Clean Float – Why the Dollar Must Collapse

For us, taking a long term view, it's easy to see beyond
the dollar's politically maintained currency value as
represented in exchange rates. Using the above part of
Mr. D's speech, one doesn't have to be very strategic
to dodge the coming US currency collapse.
-FOA

The purpose of this post is to further explain and define the "clean float" I have been implying since last June, and to show why the dollar's collapse is an integral part of it. My view of the future international monetary system is one of a predominantly (but not mandated) "clean float" in currencies, which is the monetary side of what I call "Freegold". Physical gold movements will only settle the voluntary imbalances of individual past and present savers, not aggregated imbalances as those will be corrected gradually, through the clean float. I should add that I see this as an effect of Freegold, not a prerequisite.

Back in January, with the dollar at 93 and rising fast, Bright Aurum asked, "Should the USD strengthen too much… can the FED buy euros without calling it a peg, but say ... active monetary operations... - a strategy to shake off speculators, and so on."

Yes, the Fed could certainly do so at the behest of the US Treasury. But the irony of this transition is that the US itself has been running a clean float since 1971. It's the ROW that has been running a dirty float against the dollar.

The dirty float is any official or unofficial exchange rate fix, peg, floor, ceiling or band defended by the public sector (CB). That's what causes imbalances to grow to system-busting levels, because the public sector steps in whenever the profit-driven private sector panics which is when it would otherwise correct. Occasional FX interventions for the purpose of combating unusual volatility, as long as there is no target exchange rate level, can certainly happen within a clean float. I'm not a purist. ;D

The majority of CB FX interventions are done visibly, for all of the logical reasons, and also empirically as well as admittedly according to a survey by the BIS. (The rare reasons for secrecy, according to the survey, are 1. to not actually affect the exchange rate when the goal is simply to acquire defensive reserves, 2. in cases where the intervention is expected to fail, 3. when the CB doesn't want to intervene but is forced to do so by politicians, 4. where intervention is inconsistent with other policy objectives, hence confusing signals will be given, and 5. where the central bank is not sure what it wants to achieve.)

For the US dollar, FX interventions are executed by the Fed under the direction of the US Treasury. This happens very rarely. In fact, it only happened twice from 1996 through 2006. At the end of each quarter, the Fed reveals if any interventions happened, and there were none in 2014. See here, here, here and here. The US has been philosophically and openly opposed to exchange rate manipulations of all kinds since 1971 (except for that brief time in 1978 when it asked Germany, Switzerland and Japan to print and swap their currencies for dollars to help Carter throw everything but the kitchen sink at the problem).

Today's dollar is essentially in a similar position to a currency that has been supporting its own overvalued exchange rate by running down its foreign reserves and will inevitably collapse when they run out, only it hasn't been doing that. The ROW has been doing it to the dollar, putting it in that position. Not that the US protested much while it was getting addicted to its privilege over a half century, but of course the ultimate irony is the ongoing protestations coming out of Treasury calling for the ROW to Stop Currency Manipulation!

It should be quite entertaining to watch how it all plays out next time the dollar starts plummeting, as long as you have some of those items I mention occasionally which let you sleep well at night. In terms of foreign reserves to deploy, the US has fewer than Korea, Mexico and Thailand, but slightly more than Malaysia and Indonesia. Of course it also has its gold, but that was not earned through running a surplus recently, it was earned through running a surplus 70 years ago and would have been long since gone were it not for the genius of Nixon, so US gold can't really be deployed in any meaningful way (yet). Treasury will ultimately be put in the singularly-unique position of having to both print like Mugabe to keep the bloated government functioning at status quo, AND simultaneously beg the same foreigners it has been telling to stop currency manipulation to start massively printing their own currencies to manipulate the dollar. Ouch!

It's difficult to even imagine the insane contradictions of the situation, but I imagine that's what FOA had in mind when he wrote about the US Treasury "shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates," but only "within official channels"(!), as physical gold returns "to official hands in Europe in exchange for Euros" which will presumably be used as FX reserves to support an ever lower dollar. "American policy has only the wish to manipulate its currency valuations with official currency trading" (in other words, IMO, meaning through the occasional FOREX interventions rather than a return to BW-style CB fixing or the post-BW dirty float of unofficial pegs and channels/bands) which is why "it will be in the US advantage for gold prices to rise and rise strongly" so that Treasury can get enough euros for its gold to at least slow the dollar's collapse. Remember, gold doesn't work well in currency defense at its discount market price, "just ask the Koreans and Indonesians". ;D

FOA (08/24/01; 10:54:30MT - usagold.com msg#101)
Part 2

=============================

I have presented this topic many times and again state that "all gold paper will burn". Most mine values included. Then and only then will gold values soar as physical units traded. Not before. As an adjunct, the illusion of most American paper wealth will also burn with this process that transitions the dollar away from reserve status.

At the right time the Euro Zone will withdraw from the IMF, leaving the US and its factions as the only support for dollar credit assets held overseas. Then the evolution of SDR use our guide knows so well will be complete. This will leave the SDR interpretation open to only one avenue to finding support: its basket currency function dissolved, gold will have to flow from American based stocks. With most of the present official credit gold leverage built upon IMF protocols, the US will find itself shipping ever higher priced gold to defend an ever lower valuation of dollar exchange rates.

With the world credit gold markets paralyzed in default and dollar credibility placed in question along with American economic stamina; physical gold will return to official hands in Europe in exchange for Euros. A paradox observed as high gold places more demands upon Euros and sends the dollar ever lower.

=====================

In all of this Alan Greenspan will say goodbye. A gentleman of his ability and stature will find no use for a position he cannot change from; a good general does not only retreat. Any lesser player can buy public and treasury debt for the purpose of constant hyper inflation; there is no policy strategy or gamesmanship in this.

As for gold being a problem to buy in the USA? Once again, I point out that American policy has only the wish to manipulate its currency valuations with official currency trading. It will be in the US advantage for gold prices to rise and rise strongly. An acknowledgment to Euro planning and a defeat for 30 years of American gold misuse. If treasury gold is traded at all, it will be within official channels to help control dollar values.

However, as paper gold values freeze up and their use fails the public, physical bullion brokers will become a popular as "crude oil" is to producers. I wish you "a deep well" in your affairs, my friend, and will respond more for a time.

======================================

Thanks Mr. speaker,,,,

Thanks all
TrailGuide

http://fofoa.blogspot.hk/

Eastbound and Down

"Gold is so old. Such a rich history. 

An educated western mind cannot begin to understand it! 

We live in a time of closed thought and controlled perception. 

How could we have known that two thirds of humanity 

would still think of gold as wealth? 

It’s not that they are right or wrong to think this way, 

it’s that we want them to work for us! That is the problem! 

And when they worked for us we paid them!

And who in the hell would have thought that they would have 

used so much of that pay to buy gold! Some bought in tiny amounts 

and some bought in large amounts. This started with the new 

world trading order that came into being about six years ago. 

By now that gold is so spread out it would take 20 years 

and 5 small armies to get it back, I think." –Another

Much of the Western gold flowing eastbound to China and down to the Middle East and India passes through Switzerland on its journey. And just last week, Switzerland released its import-export numbers for the first quarter of this year (h/t Flore). More gold flows into Switzerland than out, probably because Switzerland is a good place to store gold, but most of it just flows through. Currently, according to the data, gold exports are about 80% of gold imports. Last year it was 90%, and the year before it was 70%. But what's most interesting is where the flow comes from and where it is going. 

More than 50% of the flow, about 270 tonnes in the first 3 months of this year, or 90 tonnes per month, originated in the UK. Projected annually, that's about 2,150 tonnes per year flowing through Switzerland, of which half is coming out of London. For comparison, 2013 was a little higher with 2,777 tonnes flowing through Switzerland, and 2012 was a little lower with 1,570 tonnes, which was down from 2011's 1,819 tonnes. 

I can't tell how much of the 2,777 tonnes came out of the UK last year because Switzerland only started including information on its trading partners in 2014, but if it was close to 50% like this year, that would be about 1,390 tonnes. Adding the first quarter of this year's 270 tonnes, that would be about 1,660 tonnes drained from London in 15 months. For comparison, GLD was drained of about 560 tonnes. If all of that gold drained from GLD made a stop in Switzerland to be recast as kilo bars, then one could imagine GLD accounting for roughly a third of the London drain. 

Frank Knopers made this nice chart yesterday, for his Market Update site, of where the gold flow is coming from:

But what's more interesting than where it's coming from is where it's going. 438 of the 537 tonnes, or 82% of the gold that flowed throughSwitzerland in the last three months, went to Asia, India and the Middle East. 281 tonnes, or 52% of the flow, went to Hong Kong and mainland China alone. 

Apparently Mr. Chang still likes his gold, very thank you. So not much has changed, except that structural support is now negative, for the dollar and for gold. By the way, did you know that the same year the CBs ended their 21-year gold selling spree, Saudi Arabia made the single largest one-off purchase of gold by a CB? I guess that whole "special-deal-to-buy-time-for-the-dying-$IMFS" thing is over. It's almost as if no one is trying to buy time anymore, so maybe something really big has changed. Meanwhile, the physical is loaded up and truckin', eastbound and down.

Sincerely,

FOFOA

A picture worth a thousand words

Jewelry and silver and gold coins dating back to the Roman period that were recently discovered at an excavation site near kiryat Gat, in Jerusalem are displayed on June 4, 2012.
(Sharon Gal/AFP/GettyImages) Link

 

http://fofoa.blogspot.hk/ 

Inflation or Hyperinflation?

http://fofoa.blogspot.com

Whilst discussing the demise of the Canadian penny in front of a Congressional panel, Fed Chairman Ben Bernanke demonstrates that "transactional currency is simply a notional, purely symbolic token medium of exchange, much more replaceable, resource-efficient and environmentally friendly than mining stupid metals for stupid coins." (NotReal News)

Remember my post around this same time last year titled Deflation or Hyperinflation? At that time, the debate between deflation and hyperinflation was all the rage, and so I wrote a post to a prominent and long-time deflationist named Rick Ackerman, who later stopped by in the comments. In fact, most of my hyperinflation posts have been written in the context of the deflationists' arguments.

I can't say that the debate has shifted from deflation to inflation over the last year, but it sure seems that the arguments coming across my desk these days are for rising inflation with the exclusion of hyperinflation. My position hasn't changed. But this does give me the opportunity to present my position against a different premise, that of inflation without currency collapse. I would guess that some of you will have a completely different view of hyperinflation by the time you finish this post. If so, please let me know in the comments.

But first I need to make it clear once again that this hyperinflation discussion is not about timing. It’s about how it all ends, and it’s better (for a saver) to be a decade too early than a minute too late. The other side (whoever it may be) often tries to make the debate about timing. It is not about timing and I don't do timing, but that doesn't mean the end is far away. If anything, it's overdue in the same way a big earthquake can be overdue. In 'Deflation or Hyperinflation?' I wrote:

The whole point of the [hyperinflation] debate is about the denouement, the final outcome of this 100-year dollar experiment. It is about the ultimate end, and the debate has been going on ever since the 70s when the dollar was separated from gold and it became clear that there would be an end. The debate is about determining the best stance someone should take who has plenty of net worth. And I do mean PLENTY. People of modest net worth, like me, can of course participate in the debate. But then it can become confusing at times when we think about shortages or supply disruptions of necessities like food. Of course you need to look out for life's necessities first and foremost. But beyond that, there is real value to be gained by truly understanding this debate.

Here is FOA on timing, from a post in which he specifically predicted dollar "hyper price inflation":

Timing?

We, and I, as physical gold advocates, don't need timing for this position! Timing is for poor, paper traders. We are neither and our solid, long term, one call over several years to hold physical gold will confirm our reasoning. There is no stress for me to own this ancient asset as it is in a good proportion to all my other wealth.

There is no trading an economic system whose currency is ending its timeline. Smart, quick talking players will joke at our expense until fast markets and locked down paper gold positions block their "trading even" move into physical at any relative cheap price. Mine owners will see any near term profits evaporate into a government induced pricing contango that constrains stock equity with forced selling at paper gold prices.

My personal view

They will, one day in the future, helplessly watch their investments fall far behind a world free market price for physical gold. Further into the future, one day, mines will make money on the last thousand per ounce price for gold; only the first $XX,000.00 of price will not be available to them.

Yup, that was back in October of 2001. Bad timing? How have your mining stocks done lately? I know of one FOA reader who went "all in" with gold coins that year to the tune of somewhere around $400K. He had just retired from his previous life as a trader. Today his golden nest egg is worth $2 million, and he has been living off of it for most of that time! So much for bad timing, eh?

My argument for hyperinflation is FOA's argument. So you'll see me use FOA's terms. You'll see me quote a lot of FOA. And you'll see me restate the same call he made back in 2001. His call was clear and unchanging. His argument wasn't wrong then and it is even more pressing today, which I will explain. And just to be clear about FOA's call, here it is from that same post:

"While others call, once again, for a little bit of 5, 10, 15% price inflation, that lasts until the fed can once again get it under control,,,,,,,,, I call for a complete, currency killing, inflation process that runs until the dollar resembles some South American Peso!"

"Complete, currency killing" hyperinflation is a one-time event. In a moment I'll explain the reasoning behind this call and why it still stands. But first, let's take a look at a couple of the "inflation but not hyperinflation" arguments that have come into my sights.

"An Adult Approach"

In An Adult Approach – II (Defining Relative Real Value) Lee Quaintance and Paul Brodsky of QB Asset Management (or QBAMCO) laid out a nice argument for what sounds a lot like FOA's front lawn dump but without the "complete, currency killing" hyperinflation. In it, they explained that the process of "re-collateralizing unreserved credit" which began in 2008 will likely end with all of the assets backing today's bank money being replaced with new base money.

In other words, US dollar monetary base (today at around $2.6T) will be increased to cover and replace today's US bank assets (almost $20T). But they aren't predicting that the entire money supply will become base money, as happens during hyperinflation. Instead, they think that as credit money has all but been replaced with base money, "bank animal spirits will once again take over and we will have a new leveraging cycle." They provided the following conceptual illustration to help us visualize what they are projecting:

Then they ask (and answer), "Will the lines meet or cross? We don’t believe so…" I'm going to give you a longer excerpt, but I wanted to highlight this point first, because it is where my view differs from their view. The lines meeting and crossing is exactly what it looks like during hyperinflation, when bank credit disappears (because price inflation is running too hot to issue credit at any practical interest rate) and the entire money supply becomes base money in amounts which overtake the previous amount of credit money. The lines meeting and crossing could look something like this conceptual illustration (by DP):

Here is part of FOA's famous front lawn dump:

"My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed… hyperinflation is the process of saving debt at all costs, even buying it outright for cash… because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn!"

So their thesis is that the Fed buys almost all of today's bank assets (debt) for cash, but then during this process the banks, now almost fully reserved, start lending again and a new credit cycle begins without a systemic collapse. And what this will do to prices is deliver "a higher General Price Level" and "a CPI rate higher than the rate at which the GPL rises." I emailed with Paul about this call being much more tame than some things he has written in the past and he wrote back that he thinks my hyperinflation projection is "a very fat-tailed event" while they are "trying to be much more moderate in [their] projections."

I hope to show in this post that avoiding this "fat-tailed event" is the most unlikely scenario. It is not just about the gap between unreserved deposits and base money and bank levering/de-levering cycles. It is about a currency that has reached the end of its timeline when the removal of structural support (an FOA term) meets the largest spending/dollar-emitting machine the world has ever known. But first, here's a more complete excerpt from their paper, or you can read the whole thing at the link:

Unambiguous Wealth

Read more @ fofoa.blogspot.com

In the present monetary system, wealth is commonly held as ambiguous claims against the economy. We call it stocks, bonds, money market funds, mutual funds, etc… People hold their wealth in this way for the promise it makes of more wealth forthcoming! Sound familiar?

Now, when I say that there will actually be much more wealth forthcoming for those with **unambiguous** ownership of physical gold today, some people feel compelled to argue that their ambiguous claims have a better history of "more wealth forthcoming." And this argument is not without merit.

It is true that stocks and bonds did very well in the '80s and '90s. In fact, my own father is still waiting for the Dow to get back to 14,000 to regain the wealth he thinks he lost. The Dow beat CPI inflation hands down throughout the '80s and '90s, and that's how you know you made a good investment, by beating inflation.

The Dow entered the 1980s at $824. So if your $824 investment in 1980 had perfectly tracked official inflation, you'd have had $1,722 in 2000 and $2,264 in 2011 (according to the BLS inflation calculator). But in the Dow, your investment became $11,722 by January, 2000, and $12,045 today. So even though it hasn't done much in the last decade, the Dow still beat inflation by a large margin over the last 30 years.

Bonds also had a huge 30-year run as the Fed lowered rates from 20% down to 0%. Remember, as interest rates are lowered, the price of bonds issued at the previous higher rates rises. So bond investors do very well in a falling interest rate environment.

When we compare investment gains to inflation, what we're really doing is discounting the devaluation of the numéraire over the period of the gain. In other words, we are gauging our gain against the physical plane of goods and services which is what really matters. Another way to look at it is that the dollar was devalued against goods and services while your investment was revalued. This is what I meant when I recently wrote the following:

"I cannot see a dollar collapse without a simultaneous revaluation of something else. It's a seesaw. The dollar isn't collapsing against gold. It is collapsing against the physical plane of goods and services. That's the fulcrum, not gold. Dollar collapse is the force, goods and services the fulcrum, and gold the load. So gold is revaluing against goods and services. The gold revaluation is against the physical plane so as to fill the reserve void left by the dollar's collapse."

So why did the Dow revalue so much in the '80s and '90s and then level off in the noughties just as gold began its rise?

As it turns out, FOA wrote a post about this in November of 2001:

FOA (11/3/01; 14:39:16MT - usagold.com msg#129)
An "inflationary depression" is in the cards -- a "price deflation" doesn't have a chance!

----------------------

Back in the mid to late 70s Sir John Templeton always drove his point home for investors watching Luis Rukiser's show. (how does one spell his name,,,,, we always called him Lou Baby (smile))

Sir John, living here on Layford Cay, kept saying that the Dow of the 70s was very underpriced and would soar. He was the most absolutely correct person stating that then! But more into the mechanics of his perception: he knew that anyone buying the Dow and waiting a decade or more, would gain way beyond mere price inflation. Monetary inflation would eventually drive the perceived virtual wealth of US stocks ever higher. So high, in fact, that their percentage gains over price inflationary gains would be incredible. They were!

Truly, what John was referring to was the effects that simple "passive inflation" has on paper assets; especially in a "reserve currency's" domestic market. In this; real price inflation is mostly exported by importing "real goods" competition. This happens as we export excess credit dollars to buy things. It also has another effect; some of that same exported printed money flows in a circle and joins native investors' buying of local paper assets. When this process first starts, "passive inflation", in the form of massive money creation that's far beyond real price inflation, allows one to gain "virtual paper wealth" even before the markets price out the gains. That is; the Dow stays cheap at first then eventually rises to absorb the money inflation! As long as prices don't rise too much.

People that followed his advice, accumulated the Dow over a decade or more; buying "virtual wealth" before the fact! Stock investors made a killing by positioning their assets where this created "passive monetary inflation" would eventually end up. Even though hard money players laughed at them all thru out the 70s, 80s and early 90s! Look who is laughing now? Stocks tromped hard money plays hands down for over 20+ years! Even considering the latest fall on Wall Street.

----------------------

I want to jump in here and add a little more explanation of what he was talking about. FOA's "passive inflation" was money inflation that didn't spill over into consumer price inflation (CPI). The reason it didn't spill over is in my recent post, Moneyness. (See also: Credibility Inflation) FOA says we imported "real goods competition." That is, we ran a trade deficit and ended up with foreign goods that competed with our own domestic goods keeping all the prices down.

And because we were running a trade deficit, those dollars that paid for it came back to the US buying up the stock and bond markets rather than the price of consumer goods. So the more easy credit we created, the more our paper investments would eventually rise, with a time lag that gave "early adopters" a gain far above consumer price inflation. Now, back to FOA:

My friends:

Today, this same "virtual wealth" effect has been created again and is located in physical gold bullion. I believe Sir John has already made part of my point but I will repeat.

When a currency system comes to the end of its reserve use, I'm speaking politically, its domestic market will come to a point where it can no longer export "real price inflation" in the format of; "shipping its excess currency outside its borders". This happens because internal money inflation, that is super currency printing, is increased so much that it overwhelms even its export flow. Worse, even that export flow later tumbles as the fiat falls on exchange markets.

The effect is that local "passive inflation", built up over decades and fully reflected in "Sir John's" paper assets, spreads out as "aggressive inflation" and hyper price rises begin. In this action, the very same wealth effect that was eventually priced into "John's" Dow stocks and other assets, begins a long march of being priced into real gold.

Anyone that has accumulated physical gold over this past long period was doing the exact same thing Dow buyers of the late 60s and early 70s were doing: ------ saving "wealth" as unpriced "virtual wealth" stored up over that "passive inflation" period. ---

----------------------
As "political will" begins to impact the economies of the US,

our old "virtual wealth" that is no longer in the form of "passive inflation" nor limited to the currency, and is openly displayed in our vast sea of paper assets values including stocks, bonds--------

must now be defended in the open with official printed money flow.
---------------

Me again. Notice he says, "When a currency system comes to the end of its reserve use, I'm speaking politically…" and then, "As 'political will' begins to impact the economies of the US…" What he's talking about is the political will of U.S. trading partners to support our trade deficit by stuffing their reserves with U.S. Treasuries, and again it's in Moneyness that this is ending today. At the time FOA wrote that, the "political will" of Europe had already shifted away from the dollar, today it's China.

More from FOA:

The "virtual wealth" in gold, saved over years by patient investors, will also be priced to market in this process.

Never mind that during the Dow years paper gold markets could not work in parallel with all the other asset gains; it couldn't. Hard money players, trying to somehow play the Dow's game, never caught on to what was happening. Instead of buying "virtual wealth" by saving real gold; they bought leveraged bets that gold would be priced correctly during the "paper asset" years.

Obviously, this "trade" failed hard money players as the waves of value from other paper gains and derivatives leverage were employed against their every long bet on gold. Not only that; the "virtual wealth" in gold was never opened for them with the super price inflation they all thought was coming during that era!

Now that the paper game is about to stop for the Dow, it will also cut off the leverage of gold bets. Just as the real game begins.

The reason for this is that our massive, decades-long gains in our stock markets did not bankrupt the leverage in the money system. Whereas any massive rise in physical gold values cannot be priced into "derivative gold" without crashing the system.

Remember; in political inflations, money is printed to save the assets as they are currently priced; not create new loses by liquefying the leverage that's countering your play!

This paper gold market will be cashed out at prices far below real bullion trading so as to inflate further the books of the Bullion Banks,,,,,, not destroy them. At least this is how the US side will proceed.

------

In this perception USAGOLD has been guiding its clients, and now the world, in much the same way Sir John did decades ago.

"Buy what has value at the greatest discount and wait for the politics of money to price your new savings correctly"!

The politics of wealth today is centered around gold bullion and only gold bullion: that is where the wealth and power will be manifest: this is where the gains will be! To bet on the rest of the hard market; is to bet against the coming inflation making your asset whole!

Place as much of your wealth in physical gold as your understanding allows and save this "virtual wealth" of the ages today: waiting for it to become real wealth, priced correctly in the marketplace, tomorrow.

Make no mistake, the wealth is there "but only there in bullion"! Because a free bullion market cannot be denied or controlled

----- when it stands between the opposite goals of political powers! ---

In this: it will separate from the politically crushing reality the current dollar-based paper gold markets represent. The premium on bullion will soar!

The "Political will" of old world Europe is about to help make our investment real. For myself, a large percentage of my wealth is being saved by going with the evolution of paper moneys: not against!

This trend is visible now and based on the forward flow of human affairs, not the backward rules of money theory!

Our future is today; if not just around the trail!

Sir Douglas; aka FOA

your: Gold - Trail – Guide

Were you able to follow all of that? This little bit gets right to the heart of the matter; the difference between paper gold and real physical bullion. Remember from Moneyness that the people's money throughout history has been credit denominated in something. The majority of exchanges up until the invention of paper money were largely on the basis of credit and trust, with accounts later cleared and imbalances settled in metal. In this way, a relatively small and stable monetary base serves a much larger economy.

But today we use that credit, that debt or liability asset as our savings, not just for trade. Now I want you to think about the fundamental difference between claims denominated in paper money versus claims denominated in gold metal. The claims denominated in paper money can be liquefied in actual base money terms by the central bank. But the claims denominated in actual gold metal cannot.

FOA: "Remember; in political inflations, money is printed to save the assets as they are currently priced… This paper gold market will be cashed out at prices far below real bullion trading so as to inflate further the books of the Bullion Banks,,,,,, not destroy them. At least this is how the US side will proceed."

So claims denominated in dollars must be saved, "made whole" for the sake of the system, but claims denominated in physical metal CANNOT be saved without destroying the banks. The entire international monetary and financial system is in dire need of something to save it right now, wouldn't you agree? The whole system appears insolvable as presently priced, a Catch-22 of incomprehensible dimensions.

But the solution is not so incomprehensible, and it was never up for debate. It was baked into the cake long ago, as FOA pointed out. You may personally prefer that they simply let the system fail. But "they" are central bankers, so we can safely predict they will try something. And that something is the only thing that can happen.

The U.S. dollar and gold will both be massively expanded to recapitalize the system, and life will go on. The difference being that the dollar will be expanded in volume while physical gold bullion will be expanded through value. And through this process, all ambiguous claims, both dollar-based and metal-based will become virtually worthless, while unambiguous gold ownership will literally explode in value.

This is an historical first. Today is the first time in history where a massive transfer of wealth will transpire through the conversion of all gold on the planet into unambiguous ownership. Think about this long and hard. More than 90% of all the gold stock has been mined in the last 200 years. During that time, unambiguous, discrete (and discreet) ownership has entailed an unnecessary expense. During the gold standard years gold was the money, so it was all unallocated and ambiguously owned. Even today, most of the gold in the BB system is still on pallets, a remnant of the gold standard years. But that is changing.

It is more important than ever, right now, to make sure that you unambiguously own discrete pieces of gold. You don't want to just own "a bar of gold" at the bank, you want to own bar number JM4835 or whatever. And you certainly don't want to own a fractional interest in a bar when you can own coins down to one gram. Better yet, have your gold unambiguously in your possession, or at least under your control outside of the banking system that is still struggling to cope with this change.

Have you ever wondered why bullion banks have been opening new or decommissioned vaults and clearing space for more gold? It's not because there's more gold coming into play. It's because it takes much more space to store unambiguous, allocated gold than it does to store ambiguously owned pallets of "gold". From my post The View: A Classic Bank Run:

Here's an interesting item that I struggled to interpret until I really thought it through. Do you remember the stories about HSBC clearing out space in their vaults, or JP Morgan building new vaults? What could be the explanation for this if the aggregate gold stock is so stable? Then it occurred to me that unallocated storage is much more space-efficient because the gold sits stacked on pallets. Allocated gold often gets put into cubby holes to assist in recordkeeping. That takes up much more space. So the process of allocation after many decades of non-allocation requires an expansion of vault space. This is how I now interpret these stories.

_________________________________________________________

Taking personal responsibility for your life's savings when you've always counted on "the system" to safeguard it for you is not an easy step to take. Converting your savings from ambiguous claims in the system (either dollar or gold-denominated) into unambiguous wealth is not without considerable hassle, risk and expense. But it has never been more important than right now. Conversion is early adoption, like buying the Dow sub-1,000. Conversion to unambiguous pieces you can possess is front running the reset, the global revaluation that could come at any moment. As a long-time reader wrote me just today: the window will be closed soon.

He also wrote this:

"A recent 'convert' to protecting his life savings, a friend said, 'wow, it hit me last night......'

I said, 'what?'

"Well, now I understand, all the policymakers are doing currently is making my gold worth higher in purchasing power as they annihilate my currency.....thus, why the heck would I hold something that they are destroying willingly!"

Yup, that about says it all!