PT - Paul Tustain on "In search of reliable scarcity"

The Economist and Gold - 31 May 2011

 "...Gold offers humanity one exceptionally useful property; it has an extraordinarily stable stock. There are 166,000 tonnes of the stuff above ground (worth about 8 trillion dollars) of which about 88% is held as a value store of sorts, in jewellery (52%) and bullion (36%). The stock is growing by about 1.5% a year, from the combined efforts of all the world's miners.

[Mrt: In Asian countries jewellery is another way of savings bought by weight rather than art properties]



It is because gold is each of:

    geologically rare;
    elemental (i.e. incapable of being manufactured); and
    industrially useless,

that it has this reliable stock quantity. Nothing else can do it; not silver, which is 80 times more common in the ground, nor platinum, which is far too useful as a catalyst to offer stock stability.

Reliable scarcity is the key property savers require of money, which otherwise fails to store value. But of course we don't need gold to deliver reliable scarcity, we can usually create that reliable scarcity artificially, as we do with our modern currencies.

Now the marginal utility explanation. When new currency is too freely issued reliable scarcity becomes under-supplied, and savers go in search of it. Having seen artificial reliable scarcity fail in one currency, the promise of it in another is unconvincing, so they turn to natural reliable scarcity, and demand for it increases dramatically as governments print money. This is what drives gold up. Mr Sandberg is right though, that it will eventually go down again, when currencies' artificial scarcity once more becomes reliable, and when those currencies start to generate a yield..."

[Mrt: Is this last blue sentence true? or will new Fofoa´s higher level  hold? Time will tell. Utility for savers and a hard lesson will  teach us I believe. Then freegold as a possible outcome?]

"...The question, therefore, is whether the savers who own 100 trillion dollars of dated debt instruments in the bond markets will take fright at continuing money printing policies of the US and other governments. That 100 trillion of dated debt has already started running down the clock. It is shifting to the short end, where it behaves more and more like cash..."

[Mrt: The ticking monetary bomb.]

Source: http://goldnews.bullionvault.com/gold_economist_053120118

PT - Random pick of Paul Tustain article

The man who taught Warren Buffet - 7 May 2006 



"...There is only one way these spending pressures can be halted, and that is to restore the final decision on public spending to the producers of wealth. Taxpayers must regain their right to obtain gold in exchange for the fruits of their labour. This restoration would give the people the final say-so on governmental spending, and would enable wealth producers to control the issuance of paper money and bonds.
I do not ask you to accept this contention outright. But if you look at the political facts of life I think you will agree that this is the only genuine cure..."

"...Before 1933 the people themselves had an effective way to demand economy. Before 1933 whenever the people became disturbed over Federal spending they could go to the banks, redeem their paper currency in gold, and wait for common sense to return to Washington." ..."


"...For those 60 years the US has been able to put strong dollars into circulation and buy the world's goods at low prices.  The result is a world awash with dollars, waiting to be released when, for whatever reason, a different reserve begins to look more attractive. ..."

Source: http://goldnews.bullionvault.com/like_father_like_son

[Mrt: The feedback loop has been deliberately broken.]

PT - More of Paul Tustain

Shortly: http://goldnews.bullionvault.com/user/paul_tustain

Article history

20 Jun '11 Is Gold Just a Useless Metal? Paul Tustain
31 May '11 The Economist and Gold Paul Tustain
14 Apr '11 What is Today's "Fair Value" Gold Price? Paul Tustain
20 Apr '10 Recent Concerns Regarding "LBMA Gold" Paul Tustain
11 Feb '10 Gold – the Ultimate Bubble? Paul Tustain
27 Nov '09 Gold Buyer's Checklist Paul Tustain
09 Oct '08 Gold & the Flood of Cheap Government Money Paul Tustain
02 Sep '08 Tale of Two Malls Paul Tustain
21 Aug '08 Fooled by Randomness Paul Tustain
21 Jul '08 The Red Queen: Sex & the Evolution of Human Nature Paul Tustain
14 Jul '08 The Richest Man in Babylon Paul Tustain
11 Jul '08 Popular Financial Delusions Paul Tustain
07 Jul '08 The Great Crash 1929 Paul Tustain
30 Jun '08 The Age of Gold: The California Gold Rush & the New American Dream Paul Tustain
30 May '08 Who Gets My Apple? Paul Tustain
01 Apr '08 Why Rescues Don't Work Paul Tustain
20 Dec '07 Train Wreck Imminent Paul Tustain
11 Dec '07 Investment Landfill, Part II Paul Tustain
07 Sep '07 Bernanke's plums Paul Tustain
28 Aug '07 The gathering storm Paul Tustain
30 Jun '07 Investment landfill Paul Tustain
22 Jun '07 Bear Stearns, hedge funds & toxic waste Paul Tustain
27 Oct '06 IX Investor Presentation Paul Tustain
15 Sep '06 Two factors influencing September's price Paul Tustain
12 Jul '06 BullionVault Paul Tustain
02 Jul '06 London Paul Tustain
26 Jun '06 China Paul Tustain
24 Jun '06 The Case For Gold Paul Tustain
03 Jun '06 Lies & statistics Paul Tustain
01 Jun '06 On banking confidentiality Paul Tustain
22 May '06 Principals and agents Paul Tustain
16 May '06 Error messages from the economy Paul Tustain
07 May '06 The man who taught Warren Buffet Paul Tustain
01 May '06 The Portuguese airline passenger Paul Tustain
25 Apr '06 The Depression Paul Tustain
20 Apr '06 Hyperinflation Paul Tustain
16 Apr '06 Different ways of looking at risk Paul Tustain
12 Apr '06 The value of rarity Paul Tustain
11 Apr '06 Avoid banks Paul Tustain
17 Mar '06 Pricing gold in a glut currency Paul Tustain
17 Feb '06 Punishment for a central banker Paul Tustain

[Mrt: and now there is plenty fresh of study material :o)]

PT - Monetary Episodes From History

Full article here: The following is collection of short articles on the history of money





Gold at the junction of monetary systems

"...A previously successful credit based system will eventually collapse under the weight of its historical circumstances and the excesses of credit which it is sucked into at the time of its greatest success. As the process of collapse unfolds one monetary store after another demolishes savers.  If they hold notional long term obligations like pensions the underwriters fail.  If they hold institutional debt the issuers fail.  If they hold bank notes and the banks fail.  It takes very few failures before the population starts to see risk in every credit based construct. Their faith in their institutions evaporates, and they become acutely aware of the dangers of anything intangible, and anything whose supply can relatively easily be expanded. This is when they begin to think obsessively about things whose supply is subject to some fundamental limit..." 


Gold as a money of choice

"...Gold based money - even for economic superpowers - is temporary.  It disappears from circulation and seeks out the next great producers - to whom it will generally gravitate in settlement of new international trading debts.

Curiously the strongest industrial exporting nations of the last 50 years (notably Japan and Germany) have chosen to accumulate US dollars rather than gold, and now, instead of possessing bullion within their own borders these great exporters now own substantial slices - apparently some 40% - of the capital stock of foreign countries (particularly the United States) which buy their exports.

This is a break with ordinary patterns of international trade.  It indicates that Germany and Japan are trusting the people of the USA to defend foreigners' property rights over American self-interest..."

"...There is evidence that the Arabian oil exporters show a growing appetite for gold, with Dubai having comfortably the largest per capita gold inventory in the world, and Saudi Arabia having a reducing tolerance for dollars.  Equally interesting is a growing Chinese demand..." 

Source: Money for the powerful

[Mrt: How interesting that: "Paul Tustain is the editor of www.Galmarley.com and director of BullionVault". This reminds me of Alar Tamming and Tavex story :o)]

Sparta

"...Spartan citizens were debarred by law from trade or manufacture, which consequently rested in the hands of the Perioikoi, and were forbidden (in theory) to possess either gold or silver. Spartan currency consisted of iron bars, thus making thievery and foreign commerce very difficult and discouraging the accumulation of riches. Wealth was, in theory at least, derived entirely from landed property and consisted in the annual return made by the helots, who cultivated the plots of ground allotted to the Spartan citizens. But this attempt to equalize property proved a failure: from the earliest times, there were marked differences of wealth within the state, and these became even more serious after the law of Epitadeus, passed at some time after the Peloponnesian War, removed the legal prohibition of the gift or bequest of land.

Full citizens, released from any economic activity, were given a piece of land which was cultivated and run by the helots. As time went on, greater portions of land were concentrated in the hands of large landholders, but the number of full citizens declined. Citizens had numbered 10,000 at the beginning of the 5th century BC but had decreased by Aristotle's day (384–322 BC) to less than 1,000, and had further decreased to 700 at the accession of Agis IV in 244 BC. Attempts were made to remedy this situation by creating new laws. Certain penalties were imposed upon those who remained unmarried or who married too late in life. These laws, however, came too late and were ineffective in reversing the trend...."

Source: http://en.wikipedia.org/wiki/Sparta#Economy



"...Issuance of coinage was forbidden. Spartans were obliged to use iron obols (bars or spits), meant to encourage self-sufficiency and discourage avarice and the hoarding of wealth. A Spartan citizen in good standing was one who maintained his fighting skills, showed bravery in battle, ensured that his farms were productive, was married and had healthy children...."

Source: http://en.wikipedia.org/wiki/Spartan_Constitution

---

"...“It was now impossible to buy foreign goods and no cargo of merchandise would enter a Spartan harbor, no teacher of rhetoric trod Laconian soil, no begging seer, no pimp, no maker of gold and silver ornaments – because there was no coined money. Thus gradually cut off from the things that animate and feed it, luxury atrophied of its own accord.”

The wealthy had no outlet to show off their wealth and were resigned to keep it in storage.

Craftsman, now released from useless jobs, began to work in the manufacture of essential goods such as tables and chairs, so the competition among them was fierce and the resulting quality of these products first rate. ..."

Another link: http://www.mikeanderson.biz/2009/06/lycurgus-spartan-monetary-system-and.html

---

"...In fact throughout that time the Spartan iron coinage was perfectly operable on a notional value both enforced by law, which declared its status as legal tender, and underwritten by state integrity. It was only the eventual breakdown of Spartan political strength which finished the money, not the over-issuance of the coinage..."

"... Athens grew to culturally dominate Sparta in the 50 years after the apparent victory of the Spartans in the Peloponnese war Spartan merchants’ confidence in their iron coinage started to wane, and they steadily preferred to use gold and/or silver which was creeping into the system.
As the situation deteriorated the state decreed that "no coin of gold or silver should be admitted into Sparta," and that they should "use the money that had long obtained". The decree did not pass into practice because the choice was a bleak one - no goods, or goods traded in gold..."


[Mrt: The case of Sparta is very interesting! Does that mean that it was a close to Freegold environment? iron medium of exchange abundant but almost worthless to save in]

Another link: http://lynncoins.com/money-history-episode.htm

EU - Public consultation - Update for units of measurement directive

R192
March 2007
Public consultation - Update for units of measurement directive
Subject : Consultation on the Units of Measurement Directive (80/181/EEC)

Source: Public consultation - Update for units of measurement directive


[Mrt: I posted it some time ago at Fofoa, its already discussed there, 46 pages long doc, worth a detailed study, lot about physical/paper gold market and possible move to Swiss area in case LBMA looses its credibility, some interesting parts to be extracted later]

EU - "VAT: special scheme for gold"

"VAT: special scheme for gold

ACT
Council Directive 1998/80/EC of 12 October 1998, supplementing the common system of value added tax and amending Directive 77/388/EEC - Special scheme for investment gold. [Official Journal L 281 of 17.10.1998]

...

SUMMARY

In order to promote the use of gold as a financial instrument, this Directive introduces a tax exemption for supplies of investment gold. Previously, the normal tax arrangements applied to investment gold...

Act	Entry into force	Deadline for transposition in the Member States	Official Journal
Directive (EC) No 1998/80EC	17.10.1998	1.1.2000	OJ L 281 of 17.10.1998

Source: GOLD zero VAT taxation

[Mrt: an important document to be checked]

Othe docs:

Free movement of goods Infringement proceedings against France with regard to precious metals

The G-20 and the currency war

The G-20 and the currency war
Jean Pisani-Ferry, 25 October 2010
(This article was a recent contribution to The Brookings Institution)


"...every country seems to be aiming at a depreciation of its currency – or at least at avoiding an appreciation: Japan with unilateral foreign exchange intervention; the U.S. and the U.K. through large-scale purchase of government bonds; China through keeping an almost fixed link vis-à-vis a depreciating U.S. dollar; and emerging countries all over the world through an array of techniques to discourage capital inflows or to ward off their effects on the exchange rate. Only the euro area seems to be bucking this trend, as the European Central Bank has taken the first steps toward an exit from exceptional crisis measures and has allowed a rise in the short-term interest rate. But even it cannot be indifferent to the risks of appreciation; a persistently strong euro would seriously complicate the economic adjustment under way in countries under stress like Spain, Portugal and Ireland..."

[Mrt: Under freegold the aim should be to have a well managed stable currency. No need for currency wars of this type.]

"...This looks familiar. Indeed, it took two years after the crash of the 1930s, from October 1929 to September 1931, for Britain to sever the pound’s link to gold and set in motion a currency war..."

[Mrt: so we are some time from LB collapse, how long will the two-tier market hold? The asymmetry between the physical only and paper gold can not and will never hold for too long.]


Source: The G-20 and the currency war

IAS2 notes

INTERNATIONAL ACCOUNTING STANDARD IAS 2 INVENTORIES - technical note proposal

1.
"As a result of the meeting of the Central Bank Accounting and Budget Committee held between July 11 and 13, 2005 in Brazil, the representatives of the Central Banks of Argentina, Brazil, Chile, Guatemala, Peru and Uruguay, with the representative of Banco de España attending as a guest, agreed to thoroughly analyze the application of some International Accounting Standards which have been reviewed and are currently contained in the International Financial Reporting Standards (IFRS), in order to prepare technical notes that contribute to the improvement of the position of central banks as regards the application of the IFRS when difficulties are encountered for said purpose..."

4.
Gold as a reserve asset
"For years the old gold standard used to force central banks to support the issuance of circulating money with gold holdings. Paper money was convertible into gold according to a fixed rate. The development of the banking and credit system, as well as the need for circulating money during the First World War led to having amounts of money in circulation that were higher than the gold stock, which resulted in the gradual abandonment of the standard, to such an extent that no nation in the world uses said standard now. (~wiki)

However, gold is still an important part of the reserve assets of most central banks in the world as a way to diversify their portfolios or as a hedging against the United States Dollar..."

"...In Latin America, the average gold holdings as of December 2005 amounted
to 34 tonnes, with a relative average weight of 5.4% of total international
reserves..."

Source: INTERNATIONAL ACCOUNTING STANDARD IAS 2 INVENTORIES - TECHNICAL NOTE PROPOSAL


[Mrt: A good sum, good points in this paper. ...and Those lines one can never find in newspapers. :o); Note that Venezuela had 357,4 t]

CBs - Guardian of financial stability

Guardian of financial stability
December 2008

"The financial world in which DNB operates is changing faster each day. Some developments have been set in motion; others will surprise up tomorrow, the day after tomorrow or next year...

...And we prepare ourselves for future developments...

...All these developments greatly influence DNB´s future. The financial world is rapidly changing and our activities and priorities change accordingly. But our mission will not change. Stability to us is worth its weight in gold."

Source: Guardian of financial stability

[Mrt: Yes, lets see how it looks in a nice graph e.g. here: Featured statistic: 54 tonnes; 2007]