Jim Sinclair sent an email alert to subscribers this weekend discussing his thoughts on freegold, and the end game to the current financial system. Sinclair states that the current freegold proponents have distorted the original truth of free gold, and that gold is going back to its original role pre-convertibility.
Sinclair states that The emancipation of physical gold from paper gold is happening NOW and that the end game for paper gold is the basis for the future of physical gold.
From Jim Sinclair:
It is time for the discussion of the end game. The end game is the basis for the future.
The emancipation of physical gold from paper gold is in fact happening. I have always counseled that a return to convertibility is impossible because gold would convert out only. If gold is emancipated then by definition it is Free Gold.
Free gold is not new.
Free gold is the history of gold.
Free gold is the use of gold for savings.
Free gold is the use of fiat paper for transactions.
Free gold’s definition on Wikipedia has matured as the foundational thinking of a school of thought that I hold which says gold is going back to its original roll pre-convertibility.
I do not hold too many of the tangential and political thoughts of Free Gold. Those are products of its new adherents. As a movement gains followers they usually destroy the truth, the teacher, or both.
Courtesy of Wikipedia:
Freegold derives its name from a monetary environment where gold is set free, and has no function as money. Gold is demonetized, and has one function only: a store of value. The function of legal tender changes only slightly: it is a medium of exchange and unit of account, but stripped of the store of value function. In this environment, currency and freegold will coexist to supplement each other, without interacting with each other.
2 Implications of freegold
3 Origin of modern day discussions
4 The inevitability of freegold
5 Controversy and lacking sources
6 See also
Freegold was first seen at the ancient times of the Roman Forum and its Greek equivalent. People gathered at the market place for trading, and used scrip money to facilitate transactions. Their scrip money was not intended to be a store of value, and a surplus of scrip money was converted to something more resembling a store of value like gold or silver. Later, and probably due to increased quality and general availability of Coining, base metals and precious metals were used as money, which brought us the gold standard and ended the natural freegold era. A gold standard prevented governments from manipulating the economy by debasing their currency, especially in deflationary times as occurred in the 1930s. Ever since, the importance of the gold standard has been reduced, first by removing convertibility for US citizens in 1933, later by removing the international dollar to gold convertibility for Nations in 1971, which ended the Bretton Woods system. That left the US dollar as a thought of gold, in the books of the US Treasury still marked at $42 2/9 dollar a Troy ounce, without any convertibility whatsoever. Without this official convertibility though, gold was still monetized, and a rapid increase in the price of gold would signal investors a decline of the value of the US dollar. This forced governments to actively manage the price of gold, documented by the Gold Anti-Trust Action Committee. With massive printing of currencies started after the Bankruptcy of Lehman Brothers in 2008, investors flock to commodities and precious metals, making gold price manipulation increasingly more difficult for governments and which in effect counteracts monetary policy.
Implications of freegold
Under a freegold system, people are encouraged to save their surplus purchasing power in gold, for future spending. There are some severe implications coming out of this:
- Savings accounts at banks will be less attractive (as this is an investment, not savings), leaving the banks with a declining pool of capital. Due to leverage function of fractional-reserve banking, it may greatly impact the financial industry.
- People who save their surplus purchasing power in currency and currency derivatives, may see their purchasing power greatly diminished when the monetary system is shifting to freegold, while keeping their savings in currency.
- Monetary policy will no longer impact the pool of savings (the savers).
- Interest rates will truly reflect the anticipated future purchasing power of currency.
- Countries will no longer try to devalue their currency for cheap exports. Quite the contrary: a strong currency will cause an inflow of gold, a weak currency will cause an outlow of gold.
- Freegold will solve the Triffin dilemma, as nations may opt for payment in what they perceive most valuable: currency or gold.
- Freegold may enable meritocracy; those who have (are) the labour force, natural resources or capital (gold) are in power; opposite to today where those who control the money are in power. Therefore;
- Freegold is allowing Third World countries to join the global economy, as they no longer need money to do trade.
- Freegold will put a brake on the debt based money expansion (due to its compound interest), as money is used for short term transactions only. This is more compatible in a world existing of finite resources and sustainable energy.
- Freegold will better support Islamic banking, and Islamic countries might even opt for a gold standard, though leaving them without monetary policy capabilities.
Origin of modern day discussions
Freegold is anything but a new idea, however it has never been popularized. Starting in late December 1997, freegold was first discussed on the internet by someone using the Pseudonym Another. In his forum posts, he described an important but undisclosed relationship between the flow of oil and gold, and a cheap dollar. When “Another” stopped publishing, someone else continued writing under the Pseudonym FOA (Friend of Another) who published The Gold Trail. Writings have finally stopped in the year 2002, probably because the person was ill and died in the same year. It is thought that Another continued posting under the Pseudonym FOA to further masquerade his identity. For this reason, some postings are transformed through Yoda Speak, a tool which had been just released on the internet. Ferdinand Lips, co-founder and a managing director of Rothschild Bank AG in Zurich, was suspected to be the author of the articles: having knowledge of Comex activity, Saudi oil clients, etc. Though, Lips public works appear to underline going back to a gold standard too much, which is conflicting with the thoughts of Another/FOA. Although we may never know for sure, likely the author was a high official at the Bank for International Settlements. In 2008, an anonymous blogger by the name FOFOA (Friend of a Friend of Another) started raising awareness of freegold again.
The inevitability of freegold
Freegold distribution as of 2011
Starting with issuance of the Euro, the European Central Bank began marking its gold reserves to market value. The more Fiat currencies fall in value against gold, the more obvious it becomes that gold will remain the only store of value – just by reading the balance sheet of the ECB. After the ECB started marking its gold reserves to market, the central banks of upcoming BRIC economies started doing the same. Freegold is expected to emerge, once the (existing or emerging-) reserve currency starts accounting its gold reserves to actual market price.
On 9 May 2002, ECB President Wim Duisenberg said in his Acceptance speech of the International Charlemagne Prize of Aachen for 2002: The 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. As it may have seemed cryptic at the time, Wim Duisenberg describes the Euro as a transactional currency, coexisting with freegold.
Controversy and lacking sources
The concept freegold is sometimes found hard to understand, especially to Western Cultures, who mostly have grown up in a world without a practiced gold standard, and an on average mild inflation. Asian people however do have better understanding, due to a more cultural suspicion against government and (their management of) fiat currency. It is interesting to note that the term or concept freegold is not broadly found on the internet or in publications. Even though the ECB and the central banks of the BRIC countries do support freegold. In order to allow transparent coexistence of freegold, European countries were encouraged to drop VAT on gold, when the predecessor of the Euro, the ECU was introduced. The lack of sources may be explained as a surreptitious act of the creators of the new competing currency-block to the dollar, who didn’t want to outright threaten the Dollar hegemony[verification needed]. Implications (for the Status quo) have been found severe, as described by John Perkins in his book Confessions of an Economic Hit Man.
A US specific implementation Methodology has been suggested by Jim Sinclair, who used the name Revitalized and Modernized Federal Reserve Gold Certificate Ratio. More recently, Jim Sinclair confirmed that Mark-to-Market valuation of gold reserves by the ECB and others will be the basis for this, referring to it as “Free Gold Thesis”.
Robert Zoellick, president of the World Bank, suggested the name Gold Reference Point for this concept.
Martin A. Armstrong, former chairman of Princeton Economics International, Ltd., suggests a new world currency is linked floating to gold.
Freegold has been discussed at the Austrian School of Economics