FOFOFOA
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Thank you RE. I will leave you and Ash to your well-reasoned discussions. I’m sure anyone who reads this thread will be able to discern the value added, and by whom. Cheers.
How do you expect to understand things if you intentionally muddy the waters?
Superproducers have been, and continue to, acquire gold. Freegold is only the recognition of this fact; it is achieving a state of equilibrium that does not exist in the current world of suppressed gold prices. Why do central banks hold gold? Why is the euro structured to benefit from freegold prices? Because they understand this.
So freegold is not a theory; it is a process that is underway. There is evidence. Not quite the same thing as global nuclear disarmament. You don’t seem any more interested in understanding freegold and the future than you did at FOFOAblog. I am not interested in sophistry.
Hi Ash,
I’m familiar with your argument style; I remember it from FOFOAblog. Of course you are using a strawman; if a nation believes it is in its interest to decomission nukes, it does so. Libya did. If it does not decomission nukes, it does not believe the act is in its’ interest. Israel does not.
Freegold is in the interest of superproducers. So why hasn’t it happened yet? Because currently those superproducers are still getting some amount of gold at very suppressed prices. When they determine it is no longer worth getting that flow vis a vis the increased value of their current holdings, they have the capability to force the transition.
Again I ask, simple, no?
Hi RE,
Value is, of course, subjective. What if the people who hold a lot of physical gold value it higher than those that don’t? What if price and value converge due to the holders withdrawing the flow of gold? Then it will start to flow again when price equals value, correct?
I’m definitely no monetary theorist; just a shrimp who is interested in not losing (and possibly gaining) from what is coming. I know just enough to follow my understanding with actions. That’s better than knowing a whole lot, and getting the action wrong, isn’t it?
Hi Dave,
The 1% might have some gold, but think bigger. Think oil producing nations, sovereign wealth funds, people who buy multiple tonnes at a time.
If superproducers can save with confidence, they will trade with confidence. They will accept your currency. It’s good for everyone.
If you want to learn about freegold, skip the wiki and read FOFOAblog. You can read as much or as little as you want.
Hi Dave,
Sorry for confusing you with RE.
Most people don’t have much that they need to save for a long time. For them saving in the currency is fine. It isn’t fine for superproducers who have a lot to save, for a long time. Think intergenerationally. They need a savings medium with the advantages I have already listed. Freegold is really about meeting their needs, but you and I can ride along for the revaluation we will experience when freegold occurs. Of course, if you and I want to save for retirement, we can save in gold also.
You say gold with a floating price is not stable. I say we don’t have freegold yet. Currently the price of gold is suppressed by the paper gold market; once free of that market gold will reveal its true value, and become very stable. I am not saying the dollar price can’t fluctuate, based on currency management of the dollar. I am saying that as a trade settlement basis for very large savers, it will be stable. So the price can fluctuate, but the value is stable. Instead of currency pricing gold, in freegold it is the other way around. Gold prices currency! This is a huge difference.
RE, I cannot engage you in a religious argument. I will note that I said the price of gold is arbitrary, not that the value of gold is arbitrary. Mull that over.
Hello Dave,
The reason a gold standard always fails is that sooner or later, gold credit is created by the bank, and it trades on par with physical gold. This has the effect of suppressing the price of physical gold, creating an arbitrage opportunity for smart money. Gresham’s law kicks in, people hoard phsyical gold and the system is inevitably doomed. Sooner or later there is a run on physical gold. For a lengthy explanation I suggest you read ‘How Credit Suppresses the Price of Gold’ on Victorthecleaner’s blog. I am not Victor.
Freegold solves this problem by floating the price of gold. Under a gold standard the price of gold will always be too high or too low. Too high and people hoard currency, too low and they hoard gold.
I don’t understand your statement that I cannot always convert gold to currency. Why would I want to convert it to confederate money? I can always convert it to functioning currency, with no need to deal directly with the government. Excessive taxation would be foolish on the governments part. As I said, the government will need gold to flow from private hands to balance trade. Excessive taxes mean gold would flow ‘underground’ to currency zones where taxation is less burdensome. The high tax zone would lose the benefit of gold, and the higher tax.
Gold is not a commodity. It trades OTC as a currency between large institutions.
Gravity,
You are exactly right about mining. Mining only adds a small amount of supply annually. Compared to the existing stock this ‘flow’ of new gold is very small and cannot be easily increased, for example, due to a higher price. This is another reason gold is a very good store of value. You do not want to store value in something that is easily produced.
You are wrong when you try to correlate cost and stored purchasing power. you store purchasing power in debt, there is a maximum limit due to the flawed nature of the storage medium, because a saver recoginzes that the medium will eventually fail, so he deploys wealth he would rather save. That limit is roughly the aggregate size of everything that exists at that time. But gold stores for a time of ‘infinity’, therefore I can store unlimited value in it. This is not a 1:1 ratio; when paper value is destroyed it doesn’t flee into the entire stock of all gold; it only flees into gold that ‘flows’, driving the price higher and higher. How high, Gravity?
The former USSR are the largest gas supplier to Europe, and isn’t Russia the largest oil exporter in the world? Seems like they still have a surplus. I also don’t see how Saudi Arabia, for example, can split apart like the USSR.
Freegold presupposes a world similar to the one we have now. Your argument, such as it is, presupposes radical changes (nations falling apart, international trade grinding to a halt, no energy available). Your idea is pure conjecture, and pretty outlandish at that.
Because if consumers want to consume but not allow gold to flow, they will have to balance trade with goods (no trade deficit). Either way, they have to do work, to consume.
Why are you trying to reframe freegold as theory? Of course it hasn’t happened yet. You also haven’t died yet, but it will happen at some point, won’t it? Or is your death a theory?
Of course freegold doesn’t have to happen, but it is the best possible outcome for the debtors and savers that it happen, so it is most likely to happen.
Freegold will happen because superproducers need a way to save their excess value, in size, through time. If they don’t get it they have no incentive to produce more than they need, since their savings are diluted. If they don’t produce, consumers can’t consume. It is in the interests of both parties to make gold freely valued, and so it will happen. Simple, no?
You are right, I’m not interested in wading through that.
Another reason gold is a good store of value is that it has a very high stock to flow ratio. An increase in price doesn’t bring much new supply. What happens when the price of silver rises?
“arguments to convince me that Gold can hold its value against more necessary commodities in a time of real scarcity”
Gold is the best store of value because it does not interfere with the economy. Its price is completely arbitrary so it can absorb as much inflationary pressure as necessary. Since time is infinite, so the value of stored purchasing power can be infinite if the storage medium is sufficient. Gold is infinite, therefore it is the perfect medium to store in, infinitely. There is a reason central banks don’t store lead, copper, or pork bellies.
The crowd is rather larger at FOFOAblog, as far as I can see. But is the measure of an idea popularity? No.
“So as a store of wealth to retain purchasing power in a hyperinflationary environment it may work for a while”
Yes, that has been proven hasn’t it?
“but only until the trade system crashes along with the Black Market. At that point, Gold is worth Jack Shit.”
Tell us why, if you can.
If they confiscate your gold, they will have to ship their gold to balance trade. That’s no help to them. At $42 per oz they would run out of gold quickly. And there are all those pesky claims on gold from the prior defaults on promises to pay gold.
At least we agree on hyperinflation.
I’ll start; someone in the last thread said the government might confiscate his gold. This is not true; under freegold the highest value of gold is achieved through the widest distribution of gold. The government needs gold to flow from private holders in the currency zone, to other zones. Gold lubricates the trade balance, you see.
At a high enough price gold flows to nations that have a trade surplus to save. If a deficit nation is shipping too much of its gold the price will rise in the deficit zone and fall in the surplus zone until they equalize. This will help balance trade flows.
I’m not interested in off topic. If you have something freegold specific to talk about, fine. Honestly though an in-depth discussion would be pointless, because FOFOA has spent years discussing it, and his blog is the correct place for such discussion.
I am willing to rebut specific anti-freegold argument, here in TAE, an unfriendly environment, as you say. I have an idea what those arguments are from listening to them repeatedly on FOFOAblog, and am just waiting for the deflationists to begin. En garde, deflationists!
I thought I might learn a few new arguments against Freegold here, or at least rebut some of the ones I have heard before, but so far that has not happened. I haven’t seen a single concrete statement against freegold made; most of the argument seems to dance around freegold, dealing with abstruse topics like Hegel and the definition of capital. At least the authors are kind enough to admit they don’t know much about the topic of freegold, and this one admits he can’t be bothered to read about it.
Some persistent deflationists do argue against freegold on FOFOAblog, and at least they make clear charges as to why it won’t work. I will continue to look for a real rebuttal to the topic here.
Legal tender laws do not require me to save in the currency. In fact, I do not save in the currency, and I am breaking no law.
I have no idea how you determine whether ‘the free market’ is setting the interest rate or it is influenced by something else. Were rates ‘free’ under Volker? Further, are you saying that currently savers are forced to lend to debtors at artificially low rates? Who can force me, a saver, to do that? In fact, I refuse to do that, so your argument cannot be correct.
This is off the subject of freegold, so I probably won’t follow up on an interest rate argument.
Freegold is realistic, not idealistic. It recognizes the fact that debtors and savers are in conflict when people save in the currency (medium of exchange). Freegold is an emergent system designed to solve this problem.
FOFOA’s dilemma: When a single medium is used as both store of value and medium of exchange it leads to a conflict between debtors and savers. FOFOA’s dilemma holds true for both gold and fiat, the solution being Freegold, which incidentally also resolves Triffin’s dilemma.
It is much more idealistic, and unrealistic, to believe that using gold as money at a fixed price can impose discipline on a government. Note that a gold standard does not solve the conflict between savers and debtors either.
I am not FOFOA, merely a reader of his.
