The concept of Freegold is something that means different things to different people. It is amazingly simple, yet curiously complicated. We are on the path, yet the world races at a snail’s pace.
From my point of view, Freegold is not a “solution for” but will be the “result of” the current financial mess that we are in today. To better understand what lies ahead, one must be willing to have an open mind and think objectively. More importantly, the seeker must be willing to set aside triggering emotions that prevent thinking as the "other".
As you step into the realm covered by the concept of Freegold, you will be challenged to think about:
- Central Banking
- Spoils of war
- World reserve currencies
- The Strong Dollar Policy
- The political need for fiat
- Debt slavery
- Debt based monetary systems
- Asset based monetary systems
- The process of currency creation/destruction
- The preservation of purchasing power
- Dollar imperialism
- Competitive currencies
- Big Media cooperation
- Etc.
All mixed up like a thousand intertwined strands of yarn.
Ultimately, be careful to not get caught up in the “price of gold” when the "function of gold" is what you’re looking for. [A distinction addressed in the previous post, The Price of Gold is Arbitrary]
The old saying “He who owns the gold makes the rules” is more applicable then you might think.
Lastly, the concept represented by Freegold is fundamentally in opposition to the Dollar’s position in the world today. You will find no one with ties to the dollar system interested in what Freegold represents. You will also not find any single state or organization willing to stand up against the dollar system, for that would be a critical mistake. Rather, the world has been preparing and we’re now going through the transition process. Hopefully, the world will survive.
The good news is that the way things are structured in our current financial system will force gold’s function. When this happens, the hope that Another penned for us all to see will be realized.
Your money is not what you think it is and it doesn’t work like you think it works.
Which is more valuable – gold or fiat?
Only after exploring this question will you see that the US Treasury will NOT adopt Freegold as an acceptable possible solution. The only way in which the US Treasury will consider this is if the entire world conspires against it and forces it to happen. Can this happen? Once again, after exploring the above question, you will see that other states will also NOT push this avenue in hopes of becoming the next "king of the hill." But, the eventual outcome is Freegold or "death by a thousand cuts". Ultimately, it is the people of the world that must stand for Freegold and that will take time.
Time is what we have.
Fiat is more valuable than gold to governments and bankers. Fiat is by definition, currency by decree. If a currency fails, the government will undoubtedly issue another. Bankers are slightly different in that they love gold too whereas governments hate gold.
Average Joe simply doesn’t care about gold. Joe has no real understanding of how the government and bankers take advantage of him and holds no gold. Joe works for a paycheck settled in the local currency and lives life in a currency based world. If the government were to issue a decree that changes the currency, Joe might get upset, but would adapt to the new currency.
It is only to the saver that takes a little time to understand the difference between being rich and being wealthy that they find their way into gold.
Gold is an asset based currency, thus it represents payment in full, whereas fiat currency is a debt based currency that represents a claim in the system. In this light, the ‘preservation of wealth’ simply means - he who holds gold has already been paid.
Let’s get back to the government valuing fiat over gold. Even through the government can “print it out of thin air”, it is frowned upon to do this. When a government gets to this point, the “function” of the currency will come under stress. So rather, as Another pointed out, currencies are always competing for usage. They do this so as to expand the base from which they can gather tax through inflation. Inflation is KEY. There are but a few average Joes that can figure out how inflation really works.
If you agree with this point, logic would have it that the government would do whatever it can to build confidence in their currency or increase its function so as to broaden the tax base. The more that hold the currency, the easier it is to hide the inflation.
How did the dollar increase its function in the world?
After WWII, the US Bankers designed the Open Public Markets so that not only were commodities listed in dollars, but, in case of default, settlement would occur in dollars too. The bankers took advantage of the fact that there was confidence in the dollar due to gold backing.
This is what established the key function for the dollar that has persisted up to today.
When gold was removed in 1971, oil panicked but only long enough to see that the dollar "functioned".
The Strong Dollar Policy
The bankers already knew what needed to be done before any politician stated that the US would – implement a strong dollar policy. What they’ve told everybody versus what’s played out over the decades appears to be two different things. The Strong Dollar Policy is all about making the dollar function better than any other currency in the international markets. The only way this can happen is if the dollar buys lots of commodities and it has a relatively predictable behavior over time.
If you look in the gold market like GATA has, you will see that someone with really deep pockets has created so much paper gold that the supply has skewed the markets in such a way as to make people believe they can get gold in the future with the use of a strong dollar(s). It’s pretty simple to make this trick work if you tie up physical gold straight out of production so as to make sure you meet physical demand and then sell short in the paper markets to drive down the price. As long as gold flows, the illusion works. The best part is that, as Another pointed out, speculators will not look at a commodity that’s going stagnant.
To help with the illusion, it doesn’t really take as many dollars as you might imagine. The goal is not to really control prices, but rather, keep the speculators out of the markets. If you’re in a position to do this, you would watch the physical markets to make sure product is available and monitor the speculative interests in the market. Any time the speculators start making the dollar look "weak", you milk the speculators by liquidating the markets all the while knowing that speculators don’t take delivery, they take settlement. It’s a situation you can print your way out of.
Remember that the key to the illusion is that physical supplies must still flow with the function of the dollar. Gold has not gone dry. Silver still flows – yet at a little delay. Oil still flows. Look in all the markets where the strong dollar settles the price and you’ll find examples of big footprints. It’s subtle. It makes for a good dollar “conundrum”.
Unknowingly, people just see the dollar as just functioning. It has grown into the de facto world reserve currency. People hold dollars and can’t "see" the price inflation.
Meanwhile, what started out as something that was not too bad, turned out to come with strings attached. Remember that the larger the currency base, the larger the inflation can be without being detected. The politicians love this because now their policies can stretch as far as the dollar can reach – anywhere in the world. Military bases can be built and maintained with that inflationary tax. Influence can be bought. Deals can be made off “tax payer’s money.”
Competition with other states becomes easier because you can outspend them. All the while, because the dollar has found function in THEIR country, you have reduced their political will to a size smaller then what their economy should support. Thus, in the effort to compete with the dollar – politically, other currencies look pathetically weak and price inflation runs rampant in these smaller economies.
Over the years top politicians and bankers have stated that the US has abused it’s rights with regards to how it’s used the “privilege” of being the world reserve currency. The dollar has crippled the political will in other countries because of the way it gets its strength. This is… imperialistic. It undermines the sovereignty of nations. It simply will not be tolerated any longer but no one can fight against it openly. It must be made to look like it died of it’s own causes.
Another came along to let us know that, in time, the world would not grant ANYONE – any political entity – the right to abuse others in the same way. Never again would there be a strong currency policy held over the globe. Another was around to see the "checkmate" that gold provided. We are around to see the transition and gold reintroduction into the monetary system.
The Fed makes money through the charging of interest.
Scratching on the back of the envelope will expose that the interest paid to the Fed group of banks is a phenomenal sum. What do you think they do with it?
As a side note, the Fed collection of banks is chartered with not only keeping inflation down, but keeping the economy strong.
A leap in logic would have it that it is most likely in the best interest of this collection of banks to spend a little of their profit in order to keep the rest of it… strong. Note that it’s not the government or any magical organization therein, but rather the source doing what it should logically do – keep itself strong.
I have NO proof of the above claim, it’s just what I would do to keep my currency functioning. It’s a leap of logic, an assumption, the basis of a theory, or a missing link.
The Freegold concept will provide the checks and balances to this type of behavior.
If you "earn" a hundred bucks, can you not spend it the way you want to? There is nothing better than investing in yourself or keeping your investments in top shape (new roof on house, new paint, new plumbing, cheap gold, cheap wheat).
Also, it not only benefits the Fed, but the US politician and anyone that holds the dollar. It could also be seen as “reassurance” to other large states that hold huge amounts of dollars.
As Another pointed out, as long as the dollar remains strong in gold, oil agreed to settle for dollars -future oil for future gold (see The Trinity). Because oil is essential for the modern lifestyle, the relationship with oil is critical – we must keep oil flowing.
GATA takes the stand that the gold markets do not appear to be free and they want a change. The change would be to get the shorts out of the market so the "real" price of gold can be found.
The flip side of the coin says, if gold is not cheap in dollars, oil will look for the currency that IS strong in gold. Oil needs a functioning currency and the ability to “save” some of the profits in gold for future generations. Thus, it doesn’t need gold for oil settlement directly.
Also, the oil based economies do not want to cut off the flow of oil because it’s as good as cash. If oil flows, they make LOTS of money. It’s hugely profitable.
The key is that Oil wants physical gold and as long as they can get a reasonable amount of gold for their oil they will use the currency that functions to get this gold.
Can the dollar stay strong in gold? Well, the strength of the dollar will be its downfall against gold. You can simply buy too much with it, there will be nothing left for oil. Another saw this years ago as he witnessed the cornering of the physical market (see The Cornering of Gold). We have been on a path to default ever since. Default brings loss of function. If your currency does not buy you what you want to buy it’s not functioning.
You can have the strongest currency in the room, but if it will not buy what you want it’s effectively worthless.
But what about every other currency? It’s not, can someone afford to buy gold in that currency, but rather does the currency function for acquiring gold? In other words, if I’m Oil and I take a currency in exchange for oil, will it function as a medium of exchange AND allow me to buy a little gold with the surplus?
Do you see the subtle difference?
If you do, you will see that having gold available for purchase is a very important part of the equation.
So… who has the gold?
Oil requires a functioning currency – one that is not inflating or deflating in any extremes and one that is honored just about everywhere you’d want to spend it. As long as the currency can purchase gold, it matters not where the gold comes from. For years, the obvious choice was the dollar. But due to the current crisis, you have to wonder how Oil will respond.
Now, when you look at the function of a currency does the bulk of the value come from it’s ability to buy gold or from it’s ability to function in other respects? If the dollar has the advantage of being strong with regards to gold but not functioning, will it still be supported by oil?
Does this put a new twist on the amount of gold held in Fort Knox? If they sold oil for a million dollars a barrel yet couldn’t find anyone willing to accept the currency what would they do with it, buy gold in that currency? Ha. The gold is a small part of the equation.
Ultimately, the question is, will the dollar continue to function. If not, what will Oil do for a currency?
Before you ponder on that too long remember that the right to print currency for function in an economy is more valuable than gold and if you openly bid for gold in a way to undermine this privilege, you make enemies. At that point, someone will take away your gold.
Before moving on, in the absence of the dollar being the world reserve currency and having this strong dollar advantage, how might a currency gain strength? What might the world look like after the dollar stops functioning?
A Central Bank and the associated political will can create any amount of currency as needed, or desired, in the economy controlled by the politicians.
We probably agree that one of the key roles of a Central Bank is to provide a unit of exchange in the local economy that can function as a claim against future work or goods in the same economy. The CB must also maintain the function of the currency. This requires that they do not let prices get out of hand and they make sure that there is enough currency available in the economy to service loans.
We would also probably agree that if an economy is expanding – producing more in the way of goods, the volume of currency will have to grow a little to keep the price of these new goods from falling. Likewise, if the economy is contracting, the volume of currency will have to be reduced to not overwhelm the remaining goods.
The above is pretty important. We’ll keep it in mind.
Also these economies around the world don’t exist or work in a vacuum. Rather, they all interact. Thus, we have to touch on exports and imports. Economies that produce enough to export gather the currencies that function in other economies – they become savers. Likewise, if they don’t produce enough they end up giving up claims on their currency – they become spenders. In today’s world the "savers" continually grow their claims against another economy.
Remember, function of a currency is 90-95% of its value. In normal situations, the savings that you generate are just what’s left over.
In today’s world, the bulk of the import and export trade is balanced out by eventually buying goods and services from each other. It falls into that 90-95% range. But what about what’s left over? The problem is that it remains a claim. That is a problem. At least that will become a problem. As claims build up they always get to the point where he who is in debt simply defaults. They can’t survive under the strain. It’s either war to keep what you have or you go to auction.
Is there a better way to redeem that claim? Why not just get paid in full? This is where, you guess it, gold finds function. Gold is payment in full. Gold is not a claim, it represents the opposite.
In today’s world, the claims that wait to be settled are so huge that the role that gold is currently playing while being under the influence of the strong dollar policy prevents it from functioning to settle these claims. In other words, at strong dollar prices, there is not enough gold in the world to settle claims – claims continue to build.
At some point, the claims will overwhelm the economy. At some point, the world will realize that their claim doesn’t really mean anything. At that point, they will do whatever they can to redeem their claim. That will lead to dollar craziness – which we are currently experiencing.
In the absence of the strong dollar, gold can find its rightful role as functioning to settle the surplus claims in the system.
This implies that in a local economy that effectively generates a surplus gathering claims against other economies, they will redeem their surplus claims – in that other economy where the currency functions just like they redeem ALL their other claims – for gold.
Economies that run a surplus will slowly gather gold. Economies that run a deficit will slowly give up the gold.
So, if claims are settled this way, we get back to – how does one make their currency strong in gold so as to win Oil support for using your currency?
Well, it takes care of itself (mostly). You see, economies that run a surplus settle for gold which makes extra gold available in that economies currency. As more gold becomes available, it has the tendency to drive down prices. This falling gold price over time will make the people feel that they will be able to get MORE gold for the currency in the future. Thus, a falling gold price will grow the usage of a currency – more people will hold it for future payoff. Any currency that will buy more gold in the future than today will be seen as a strong currency.
Likewise, those that run a deficit will see foreigners bid the price of their gold up as it moves into other economies. As gold gets scarce, it will have the opposite effect on the people’s feelings about holding the currency. Thus, the currency will weaken.
Does this give new meaning to the function of gold? Does it help explain why every other currency wants gold out from under the control of the dollar? Ultimately, surplus claims need settlement and economies should be judged upon their ability to produce for the world and currencies should reflect that fact.
Once people understand that gold is NOT functioning today and they can see how it SHOULD function, they start to think about the ramifications of how they might benefit.
Thus Another’s conclusion – he who follows in the footsteps of giants will be in for the windfall of a lifetime when gold starts to function FREE of its current control.
It all comes down to the functioning flow of value. As something of value flows in one direction, something of equal value needs to also flow in the opposite direction. Dollars which represent future claims are not of equal value because the inevitable conclusion must be a default on that value, one way or another (either by inflation or by bankruptcy). And at current prices, there is not enough gold in the world for gold to equal the flow of value both from Oil in the Middle East and from goods out of the Far East.
Only at a higher value will there be enough gold to cover this flow. And the cornering of gold by Oil was noticed by the Far East around the time that Another started writing. The Far East wanted in too. (ie. in 1997 it came to the attention of "Big Trader" from HK (China) that gold was being held at an artificially low price in USD to secure the flow of oil, and "Big Trader" has subsequently been buying physical, in quantity, ever since. The strength of the dollar in gold becomes its downfall, as too much gold is purchased.)
It all comes down to the functioning flow of value.
As long as people around the world accept dollars, the US should be able to maintain military influence and find enough people willing to part with their gold to support the dollar so it can maintain oil’s support. Unfortunately, people are starting to wake up to the fact that the dollar is overextended. In lots of cases, it doesn’t function. People will, over time, shun the dollar which undermines more of its ability to function.
The US may have millions of ounces of gold, but of the currency doesn’t function, oil will not back it even if it delivers a little gold.
Time will tell.
With this understanding, it may logically follow that under our current system, for all holding US Dollars, gold is at an amazing price today. Use the Strong Dollar to your advantage and acquire gold. For when or if the dollar fails to function, gold may be unobtainable with your dollars.
Buy gold and get out of debt – the world of tomorrow is upon us.
Ender
This post is compiled from a string of comments left on FOFOA's blog, beginning here, by Ender in Sept 2008.
