Three weeks ago Vivek Kaul
contacted me requesting an interview for the Daily News and Analysis (DNA), an English
newspaper published out of six centers in India including Mumbai and Bangalore.
The interview comes out today (Monday morning) in India. You can download the pdf here. Below is the interview just as it appears in the
paper. (They always include a caricature made from a photo of the interviewee which
is why he mentioned something about me refusing to be photographed. ;)
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
Gold will be repriced somewhere around $55,000 per ounce
in today's purchasing power
Half way through the interview, I ask him where does he see
the price of gold reaching in the days to come. “Well, I don't see gold's
trajectory being typical of what you'd expect to see in a bull market….And
I expect that physical gold will be repriced somewhere
around $55,000 per ounce in today's purchasing power. I have to add that purchasing
power part because it will likely be concurrent with currency devaluation,”
Meet Fofoa, an anonymous blogger whose writings on fofoa.blogspot.com
have taken the world by storm over the last few years. In a rare interview –
one of his preconditions was he won't be photographed – he talks to
Vivek Kaul on paper money, the fall of the
dollar, the coming hyperinflation and the rise of 'physical' gold.
The world is printing a lot of paper money to solve the economic problems. But that
doesn’t seem to be happening. What are your views on that?
Paper money being printed to solve the problems… this was *always* in the
cards. It doesn't surprise me, nor does it anger me, because I understand that it
was always to be expected. The monetary and financial system we've been living with—immersed
in like fish in water—for the past 90 years uses the obligations of counterparties
as its foundation. These obligations are noted on paper. In describing the specific
obligations these papers represent, we use well-known words like dollars, euro,
yen, rupees and yuan. But what do these purely symbolic
words really mean? What are these paper obligations really worth in the physical
world? Ultimately, after 90 years, we have arrived at our inevitable destination:
the intractable problem of an unimaginably intertwined, interconnected Gordian knot
of purely symbolic obligations. A Gordian knot is like an unsolvable puzzle. It
cannot be untangled. The only solution comes from "thinking outside the box."
You've got to cut the knot to untangle it. So the endgame was always going to be
debasing these purely symbolic units. Anyone who expected anything else simply fooled
themselves into believing the rules wouldn't be changed.
Do you see the paper money continuing in the days to come?
Yes, of course! Paper money, or today's equivalent which is electronic currency,
is the most efficient primary medium of exchange ever used in all of human history.
To see this you only need to abandon the idea of accumulating these symbolic units
for your future financial security. They aren't meant for that! They are great for
trading in the here-and-now, not for storing for the unknown future. To paraphrase
Silvio Gesell, an economist in favor of symbolic 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 money? Money was not
made to be saved!" In hindsight, this statement is true whether money is a
hard commodity like gold or silver, or a symbolic word like dollar, euro or rupee.
In both cases, saving in "money" leads to monetary tension between the
debtors and the savers. When money was a hard commodity, this tension was sometimes
even released through bloodshed, like the French Revolution. So no, I don't think
we're swinging back to a hard currency this time.
Do you see the world going back to the gold standard?
No, of course not! "The gold standard" means different things depending
on which period you are talking about. But in all cases it used gold to denominate
credit, the economy's primary medium of exchange. Today we have a really efficient
and ultimately flexible currency. Bank runs like the 1930s are a thing of the past.
But that's not to say that gold will not play a central role in the future. It will!
The signs of it already happening are everywhere! Gold is not going to replace our
primary medium of exchange which is paper or electronic units with those names I
mentioned above. Instead, physical gold will replace paper obligations as the reserves—or
store of value—within the system. Physical gold in unambiguous ownership has
no counterparty. This is a much more resilient foundation than the tangled web of
obligations we have today.
Can you give an example?
If you'd like to see this change in action, go to the ECB (European Central Bank)
website and look at the euro-system's balance sheet. On the asset side gold is on
line 1 and obligations from counterparties are below it. Additionally, they adjust
all their assets to the market price every three months. I have a chart of these
MTM (marked to market) adjustments on my blog. Over the last decade you can see
gold rising from around 30% of total reserves to over 60% while paper obligations
have fallen from 70% to less than 40%. I expect this to continue until gold is more
than 90% of the reserves behind the euro.
Where do you see all this money printing heading to? Will the world see hyperinflation?
Yes, 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 obvious
end. I don't like to guess at the timing because there are so many factors to consider
and I'm no supercomputer, but ever since I started following this stuff I've always
said it is overdue in the same way an earthquake can be overdue. As for other currencies,
I don't know. Perhaps yes for the UK pound and the yen, but I don't know about the
rupee. The important things to watch are the balance of trade and the government's
control over the printing press. If you're running a trade deficit and your government
can (and will) print, then you are a candidate for hyperinflation.
In that context what price do you see gold going to?
Well, I don't see gold's trajectory being typical of what you'd expect to see in
a bull market. Instead it will be a reset of sorts, kind of like an overnight revaluation
of a currency. I'm sure some of your readers have experienced a bank holiday followed
by a devaluation. This will be similar. And I expect
that gold will be repriced somewhere around $55,000
per ounce in today's purchasing power. I have to add that purchasing power part
because it will likely be concurrent with currency devaluation. So, in rupee terms,
I guess that's about Rs3.2 million (32 lakh) per ounce at today's exchange rate.
The price of gold has been rather flat lately. What are the reasons for the same?
Where do you see the price of gold going over the next couple of years?
"The price of gold" is an interesting turn of phrase because I use it
often to express "all things goldish" in the
gold market. In today's market, "gold" is very loosely defined. What passes for "gold" in the financial market is mostly
the paper obligations of counterparties. These include forward sales, futures contracts,
swaps, options and unallocated accounts. I often use the abbreviation "$PoG" to refer to the going dollar price for this loose
The LBMA (London Bullion Market Association) recently released a survey of the total
daily trading volume of unallocated (paper) gold. That survey revealed a trading
flow of such magnitude that it compares to every ounce of gold that has ever been
mined in all of history changing hands in just three months, or about 250 times
faster than gold miners are actually pulling metal out of the ground. Equally stunning
were the net sales during the survey period. The rate at which the banking system
created "paper gold" was 11 times faster than real gold was being mined.
What is the point you are trying to make?
The point is that gold is being used by the global money market as a hard currency.
But it is being treated by the marketplace as both a commodity that gets consumed
and also as a fiat currency that can be credited at will. It is neither, and gold's
global traders are in for a rude awakening when they find out that ounce-denominated
credits will not be exchangeable for a price anywhere near a physical ounce of gold
in extremis—ironically failing at the very stage where they were expected
So what are you predicting?
But don't get me wrong. It is not a short squeeze that I am predicting. In a short
squeeze, the paper price runs up until it draws out enough real supply to cover
all of the paper. But this paper will not be covered by physical gold in the end.
It will be cash settled, and it will be cash settled at a price much lower than
the price of a real ounce of gold, like a check written by an overstretched counterparty.
It is a tough job to make my case for the future of the $PoG
in just a few paragraphs. The $PoG will fall and then
some short time later we will find that the market has changed out of necessity
into a physical-only market at a much higher price. If you were holding paper you
will be sad. If you were holding the real thing you'll be very happy.
Why is the gold price so flat these days?
Today's surprisingly stabilised $PoG
tells me that someone is throwing money into the fire to delay the inevitable. Where
do I see the $PoG going over the next couple of years?
Maybe to $500 or less, but you won't be able to get any physical at that price.
I think that today's price of $1,575 is still a fantastic bargain for physical gold.
Franklin Roosevelt had confiscated all the gold that Americans had in 1933. Do you
see something similar happening in the days to come?
Not at all! The purpose of the confiscation was to stop the bank run epidemic at
that time. There's no need to do it again. The dollar is no longer defined as a
fixed weight of gold, so the reason for the last confiscation—and subsequent
devaluation—no longer exists. Gold that's still in the ground is a different
story, however. Gold mines will likely be 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. How safe do you think is the
Indeed, everyone seems to be piling into the dollar. Especially on the short end
of the curve, helping drive interest rates ridiculously low. The dollar is as safe
as a bomb shelter that's rigged to blow up once everyone is "safely" inside.
You can go check it out if you want to (sure, from the outside it might look like
shelter), but you don't want to be in there when it blows up. You've got to realize
that it is both economically and politically undesirable for any currency to appreciate
against its peer currencies due to its use as a safe haven. Remember the Swiss franc?
As soon as it started rising due to safe haven use they started printing it back
down. The dollar is no different except that it's got a whole world full of paper
obligations denominated in it. So when it blows, the fireworks will be something
What will change the confidence that people have in the dollar? Will there be some
That's the $55,000 question. It is impossible to predict the exact pin that will
pop the bubble in a world full of pins, but I have an idea that it will be one of
two things. I think the two most likely proximate triggers to a catastrophic loss
of confidence are a major failure in the London gold market, or the U.S. government's
response to an unexpected budget crisis due to consumer price inflation. Most people
who expect a catastrophic loss of confidence in the dollar seem to think it will
begin in the financial markets, like a stock market crash or a Treasury auction
failure or something like that. But I think it is more likely to come from where,
as I like to say, the rubber meets the road. And here I'm talking about what connects
the monetary world to the physical world: prices. I think these "worlds"
are connected in two ways. The 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 broken by
a failure to deliver the real-world items at the financial-system prices, then we
suddenly have a real problem with the monetary side. So I think it will be a relatively
quick and catastrophic event, but maybe not as dramatic as a major stock market
crash. It will be 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 Romans debased the denarius by almost 100% over a period of 500 years. The dollar
on the other hand has lost more than 95% of its purchasing power since the Federal
Reserve of United States was established in 1913, nearly 100 years back. Do you
think the Federal Reserve has been responsible for the dollar losing almost all
of its purchasing power in hundred years?
Yes, inflation was a lot slower in Roman times because it entailed the physical
melting and reissuing of coins of a certain face value with less metal content than
previous issues. This was a physical process so it occurred on a much longer time
scale. The dollar, on the other hand, has lost nearly 97% of its purchasing power
in roughly a hundred years. Do I think the Federal Reserve is responsible for this?
Well, given that the lending/borrowing dynamic causes expansion of the money supply,
I think the government and the people of the world share in the responsibility.
But just because the dollar has lost 97% 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 ago? How long would you hold dollars
today? As long as the prices of things you want to buy don't change during the time
you are holding the currency, what have you lost? So imagine that you simply use
currency for earning, borrowing and spending, but not for saving. Will it matter
how much it falls over a hundred years? Your earning
and spending will happen within a month or so, and prices won't change much in a
month. Also, your borrowing will be made easier on you as your currency depreciates.
And your gold savings will rise. So with the proper use of money, there is no need
for alarm if the currency is slowly falling at, say, 2% or 3% per year.
Do you see America repaying all the debt that they have taken from the rest of the
world? Or will they just inflate it away by printing more and more dollars?
The debts that exist today can never be repaid in real terms. And as I mentioned
before, they are all denominated in symbolic words like dollars, euro, yen, yuan and rupees. The debt of the US Treasury, most of all,
will of course be inflated away.
What does Fofoa stand for?
I remain anonymous because my blog is not about me. It is a tribute to "Another"
and "Friend of Another" or "FOA" who wrote about this subject
from 1997 through 2001. So FOFOA could stand for Friend of FOA or Follower of FOA
or Fan of FOA. I never really stated what it stands for, so you can decide for yourself!
(Interviewer Kaul is a writer and can be reached at