A little over a week ago on "Snapshot
Day" (Thurs., June 30), the Eurosystem MTM party began with the CB
rendition of "Whoop, There It Is" –-> Gold: EUR 1,043.382 per
fine oz. – promptly followed by a dip down to EUR 1,022. Of course
it has now recovered and is up at the all-time high in the EUR 1,100s. And
even though this wasn't the all-time high quarterly snapshot in EUR terms, it
was only 1% under the previous ATH and it was the first ever quarterly
close over $1,500.
Then on Wednesday the ECB released its quarterly ConFinStat
(Consolidated financial statement) for the Eurosystem. Here are the top two
lines from that statement (my emphasis):
the week ending 1 July 2011 the increase of EUR 12.6 billion in
gold and gold receivables (asset item 1) reflected quarterly revaluation
net position of the Eurosystem in foreign currency (asset items 2 and
3 minus liability items 7, 8 and 9) decreased by EUR 0.6 billion to
EUR 176.6 billion.
In other words, the decade-long trend continues, with the Line #1 asset gold
floating upward while the Line #2 asset, foreign currency, sinks downward.
Value and Volume
Now, the ECB puts out a ConFinStat every single week, 52 weeks out of the
year. And every week it makes quantitative volume adjustments, like
net increases or decreases in both gold and foreign currency reserves. But it
only makes qualitative or value adjustments on four of those 52
statements. This is when the ECB marks its reserves to what the market says
they're worth. The MTM party! And for the last 12 ½ years the trend
has been that, proportionally, the Eurosystem's gold reserves have been
rising while their foreign currency reserves (mostly dollars) have been
falling. Here's the chart:
Yet if we look at those reserves only quantitatively by volume, the opposite
is true. Foreign currency reserves (again, mostly dollars) have grown over 12
½ years in volume, from roughly $260 billion to $310 billion from a
dollar-denominated perspective. Meanwhile the Eurosystem's gold reserves have
fallen, again, only quantitatively, from 402 million ounces to 347 million
ounces in volume.
This view, the volume-only view, is the fundamental modus operandi of the
$IMFS that praises quantitative (voluminous) expansion and "growth"
while ignoring qualitative (value) degradation. The reason is that
governments and central banks can only print volume, not value. Think about
this for a moment.
A clear example, of which I'm sure you are all aware, is that the official US
monetary gold stockpile is still held on the books at $42.22 per ounce. But
would you believe that this arcane (some would say moronic or worse)
treatment of national reserves is actually codified in the official
guidelines governing global central bankers operating under the $IMFS?
It's true! Since 1993, the last word in international reserves has largely
gone to the IMF as set forth in the Fifth Edition of its Balance of Payments
Manual which can be found on the IMF website here. Under
'Structure and Classification' you'll find chapter XXI: Reserve Assets, paragraph
444 on Valuation (my emphasis):
principle, all transactions in reserve assets are recorded at market
prices—that is, market exchange rates in effect at the times of
transactions, market prices for claims such as securities, and SDR
market rates as determined by the Fund. Monetary gold transactions are
valued at the market prices underlying the transactions. For
valuation of stocks of reserve assets in the international investment
position, market prices in effect at the ends of appropriate periods are
In other words, the IMF guidelines are out of step with modern best practices
insofar as they lamely prescribe that reserve assets be recorded at the
market price in effect at the time of the transaction that acquired them. Hence,
there is no provision for periodic MTM adjustments to provide a rational reassessment of the evolving market-health of
the balance sheet.
Recognizing this particular valuation/accounting shortcoming (along with
"a few" others), the ECB has been at the institutional forefront
implementing useful deviations. Essentially acknowledging the IMF's own
admissions of ambiguity within the manual, the ECB tactfully says, "the
definition of reserve assets included in the 5th edition of the IMF Balance
of Payments Manual leaves some room for interpretation," setting the
stage for its own definitive refinements as put forth in its
"Statistical Treatment of the Eurosystem's International Reserves"
formally published October 2000 and found on the ECB website here.
So, from this volume-only view loved by the $IMFS, here's what a chart of the
Eurosystem's gold would look like:
But from the volume times value view (which ldo makes tonnes
more sense and also assists the little guy deciphering the monetary mess),
here's the true picture:
A different view, wouldn't you say? Do you remember this quote from ANOTHER?
this, "the printers of paper do never tell the owner that the money has
The funny thing is that writing this post made me want to go look up that
quote. It was written on 5/26/98, six months before the euro launched as a
unit of account and 42 months before the ECB launched its euro medium of
exchange. Now yes, of course, at that time (1998) no printers of paper
currency told you their product was losing value. The dollar was still
showing gold on its books at $42.22. But here's what I started to think about:
Today, the printer of the euro, the ECB, tells all the owners that the money
it prints has less value in gold… once every quarter! And not
only that, but it encourages people to save in gold through system-wide
mandates. Dang, now that's quite a 'something different' when you really stop
to think about it!
You see, there are two fundamental differences between the euro and the
dollar that most Westerners simply can't grasp, no matter how many times you
try to explain their significance. Wim Duisenberg, the first ECB president,
stated them pretty clearly in this
euro, probably more than any other currency, represents the mutual confidence
at the heart of our community. It is the first currency that has not only
severed its link to gold, but also its link to the nation-state. It is
not backed by the durability of the metal or by the authority of the state.
Indeed, what Sir Thomas More said of gold five hundred years ago – that
it was made for men and that it had its value by them – applies very
well to the euro."
There's a lot in that one paragraph, but the two fundamental differences with
the dollar are the severed links to gold and the nation-state. Hopefully I
have sufficiently addressed the former above. I will
now try to explain the significance of the latter.
Homo sapiens generally tend to focus on the minutiae of any situation, or
else on what everyone else is saying about it. And in the case of the euro,
that would be "the debt" or "Greece". Somehow most people
always seem to miss the giant big-picture elephant tromping about the room.
And in this case, that elephant is the euro's severed link to the
nation-state. When Duisenberg said this was a "first",
he meant it. And Milton Friedman also said it in 2001 (my emphasis):
one really new development is the euro, a transnational central bank issuing
a common currency for its members. There is no historical precedent for
such an arrangement." 
In the world of currencies, there are many varieties. The way a nation
chooses to manage its currency relative to the world outside its boundaries
can have a wide range of effects and consequences, ranging from long-term
stability to periodic hyperinflation. If you want a hard currency, then,
ideally, you want it managed by someone else—a disinterested third
party. Here's Milton Friedman again:
hard fixed rate is a very different thing. My own view has long been that for
a small country, to quote from a lecture that I gave in 1972, “the best
policy would be to eschew the revenue from money creation, to unify its
currency with the currency of a large, relatively stable developed country
with which it has close economic relations, and to impose no barriers to the
movement of money or prices, wages, and interest rates. Such a policy requires not having a central bank.”
[Milton Friedman, Money and Economic Development, (Praeger,1973),
p.59] Panama exemplifies this policy, which has since come to be called
Currency instability is a common problem for smaller nations. The hard fixed
exchange rate described above is one way a small country can share the same
currency stability enjoyed by larger nation-states. This is in contrast to
the (dirty) floating exchange rate among most large, modern economies or the
pegged rate of countries like China today, where a central bank uses brute
force to try and overpower the normal market adjustment mechanism in order to
maintain its desired valuation peg.
Bretton Woods was a pegged system, and one of the characteristics of pegging
seems to be the buildup of market pressure that must be periodically released
through a currency crisis like we saw in 1933, 1971
and again in the 90s with Mexico and East Asia. The market wants what the
market wants, and trying to fight a force as
powerful as that always ends in tears for someone. But sometimes the market
simply bypasses the choices of the currency manager
by using secondary media of exchange.
There are many examples over the last century where the dollar was used by
the marketplace as a hard currency in conjunction with a local, unstable
currency. Even today it is a common practice in small nation-states for the
dollar to be the market's longer term store of value circulating in concert
with the local medium of exchange, which you only want to hold for the short
term. And this is an example of how the market force, or the demand side of
the currency equation, fights back against profligate nation-state printers.
As I explained in Big
Gap in Understanding Weakens Deflationist Argument, the value of any
currency is determined by a kind of tug-of-war between supply and demand. The
demand side is the marketplace and the supply side is the printer. This was
true even when gold was the currency. If the market demand for gold was
rising faster than it could be pulled out of the ground, the value would rise
and the circulation velocity would slow, often causing a slow-down in the
economy sometimes resulting in recession or even depression. This tends to
lead to monetary revolt and the re-emergence of easy money.
The point is, all the market wants is a stable currency, not too hot, not too
cold. It is like a sleeping giant. Give it a stable currency and it will keep
sleeping. Wake it and you (the printer) will lose control of the value of
your currency and everything else you try to control. The market is the
demand side of the equation. And the market is by far the more powerful of
the two sides in this tug-of-war. If this isn't making sense, please read my
post linked in the paragraph above because I'm not going to explain it all
To summarize, there is a whole menu of options for the aspiring money printer
to choose from when stepping into the supply side shoes of the monetary game.
And as a supply sider, his job is providing a service to the demand side, the
market, which wants one thing and one thing only, a stable currency. And if
he wants to keep his job, he'd better give his clients what they want,
because if they wake up to an unstable currency, they can easily take the
reins of control away from him. So if his mandate is—or evolves
into—anything other than a stable
currency, he will not be long for this monetary world. And one last thing;
instability means quick changes both up and down. The client doesn't want
drastic inflation or deflation.
Most of you already know this quote from FOA:
friend, debt is the very essence of fiat. As debt defaults, fiat is
destroyed. This is where all these deflationists get their direction."
Now that's not the whole quote, of course. But that's enough to warrant some
extra thought. Just think about it for an extra few seconds before continuing
onward. And then next I want to jump from that to this; chapter 82 from The
Triumph of Gold by Dr. Franz Pick, written in 1985:
How currencies die
become more and more devoid of substance, they perpetuate their existence
through their multiples. The milreis replaced 1,000 reis, and
the bilpengoe tried to substitute for a billion pengoe. The conto
was worth 1,000 escudos. The Greek talent was equal to 6,000 drachmae
or 36,000 obols. In Java, the bahar was good for 100 million candareens.
In India, the nil replaced one hundred billion rupees…
coins were flattened to the point where they were as thin as a sheet of
paper, or actually chopped up into strips, or cut into bits of all sizes and
shapes. Some were punctured and the holes then plugged with inferior metal.
strategems did not and will not save currencies, which are all doomed by the
passage of time."
He's talking about debasement. Debasement is not monetary expansion through
credit expansion. Debasement is the base money behind the
credit being expanded in volume by the supply side as its only possible
response to value degradation coming from the demand side. Note in particular
the last line: "doomed by the passage of time." And here is some
more FOA from 2000 which I reposted in Freegold
in the Proper Perspective:
dollar has had a usage period that corresponds with the society that
interacts with it. Yes, just like people, currencies travel through seasons
of life. Even gold currencies, in both metal and paper form have their
"time of use". Search the history books and we find that all
"OFFICIAL" moneys have at one time come and gone with the human
society that created them. Fortunately, raw gold has the ability to be melted
so it may flow into the next nation's accounts as "their new
This ebb and
flow of all currencies can be described as their "timeline". We
could argue and debate the finer points, but it seems that all currencies age
mostly from their debt build up. In a very simple way of seeing it, once a
currency must be forcefully manipulated to maintain its value, it is entering
the winter of its years. At this stage the quality of manipulation and debt
service become the foremost determinant of how markets value said money.
Suddenly, the entire society values their currency wealth on the strength and
power of the state's ability to control, not on the actual value of the money
itself. Even today our dollar moves more on Mr. Greenspan's directions than
from the horrendous value dilution it is receiving in the hands of the US
where the dollar has drifted into dangerous waters these last ten or twenty
years. If you have read most of Another's and my posts, it comes apparent
that preparation has been underway for some time to engineer a new currency
system. A system that will evolve into the dollars slot once it dies.
Out here, in
deep water, we can feel what the Euro makers are after. No one is looking for
another gold standard, or even something that will match the long life and
success of the dollar. We only know that the dollar's timeline is ending and
a new young currency must replace it. No great ideals, nor can we save the
world! But a reserve currency void is not
back to shore and watch the world traders kick ankle deep water in each
other's faces over the daily movements of Euros. From here, up to our necks
in blue water, you ask "What the hell are they doing?" I'll tell
you. They are trying to make $.50 on a million dollar play! Mostly because
they are seeing the chess game one move at a time. (smile) Truly, their real
wealth is in long term jeopardy.
has already entered a massive hyperinflation. Its timeline is ending and
there will be no deflation to save it..."
And a little more from Franz Pick:
Few people understand the concept of currency debasement
process of debasing the currency to pay for government deficit spending has
been going on for centuries. The Egyptians did it, the Greeks and Romans did
it. Countless other nations have done it. Now it's going on all over the
world. The process of monetary inflation – and its result, soaring
prices – is a simple concept. Adam Smith understood it, as did John
Stuart Mills, David Ricardo, and other classical economists.
alas, today few people understand the concept. Instead, thanks in large part
to the writings of John Maynard Keynes, higher prices are laid at the feet of
excessive labor wage demands, greedy corporations, Arab oil sheihs, and the
disappearance of anchovies off the coast of Peru. Mon Dieu! The media –
woefully ignorant of currency theory – propagandize these stupid
explanations, and the public is left totally in the dark as to the real
And to complete FOA's quote at the top of this section:
friend, debt is the very essence of fiat. As debt defaults, fiat is
destroyed. This is where all these deflationists get their direction. Not
seeing that hyperinflation is the process of saving debt at all costs, even
buying it outright for cash. Deflation is impossible in today's dollar terms
because policy will allow the printing of cash, if necessary, to cover every
last bit of debt and dumping it on your front lawn! (smile) Worthless
dollars, of course, but no deflation in dollar terms! (bigger smile)"
Saving the Debt
Now I want to talk about "the process of saving debt at all costs, even
buying it outright for cash" because this is something they are doing in
Europe as well, and, therefore, is one of the arguments the euro critics use
to claim that the euro is no different—or even worse—than the
dollar. Should we be surprised or shocked that they are doing this in Europe
having read A/FOA all those years ago? Well, no. Unless, like many, you
didn't really understand what you read.
In my 2009 post Gold is
Money – Part 2, I wrote, "And it was always known, but has
now been proven, that the system will be saved at ANY cost." When I
wrote that I was discussing the dollar and the dollar system, aka the $IMFS,
aka Wall Street. But this applies to any monetary and financial system. The
system always takes political precedence over the currency. The currency will
always be debased if that is needed to keep the system functioning nominally.
This is nothing new and it should not be surprising, yet it's apparently very
surprising to 99.9% of all financial analysts.
Politicians and central bankers can only expand the monetary base in volume.
They cannot expand its value. And at the first sign of systemic trouble, this
is what they do. They do this because to not do it would make them redundant.
A void, a vacuum of empty space with no politicians or CBs would do nothing
which would allow our money, credit, to collapse down to its base, so the
politicians and CBs have to do something to distinguish their fine selves
from nothingness. Sure, they talk the hard money talk during normal times,
but at the first sign of systemic trouble they print. Here's one more chapter
from Franz Pick, 1985:
The pious pronouncements to hold the money supply in check will not be kept
fellows in the central bank make pious pronouncements about fighting
inflation and holding the money supply in check. But they panic immediately
when they see signs of distress-borrowing in the banking system, as debtors,
many of whom are corporations having interest payments larger than their
pre-tax profits, try to keep their enterprises from going under.
the Federal Reserve system makes a lot of noise about controlling the money
supply and reaching monetary targets, it is at times difficult to understand
just what exactly they are controlling. Be that as it may, they will in time
revert to form and resume the process of what is coyly referred to as
"reliquifying the economy."
will lay the groundwork for another cycle of currency destruction, which
could assume unprecedented dimensions. Though "to deflate or not to
deflate" may be the question, the only answer to America's growing
financial and economic malaise is to debase."
The point is that the Eurosystem's response (volume expansion) to its current
systemic threat (the debt crisis) is not surprising. Does this mean the euro
will collapse (experience hyperinflation)? No. Because, for one reason, it
has severed the link to the nation-state. The euro is behaving perfectly
predictably in maintaining the nominal performance of its system through
expansion, but it cannot be forced to fund the future government
profligacy of the PIIGS through volume-only expansion. That link is severed.
But the dollar, on the other hand, is nominally on the hook not only for the
debt mistakes of the past, but for all future dollar-denominated
liabilities, obligations, entitlements and promises of the biggest debtor in
all of history, on top of a debt mountain that is probably another $100T in
size depending on your measurement criteria. That's a big difference.
The dollar is an old currency in the winter of its life, linked to the
greatest profligate debtor the world has ever known. The euro is a young
currency that has severed its link to the nation-state. The ECB can save its
own system, but the member states cannot force it to fund perpetual
Here are a few simple principles that will save you the hassle and
embarrassment of constantly being surprised by the actions of politicians and
central bankers. They will never sacrifice the system to preserve the value
of the currency. But they will always sacrifice the currency to save the
system. And there is a very simple formula for how
they do it.
There are four players to keep in mind; the debtors, the savers, the banks
and the printer. They never print and give the money directly to the debtors
to pay off their debt. Instead they print and give the money to either the
creditors (banks) or the savers (e.g. pension funds) in exchange for the
older bad debt which they then put on the public balance sheet to socialize
the lost value.
So they "bail out" the banks and the savers nominally, which in
turn (through currency debasement) actually bails out the debtors and screws
the savers. The banks come out even because they only require nominal
performance. But the retirees and pensioners that require real performance at
the supermarket get screwed.
It is important to understand the difference between nominal and real.
Nominal means you get the number you expected. Real means you get the
purchasing power you expected. Nominal expansion is volume-only expansion
which is all the politicians and central bankers can do. Real degradation is
the value degradation that goes along with nominal expansion or debasement.
The banks don't mind this because they only require nominal performance and
their CEO's are comfortably seated at the business end of the printing press
where they can turn their personal share of the bailout into real returns.
So now that you know what is, and always has been, perfectly predicable and
expected, perhaps you will not be so surprised at the news coming out of
Europe. Instead, far more interesting is the news coming out of Washington
A Fairy Tale Expanded
Now I'm going to share with you an analogy that I think will help as we
compare and contrast the EU and the USA from a currency perspective. As I
have discussed on several occasions, the pure concept of money which
maintains continuity from thousands of years ago when it first emerged until
today, is the common knowledge of the relative values between real goods and
services conceptualized and symbolized by a shared and agreed upon unit. And
currency, in the context of the pure concept of money, is nothing more than
the clearing system for the trade of real goods and services.
As a foundation for this analogy, please read A.E. Fekete's "A 'fairy'
tale" from a speech he gave in 2008 (pdf)
which I have used on a few occasions:
us look at another historical instance of clearing that was vitally important
in the Middle Ages: the institution of city fairs. The most notable ones were
the annual fairs of Lyon in France, and Seville in Spain. They lasted up to a
month and attracted fair-goers from places as far as 500 miles away. People
brought their merchandise to sell, and a shopping list of merchandise to buy.
One thing they did not bring was gold coins. They hoped to pay for their
purchases with the proceeds of their sales.
presented the problem that one had to sell before one could buy, but the
amount of gold coins available at the fair was far smaller than the amount of
merchandise to sell. Fairs would have been a total failure but for the
institution of clearing. Buying one merchandise while, or even before,
selling another could be consummated perfectly well without the physical
mediation of the gold coin.
gold was needed to finalize the deals at the end of the fair, but only to the
extent of the difference between the amount of purchases and sales. In the
meantime, purchases and sales were made through the use of scrip money issued
by the clearing house to fair-goers when they registered their merchandise
who would call scrip money “credit created out of nothing” were
utterly blind to the true nature of the transaction. Fairgoers did not need a
loan. What they needed, and got, was an instrument of clearing: the scrip,
representing self-liquidating credit.
The Modern European Fair
Now imagine if you will a giant fair with dozens of E-Z Up tented booths and
tables full of merchandise, kind of like a swap meet at your county
fairgrounds. As Fekete says, you show up at the fair with your goods and
services for sale, your E-Z Up tent, your table and your shopping list. But
when you arrive you must first check in with the fair operator to pick up
your scrip money. I imagine the husband then works the booth while the wife
At this particular fair we are imagining, let's call it the Eurosystem, when
you register with the fair operator you pay a small fee, deposit your gold
for safekeeping during the fair and also for publication of your amount of
gold to the other fair participants, and you are issued your scrip money for
trade at the fair. But your scrip money is not a
receipt for your gold. It is simply the clearing system for trade at the
fair, so you are issued an amount consistent with the goods and services you
brought to market.
There are a wide variety of booths at this fair. To give you a bit of a
mental image, there's a large booth called Germany where you can buy fast
cars and good beer! (I know, a strange combination.) There's another one with
a fancy custom tent called France. There you can buy funny hats and cheese.
And then there are smaller booths, one is called Greece. At Greece you'll
find a table loaded with stacks of colorful vacation brochures.
Our fair, however, is a little different than Fekete's fair above. What we've
seen over time at our fair is that some of the smaller booth operators like
Greece took home more goods and services than they brought to market. And
they did so on credit. Large operators like Germany, it turns out, gave
Greece some extra goods in return for promises to pay later, and those
promises were denominated in units of scrip money from the fair.
After some time, it became apparent that Greece could never pay back the debt
at full value. This realization actually threatened the system, I mean the
fair. So what the fair operator decided to do was to buy those promises to
pay from Germany at face value, with newly printed scrip. This kept Germany
in the game although it did devalue the scrip since now there was more of it
than there were goods at the fair. But this was fine because the fair
operator published a ConFinStat in which he told all the fair participants
that the fair's scrip money was now worth less.
Those, like Germany, that had actually saved some income in promises to pay
denominated in scrip, and then found those promises severely devalued by the
recognition they would never be paid back at full value, received a nominal
gift of the same number loaned to Greece, even though it was now devalued.
Those that had not saved in scrip, but instead had cleared with gold at the
end of each fair, simply carried on trading at the new, lower value of the
scrip. You see, the fair operator, we'll call him the ECB, did not
participate in the fair itself, primarily because he had severed his link to
any specific booth operator. His only job was providing scrip, announcing its
value, and maintaining the system, I mean the fair, even if it came at the
cost of debasing the scrip money.
Back Across the Pond
Now in your mind's eye I want you to take a bird's eye view of this fair,
looking down on all the colorful tents, and then zoom way out as if you were
using Google Earth, spin the globe and zoom back in on a different fair
"across the pond." We'll call this fair the USA.
On the surface, this new imaginary fair looks very similar to the other one.
There are many different tents, tables, goods and services, buyers, sellers,
debtors, creditors and, of course, a fair operator who we'll call the
Fed/USG. And that's the first difference you'll probably notice, probably
because I will point it out. The Fed/USG is not only the fair operator, but
also a participant, just like Sy Sperling. At
this fair, the link is not severed.
Here are a few more differences. The fair operator is not only a participant, but he is also the biggest debtor this fair
or any other throughout all of human history has ever seen. He is literally
printing up scrip to buy things from the fair. He is not only funding his
ongoing (perpetual) trade deficit by printing and spending scrip, but he is
also paying the interest on his past debt by printing scrip. And whenever his
creditors start to worry about him paying his debts, he simply prints more
scrip to buy back the promises to pay at face value. And he does all this
without ever telling the fair participants that his scrip now has less
But it gets worse. This fair operator is truly cashing in on the reputation
of his forebears. He's emptying his bank of credibility like there was no
tomorrow. You see, for a long time his scrip has been used as the inter-fair
clearing system instead of gold. So he is not only able to purchase goods and
services with his freshly printed scrip within his own fair, he is also able
to shop at far away fairs with his printed scrip, simply on the basis of
squandering past credibility. And don't think this isn't getting noticed. Ooh
baby, you better believe it is getting noticed!
But it gets even worse! The other participants at this fair include a wide
variety just like the Eurosystem, including a large surplus vendor called
Texas where you can buy ten gallon hats and concealed carry permits. There's
also a large deficit/debtor vendor booth called California where you can pose
on a fake wave while someone takes your picture. But these participants don't
have to deposit any gold when registering, mainly because the fair operator
confiscated the gold from their economies 78 years ago and hid it away out of
sight. (Note: gold does not have to be in the hands of the state itself to
benefit the economy in its stabilizing role in clearing.) So, unfortunately,
they don't have any gold unlike the participants at the Eurosystem fair.
Some of the participants in the USA fair, like California, have lots of debt
just like Greece. But unlike the ECB, the Fed/USG can't really deal with that
right now because it has its own debt problems it is dealing with (printing
away). Here's a thought… The USA states are republics not unlike the
Eurosystem participants, and certainly as large. What would happen if the
Fed/USG just gave that gold it confiscated 78 years ago to the states? Then
the District of Columbia, with its modest population of gentlemen busily
trying to distinguish themselves from nothingness, could just default on its
ridiculous debt and unfunded liabilities. I, for one, would call that move
Believe me, I know I'm fantasizing here. Remember? This is an
imaginary world of fairs and E-Z Ups. But just think about it. We could still
have the scrip (common currency) we are all used to (see: Mises' Regression
the US dollar. The Fed's mandate could be modified to "only a stable
currency" giving the marketplace the one and only thing it wants.
Instead of "End the Fed" we could "End the Fed/USG".
Doesn't that sound nice?
And in such a fanciful utopia as I am imagining right now for the dollar
fairgrounds, one could rightfully proclaim that the dollar had joined the
euro in severing its links to both gold and the nation-state. But, of course,
this is just fantasy. Such a thing could never happen by choice of the
printer, the supply side, because the USG is so large today that it literally
forms its own giant parasitic organism, fighting for survival. In the EU,
however, there is no such thing.
Over the latest quarterly cycle we have witnessed several curious advances in
Europe. To name just a few, on May 24th the European Parliament's Committee
on Economic and Monetary Affairs agreed unanimously to allow gold to be used
as collateral in clearinghouses.  And then on June 7th the ECB encouraged
investors to buy new Greek bonds to replace maturing securities with two
separate unnamed European officials saying investors may be given collateral
as one possible incentive to roll over the debt when it matures.  And
finally, on "Snapshot's Eve", June 29th, we learned that China's SAFE (State
Administration of Foreign Exchange) is actively doing all it can to transfer
billions of its dollar-denominated holdings into euros. 
The monetary plane is changing. The signs are everywhere. Euro gold just
broke EUR 1,100 today. Here's what it looks like in dollars:
Tuesday, January 1, 2002 - Launch of euro transactional currency
Friday, February 8, 2002 - GOLD ABOVE $300
Monday, December 1, 2003 - GOLD ABOVE $400
Thursday December 1, 2005 - GOLD ABOVE $500
Monday, April 17, 2006 - GOLD ABOVE $600
Tuesday, May 9, 2006 - GOLD ABOVE $700
Friday, November 2, 2007 - GOLD ABOVE $800
Monday, January 14, 2008 - GOLD ABOVE $900
Monday, March 17, 2008 - GOLD ABOVE $1000
Monday, November 9, 2009 - GOLD ABOVE $1100
Tuesday, December 1, 2009 - GOLD ABOVE $1200
Tuesday, September 28, 2010 - GOLD ABOVE $1300
Wednesday, November 9, 2010 - GOLD ABOVE $1400
Wednesday, April 20, 2011 - GOLD ABOVE $1500
Do you think this is the top? Do you think gold is expensive at $1,550? Do
you think gold is just another commodity and will therefore collapse back to
its 2002-2005 range if the economy tanks? Think again.
On timing, look up. It's already begun. But here is, I think, the
question you should be asking yourself. It comes from John Rubino with a
couple of Freegold edits from me [in brackets]: "Do you wait until it
[the rapid RPG-Freegold revaluation] is underway at the risk of missing the
discontinuity [gap up, punctuation, phase transition, etc.] that growing
imbalances make likely, or do you load up on precious metals [sic—only
physical gold IMO] and short Treasury bonds now, and just accept the fact
that the coming year might be dominated by delusion?" 
Do you remember my "Orbital Launch Pattern" from Gold:
The Ultimate Un-Bubble? "For all you technical analysts out there
plotting and planning your eventual exit from gold before the blow off phase,
I have a new pattern to introduce to you. I call it
the Orbital Launch Pattern, or the Inverted Waterfall. In this pattern there
is no blow off! It looks something like this..."
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