l;er !s *t $loods out o$ the woodwor". Onw!rdE You see4 o*l *n the e!rl( : s *s l*"e see*n. the pre;!lent .old %on%ept tod!(. The per%ept*on w!s th!t o*l %ould ne;er .o up $rom the P1. produ%t*on r!n.e *nto the P& s 5Cust !n un*m!.*n!ble *n%re!se to those *n the bus*ness8 be%!use su%h ! pr*%e would $lood the world w*th produ%t*on. +t w!s thou.ht th!t '!.e 0 4

there w!s so mu%h un$ound o*l *n the world th!t e;er( home owner would h!;e !n o*l dr*ll*n. r*. *n the*r b!%" (!rd !t P& f. Dust !s P1 4 .old w*ll h!;e people t!"*n. .old $rom se! w!ter. /ere *s where re!l*t( .ets *n the w!( o$ %on%ept b!sed on per%e*;ed %ond*t*ons. Yes4 the P& !nd P0 o*l d*d br*n. out the r*.s !nd produ%t*on so!red. 3ut4 e;en !t the h*.her pr*%es4 the world $ound uses $or th*s .re!t new .usher o$ o*l. The s!me hum!n tr!*ts th!t d*%t!te th!t 9(ou %!n ne;er h!;e enou.h mone( *n the b!n"9 !lso s!*d 9we %!n ne;er use too mu%h o*l9! +$ !ll the o*l reser;es *n the world %ould produ%e !t P&. then the pr*%e would return to P& plus ! pro$*t. 3ut4 we w!nt !nd use !ll o*l produ%ed $rom $*elds th!t pump $rom P& %ost on up to P0 . Gold !nd o*l !re not l*"e !n( other %ommod*t(4 be%!use under the r*.ht %*r%umst!n%es4 people $*nd both o$ the*r 6u!l*t*es use$ul !nd %!n ne;er .et enou.h o$ them !t !n( pr*%e. +t seems we !%%umul!te !ssets unt*l we d*e@! The 9p!per bo(s9 tr( !nd p!*nt ! p*%ture o$ .old l*"e 9old o*l men9 loo"ed !t ;!lues 9b!%" then9. The( were wron. !nd so !re the 9p!per bo(s9 tod!(. The Sm*ths !nd Arnolds o$ the world tr( to %on;*n%e us th!t the suppl( o$ .old *s ne;er used up !nd %re!tes ! .lut !s *t .rows. The( s!( th!t unl*"e o*l th!t *s %onsumed4 .old hold*n.s h!;e be%ome ! sto%"p*le th!t re$*n*n. %!nnot use up. + bet these .u(s would h!;e !lso sold the*r o*l reser;es *n the m*d : s !lso. 2here the( m*ss the bo!t *s *n the*r !ssumpt*on th!t people w*ll .et enou.h .old. Not *$ *t,s mone(4 the( won,t! 'eople do %onsume mone( Cust l*"e o*l4 r!ther *t,s Cust *n the $orm o$ 9s!;*n.s %onsumpt*on9. Gold4 Cust l*"e mone( h!s !n 9unl*m*ted dem!nd9. A.!*n4 h!;e (ou e;er seen !n(one th!t s!*d 9+ h!;e too mu%h mone( !nd h!;e no more use $or *t9. 9No4 don,t .*;e me !n( more o$ th!t %!sh4 +,;e .ot ! .lut o$ *t now4 .o !w!(9! Ye!4 r*.ht! O$ten4 we re!d where people s!(4 9oh wh!t !m + to do w*th !ll th*s .old *$ *t h*ts4 P0 4 @9. Funn( how 3*ll G!tes ne;er s!(s 9wh!t !m + to do w*th !ll these MS sh!res9. 2ell4 (ou too w*ll !%t l*"e !n(one w*th too mu%h %!sh or !ssets4 Cust st!sh *t !w!( unt*l (ou need to spend *t. The old 9wh!t w*ll + do w*th !ll th*s h*.h pr*%ed .old + %!n,t .et %h!n.e $or9 lo.*% Cust doesn,t %ompute when de!l*n. *n re!l*t(@ #;er see someone *n ! $le! m!r"et roll*n. !round ! %!rt $ull o$ P1 b*lls444!nd $r!nt*%!ll( tr(*n. to unlo!d *t be%!use *t bu(s so mu%h !nd the( %!n,t .et %h!n.e@ /elp me out here4 !m + not see*n. someth*n.@ +,m !$r!*d th!t e;en the ;er( poorest o$ people h!;e ! better .r!sp o$ spend*n. !nd s!;*n. ;!lue th!n some o$ the 9b*. t*me *n;estors9 present !bout .old. 5+,m t!l"*n. !bout the bro"ers4 Str!nd8 Onw!rdE An(w!(E The !mounts o$ .old *n ;!ults tod!( *s nowhere ne!r enou.h to represent the onl( %*r%ul!t*n. world mone(. +t would h!;e to be pr*%ed !t Pffffff to do th!t. So4 *$ m*ne produ%t*on %!n %ont*nue4 the world w*ll t!"e !n( !nd !ll the( %!n produ%e. 3e *t 04 ton ! (e!r or 1 4 ! (e!r be%!use the dem!nd $or mone( 5e;en ! p!r!llel supplement mone(8 *s unl*m*ted. 'erson!ll(4 + would t!"e !ll o$ *t 5sm*le8 !nd let the rest o$ (ou "eep the p!per. The re!l*t( o$ th*s *s th!t people hold %!sh *n b!n"s !s *t *s lent out !nd e!rns *nterest. +$ no one lent the*r %!sh !nd Cust s!;ed *t 5l*"e .old8 to spend *n l!ter (e!rs4 *t would t!"e !n enormous !mount o$ p!per mone(. Th*s *s wh( the FS .oes to .re!t len.ths to *dent*$( .old to the publ*% !s ! %ommod*t(4 not mone(. The( w!nt (ou to "now th!t *t must be sold !s soon !s *t .oes up. Tr!de *t4 don,t s!;e *t. '!.e 0 1

Most 2estern *n;estors h!;e bou.ht *nto th*s !nd !re .o*n. to p!( de!rl( be%!use o$ *t. A.!*n mone( dem!nd *s 9unl*m*ted9. The s!me w*ll be true $or .old. As people be.*n to bu( .old !s ! %urren%( supplement4 to be spent 9!s needed94 the pr*%e %ould re!%h enormous le;els.....!nd be seen Cust l*"e o*l......! use$ul !sset (ou Cust %!n,t .et enou.h o$. On the ro!d... ...FOA #nCo( the !r%h*;e! S*n%erel(4 FOFOA _ + w*ll note th!t + th*n" M!rt*Cn m*ssed ! $ew %omments. One th!t st!nds out *s FOA,s 3rown,s 3ottom %omment wh*%h + *nserted *nto m( %op(. So + don,t "now how m!n( others m*.ht be m*ss*n.. /ope$ull( FSAGO)D w*ll put the $ull !r%h*;e b!%" onl*ne soonL

'!.e 0 6

Monday, De.ember 10, 2012


Ar#ument% A#a$n%t Free#o'd

Someone su..ested ! post on !r.uments !.!*nst Free.old. + thou.ht *t w!s ! .re!t *de!4 but then + %ouldn,t th*n" o$ !n( !r.uments th!t h!dn,t !lre!d( $!*led. +,;e been !t th*s t!s" $or $our !nd ! h!l$ (e!rs now4 !nd +,;e re!d !lmost !ll o$ the 1& (e!rs, worth o$ !r%h*;ed deb!tes !nd !r.uments 5now m*ss*n.8 !t FSAGO)D !s well !s the r!ndom deb!tes th!t pop up elsewhere !nd someone *ne;*t!bl( l*n"s them here or br*n.s them to m( !ttent*on ;*! em!*l. And (es4 + $eel l*"e +,;e seen *t !ll4 but m!(be + h!;en,t. So here,s (our opportun*t( to present (our best !r.ument !.!*nst Free.old. A re!der !nd supporter o$ m*ne4 !n Amer*%!n med*%!l do%tor !nd sur.eon n!med De$$ Allen4 on%e %ommented on h*s ;*ew o$ wh!t *t *s th!t + do here !nd wh( th*s blo. *s 9so str*"*n. to so m!n( people.9 + w!nted to ment*on th*s *n the %onte?t o$ th*s post not onl( be%!use + lo;ed the w!( he e?pl!*ned m( lo.*%!l !ppro!%h to Free.old !nd *ts ne%ess!r( %on%lus*ons4 but !lso be%!use + think th*s *s the onl( w!( (ou,re l*"el( to su%%eed !t debun"*n. Free.old *$ th!t,s e;en poss*bleRb( present*n. ! %ompet*n. prem*se throu.h pr*n%*ples4 e?pressed *n pre%*sel( de$*ned4 non7%ontr!d*%tor( %on%epts th!t !re .rounded *n re!l*t(4 wh*%h le!d to *ne;*t!ble %on%lus*ons th!t ne%ess!r*l( e?%lude those o$ Free.old e;en when ;*ewed $rom ! ;!r*et( o$ perspe%t*;es. So .ood lu%" w*th th!t! +,m %omb*n*n. ! %ouple o$ d*$$erent %omments here4 but wh!t De$$ Allen s!*d w!s th!t 9the defining attri$ute of an o$;ecti e #anner of thinking is the a$ilit+ to--#ore deepl+, the recognition of the necessit+ to--think in principles. -o see realit+ as it is, then to grasp realit+ in non-contradictor+ conceptual for#. <ut thinking in principles will not succeed unless its ele#ents--the conceptual ter#s in which the principles are expressed--are solidl+ grounded in realit+. -his is where the ter# 3o$;ecti it+3 arises. You $est re eal +our own appreciation for this fact $+ the #anner in which +ou alidate +our unwinding of the concept 3#one+.3 -his is not the wa+ #ost people think, and this is wh+ +our $log is so striking to so #an+ people. <ut it is onl+ +our fellow thinkers-in-principles who possess the capacit+ to respond in this wa+. -hose who don4t get it, including those co##entators to which +ou refer, lack that capacit+. :+n Rand called these '!.e 0 :

the 3anti-conceptual #entalities.3 -he anti-conceptual #entalit+ has $een fostered and nourished $+ Prag#atis#, the philosoph+ which do#inated 5.S. acade#ia the first half of the (>th centur+, and do#inates our educational and political s+ste#s still toda+. We swi# in a sea of Prag#atis#. :ll new knowledge is inducti e. "eduction is secondar+, and depends on the alidit+ of one4s prior inductions. 9ro# whence co#es +our s+llogis#4s #a;or pre#ise, 3:ll fiat currencies are e entuall+ worth no #ore than toilet paper83 Was it deduced fro# a prior generali@ation, or was it induced8 -he answer, of course, is that it was induced. Your deduction #erel+ applies that general knowledge to the specific case of the dollar. !f +our inducti el+ generated #a;or pre#ise is not necessaril+ true, then neither is +our deducti el+ generated conclusion. 9ro# what prior principle did Gewton deduce uni ersal gra itation8 Gewton4s theor+ is the product of a grand induction, an integration of prior inductions #ade $+ Aepler and 2alileo, $ased on o$ser ations of planetar+ or$its, and of the $eha ior of ph+sical $odies on earth. 9reegold, too, is a grand induction. Your #ethod of approaching the issue fro# a ariet+ of perspecti es, all leading to the sa#e necessar+ conclusion, after precisel+ defining +our concepts, is essential to a proper inducti e process 6which, $+ the wa+, the #ere enu#eration of swans is not7.3 +t o%%urs to me th!t TA7b!sed !nd GSR7b!sed .old !nd s*l;er tr!d*n. *s prob!bl( !n e?!mple o$ 'r!.m!t*sm. +,m no e?pert on 'r!.m!t*sm4 but 2*"*ped*! s!(s *t 9des%r*bes ! pro%ess where theor( *s e?tr!%ted $rom pr!%t*%e4 !nd !ppl*ed b!%" to pr!%t*%e to $orm wh!t *s %!lled intelligent practice .9 The 9.r!nd *ndu%t*on9 5De$$,s term8 th!t we l*"e to %!ll Free.old w!s not m( .r!nd *ndu%t*on. Nor do + th*n" *t w!s Another,s. Another merel( sh!red *t w*th us !lon. w*th some o$ *ts 9ne%ess!r( %on%lus*ons9. 2h( d*d he do th!t@ + don,t "now4 but + h!;e ! $ew *de!s. As $or the 9.r!nd *ndu%t*on9 *tsel$4 + th*n" *t w!s ! #urope!n .roup e$$ort th!t te!sed *t out *n the 1>6 s !nd : s le!d*n. up to !nd !lso $ollow*n.R!nd !s ! result o$Rthe !brupt !nd pred*%t!ble end to the 3retton 2oods monet!r( s(stem *n 1>:1. + won,t .o *nto the det!*ls here be%!use + w!nt to "eep th*s post under 1 p!.es4 but the m!*n po*nt *s th!t + d*dn,t %ome up w*th *t. Free.old *s Cust ! n!me. + d*dn,t %ome up w*th the n!me e*ther. 3ut *$ (ou don,t underst!nd wh!t we,re d*s%uss*n. !nd e?tr!pol!t*n. upon here !t ! %on%eptu!l le;el4 *.nor*n. the %on;en*ent n!me4 (ou,re .o*n. to h!;e ! re!ll( h!rd t*me debun"*n. *t. +n $!%t4 + don,t th*n" (ou %!n4 e;en *$ (ou do underst!nd *t. Th!t,s one o$ the most rem!r"!ble th*n.s +,;e obser;ed !bout Free.oldRth!t those who m!"e the e$$ort to re!ll( underst!nd *t on ! %on%eptu!l le;el not onl( $!ll *n lo;e w*th *ts ele.!nt s*mpl*%*t( !nd ob;*ous *ne;*t!b*l*t(4 but the( !lso st!rt bu(*n. ph(s*%!l .old h!nd o;er $*st. And !.!*n4 th!t,s onl( be%!use o$ one o$ the 9ne%ess!r( %on%lus*ons9 th!t !re 5+MO8 *rre$ut!bl( dr!wn $rom *t. + w*ll tempor!r*l( !nd %ond*t*on!ll( l*$t the b!n on the $*;e %ommenters th!t h!;e been b!n*shed $rom th*s blo. o;er the l!st $our (e!rs so th!t anyone *s $ree to t!"e the*r best shot. 3ut onl( $or th*s one thre!d4 !nd onl( *$ the( beh!;e. + w*ll not put up w*th !buse4 h!te4 sp!m or person!l *nsults. +n other words4 Art4 AD !nd !n(one else !re !ll wel%ome *n th*s thre!d onl(4 unless !nd unt*l the( !buse *t. '!.e 0 -

3ut don,t e?pe%t me to person!ll( deb!te e!%h !nd e;er( !r.ument. +,m not .o*n. to w!ste m( t*me on !r.uments th!t m*ss the m!r" l*"e poor S"*pp(4 our 9 4:4 for effort9 do. !t the top4 or on those !r.uments th!t h!;e !lre!d( been de!lt w*th. There *s one !r.ument4 howe;er4 th!t + hope shows up to the p!rt(. And *$ !n(th*n. worth( %omes out o$ th*s thre!d4 +,ll !dd *t below *n the sp!%e between the l*nes $or the perm!nent re%ord. Dust bew!re th!t Free.old *s mu%h e!s*er to d*sm*ss on super$*%*!l .rounds th!n to de$e!t on deep4 lo.*%!ll(7%ons*stent %on%eptu!l .round. So *$ (ou re!ll( w!nt to !;o*d be%om*n. !nother e;*l .old ho!rder4 Cer"4 t*me m*s!llo%!tor !nd br!*nw!shed %ult member4 (ou should %ons*der s*mpl( d*sm*ss*n. Free.old on the sur$!%e7le;el r*d*%ulousness o$ *ts ne%ess!r( %on%lus*ons r!ther th!n t!"*n. up the %h!llen.e *n th*s post. Forew!rned *s $ore!rmed. And $*n!ll(4 (ou %!n,t Cud.e the worth*ness o$ (our own !r.ument. Th!t Cud.ment4 l*"e %red*b*l*t(4 %!n onl( be m!de b( others. As $or wh!t ends up below *n the sp!%e between the l*nes4 th!t Cud.ment *s reser;ed $or me4 but + w*ll %ons*der the op*n*ons o$ others who + th*n" underst!nd wh!t + th*n" + underst!nd *n m!"*n. !n( de%*s*on. ND S*n%erel(4 FOFOA WWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWWW

'!.e 0 >

"ue%day, De.ember 18, 2012


0hat $% Go'dD

)et,s t!"e ! poll. 2h!t *s .old@ +s *t mone(4 %urren%(4 !n *n;estment or we!lth@ For %l!r*t(4 +,ll .*;e (ou m( de$*n*t*ons o$ e!%h w*th l*n"s to some o$ the posts *n wh*%h +,;e used these terms. Mone( *s %red*t 5*.e.4 *t *s the w!( the e%onom( uses %red*t b!l!n%es to lubr*%!te the $low o$ tr!d!ble .oods !nd ser;*%es8. =urren%( *s wh!t denom*n!tes mone(. +t *s o$ten *ssued or !t le!st st!nd!rd*Ied b( the so;ere*.n or ! represent!t*;e o$ the %olle%t*;e. The pr*;!te e%onom( tr!des us*n. mostl( %red*t 5mone(8 denom*n!ted *n these st!nd!rd*Ied %urren%*es4 %red*t th!t *s *ssued !nd %le!red b( pr*;!te *nst*tut*ons us*n. the %urren%( *tsel$ $or %le!r*n.. =urren%( *tsel$ !lso doubles !s the 9*n (our h!nd49 9on the run49 9mone( to .o9 element o$ the mone( s(stem4 so th!t d*s%rete 5!nd d*s%reet!8 9!mounts9 o$ s!*d mone(7s(stem %!n be tr!ns$erred !mon. *nd*;*du!ls %on;en*entl( wh*le oper!t*n. tempor!r*l( outs*de o$ the *nst*tut*on!l monet!r( led.ers. And %urren%( *s !lso e?%h!n.ed d*re%tl( w*th other %urren%*es throu.h ! networ" o$ %urren%( e?%h!n.es4 o$ten w*th the %le!r*n. $un%t*on pro;*ded b( pr*;!te *nst*tut*ons4 to $!%*l*t!te e6u*t!ble tr!de between re.*ons th!t use d*$$erent %urren%*es. An *n;estment *s someth*n. th!t (ou bu( e?pe%t*n. ! .!*n or return. +t *s ! w!( o$ putt*n. (our mone( !t r*s" *n the hopes o$ obt!*n*n. more mone(. 2hen !n *n;estment re!%hes !n e?pe%ted 9top9 or some le;el o$ o;er;!lu!t*on b!sed upon the %!l%ul!t*ons o$ the *n;estor us*n. %ommon metr*%s l*"e e!rn*n.s4 *nterest or the sum ;!lue o$ *ts %omponents4 the r!t*on!l *n;estor *s l*"el( to sell th!t *n;estment !nd mo;e the $unds *nto someth*n. he deems under;!lued !t th!t t*me. 2e!lth *s s*mple. +t *s l*ter!ll( !n(th*n. ph(s*%!l th!t (ou %!n possess or !t le!st own un!mb*.uousl(. Tr!d!ble we!lth *s th!t wh*%h m!n( people ;!lue s*m*l!rl(4 there$ore *t *s tr!d!ble. Dur!b*l*t( m!"es some $orms o$ tr!d!ble we!lth ! better store o$ ;!lue th!n others wh*%h %!n de%!( !nd per*sh o;er t*me. =ommon $orms o$ dur!ble tr!d!ble we!lth *n%lude $*ne !rt4 !nt*6ues4 %l!ss*% %!rs !nd m!n( other %olle%t*ble h!rd !ssets. M( poll *s o;er to the r*.ht *n the s*deb!r4 !nd *t *s open to !n(one4 e;en those who h!;e no 9.old9. + e;en m!de *t poss*ble to ;ote $or more th!n one %ho*%e4 *n %!se (ou th*n" th!t .old *s two4 three or !ll o$ '!.e 01

the %ho*%es.

+ %!st the $*rst ;ote on beh!l$ o$ AGFOA. /ow d*d + "now the*r ;ote@ The( m!de *t %r(st!l %le!r *n one o$ the*r e!rl*est %ommentsE 32old is not #one+, not currenc+, not an in est#ent, it is wealth.3 + th*n" th*s *s the essen%e o$ !ll o$ th*s4 o$ Free.old4 o$ 5T/OFG/TS!84 o$ The Gold Tr!*l4 o$ m( blo.4 the "e(4 *$ (ou w*ll4 to unlo%"*n. the ;*ew. 3ut $rom the l!st thre!d o$ !r.uments !.!*nst Free.old4 *t *s ob;*ous th!t some o$ (ou st*ll th*n" .old *s Cust !nother *n;estment. Th!t,s $*ne4 be%!use th!t,s !ll .old *s to !lmost e;er(one *n the 2est4 so (ou,re %ert!*nl( not !lone *n (our op*n*on. +$ we %ould .et e;er(one *n the 2est to ;ote *n th*s poll4 + th*n" 9.old *s !n *n;estment9 would w*n *n ! l!ndsl*de. +$ we %ould .et e;er(one *n the pre%*ous met!ls blo.osphere to ;ote4 then 9.old *s mone(9 would prob!bl( w*n. So4 to most 2esterners4 .old *s !n *n;estment. To the .old bu.s !nd /MS %rowd4 .old *s mone(. And to the bull*on b!n"s4 .old *s ! %urren%( 5+SO %ode ]AF8 upon wh*%h %red*t *s *ssued !nd tr!ded. So wh!t d*d AGFOA me!n b( the st!tement th!t .old *s we!lth4 not !n( o$ these other th*n.s@ + me!n4 surel( .old *s wh!te;er *ts users th*n" *t *s4 subCe%t*;e use ;!lue !nd !ll4 r*.ht@ A%tu!ll(4 th!t,s e?!%tl( r*.ht! Gold is wh!te;er *ts users th*n" *t *s. And the po*nt AGFOA w!s dr*;*n. !t w!s th!t the ;!st m!Cor*t( o$ the !bo;e7.round .old4 tod!( somewhere !round 1614 tonnes4 *s held b( people who underst!nd *t !s we!lth. And4 *n $!%t4 the onl( op*n*ons !bout wh!t .old !%tu!ll( *s th!t w*ll m!tter on the d!( !$ter the Free.old re;!lu!t*on4 the onl( 9;otes9 th!t w*ll %ount4 !re those who %!rr*ed 5*.e.4 possessed or un!mb*.uousl( owned8 th!t .old throu.h the tr!ns*t*on. The re!l ;ote $or 9wh!t *s .old94 the onl( 9poll9 th!t w*ll m!tter4 w*ll not be l*"e ! demo%r!t*% ele%t*on w*th un*;ers!l su$$r!.e. You,ll onl( .et ! ;ote *$ (ou h!;e some4 !nd (our ;ote w*ll be we*.hted b( how mu%h (ou h!;e. Th*s %on%ept *s h*.hl( rele;!nt to Free.old4 espe%*!ll( *n the %onte?t o$ the l!st thre!d. 'rob!bl( 5to us8 the most rele;!nt %on%lus*on dr!wn $rom the !bstr!%t*on we %!ll Free.old 5wh*%h *s re!ll( Cust the end o$ the use o$ .old !s ! %urren%( denom*n!t*n. %red*t8 *s ! $uture .old pr*%e th!t *s more th!n !n order o$ m!.n*tude h*.her th!n tod!(,s pr*%eL *n re!l termsG%onst!nt doll!rs. Th*s *s !lso '!.e 011

the %on%lus*on th!t sprouts most o$ the !r.uments !.!*nst Free.old. And the m!*n !r.ument !.!*nst su%h ! sho%"*n. re;!lu!t*on *s th!t *t won,t st*%" be%!use o$ suppl( !nd dem!nd. There !re two s%hools o$ thou.ht on the or.!n*% emer.en%e o$ Free.old. The one th!t + don,t subs%r*be to *s th!t *t w*ll be dem!nd7dr*;enL $rom the .round up. Th*s s%hool o$ thou.ht s!(s th!t we w*ll onl( see Free.old on%e the !;er!.e m!n on the street underst!nds how pre%*ous ph(s*%!l .old re!ll( *s. +t s!(s th!t the dem!nd $or ph(s*%!l .old w*ll somed!( under.o ! ph!se tr!ns*t*on thereb( o;erwhelm*n. the suppl( $low !nd br*n.*n. us to ! new4 ph(s*%!l7onl( pr*%e r!n.e 5*n re!l terms8. The other s%hool o$ thou.ht4 the one th!t + do subs%r*be to4 *s th!t *t w*ll be suppl(7dr*;enL $rom the top down. M( s%hool o$ thou.ht s!(s th!t the !;er!.e m!n on the street w*ll onl( underst!nd how pre%*ous ph(s*%!l .old re!ll( *s after Free.old *s re;e!led *n st!r" rel*e$. +t s!(s th!t the suppl( $low o$ ph(s*%!l .old w*ll somed!( under.o ! ph!se tr!ns*t*on whereb( *t .oes *nto h*d*n. due to the %r!sh*n. pr*%e o$ *ts p!per pro?*es. +t s!(s th!t ph(s*%!l .old4 dur*n. th*s ph!se7sh*$t4 w*ll $urther %onsol*d!te *n the h!nds o$ onl( those who underst!nd *t !s we!lth !nd noth*n. else4 br*n.*n. us to ! new4 ph(s*%!l7 onl( pr*%e r!n.e 5*n re!l terms8. +n $uture h*nds*.ht4 loo"*n. b!%" on the tr!ns*t*on4 *t m!( be %ommonl( held !s ! %h*%"en !nd e.. 6uest*on !s to wh*%h %!me $*rst4 the new pr*%e r!n.e $or .old or the %h!n.e *n dem!nd. =!use !nd e$$e%t *s somet*mes tr*%"( th!t w!(. At the top o$ Mone(ness & + wroteE 0hat )$'' .han#e $% ho) )e 9$e) money and )ea'th 19eryth$n# e'%e $n Free#o'd 2'o)% 2rom that! Th*s *s ! s*mple st!tement o$ dem!nd7dr*;en %!use !nd e$$e%t4 but *t doesn,t s!( wh!t w*ll %!use the %h!n.e *n dem!ndRhow we w*ll ;*ew mone( !nd we!lth. For th*s + th*n" we need to loo" !t the suppl( s*deN who w*ll h!;e the .old4 whose ;ote w*ll %ount when .old *s suddenl( P11OGoun%e 5*n %onst!nt doll!rs8 !nd the 6uest*on *s !s"ed4 wh!t *s .old@ Abo9e8Ground Supp'y +t *s !%tu!ll( 6u*te ! b*t e!s*er $or me to des%r*be the people whose ;*ew won,t %h!n.e be%!use o$ Free.old th!n to %on;*n%e (ou o$ e;er(one else,s ;*ew %h!n.*n. $ecause o$ Free.old. You need onl( underst!nd the d*st*n%t*ons between the ;*ews4 wh!t sets them !p!rt4 to dr!w (our own %on%lus*ons. +t *s poss*ble th!t some o$ (ou !t th*s blo. who st*ll ;*ew .old !s !n *n;estment m!( *ndeed m!"e *t to the ;ote th!t %ounts4 depend*n. on how *t !ll un$olds. 3ut *$ (ou !re lu%"( enou.h to .et there wh*le st*ll %l*n.*n. to the *de! th!t .old *s !n *n;estment to be sold !t the top4 or th!t 9!sset !llo%!t*ons under Free.old9 should be reb!l!n%ed !w!( $rom 9topp(9 .old4 then (our ;ote w*ll be *n the t*n( los*n. m*nor*t( o$ those who re!%ted l*"e lotter( w*nners. 3ut b!sed on some o$ the %omments *n the l!st thre!d4 + bet th!t most who ;*ew .old !s !n *n;estment w*ll %!sh *n th!t lotter( t*%"et too soon. And e;en *$ th!t,s not (ou4 most others w*ll !nd w*ll thereb( surrender the*r ;ote !lto.ether4 d*m*n*sh*n. th!t t*n( ;ot*n. blo%" e;en $urther.

'!.e 01&

+ w!nt to tell (ou ! stor( !bout one o$ m( re!ders. 2e,ll %!ll h*m Dumbo Shr*mp. Dumbo Shr*mp st!rted re!d*n. m( blo. *n & >4 !nd he w!s one o$ the ;er( $*rst people to send me ! don!t*on when + put up the button th!t (e!r. +t w!s ! s*Ie!ble don!t*on4 !nd *t w!s repe!ted se;er!l t*mes. Turns out th!t Dumbo Shr*mp *s 6u*te su%%ess$ul !s ! $*n!n%*!l m!r"et !n!l(st o$ sorts. /e,s !bout m( !.e4 m!(be ! $ew (e!rs older4 but h*s net worth *s !round P11 m*ll*on. Dumbo Shr*mp $*rst .ot *nterested *n .old !lmost ! de%!de !.o4 !nd he bou.ht h*msel$ 6u*te ! b*t o$ ph(s*%!l w*th !n !;er!.e pur%h!se pr*%e *n the P1 s. From wh!t he told me e!rl*er th*s (e!r4 he h!d !%%umul!ted !round 14: oun%es o$ ph(s*%!l wh*%h he "ept *n h*s *mmed*!te possess*on. /e e;en sent me ! p*%ture o$ h*msel$ hold*n. ! 1 ". 50& oI.8 %o*n worth !bout ! h!l$ m*ll*on !t the t*me. 2e h!d m!n( %on;ers!t*ons o;er ! %ouple o$ (e!rs. 2e e;en t!l"ed on the phone o%%!s*on!ll(. And one th*n. + %ould !lw!(s tell !bout Dumbo Shr*mp w!s th!t4 e;en thou.h he lo;ed m( wr*t*n.4 he ne;er 6u*te understood m( ;*ew. /e st*ll thou.ht o$ .old !s !n *n;estment4 one o$ m!n(4 !nd he %ons*dered the *de! th!t p!per !nd ph(s*%!l %ould e;er d*;er.e le!d*n. to ! re;!lu!t*on o$ ph(s*%!l to be ! %onsp*r!%( theor(. /*s r!t*on!le $or own*n. some ph(s*%!l w!s s*mpl( el*m*n!t*n. %ounterp!rt( r*s" on ! port*on o$ h*s 9we!lth9. As + s!*d4 Dumbo Shr*mp *s ! $*n!n%*!l m!r"et !n!l(st4 !nd h*s method o$ !n!l(I*n. h*s person!l .old *n;estments 5wh*%h %ons*st o$ more th!n Cust ph(s*%!l8 %enters on tr!%"*n. the m*n*n. sh!res. /*s $und!ment!l oper!t*n. pr*n%*ple *s4 *n h*s own words4 9Gold sto%"s A)2AYS le!d .old.9 An(w!(4 b!%" *n e!rl( M!( + re%e*;ed ! $lurr( o$ em!*ls $rom Dumbo Shr*mp wh*%h !lso went out to ! lot o$ other people4 m!"*n. ! ;er( bold bottom %!ll re.!rd*n. the m*ners. + 6uote $rom the $*rst em!*lE 9As low r*s"Gh*.h return !s + h!;e e;er seen.9 /e w!s m!"*n. ! te%hn*%!l %!ll4 ! bu( re%ommend!t*on4 !nd !lso putt*n. h*s own mone( on the l*ne. Fn$ortun!tel( *t mo;ed de%*s*;el( *n the wron. d*re%t*on Cust ! d!( or two l!ter. + don,t "now *$ *t w!s be%!use o$ h*s person!l st!"e *n *t4 or $rom the st*n. o$ h!;*n. m!de su%h ! bold pred*%t*on to so m!n( /N2 people th!t went so wron.4 but s*? d!(s l!ter he threw *n the towel on .old4 em!*l*n. me4 9+t w!s ! $un r*de wh*le *t l!sted. + sold >1Q o$ m( .old !t P14641.9 /e %ert!*nl( d*d m!"e ! n*%e pro$*t. +$ m( m!th *s r*.ht4 he must h!;e boo"ed ! .!*n o$ !round P1.-M '!.e 010

on ! ph(s*%!l *n;estment o$ less th!n ! m*ll*on. M( !polo.*es to Dumbo Shr*mp $or !*r*n. h*s stor(4 but + th*n" *t w*ll be help$ul to others !nd + !%tu!ll( hope th!t he re!ds th*s !nd re%ons*ders. /e *s mu%h lu%"*er th!n others w*ll be *n th!t *t,s not too l!te $or h*m to bu( b!%" *n. M( po*nt *n sh!r*n. th*s stor( *s th!t %!ll*n. !nd then %!t%h*n. the top *n .old *s ! $und!ment!l p!rt o$ ;*ew*n. .old !s !n *n;estment. Dumbo Shr*mp w!s e!rl( w*th h*s %!ll4 but whether the pr*%e o$ 9.old9 "eeps %l*mb*n. $rom here or $!lls o$$ ! %l*$$ tomorrow4 e;er(one who ;*ews the*r ph(s*%!l .old !s !n *n;estment w*ll e;entu!ll( be put to the test !t some po*nt be$ore 9the onl( ;ote on wh!t .old *s th!t %ounts94 Cust l*"e Dumbo Shr*mp w!s. + w!nt (ou to $or.et $or ! moment whether or not (ou th*n" the Free.old re;!lu!t*on w*ll !%tu!ll( h!ppen. The 6uest*on + w!nt to t!ble *s s*mpleE ;% *t h!ppens4 %!n *t st*%" lon. enou.h $or e;er(one,s per%ept*on !bout wh!t .old *s to %h!n.e@ +,ll .*;e (ou ! 6u*%" 9wh!t *$9 h(pothet*%!l s%en!r*o to help (ou ;*su!l*Ie the 6uest*on. +t *s not *mport!nt whether th*s s%en!r*o h!ppens be%!use there !re m!n( poss*ble s%en!r*os th!t + %!n *m!.*ne le!d*n. to the ph(s*%!l .old re;!lu!t*on4 some 6u*te d*$$erent $rom th*s. /ere,s the s%en!r*oE +m!.*ne th!t we h!;e !nother $*n!n%*!l m!r"et %oll!pse l*"e September4 & -4 onl( th*s t*me the pr*%e o$ .old "eeps $!ll*n. e;en !s there *s no ph(s*%!l to be $ound. The m!r"et %oll!pse le!ds to !n emer.en%( pr*nt7$est b( the FSG *n !n !ttempt to 9st*mul!te9 or sho%" the e%onom( !nd m!r"ets b!%" to l*$e. Tr!d*n. *s stopped to *nterrupt the $ree $!ll !tmosphere. 9Gold,s9 $ree $!ll *s stopped !t P1 per oun%e !nd o;er the ne?t $ew wee"s4 !n(one hold*n. ! %l!*m th!t w!s pre;*ousl( e?%h!n.e!ble $or ph(s*%!l .old *s %!sh settled *n the sp*r*t o$ $!*rness. At the ne?t 6u!rter7end MTM p!rt( we $*nd out th!t the #uros(stem h!s m!r"ed *ts .old reser;es !t the e6u*;!lent o$ P11O per oun%e *n %onst!nt doll!rs. 2e !lso $*nd out th!t th*s pr*%e 5*n re!l terms8 w!s der*;ed b( !;er!.*n. !%tu!l tr!des med*!ted b( the 3+S !nd #=3 dur*n. the bl!%"out !$ter the p!per m!r"ets %r!shed. So we h!;e ! sudden step up *n the 5re!l8 pr*%e o$ ph(s*%!l .old $rom P1 to P114 doll!rs. +t *s b!s*%!ll( !n 9o;ern*.ht9 re;!lu!t*on4 e;en thou.h *t w!sn,t l*ter!ll( o;ern*.ht4 be%!use P1 w!s the onl( "nown pr*%e *n the *nter*m. An( tr!des o$ ph(s*%!l .old th!t h!ppened dur*n. the *nter*m 59.old *n h*d*n.9 per*od8 h!ppened lo%!ll( !nd d*d not !$$e%t the pr*%e o$ .old be%!use *t w!s te%hn*%!ll( $roIen !t P1 . +,m h!pp( to %on%lude th!t th*s news 5the new MTM pr*%e8 w*ll be ! sho%" to !lmost e;er(bod(4 espe%*!ll( to those who m*ssed out on the re;!lu!t*on4 !nd th!t the*r *n*t*!l re!%t*on to the sho%" w*ll %ert!*nl( not be to rush out !nd bu( t*n( .old b!rs !t P11O per oun%e. Th!t p!rt*%ul!r %h!n.e *n dem!nd w*ll t!"e some t*me to m!n*$est *n !n( s%en!r*o + %!n *m!.*ne. So + th*n" *t *s re!ll( more ! 6uest*on o$ suppl( !s to whether th*s new pr*%e r!n.e %!n st*%" *n the *mmed*!te !$term!th. And th*s br*n.s us to the ;ote $or wh!t .old *s! The two m!*n %ontenders w*ll be ,*n;estment, !nd ,we!lth,4 be%!use those %ho*%es represent the two %ompet*n. s%hemes o$ !%t*on th!t w*ll be $!%ed b( those who !%tu!ll( d*d p!rt*%*p!te *n the re;!lu!t*on b( %!rr(*n. ph(s*%!l .old throu.h the storm4 !nd who there$ore .et ! ;ote. +n $!%t4 !%t*on *s the ;ot*n. method4 wh*%h *s pre%*sel( wh( onl( those w*th .old w*ll .et ! ;ote. For e?!mple4 those who somehow m!de *t throu.h the re;!lu!t*on pro%ess wh*le st*ll th*n"*n. .old *s '!.e 014

!n *n;estment w*ll4 upon see*n. *t .!p up $rom P1 to P114 4 e*ther %!sh *t *n l*"e ! lotter( t*%"et or !t le!st reb!l!n%e the*r *n;estment port$ol*o !w!( $rom .old. And *$ too m!n( people do th*s !ll !t on%e4 suppl( w*ll $lood the newborn ph(s*%!l7onl( m!r"et !nd the new pr*%e r!n.e %ould $!lter unless the G*!nts !nd =3s step *n w*th unl*m*ted dem!nd. +t *s poss*ble th!t the G*!nts !nd =3s would do th*s4 but the po*nt o$ th*s e?er%*se *s to e?pl!*n wh( the( won,t h!;e to. Those who underst!nd th!t .old *s we!lth4 on the other h!nd4 w*ll re!%t d*$$erentl(. 'eople w*th dur!ble4 tr!d!ble we!lth .ener!ll( h!;e e;er(th*n. else th!t the( need. 2e!lth *s wh!t (ou bu( w*th (our e?%ess. And *$ (ou need to t!p *nto th!t we!lth4 $or wh!te;er re!son4 to support or *mpro;e (our l*$est(le4 then (ou sell *t *n dr*ps !nd dr!bs !s needed. Or4 *$ (our we!lth pre$eren%es %h!n.e4 (ou %!n !lso tr!de we!lth $or d*$$erent we!lth. So here we h!;e three !%t*ons th!t the we!lth( t!"e w*th the*r we!lth. The( !%%umul!te *t4 the( sell *t *n dr*ps !nd dr!bs $or %onsumpt*on purposes4 or the( tr!de *t $or other we!lth. +,m sure th*s seems l*"e ! r*d*%ulous d*st*n%t*on to those o$ (ou who ;*ew e;er(th*n. !s !n *n;estment. Th!t,s re!ll( ! 2estern shr*mp perspe%t*;e4 !nd + th*n" *t,s prob!bl( wh( (ou !re stru..l*n. to underst!nd Free.old. So let,s t!"e ! %loser loo" !t *t $rom ! %ouple d*$$erent !n.les. M*%h!el / po*nted us to th*s %omment $rom FOA Cust the other d!(E =OA 6%(C%,C''= %'Q%NQ>%0"- - 0sg !"Q(>'NU7 Io##ent 0r 2resha# 6%(C%(C''= %UQ>UQN(0"- - 0sg !"Q(>&>R7 3 3 3/con HRN, :d anced 2raduate Le el 0one+ and !nternational <ankingQ 0arket "ise.uili$riu# Scenarios, otherwise known as 5S:2old 9oru#3 3 3 ------------1ello 0r. 2, 1aD 1aD -hat is so#e class +ou are taking. )ne of the things :nother wanted to acco#plish is happening. -hat $eing, getting Hestern citi*ens to reconsider e"actly what gold was in the eyes o% other real people. !n order for that to happen, people had to understand the e ol ing #odern politics of gold and how it has created a 3Gew 2old 0arket3. )ne far different fro# the one gold$ugs of the R>s had grown to know and lo e. !n the $eginning, #an+ readers had no $asis for co#parison when reading #ost of :nother4s -houghts. Yet, we walk this e olutionar+ trail of gold toda+ with e+es wide open and $etter a$le to grasp the i#possi$le road ahead. )nwardQ ! ha e seen one sure sign that Westerners don4t reall+ know what has happened to their wealth. -his is de#onstrated when one 3$e#oans the loss of good ti#es3 if gold goes er+ high. !t co#es across the sa#e e er+ ti#e= 3 3 3if gold goes to M,>,>>> we won4t ha e a di#e and e er+thing will fall apart3 3 3. Well, :nother #ade his point that the dollar said +our wealth was worth #ore than it reall+ was. Let #e de#onstrate.

'!.e 011

Like thisQ / er $een to a high priced auction. -he+ $ring out the 3Strad3 iolin and start $idding at MN>>,>>>. :fter a while it goes for M% #illion flat and it4s o er. :fter that we listen to the perceptions around the roo#. )ne gu+ in the $ack, who has %> #illion cash, thinks the Strad was cheap at one #ill and will pick one up next +ear. !n fact he #a+ get ten if the+ are offered. So#e rich wo#an has , #illion and she figures her wealth is e.ual to three 3 iolins3 if she e er wanted the#. :ll around the roo# the feelings are the sa#e as perhaps %>> #illion in assets are represented. -he+ all e.uate their $u+ing power to this one auction. / en though onl+ one walked awa+ with ph+sical, e er+one knows the+ are 3strad rich3 in wealth. /ach goes ho#e for the e ening cognac and relishes in this knowledge. -heir lifelong effort of hard work and shrewd in esting has positioned the# to own the wealth of #an+ rare iolins. Life is good, er+ good. -he one pro$le# with all of this is that the+ $ased their 3wealth holdings3 on the outco#e of ;ust one auction. -rul+, had the+ all $id, the iolin would ha e gone for #uch #ore and their wealth would see# 3not so #uch3. !n #uch the sa#e wa+ our world of dollar assets carries the sa#e risk. :ll of us stand in the sa#e world auction roo# and watch the dail+ $idding for goods and ser ices. We watch the prices of cars, gas, houses, clothes, etc. and conclude our wealth $alances $ased on what we could ac.uire at this auction should we choose to $id. We see our econo#+ in a light of infinite goods and ser ices $ut fail to $alance this with the potential of others to $id, 3in #ass3. !n this light, few ha e a alid perception of ;ust how #an+ dollar assets are out there. !ndeed, without this grasp of 3dollar inflation3 we $lindl+ consider our wealth and position in life using the present price structure of 3things3. : s+ste# in which we trade paper !)5s of infinite nu#$er for real things of finite nu#$er. So, our $elief that life is good, largel+ rest not on the confidence in the dollar. Gor is it in the confidence that others will alue and accept our dollars. Life is good, $ecause all of us do not 3$id3 at the sa#e ti#eD !f we did, our life would not $e as good as our dollar wealth sa+s it isD This is the deception in our Hestern grasp o% what wealth is. )ur life sa ings are alued at what the+ can $u+ toda+, e en though, in realit+ it is $ased on an unknown purchase price in the future. Just as all of the wealth at the iolin auction was a phanto# in self delusion, so too is our present good life and $ank account nu#$ers. -he e olution of a people that once gripped gold for the real wealth #one+ it was, has proceeded to the hoarding of $ookkeeping entries of account credits. 1istor+ has pro en that once hu#ans $egin to .uestion the alue of this dollar 3wealth owed the# at a future unknown price3 the+ run a race to outspend their lo ed $rothers. <u+ing goods now at the 3known3 price .uickl+ $alances the $ooks so no one is an+ longer fooled. The currency equi alents remain as a trading medium& e en as real things are held in the !ackground %or alue proo%. Go, a high price of gold will not ro$ us of our wealth. !t will ro$ us of this perception of #one+ alue that was $ut an illusion in the clouds. Wealth for to#orrow is found in this context for toda+= one cannot lose so#ething the+ ne er owned. <u+ing ph+sical gold at toda+4s prices 6M(>> to MN>>7 will not help +ou #aintain this #odern illusion of wealth we ne er had. <ut will allow us to later spend the true '!.e 016

alue of gold that presentl+ exists toda+. : alue few will accept or $elie e. -hank +ou all,,,,,,,,,,,,,,,9): FOA m!de some .re!t po*nts *n th!t %omment4 but + w!nt to dr!w (our !ttent*on to one th!t + th*n" w!s *n!d;ertentl( m!de. The re!%t*on o$ the m*ll*on!*res obser;*n. the 9Str!d !u%t*on9 *llustr!tes the p!r!do?*%!l n!ture o$ G*$$en or Aeblen .oods wh*%h seem to ;*ol!te the e%onom*% l!w o$ dem!nd. These obser;ers d*dn,t h!;e the*r own Str!ds4 but !s the pr*%e rose !nd the !u%t*on settled4 the( *nst*n%t*;el( *m!.*ned bu(*n. the*r own Str!d*;!r*us !nd the( !lso %ons*dered the*r own we!lth *n Str!d termsRhow m!n( Str!ds the( %ould bu(. These t(pes o$ .oods !re somet*mes %!lled pos*t*on!l .oods or st!tus .oods. +t h!s been obser;ed th!t r!ther th!n people d*;ers*$(*n. !w!( $rom these .oods or subst*tut*n. other .oods !s the pr*%e r*ses4 the oppos*te tends to o%%ur w*th world7%l!ss dur!ble4 tr!d!ble !nd %olle%t*ble we!lth *tems. You,;e prob!bl( he!rd o$ the we!lth e$$e%t !s *t w!s !ppl*ed to the hous*n. bubble. +t s!(s th!t people tend to spend more when the( !%tu!ll( !re r*%her4 obCe%t*;el(4 or when the( per%e*;e themsel;es to be r*%her. The po*nt here *s th!t the beh!;*or!l %h!n.e e$$e%t %omes $rom the perception o$ we!lth4 not the l*6u*d!t*on o$ we!lth. +m!.*ne ! p!*nt*n. th!t w!s pur%h!sed $or P1 m*ll*on !nd sold ! de%!de l!ter $or P1 m*ll*on. 2e h!;e seen ! r*se *n the pr*%e o$ $*ne !rt o;er the l!st $ew (e!rs4 so wh( h!;en,t we seen all $*ne !rt $lood the m!r"et l*"e ! bun%h o$ lotter( t*%"ets tr(*n. to .et %!shed *n@ 2hen ! we!lth *tem l*"e th!t r*ses *n ;!lue !nd th!t new ;!lue *s re;e!led !t the m!r.*n 5the !u%t*on house84 the we!lth( people hold*n. s*m*l!r *tems s*mpl( $eel ! l*ttle more we!lth(. 3ut the( underst!nd th!t we!lth *s not ! lotter( t*%"et. 'erh!ps some people ;*ew $*ne !rt !s !n *n;estment4 but not the m!Cor*t(4 otherw*se we,d obser;e someth*n. d*$$erent th!n wh!t we,;e obser;ed. The po*nt *s th!t G*!nts4 who hold ! .ood port*on o$ th!t 1614 tonnes o$ !bo;e7.round .old4 ;*ew ph(s*%!l .old !s we!lth !nd not !s !n *n;estment. No m!tter where the pr*%e .oes4 the( w*ll not sell *t en m!sse4 or e;en *n m!ss. The( !lre!d( h!;e e;er(th*n. the( need to l*;e !n e?%ept*on!l l*$e st(le !nd the( underst!nd th!t the best w!( to d*sho!rd we!lth *s *n dr*ps !nd dr!bs o;er t*me !s needed or !s *nd*;*du!l pre$eren%es %h!n.e. 3ut we !re not !ll G*!nts4 !re we@ Some o$ us !re l*"el( to w!nt to 9up.r!de9 our l*$est(le *$ our .old *s suddenl( re;!lued4 r*.ht@ 2*ll we do so *n dr*ps !nd dr!bs !s needed4 or w*ll we de%*de to dump *t !ll !t on%e to %!t%h the top !nd lo%" *n our pro$*t@ 2ell4 let,s loo" !t th*s 9up.r!d!ble l*$est(le9 port*on o$ the ;ote. +n the 2est *t w*ll be !n e?tremel( t*n( %ont*n.ent. +n #!stern %ountr*es l*"e +nd*!4 *t *s l*"el( to be ! $!*rl( l!r.e %ont*n.ent. F*rst the 2est. 2hen + s!( t*n(4 +,m t!l"*n. !bout m!(be one person *n ! m*ll*on t*n(. Someone who h!s4 s!(4 &Q to 1Q o$ h*s we!lthGs!;*n.s *n ph(s*%!l .oldR!nd *s !ble to hold stron. throu.h the tr!ns*t*on w*thout %!sh*n. *n th!t lotter( t*%"et or p!n*%"*n. out !lon. the w!(R*s re!ll( onl( .o*n. to st!( e;en or see ! sm!ll .!*n 5e...4 see M*%h!el /,s re;!lu!t*onGreb!l!n%*n. e?er%*se here8. So *n th*s 2estern .roup o$ 9;oters9 who w*ll be $!%ed w*th the %ho*%e o$ dr*ps !nd dr!bs ;ersus !ll !t on%e lotter( t*%"et !re re!ll( onl( those who h!;e ! subst!nt*!l enou.h port*on o$ the*r we!lth *n ph(s*%!l .old th!t the( w*ll see wh!t %ould be %ons*dered ! l*$e7%h!n.*n. w*nd$!ll pro$*t. '!.e 01:

The bottom l*ne *s th!t th*s 2estern .roup *s too t*n( to e;en m!tter *n the $*n!l ;ote $or 9wh!t .old *s9 !$ter the tr!ns*t*on. And the d(n!m*%s o$ the tr!ns*t*on w*ll l*"el( sh!"e out !ll but the stron.est h!nds wh*%h !re more l*"el( to %ons*der .old to be we!lth l*"e the G*!nts do. +n the #!st the( !lre!d( ;*ew .old !s we!lth. So e;en thou.h the( w*ll h!;e the !b*l*t( to *mpro;e the*r st!nd!rd o$ l*;*n.4 the( w*ll l*"el( %ont*nue to !%%umul!te4 onl( %hoos*n. to d*sho!rd !s needed. Th*s would be ! .ood 6uest*on $or An!nd. /ow m!n( o$ the .old holders *n +nd*! do (ou th*n" %ons*der .old to be we!lth ;ersus how m!n( %ons*der *t !n *n;estment th!t (ou should dump !t the top@ And how w*ll the !;er!.e +nd*!n re!%t to ! .old re;!lu!t*on@ 2*ll she sell *t !ll !t on%e !nd l*;e l!r.e l*"e ! lotter( w*nner@ 2*ll she sell ! l*ttle *n dr*ps !nd dr!bs !s needed to *mpro;e her 6u!l*t( o$ l*$e@ Or w*ll she %ont*nue to !%%umul!te wh*le $eel*n. 5"now*n. she *s trul(8 we!lth(@ + suppose *t w*ll depend on e!%h person,s *nd*;*du!l %*r%umst!n%es4 but we .ener!ll( !sp*re to th!t wh*%h *s !lre!d( present *n our ;*%*n*t(. So + %!n *m!.*ne th!t ! .ener!l *mpro;ement *n the st!nd!rd o$ l*;*n. *n +nd*! would pl!( out more .r!du!ll( th!n *t would $or4 s!(4 !n Amer*%!n lotter( w*nner or !n NF) dr!$t p*%". So who else *s there on the suppl( s*de th!t w*ll .et ! ;ote on wh!t .old *s@ Oh4 (e!h4 the %entr!l b!n"s! The( useG;*ew .old !s ! reser;e !sset4 wh*%h *s to the monet!r( s(stem !s we!lth *s to the *nd*;*du!l. So + don,t th*n" we h!;e to worr( !bout them dump*n. the*r .old l*"e !n *n;estment 9to %!t%h the top9. + .uess th!t !bout %o;ers !ll those whose op*n*on w*ll m!tter 5e?%ept m!(be .o;ernments4 but we,ll .et to them *n ! moment8. The op*n*on o$ those who don,t %!rr( !bo;e7.round .old throu.h the tr!ns*t*on won,t m!tter4 but *t w*ll be $or%ed to %h!n.e spe%*$*%!ll( !ecause *t won,t m!tter! Th*n" !bout th!t wh*le we mo;e on to .old *n the .round. Go'd $n the Ground 2h*le there !re !n est*m!ted 1614 tonnes o$ !bo;e7.round .old4 e!%h !nd e;er( b*t owned b( someone4 ! re%ent est*m!te re;e!led "nown !nd re%o;er!ble *n7.round depos*ts to be !nother 6:41 tonnes spre!d out !ll o;er the world.

The d*str*but*on o$ these *n7.round depos*ts *s !s $ollowsE North Amer*%! 04Q South Amer*%! 1:Q #urope &Q A$r*%! 1:Q Russ*!GAs*! 1:Q '!.e 01-

Austr!l*! 1&Q

The !;er!.e r!te o$ e?tr!%t*on $or the l!st $*;e (e!rs4 !%%ord*n. to the 2G=4 h!s been &46 &.& tonnes per (e!r. One o$ the !r.uments !.!*nst Free.old *s th!t !ll o$ th*s m*n*n. suppl(4 *$ *t went to m!r"et !t P114 per oun%e 5or there!bouts84 would %onst*tute ! dump re6u*r*n. !n o$$sett*n. dem!nd o$ P4.6 tr*ll*on per (e!r 5*n re!l termsR.lob!l net produ%t*on8 to m!*nt!*n th!t pr*%e. Th*s *s ! power$ul !r.ument th!t4 *n m( op*n*on4 deser;es some more d*s%uss*on. To underst!nd the %ounter!r.ument4 there !re ! %ouple o$ th*n.s (ou need to "now !bout the d*$$eren%es between *n7.round .old !nd !bo;e7.round .old. F*rst o$ !ll4 .old th!t *s st*ll *n the .round *s not worth !s mu%h !s .old th!t h!s !lre!d( been m*ned. Gold *n the .round *s worth the m!r"et pr*%e o$ !bo;e7 .round .old m*nus the %ost o$ pull*n. *t out o$ the .round !nd then re$*n*n. *t. The se%ond th*n. *s th!t4 wh*le e;er( b*t o$ !bo;e7.round .old *s owned b( someone4 the ownersh*p o$ *n7.round .old *s not wh!t (ou th*n"4 espe%*!ll( *n e?trem*s. )et me e?pl!*n. +t *s ! pure *llus*on tod!( th!t the owners o$ m*nes !lso own the .old *n the .round under the*r m*nes. +t *s !n !n!%hron*sm4 ! rel*% o$ ! b(.one er! !nd *t %!n onl( l!st !s lon. !s the pr*%e o$ .old !nd the %ost o$ e?tr!%t*on !re *n rel!t*;el( %lose pro?*m*t(. /ere,s wh!t ANOT/#R h!d to s!( !bout *tE "ateQ Sun :pr %' %''& %NQ>' A-OT415 6T4OU+4TS78 !"SH>(N,Q -he go ern#ents will re alue gold and 3de#and3 that the pu$lic carr+ it and use itD !t will $e the source of all gold, the #ines, that will $e controlledD -hat4s Iontrolled, with a capital 3I3, not confiscatedD 2hen %on$ronted w*th the !r.ument th!t .o;ernments !re slow7mo;*n. le;*!th!ns !nd w*ll there$ore be slow to t!? the m*nes w*th some sort o$ w*nd$!ll pro$*ts t!?4 FOA rem!r"edE =OA 6HCRC''= RQUNQ>U0"- - 0sg !"QR(&(7 Ste e, on this issue, the+ will #o e no slower than with the speed of one who finds a gold coin upon a '!.e 01>

sidewalkD 9): M*n*n. %omp!n*es !re s*tt*n. du%"s. /!t t*p to re!der 939 $or th*s re%ent 6uote $rom Dou. =!se(E 3:ll the go ern#ents in the Western world are reall+ $ankrupt and are, therefore, going to $e looking for #ore tax re enue. 0ining co#panies are going to $e in its sights $ecause #ining co#panies can4t #o e their assets= the+ are the easiest thing in the world to tax. -he good news is that #akes #ining stocks er+ olatile, and so#eti#es extre#el+ cheap. Jolatilit+ can $e +our $est friend.3 Mmm4 %he!p !nd ;ol!t*le th!n"s to be*n. s*tt*n. du%"s $or the .o;ernment! /ere,s some more FOAE =OA 6%>C(NC''= %'QNRQNR0"- - 0sg !"Q%RUUR7 repl+ ele ator gu+ 6%>C(,C''= (%Q,>Q>&0"- - 0sg !"Q%R(&(7 ]9): Wh+ will gold stocks $e a risk+ place to $e8 1ello ele ator gu+, We ha e co ered this area #an+ ti#es $efore. Si#pl+ put, when this new gold #arket runs as ne er $efore seen, shares will under perfor# $ullion $ecause the+ onl+ represent the ownership of a $usiness not #one+ reser es. :s a #ining $usiness, the+ #ust o erco#e the negati e effects of a $anking crisis, #assi e cost inflation and taxes old and new. -heir di idends will ne er return the e.ui alent of the increase in $ullion nor will the e.uit+. 0ost in estors do not retain a good historical perspecti e $etween go ern#ent confiscation and go ern#ent regulation. Groduction regulation and ta"ation are a di%%erent control o% mine reser es that greatl+ i#pacts stock alues. 0an+ stock pro#oters often tr+ to in;ect the 3confiscation issue3 as one for $ullion holders while ignoring this other d+na#ic as it pertains to #ine shares. -he race will $e for $ullion and large international pla+ers will discount the le erage of #ine reser es in ter#s of the crisis financial at#osphere the+ #ust in est in. / en so, so#e #ines will $e sought after as the+ will $e percei ed as the $est positioned of the lot and the last to $e interfered with. :n+wa+, it4s a long hard su$;ect that #an+ will pa+ dearl+ for as this transition proceeds. We will talk again on this. 9): +m!.*ne *$ the m*ne owners !%tu!ll( h!d !s stron. o$ ! %l!*m on the m*ner!ls under the*r m*nes !s most people th*n" the( do tod!(. 2*th ! m!r"et pr*%e o$ P114 !nd !n e?tr!%t*on %ost o$ onl( P141 or less the( %ould l*ter!ll( 9sp!re no e?pense9 on !ll the modern m*n*n. te%hnolo.( !nd e6u*pment needed to bl!st !nd d*. those lotter( t*%"ets out o$ the .round !nd %!sh them *n !s $!st !s poss*ble! The(,d surel( run up the e?tr!%t*on r!te ! b*t !nd put ! str!*n4 *$ not !n outr*.ht %r!sh4 on th!t Free.old pr*%e r!n.e. 3ut the( don,t h!;e th!t stron. o$ ! %l!*m. The so;ere*.n or the %olle%t*;e 5*.e.4 the .o;ernment8 does. The %!t%h word here4 ! word (ou w*ll le!rn more !bout4 *s 9ro(!lt*es9. +t,s not unl*"e the o*l *n the .round th!t the /ouse o$ S!ud !llows Amer*%!n o*l %omp!n*es to e?tr!%t !nd br*n. to m!r"et *n '!.e 0&

e?%h!n.e $orL ro(!lt*es. #;en !t tod!(,s pr*%e o$ onl( !bout P14: on FOA,s 9.old %o*n upon ! s*dew!l"9! per oun%e4 some *n .o;ernment !lre!d( h!;e the*r $!st e(e

Pe y on gold could !e !udget wind%all& U.S. lawmakers say W:S1!G2-)G ^ Wed "ec %(, (>%( NQU'p# /S6Reuters7 - Re ising a %'th-centur+ 5.S. law that go erns the #ining of gold and other precious #etals could add $illions of dollars to federal coffers at a ti#e of tight $udgets, according to so#e "e#ocratic law#akers and a go ern#ent stud+ released on Wednesda+. -axpa+ers recei e no ro+alties on #etals pulled fro# federal land, and officials drew a $lank when the+ tried to find out how #uch gold, sil er, copper and other alua$le #etal is sold. 39ederal agencies generall+ do not collect data fro# hardrock #ine operators,3 said the report fro# the nonpartisan 2o ern#ent :ccounta$ilit+ )ffice, which looked at the #arket in (>%> and (>%%. <ut appl+ing a #etals le + of %(.N percent - the $ench#ark go ern#ent share for other resources could deli er hundreds of #illions of dollars a +ear to taxpa+ers, according to independent studies and 5.S. Representati e Raul 2ri;al a, who sought the report and other data fro# the #ining industr+. 3:s we face these fiscal challenges, these are the pennies that we should pinch,3 said 2ri;al a, the leading "e#ocrat on the panel that o ersees pu$lic lands. 2ri;al a, of :ri@ona, and Senator -o# 5dall of Gew 0exico, who ;ointl+ called for the 2:) report, sa+ taxpa+ers should also $enefit fro# a gold price surge that has $oosted the $otto# line for #iners. :ppl+ing 2ri;al a4s ro+alt+ for#ula on the %.% #illion ounces of +ellow #etal pulled last +ear fro# 2oldstrike #ine in Ge ada, the largest in Gorth :#erica, could ha e +ielded M%N> #illion to taxpa+ers, according to a Reuters tall+ of industr+ data. <arrick 2old Iorp 6:<V.-)7, the #ine operator, said onl+ a fraction of 2oldstrike is on federal land, and the co#pan+4s taxes ha e alread+ .uadrupled in the fi e +ears of cli#$ing gold prices. -axpa+ers are entitled to a ro+alt+ fro# #etal sales ne ertheless, law#akers said. KBL G)-R)Y:L-Y R5L/ -he %&R( #ining law that dro e prospectors into western states such as Ialifornia still go erns #uch of the industr+. <ut this no-ro+alt+ law is a costl+ anachronis# when #ining giants can stake a clai# on federal land for a few dollars an acre, 5dall said. -he coal, oil and gas industries, $+ co#parison, ha e no such exe#ption. '!.e 0&1

3We are gi ing our gold and sil er for free and don4t e en know how #uch we are gi ing,3 said 5dall, whose father, Stewart, was secretar+ of the !nterior during the %'H>s and called #ining law refor# his great unfinished work. Law#akers who ha e occasionall+ tried to refor# the #ining rules ha e ne er cleared all the hurdles to pass new laws, as the industr+ has strong political allies. Senate 0a;orit+ Leader 1arr+ Reid, a "e#ocrat, counts on #ining support in his ho#e state of Ge ada, and law#akers sa+ it will $e difficult to persuade hi# to take a $ite out of the industr+. <ut on Wednesda+, the two top senators on the /nerg+ and Gatural Resources Io##ittee said the+ were open to considering refor#. 3-here4s $een agree#ent for a long ti#e that the %&R( 0ining Law should $e updated to include a ro+alt+3 and reduce paperwork, said Senator Lisa 0urkowski, the panel4s top Repu$lican. KBL State and local go ern#ents often catch a windfall fro# #ining re enue, and 5dall said Repu$lican law#akers fro# the West #ight $e persuaded to increase the federal take. 3/ er+one agrees we need a $alanced package to find new re enue,3 he said, 3and this see#s like the right ti#e for refor#.3 So the 9produ%t*on re.ul!t*on !nd t!?!t*on9 o$ the m*nes !s FOA put *t4 or 9=ontrol w*th ! %!p*t!l ,=,9 !s Another s!*d4 w*ll e$$e%t*;el( tr!ns$er the ;ote $or 9wh!t .old *s !$ter the re;!lu!t*on9 $rom the m*ne owners to the so;ere*.n or the %olle%t*;e 5*.e.4 the .o;ernments o$ the world8. 2*ll the .o;ernments o$ the world ;*ew .old !s !n *n;estment or ! lotter( t*%"et@ Or w*ll the( ;*ew *t !s ! we!lth reser;eGmonet!r( reser;e !sset@ Th*s *s the 6uest*on th!t (ou need to !nswer $or (oursel$. + "now m( !nswer. From FOA !bo;eE 3-he currenc+ e.ui alents re#ain as a trading #ediu#, e en as real things are held in the $ackground for alue proof.3 =urren%( *ssu*n. .o;ernments l*"e the FSG %!n s*mpl( spend mone( *nto e?*sten%e. The %red*b*l*t( o$ th*s %ommon .o;ernment s(stem *s .ener!ll( m!*nt!*ned b( three .o;ernment !b*l*t*esRthe !b*l*t( to t!?4 the !b*l*t( to borrow !nd the !b*l*t( to sell o$$ or rent out publ*% !ssets. To su%h !n ent*t(4 the d*$$eren%es between w*nd$!ll pro$*ts t!?*n. .old m*ners !nd sell*n. o$$ publ*% .old th!t *s !lre!d( *n the ;!ult !re m*n*m!l. So *$ (ou bel*e;e th!t the( w*ll let !ll th!t newl( m*ned .old h*t the m!r"et $or Cust ! l*ttle e?tr! re;enue4 (ou should !lso bel*e;e th!t the( w*ll s*mpl( sell the*r e?*st*n. .old reser;es outr*.ht *n e?%h!n.e $or the s!me %!sh th!t the( %!n pr*nt. You see4 ! $un%t*on*n. pr*nt*n. press *s *n$*n*tel( more ;!lu!ble th!n .old. Gold4 !s FOA s!*d4 *s s*mpl( 9held *n the b!%".round $or ;!lue proo$.9 + %!n4 howe;er4 *m!.*ne th!t ! %ountr( l*"e the FS would '!.e 0&&

w!nt to "eep *ts m*n*n. %omp!n*es well7o*led !nd properl( m!*nt!*ned. 3ut th!t %!n be !%h*e;ed b( s*mpl( tr!ns$err*n. *n7.round reser;es to the ;!ult !t some re.ul!ted p!%e. A %ountr( l*"e =!n!d! wh*%h h!s more th!n 104 tonnes o$ *n7.round reser;es 5the most o$ !n( %ountr(8 !nd (et onl( h!s 0.4 tonnes *n the ;!ult would l*"el( tr!ns$er !t ! h*.her p!%e th!n the FSG wh*%h h!s ! better b!l!n%e between !bo;e7 !nd below7.round reser;es. 3ut th*s tr!ns$er o$ .old $rom the .round to the ;!ult would not p!ss throu.h the .old m!r"et4 e;en thou.h the .o;ernment would p!( the m*ne owner the m!r"et pr*%e !nd then t!? b!%" most o$ the pro$*t. S*m*l!r pr*n%*ples !ppl( to .o;ernments th!t !re not %urren%( *ssuers4 l*"e those *n the #uros(stem4 *n th!t there *s l*ttle d*$$eren%e between sell*n. .old *n the ;!ult !nd sell*n. .old *n the .round ;*! w*nd$!ll pro$*ts t!?es on the m*ners. One d*$$eren%e %ould be th!t4 be%!use o$ the*r membersh*p *n the #uros(stem4 the( %!nnot un*l!ter!ll( %hoose to sell .old *n the ;!ult. 3ut remember $rom the *llustr!t*on !bo;e th!t #urope onl( h!s &Q o$ those .lob!l *n7.round depos*ts. So e;en *$ h!l$ o$ those %ountr*es used the*r *n7.round .old !s ! lotter( t*%"et4 th!t would onl( represent !n !dd*t*on!l $low o$ !bout &6 tonnes per (e!r h*tt*n. the m!r"et. An !mount th!t sm!ll %ould4 !nd most l*"el( would4 be d*re%tl( !bsorbed b( the #=3. + hope +,;e shown (ou th!t *t doesn,t m!tter wh!t the r!te o$ e?tr!%t*on w*ll be *n Free.old. +t %ould be the s!me4 h*.her or lower th!n tod!(. All th!t m!tters *s how mu%h o$ th!t newl(7m*ned .old *s dumped onto the m!r"et l*"e ! w*nn*n. lotter( t*%"et4 rel!t*;e to the dem!nd. So let,s t!"e ! poll. 2h!t *s .old@ +s *t mone(4 %urren%(4 !n *n;estment or we!lth@ 2h!t w*ll (our ;ote be when the t*me %omes@ And w*ll (ou e;en h!;e ! ;ote@ S*n%erel(4 FOFOA

'!.e 0&0

Saturday, De.ember 22, 2012


AF"1R E",O<G,"S!G

M( =hr*stm!s present to (ou th*s (e!r *s AFT#R 5T/OFG/TS!8. +t *s wh!t + ment*oned *n these three %omments4 !nd *t *s ! %omplete %hronolo.*%!l !r%h*;e o$ !ll o$ ANOT/#R,s !nd FOA,s %omments th!t %!me a%ter 5hen%e the n!me8 ANOT/#R 5T/OFG/TS!8. +t *s more %omplete th!n wh!t + pre;*ousl( posted b( !t le!st : p!.es4 !nd th!t,s not %ount*n. the Gold Tr!*l posts wh*%h !re !lso *nterm*?ed w*th %on%urrent AGFOA %omments th!t rem!*ned sep!r!ted $rom b*rth unt*l now. +n tot!l4 these $*;e p!.es4 wh*%h !re !lso l*n"ed *n the s*deb!r4 %ont!*n 144&- p!.es 5*n 2ord8 o$ AGFOA %omments *n the s!me order !nd b!s*% %onte?t !s the( were wr*tten4 wh*%h *s !lso the order th!t the( were re!d b( those who were $ollow*n. the Tr!*l *n re!l t*me between >G& G>- !nd 1&G16G 1. To re!d them *n th*s order w!s ! %h!llen.e e;en when FSAGO)D st*ll h!d the D*s%uss*on Forum onl*ne4 ! %hore wh*%h + ne;er !ttempted4 !nd *mposs*ble now th!t the re.ul!r $orum *s m*ss*n.. Yet here *t *s4 dropped *n our l!p l*"e ! present $rom S!nt! h*msel$! AFT#R 5T/OFG/TS!8 >G& G>- B -G1-G>> AFT#R 5T/OFG/TS!8 -G1>G>> B &G -G AFT#R 5T/OFG/TS!8 &G >G B >G 0G AFT#R 5T/OFG/TS!8 >G 0G B 4G&0G 1 AFT#R 5T/OFG/TS!8 4G&0G 1 B 1&G16G 1 +t,s not !s prett( !s FSAGO)D or Ron M,s A*r7Fr*endl( 'DFs4 but *t,s !ll there 5poss*bl( T2+=# !s m!n( AGFOA %omments !s we h!d !;!*l!ble (esterd!(84 !nd soon *t w*ll !ll be se!r%h!ble on Goo.le. The l*n"s to m( %op( o$ M!rt*Cn,s !r%h*;e !re no lon.er *n the s*deb!r4 but the( st*ll e?*st !nd %!n be !%%essed !t the bottom o$ th!t post be%!use A8 the( !re !lre!d( se!r%h!ble on Goo.le4 !nd 38 the( m!( %ont!*n ! $ew %omments b( ORO 5!nd others8 th!t !re not *n AFT#R 5T/OFG/TS!8. 3ut th*s *s not me!nt to be (our onl( =hr*stm!s present th*s (e!r. There,s one more surpr*se th!t + hope to sl*p under the tree $or (ou be$ore =hr*stm!s! ND S*n%erel(4

'!.e 0&4

F'DAT#E + Cust !dded pd$s to the l*n"s *n the s*deb!r. The !r%h*;e *s d*;*ded *nto two pd$s wh*%h !re be!ut*$ull( $orm!tted !nd e;en h!;e l*;e l*n"s Cust !s the( !ppe!red on FSAGO)D. The $*rst one %o;ers p!rts 1 !nd & !nd *s 61> p!.es. Th!t,s b!s*%!ll( !ll o$ the posts between the end o$ Thou.hts !nd the be.*nn*n. o$ Gold Tr!*l. And the se%ond pd$ *s p!rts 04 4 !nd 14 :6> p!.es wh*%h st!rts two wee"s be$ore the Gold Tr!*l. Also4 !nother re!der Cust *n$ormed me th!t he h!s ! %op( o$ A)) o$ the FSAGO)D %omments $rom 1>>-7& 6. /e s!(s *t,s su%h ! l!r.e m!ss o$ $*les th!t *t,s d*$$*%ult to reor.!n*Ie4 but th!t !n( *nd*;*du!l d!( o$ %omments *s e!s( enou.h to pull up. So +,ll t!"e ! loo" !t wh!t he h!s !nd see *$ one o$ our d!t!b!se or *nternet e?perts %!n $*.ure out ! w!( to m!"e *t !ll !t le!st !%%ess*ble to e;er(one. F'DAT# \& 51&G&0G1&8E + now h!;e ! %op( o$ the ent*re d*s%uss*on $orum !r%h*;e th!t *s m*ss*n. $rom FSAGO)D! +t *s prett( l!r.e4 %ont!*n*n. 04141 $olders e!%h o$ wh*%h %ont!*ns ! d!( o$ %omments $rom l!te 1>>- throu.h e!rl( & :4 !bout - y (e!rs, worth o$ %omments. The $older n!mes !re the d!tes. /ere,s ! s!mple. + p*%"ed one r!ndom d!( *n 1>>- !nd threw *t up !s ! s!mple p!.e. +$ !n(one else would l*"e to downlo!d th*s !r%h*;e $*le4 *t w*ll be !;!*l!ble !t th*s l*n" $or the ne?t $*;e d!(s4 !t wh*%h po*nt the l*n" w*ll e?p*re. The dGl *s ! I*p $*le th!t *s >&M3 wh*%h e?p!nds to someth*n. l*"e &- M3. +t loo"s l*"e4 s*n%e th*s *s ! $ree $*le sh!r*n. s*te4 there !re onl( 1 downlo!ds !;!*l!ble. T=orre%t*on4 onl( & $ree downlo!ds! =he%" %omments $or new l*n"s *$ the l*m*t h!s been re!%hed.U So $*rst %ome $*rst ser;ed! ED Fpd!te \0 51&G&4G1&8E So $!r !t le!st 46 people h!;e downlo!ded the !r%h*;es $rom the tr!ns$erb*.$*les webs*te. And here !re two more l*n"s w*th unl*m*ted downlo!dsE From Goo.le do%s 7Th!n"s A6u*lus! From Am!Ion s0 5dGl w*ll st!rt *mmed*!tel(8 7Th!n"s 2*nters! Or4 *$ (ou "now how to use ! torrent4 here,s the torrent l*n"E httpsEGGs0.!m!Ion!ws.%omG$o$o!G!r%h*;es.I*p@torrent

'!.e 0&1

0edne%day, De.ember 2=, 2012


Jountdo)n to 2013 Open Forum

The world d*dn,t end *n & 1& !nd *t,s not .o*n. to end *n & 104 but th!t doesn,t me!n th*n.s won,t %h!n.e. The one %onst!ntRthe onl+ %onst!ntR*s %h!n.e. 3-here are ,%,N,>,>>> seconds in a +ear. : thousand #illiseconds in a second. : #illion #icroseconds. : $illion nanoseconds. :nd the one constant, connecting nanoseconds to +ears, is change. -he uni erse, fro# ato# to galax+, is in a perpetual state of flux. <ut we hu#ans don4t like change. We fight it= it scares us. So we create the illusion of stasis. We want to $elie e in a world at restOthe world of right now. Yet our great paradox re#ains the sa#e. -he #o#ent we grasp the now, that now is gone. We cling to snapshots, $ut life is #o ing pictures, each nanosecond different than the last. -i#e forces us to grow, to adapt, $ecause e er+ ti#e we $link our e+es, the world shifts $eneath our feet. Ihange isn4t eas+. 0ore often, it4s wrenching and difficult. <ut #a+$e that4s a good thing. <ecause it4s change that #akes us strong, keeps us resilient, and teaches us to e ol e.3 BT*m Or*n.

6% 13 'u.+y or un'u.+yD Fnlu%"( 10 -he nu#$er %, is considered to $e an unluck+ nu#$er in so#e countries. -he end of the 0a+an calendar4s %,th <aktun is superstitiousl+ feared as a har$inger of the apocal+ptic (>%( pheno#enon. 9ear of the nu#$er %, has a specificall+ recogni@ed pho$ia, -riskaidekapho$ia, a word which was coined in %'%%. -he superstitious sufferers of triskaidekapho$ia tr+ to a oid $ad luck $+ keeping awa+ '!.e 0&6

fro# an+thing nu#$ered or la$eled thirteen. :s a result, co#panies and #anufacturers use another wa+ of nu#$ering or la$eling to a oid the nu#$er, with hotels and tall $uildings $eing conspicuous exa#ples 6-hirteenth floor7. !t4s also considered to $e unluck+ to ha e thirteen guests at a ta$le 6Last Supper7. 9rida+ the %,th has $een considered the unluckiest da+ of the #onth. Numerolo.( -he Gu#$er %, is a Aar#ic Gu#$er. Gu#$er %, is the nu#$er of uphea al, so that new ground can $e $roken. -he nu#$er %, has great power. !f this power is used for selfish purposes, it will $ring destruction of the self, and in turn, this will $ring dis-ease and illnesses. :dapting to change gracefull+ will $ring out the strength of the %, i$ration, and decrease an+ potential for the negati e. T!rot !n a tarot card deck, V!!! is the card of "eath, usuall+ picturing the Pale horse with its rider. Th*rteenth $loor <ased on an internal re iew of records, "ilip Rangnekar of )tis /le ators esti#ates that &NP of the $uildings with ele ators did not ha e a floor na#ed the %,th floor. 9uture $uilding designers, fearing a fire on the %,th floor, or fearing tenants4 superstitions a$out the ru#or, decided to o#it ha ing a %,th floor listed on their ele ator nu#$ering. -his practice $eca#e co##onplace, and e entuall+ found its wa+ into #ainstrea# culture and $uilding design. Ye!r & 10 ;eh*%le l*%ense pl!tes *n +rel!nd Jehicle License plates in the Repu$lic of !reland are such that the first two digits represent the +ear of registration of the ehicle 6i.e. %% is a (>%% registered car, %( is (>%( and so on7. !n late (>%( there were concerns a#ong #e#$ers of S!0! 6Societ+ of the !rish 0otor !ndustr+7 that the prospect of ha ing 3%,3 registered ehicles #a+ discourage #otorists fro# $u+ing new cars due to superstition surrounding the nu#$er thirteen and that car sales and the #otor industr+, 6which is alread+ ailing7 would suffer as a result. -his concern pro#pted S!0! to approach the 2o ern#ent of the State and re.uest that (>%, registered ehicles ha e their license plates age identifier string #odified to read 3%,%3 for ehicles registered in the first six #onths of (>%, and 3%,(3 for those registered in the latter six #onths of the +ear. :s of :ugust (>%( the go ern#ent, $earing in #ind the potential loss in JR6Jehicle Registration -ax7 re enue on new cars, are considering the proposal for i#ple#entation. When the proposal was released to the #edia on (N :ugust, it was #et with #ixed reception. Amer*%!n h*stor( -he :#erican flag has %, stripes in honor of the first %, colonies. :pollo %, was a G:S: 0oon #ission fa#ous for $eing a 3successful failure3 in that while the crew were una$le to land on the 0oon as planned due to a technical #alfunction, the+ were returned safel+ ho#e. Sports '!.e 0&:

!n 9or#ula )ne, the nu#$er %, is not used. :s such, the nu#$ering goes %%, %(, %U, %N under the current nu#$ering s+ste#. -he nu#$er %, is the #ost-co##onl+ registered ;erse+ nu#$er in #odern roller der$+. )u%"( 10 Se eral successful sports figures ha e worn the nu#$er %,. !n !tal+, %, is also considered to $e a luck+ nu#$er, although in Ia#pania the expression 4tredici4 6#eaning %,7 is said when one considers their luck to ha e turned for the worse. A repressed lun!r %ult !n ancient cultures, the nu#$er %, represented fe#ininit+, $ecause it corresponded to the nu#$er of lunar 6#enstrual7 c+cles in a +ear 6%, x (& W ,HU da+s7. -he theor+ is that, as the solar calendar triu#phed o er the lunar, the nu#$er thirteen $eca#e anathe#a. =operos -he nu#$er %, in the Ioperos religion 6s#all culture in <ra@il7 is like a 2od nu#$er. :ll coperos #ust know that this nu#$er can sa e hu#ankind. + !m not superst*t*ous. 3ut + do wonder wh!t w*ll be wr*tten !bout & 10 !$ter the $!%t on these t(pes o$ p!.es. 2*ll *t be remembered !s ! lu%"( (e!r4 or !n unlu%"( one@

)!st (e!r w!sE & 1& Ye!r o$ the Surpr*se + h!;e !n *de! $or wh!t to %!ll & 104 but +,d l*"e to he!r (our su..est*ons *n the %omments! & 10 Ye!r o$ the WWWWWWW

And $*n!ll(4 there,s one th*n. th!t +,m w!t%h*n. $or the ne?t wee" !nd ! h!l$. +t %ould be ! s*.n!l o$ sorts4 but + wouldn,t put too mu%h sto%" *n *t. )!st (e!r th*s wee"4 dur*n. the As*!n tr!d*n. hours the n*.ht be$ore Sn!pshot d!( 5Fr*d!(4 De%. 0 4 & 1184 the euro pr*%e o$ .old m(ster*ousl( le;*t!ted ! whopp*n. X0&.-> $rom the pre;*ous d!(,s )ondon 'M $*? o$ X141-4.164 wh*%h would h!;e been ! d*s!ppo*nt*n. de%l*ne s*n%e the O%tober4 & 11 MTM '!rt( wh*%h m!r"ed .old !t X14& 6.0>. + m!de ! %omment !bout the t*m*n. o$ th*s unusu!l o;ern*.ht '!.e 0&-

le;*t!t*on *n th*s post. +n *t + noted th!t 9e;*den%e $rom Sept. ,1 !nd Apr*l ,11 seems to su..est th!t (e!r7end !nd m*d7(e!r m*.ht be more *mport!nt TMTM p!rt*esU th!n the other two 6u!rters.9 Then4 l!st M!(4 + posted two %r(pt*% tweetsE FOFOA xFOFOA@@@ Two new m!r"ers. Sorr( no det!*ls. Free.old 'u"e +nd*%!tor < Goldho. d!(. +$ he sees h*s sh!dow4 *t,s .!me on. +$ not 6 mo. o$ "*%" the %!n. 16 M!( 1&

FOFOA xFOFOA@@@ F'+ !lre!d( $*red. Goldho. d!( *s Dune &>. N8 16 M!( 1&

+ w*ll now e?pl!*n those tweets. The $ollow*n. *s !lmost ;erb!t*m $rom !n em!*l + sent 2!rren b!%" *n M!( e?pl!*n*n. m( tweetsE Dumbo Shr*mp sell*n. >1Q o$ h*s .old w!s m( Free.old 'u"e +nd*%!tor 5or F'+8 wh*%h $*red. At the t*me o$ m( tweets4 the euro pr*%e o$ .old w!s X14&114 !lre!d( below the Apr*l !nd D!nu!r( MTM p!rt( numbers. And *t w!s onl( !bout X1 !bo;e the O%tober MTM p!rt(. So m( Goldho. d!( pred*%t*on on M!( 16th w!s th!t *$ we h!d ! Dune &> sn!pshot o$ !round X14&16 or less4 *t w!s .!me on $or Free.old. The 9w*ndow o$ opportun*t(9 would be open! 3ut *$ *t would be X14&40 or h*.her *t me!nt !nother 6 months o$ "*%" the %!n. ThereMs more to *t th!n Cust th!t4 but w*th Dumbo Shr*mpMs pred*%t*on o$ the p!per .old pr*%e %oll!ps*n.4 6 thou#ht th$% )a% a #ood opportun$ty to ta+e the temperature o2 o22$.$a' %upport 2or paper #o'd. The th*n. *s4 p!per .old *s so rel!t*;el( *n;!lu!ble th!t *tMs no wonder when the pr*%e $!lls. The re!l wonder *s when *t r*ses. +tMs !lmost !s *$ someone *s support*n. p!per .old. Remember m( old T*m*n. *s #;er(th*n. post@ The theor( there *s th!t the #uros(stem =3s !re !%tu!ll( support*n. the p!per .old pr*%e somehow. Th!t theor( %!me str!*.ht $rom Ar*4 !nd *t h!s held true so $!r. On De%. &>th & 114 the euro 'OG m!.*%!ll( le;*t!ted *n the m*ddle o$ the n*.ht $rom X141-4 to X14&16 so !s to be!t 5*n the ele;enth hour no less8 the O%tober MTM p!rt( wh*%h re%orded X14& 6. +n the Apr*l MTM p!rt( *t w!s up !.!*n to X14&40. + donMt ne%ess!r*l( th*n" th!t there *s some t!r.et r!te o$ !ppre%*!t*on l*"e 1-Q p.!. +$ the #uros(stem =3s !re support*n. the p!per .old pr*%e !t "e( t*mes l*"e MTM p!rt*es !nd G)D pu"es4 + th*n" *t '!.e 0&>

would n!tur!ll( show up !s some sort o$ !n emer.ent p!ttern. 3ut th!t doesnMt me!n thereMs ! spe%*$*% t!r.et. +tMs Cust the !;er!.e o$ wh!t whoe;er *s do*n. *t %ons*ders ! re!son!ble !mountE not too h*.hGob;*ous !nd not too lowGme!n*n.less. O;er t*me4 the !;er!.e would emer.e !s ! ste!d( lon.7term !ppre%*!t*on *n the .old pr*%e. So wh( would #uros(stem =3s be support*n. the p!per 'OG@ + h!;e some theor*es on th!t. Dune &>4 & 1& w!s m*d7(e!r Sn!pshot d!( !nd m( Goldho. d!(. Gold w!s X14&11 on M!( 16th !nd + pred*%ted th!t *$ *t w!s X14&40 or h*.her on Dune &>th *t would me!n s*? more months o$ "*%" the %!n. +$ *t w!s X14&16 or lower *t would me!n 9the Free.old w*ndow o$ opportun*t(9 w!s open. +$ *t %losed !n(where between X14&16 !nd X14&40 on Dune &>th *t would be too !mb*.uous to be pred*%t*;e one w!( or the other. O$ %ourse we .ot X14&46.6& on Dune &>th wh*%h me!nt s*? more months o$ "*%" the %!n. 2ell4 m( F'+ $*red !.!*n l!st wee" !nd now we !re ! wee" !nd ! h!l$ out $rom !nother Goldho. d!( !nd4 !s o$ th*s wr*t*n.4 euro .old *s l!n.u*sh*n. !t X14&11.>4. Th!t,s ! $ull X1&1.4-4 or !lmost >Q below O%tober,s MTM p!rt(4 (et st*ll X>.0& !bo;e Dul(,s. So +,ll t!"e !nother st!b !t the pred*%t*;e powers o$ Goldho. d!(. 3ut $*rst4 here !re the results $rom the l!st s*? MTM p!rt*esE Dul( & 11 7 #FR 14 40.0O%tober & 11 7 #FR 14& 6.0> D!nu!r( & 1& 7 #FR 14&16.-6 Apr*l & 1& 7 #FR 14&40.41 Dul( & 1& 7 #FR 14&46.6& O%tober & 1& 7 #FR 140::.4& Th*s (e!r4 be%!use New Ye!r,s D!( $!lls on ! Tuesd!(4 Sn!pshot d!( *s !%tu!ll( Fr*d!(4 D!nu!r( 4th 5*t,s usu!ll( *n De%ember8 !nd the results w*ll be rele!sed the $ollow*n. 2ednesd!(4 D!nu!r( >th. So here,s m( 9pred*%t*on9 5!nd remember th!t + h!te do*n. th*s stu$$8E +$ the re%orded pr*%e on Fr*d!(4 D!nu!r( 4th4 & 10 *s #FR 14&46 or lower4 *t,s .!me on $or Free.old me!n*n. th!t the w*ndow o$ opportun*t( *s now open be%!use o$$*%*!l support $or p!per .old h!s !pp!rentl( ended. +n other words4 there m!( be no s(stem support the ne?t t*me someth*n. bre!"s. 3ut *$ the re%orded pr*%e on D!nu!r( 4th *s #FR 140-> or h*.her4 *t,s s*? more months o$ "*%" the %!n. And *$ *t,s !n(where between #FR 14&46 !nd #FR 140-> 5wh*%h *t *s tod!(8 then the X'oG w*ll be too !mb*.uous to be pred*%t*;e one w!( or the other. Th*s *s not (our t(p*%!l TA7b!sed pred*%t*on. + hope (ou %!n tell the d*$$eren%e. +$ + w!s *nterested *n TA + would be loo"*n. !t the P'oG !nd not the X'oG. Th*s *s s*mpl( ! moment *n t*me when we %!n !ppl( ! spe%*$*% theor(4 one th!t Ar* !lerted me to two !nd ! h!l$ (e!rs !.o4 !nd t!"e ! $resh re!d*n.. )*"e + s!*d4 *t,s Cust someth*n. +,m w!t%h*n. th!t %ould be ! s*.n!l o$ sorts4 but + wouldn,t put too mu%h sto%" *n *t. /ere,s ! %h!rt o$ euro .old th!t w*ll upd!te e!%h t*me (ou relo!d the p!.eE

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S*n%erel(4 FOFOA

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