|
|
The essence of a straw man argument is the superficial
misrepresentation of statements taken out of context. And here, frankly,
there is a lot of context. This is one of the reasons I do not actively
promote, submit or publish my posts anywhere but here.
There are a few spotlight sites that link or repost articles of their
choosing, and I have granted permission to anyone who has asked. I also have
not objected to those who don't ask, like Zero Hedge. But I do not put them
out there myself because I believe my writing is something that you, the
reader, should come here to read because you want to. It is not the type of
writing that should be placed in front of your face.
I'm not out there tilting at windmills. When was the last time you saw me
write "End the Fed," or "support this bill," or
"support this movement," et cetera. Never?
That's right, never. And that is because I am simply reporting on the choices
the free market has already made – developments that may not be so
obvious to the interested parties in our various "hard money
tribes."
My argument is that the choice of gold over silver is a free market choice
that has already been made (silverbugs
notwithstanding). Mr. Market always wins in the end and the CBs are aware of
this, and they have already prepared for it to be so. The direction (up) and
the medium (gold) are already baked into the monetary cake. The only unknowns
that remain are magnitude and timing. And the problems with today's monetary
system and the global financial crisis can all be plausibly explained through
the context presented in this blog.
I had to laugh at all the people who described my Focal Point post as too
long, long-winded or verbose. Obviously they haven't read much FOFOA, and
therefore have little context in which to understand my meaning. Yet at the
same time, they felt it was a threat, a paper tiger that needed to be slain, a straw man that needed to be put down.
But can you see the difference in what I put out there? I don't sell my
words. I have no advertising so I am not beholden to anyone else who has
something to sell. I do not try to place my words in front of people who did
not make the conscious choice to read it. I do not advocate any action that
will affect or coerce someone else (like busting a commodity market).
The only action I advocate is personal action, like purchasing power
preservation. I also advocate the personal action of expanding your
understanding beyond the standard dogma you find everywhere else, which I
suppose makes me quite unique.
Now let's quickly run through Mish's "FOFOA Fallacies." I'll try to keep the
incomprehensible babbling less verbose and conflated in this one, so as not
to waste too much of your valuable time.
FOFOA Fallacy #1: "So we need money, and lots of it. In fact, we need
money in unrestricted amounts!"
Mish says, "No we don’t." Then he quotes Murray Rothbard and sums it up with, "The key point above
is that an increase in money supply confers no overall economic benefit. Over
time, money simply buys less and less."
"Tolbiny" offers the following excellent
rebuttal:
Imagine an economy with a single dollar bill as all the currency. Could this
dollar act as money and "lubricate" the economy? The answer is
clearly no. Only one person could hold that dollar at any one time- there is
a basic minimum amount of money that is needed for something to even function
as money. Take the quote that Mish uses from Rothbard
and compare it to FOFOAs quote.
Rothbard Quote:
Like all commodities, it has an existing stock, it faces demands by people to
buy and hold it. Like all commodities, its “price” in terms of
other goods is determined by the interaction of its total supply, or stock,
and the total demand by people to buy and hold it. People “buy”
money by selling their goods and services for it, just as they
“sell” money when they buy goods and services.
FOFOA Quote:
"So we need money, and lots of it. In fact, we need money in
unrestricted amounts!"
There is no contradiction between the two. Mish is interpreting FOFOA as
saying that we need money in UNLIMITED amounts, but FOFOA clearly says we
need it in UNRESTRICTED amounts. The difference here is clear- for FOFOA the
money supply needs to be able to react to the demand on money freely. The
changing of a money supply (be it in volume or velocity) is important for the
efficiency of an economy. This does not mean that expanding or contracting causes
more economic growth, but that it allows for economic growth.
In my post I addressed "two simple, but seemingly, apparently
impossible-to-comprehend concepts." The first was the splitting of the
concept of "money" into separate units for separate roles. And in
the medium of exchange role, I did use the term "unrestricted." But
I also clarified it in this way: "Unrestricted by artificial
constraints." A fixed, unilateral gold standard is an artificial constraint.
A floating multilateral "gold standard" is a natural, free market
constraint that allows for currency flexibility while, at the same time,
exposing the exchange value (in gold) of a currency to the judgment of the
marketplace.
FOFOA Fallacy #2: "Gold used as money represents debt."
Mish: "The statement is preposterous unless one allows the lending out
of more gold than exists. That practice is clearly fraudulent."
Here, Mish misunderstood my meaning, which I clarified in my follow-up piece posted three days before
Mish posted my "fallacies":
"Someone else said that I had money all wrong because I wrote
that gold is debt. Perhaps I should have said that gold is "a
credit" for future goods and services instead of using the loaded word
"debt." (But, actually, I did that on purpose.)"
Again, "Tolbiny" sums it up well:
Mish again has no idea of FOFOAs point. Any money has to be "debt
based" as FOFOA is using the concept. When I accept money as payment for
a good I am only doing so with the expectation that I will be able to trade
that money for something else in the future. This functions in the same way
as debt does. I give you X and after time T has passed I expect to get Y in
return. Savings is a deferment of consumption, but when you give your
deferred goods to someone else and they are consumed by the 2nd party more
goods have to be produced in order for you to enjoy your savings in the
future. That is the debt part of money.
Had Mish understood my point, he would have noticed that he already posted a
rebuttal under "FOFOA Fallacy #1," the Rothbard
quote:
Murray Rothbard: "[Money] is not a useless token
only good for exchanging. It is not a “claim on society”. It is not
a guarantee of a fixed price level. It is simply a commodity."
I should probably parse this Rothbard quote in
defense of my statement because even though Mish didn't use it in that
context, it still fits. But first, here's a thought from Friedrich A. Hayek posted on the Mises Institute website:
"The gold standard is a mechanism which was intended and for a long time
did successfully force governments to control the quantity of the money in an
appropriate manner so as to keep its value equal with that of gold. But there
are many historical instances which prove that it is certainly possible, if
it is in the self-interest of the issuer, to control the quantity even of a token
money in such a manner as to keep its value constant.
[…]
"I think it is entirely possible for private enterprise to issue a token
money which the public will learn to expect to preserve its value, provided
both the issuer and the public understand that the demand for this money will
depend on the issuer being forced to keep its value constant; because if he
did not do so, the people would at once cease to use his money and shift to
some other kind.
[…]
"I have no doubt, and I believe that most economists agree with me on
that particular point, that it is technically possible so to control the
value of any token money which is used in competition with other token monies
as to fulfill the promise to keep its value stable."
An interesting thought from Hayek: A medium of exchange whose value comes
from its ability to serve as a medium of exchange, independent of any backing
or direct convertibility. Essentially a "useless token only good for
exchanging." This is one half of Freegold, or
"Reference Point Gold," by the way.
Now let's take a closer look at Mish's Rothbard quote and see if there is really any
contradiction between it and "FOFOA Fallacy #2: Gold used as money
represents debt."
FOFOA clarifying: "…gold is "a credit" for future goods
and services…"
Rothbard: "[Money] is not a useless token only
good for exchanging. It is not a “claim on society”. It is not a
guarantee of a fixed price level. It is simply a commodity."
I am in full agreement with Murray given the chance to expand on his
statement a little. Money should not be a useless token only good for
exchanging if that same money is to carry the dual roles of currency and
savings. Yet today it is. Money is not a fixed value claim on society. Of
course not. It is a floating, "marked to market" claim. As is gold
in the store of value and wealth reserve role.
Purchasing gold confers no economic or necessary benefit to you in the
present, other than storing your deferred consumption for the future. It is a
way to pass your earned claim (debt to you) into the future, even through
generations. Calling this a fallacy is simply fallacious.
And while the word "commodity," when used along with
"money," is often assumed to mean "a physical product of
agriculture or mining," the more appropriate meaning here is
"something of use, advantage, or profit." In the medium of exchange
role, this can be anything, even, as Hayek says, "a token money."
FOFOA Fallacy #3: "Gold and only gold will fill the monetary store of
value role. Not gold and silver. Not precious metals. Just gold."
Mish: "Like FOFOA I believe gold is money. However, unlike FOFOA I think
money is whatever the free market says it is. The problem is, we do not have a free market we only have government
decree mandating the use of dollars, Pounds, Yen, Renmimbi,
Euros, and Francs as money."
Mish's handicap here is that he is not familiar
with the body of my work that describes how the monetary roles historically
came together and are now separating. The store of value role is always a free
market choice while the medium of exchange is presently (and usually) issued
under monopoly control. The monopoly's goal is to gain your confidence in the
store of value role as well, but this is failing today after decades of
excess.
Referring back to my Gold is Money series from 2009, here is the
modern concept of money:
Now let's compare this to that Eurosystem report:
Notice that everything is reported in euro, even gold, and even
dollar-denominated claims ("foreign currency") are reported in their
euro-denominated value. So euro is the monetary unit of account on this form.
The right side of the balance sheet represents the base of the medium of
exchange within the Eurosystem. It includes euro
notes as well as other liabilities of the central bank. And the left side
represents both the de facto monetary store of value (claims denominated in
foreign reserve currencies) as well as the alternative preferred store of
value (gold).
The interesting thing about gold on this side of the balance sheet is that,
not only is it not at risk from the (mis)management
of foreign economies and currencies, but as those other stores of value fail,
the gold portion is rising in value to keep the balance sheet full. This is
the magic of a marked to market floating monetary store of value.
All the activist toy soldiers that want silver to become the monetary store
of value "because the powers that be don't have any" are completely
missing the big picture. TPTB don't have any because Mr. Market, that is
those Giants with serious amounts of wealth to store, already selected gold
in this role. The prominent presence of gold on the Eurosystem
balance sheet is not TPTB forcing a store of value on the market. It is the
exact opposite! As I have said many times, the store of value role cannot be
dictated, decreed or legislated.
The prominent presence of gold on the balance sheets of the modern Central
Banks is the CBs front running the market! Freegold
(or "Reference Point Gold") is an unfolding market force creation.
Mish says, "unlike FOFOA I think money is whatever the free market says
it is." That's not "unlike" me. It is simply misunderstanding
me. Gold IS the market choice. And the real market for this "store of
value" is the Giants with "value to store." Luckily we shrimps
can tag along for the ride. But we can no more override this market choice
than we can crash the Treasury market by dumping our stockpile.
Alright, that's enough Mish. Now let's take a look at Trace Mayer, J.D. who followed Mish out of
the gate slaying paper tigers and sodomizing a straw man or two of his own.
First of all, I'm not quite sure if Trace actually read my post, or if he is
merely judging it based on hearsay evidence. For one thing, Trace seems to
have latched onto Mish's misinterpretation of the
word "unrestricted," apparently taking it to mean
"unlimited" and thereby projecting me as a Chartalist.
I had to laugh at that one, and I hope you did too. I guess Trace missed my
comments to Greg, our resident MMT acolyte.
Anyway, Trace goes on and on reaming the 'FOFOA Chartalism'
straw man:
"First, it should be noted that Greenspan implicitly admits the faulty
argument behind Chartalism."
"This is the same reason Chartalism is
philosophically flawed."
"A proper valuation set by whom, the State? Chartalist!"
"There is a reason Chapter One of my book The Great Credit Contraction
is titled Word Games. In that chapter, I present the two competing theories
of money, market versus Chartalism…"
Okay, now that Trace's poor scarecrow won't be walking right for a week,
here's a little newsflash about FOFOA. Trace claims to present the two
competing theories of money, market versus Chartalism.
Well I, Another and FOA present ..... Option 3 -
fiat currency that is dynamically priced though a floating (physical only)
gold exchange rate in a free market.
More evidence that Trace either didn't read my post or was misrepresenting
what he read (a bit of a faux pas for a lawyer) was this statement:
"But these individual preferences expressed through human and being
revealed through the silver price does not constitute evidence of silver
being overvalued as FOFOA asserts."
I can't seem to find my assertion that silver is overvalued. At least not in
my post. Perhaps it is this:
To be honest, I really don't know if silver is overvalued or
undervalued today at $30/ounce.
The context there was a discussion of the impact of paper markets on the
value of industrial commodities. I argued that these commodities can be
overvalued or undervalued. Or maybe it was this:
You see, silver needs its price propped up (huh? why?) while gold
appears to need its price suppressed (see: The London Gold Pool).
The context there was a discussion of the history of bimetallism. Not quite
as assertive as Trace made it sound, is it?
In fact, my position is that silver will rise just
fine against a falling dollar. In fact, it may gain a little additional
levitation over other commodities due to the lingering monetary sentimentality
put forth by Trace and others. But it will also be limited by the economy.
Where it will not follow gold is through the change in both market and
function that will deliver a real, non-inflation-adjusted massive one-time
return. The Freegold reset as the gold market turns
physical and the gold function becomes the monetary store of value par
excellence. A free market Giant event being front run by the Central Banks
and a few small physical gold advocates.
Trace would probably have no idea what I'm talking about, since it doesn't
seem like he has read much FOFOA. Well, if he, or
any of you are interested, you should probably start here and here.
On the Regression Theorem, Trace quoted this exchange:
Congressman Ron Paul: So it is hard to manage
something you cannot define.
Dr. Greenspan: It is not
possible to manage something you cannot define.
The implication is that the dollar's value cannot be managed if it cannot be
defined (as a quantity of gold and/or silver presumably). Obviously you
cannot define anything in a vacuum. You cannot define an ounce of gold as an
ounce of gold, or a dollar as a dollar. Self-reference does not make for a
good definition. But to define one thing as a fixed quantity of another
creates a different problem, described by Gresham's law. However, to define
one thing as its floating market value in something else, why, that's just a
revolutionary concept! Isn't it?
Actually, it is an emergent, market-driven concept that has been unfolding
since around the time Nixon closed the gold window, give or take a decade.
And it is so extraordinary in its sweeping ramifications that it requires a
whole new paradigm to understand. From Bob Murphy's article linked by Trace:
""People today expect money to have a
certain purchasing power tomorrow, because of their memory of its purchasing
power yesterday... Thus the expected future purchasing power of money
explains its current purchasing power."
Obviously this view assumes a dual role for money, store of value and medium
of exchange (unit of account is implicit). But what is actually playing out
today is something quite different. Trace frames the issue of money in terms
of two models, "market versus Chartalism."
"Aristotle" describes Trace's perspective as a pendulum with "gold money
idealists" on one side and "easy money idealists" on the
other. And he calls Freegold the "perfect
bottom." But he also points out that it is the most pragmatic and realistic
point in an arc between two opposing idealisms, Trace's "market versus Chartalism." Read the entire description in my post,
The Value of Gold.
In order to dive into this extraordinary new paradigm, we should probably
shed some baggage. Here are a few bullet points to consider:
1. Freegold is a Floating Physical Gold Exchange
Rate system for dynamically valuing fiat currencies. It is a floating
reference value, not a fixed exchange rate "gold standard." In the
new IMFS, currency pairs will be a function of the relative price of physical
gold trading within their legal tender zones, rather than the race to the
bottom with no benchmark as it is today.
2. "Money" is a dead, meaningless concept. If you want to use it,
then define it. Circulating Currency has a concrete meaning. There are other
terms that will suffice for other components of the "money" supply eg. Bank Credit E-currency (for the digital deposit
created credits), reserve assets for the store of value, etc.
3. The term Precious Metals needs to go. There is gold and there are
industrial metals. Sure there are high value industrial metals and there are
low value metals but they are all commodities and we are way beyond commodity
money. If the use of a metal in jewelry makes it "precious" then
advocates for this term need to make their case.
4. The gold standard, bimetallism etc. are all topics for the history books.
If you want them back then you need to explain how you plan to rehabilitate
these terms for mainstream consumption and resurrect the dead systems that
they describe.
Finally, if you would like to view this paradigm properly, you must have a
clear understanding of the natural human factions at play. These factions are
"the easy money camp" and "the hard money camp." Or as I
like to call them, The Debtors and the Savers. This may not seem like much, but it is a nuance that most all of my
critics have wrong.
Please read the linked post. Government, commercial banks and central banks
are the ménage à trois at the center
of any IMFS, but they are not all in the same camp. In the correct paradigm,
the government, the politicians and Wall Street (commercial bankers) are all
in the Debtor's camp, while the Central Banks are in the Saver's camp along
with the Giants.
But Freegold is not as simple as a one-camp
solution. As I've said many times, Central Bankers are a different breed.
They are not like commercial bankers or politicians. Hate them if you feel
you must, but collectively they do think big picture and long term. And Freegold is an accommodation of BOTH camps! That's
because it is the recognition and official CB front running of Mr. Market's
eventual win.
This is just one small example of how the "Debtors v. Savers"
factional paradigm differs from the "Bankers v. the rest of us"
that drives all of these hard money guys into tilting at windmills. Or from
the "haves v. the have-nots" paradigm that has infected the water
supply in the easy money camp. It is a small difference, but a world apart.
Today we have arrived at the end of a long period in which the debtors have
reaped immense amounts of real world goods from the savers. They have done so
by issuing paper debt in exchange for real goods. Most of my critics confuse
who the debtors and the savers actually are. They think "the American
people" have been screwed over by the bankers for so long and now is the
time to take it all back. What they don't realize is that "the American
people" and "the bankers" (the commercial bankers) are in the
same camp. So is the government. They are all "Debtors."
And as this pendulum swings, they should be (we all should be) very
happy for the acceptance of Freegold by the Giants,
the CBs, and the Savers. But my critics can't even see this paradigm, because
they are stuck in a bad one. And their bad paradigm leads them to tilting at
windmills like "buy silver, crash JPM," "end the fed,"
"the Kucinich easy money bill," "buy silver because TPTB only
have gold," "the end of fiat is coming," "the euro is no
different than the dollar," etc., etc...
What is actually coming down the tracks with the inertia of a massive
locomotive pulling the Freegold party train is what
Robert Zoellick has been hinting at publicly, completely misunderstood by gold bugs and Chartalists alike. It is
gold used internationally in a new monetary role, not seen in prior history.
It is the next step in the evolution of the concept of money.
Gold is to become the floating, free market reference point for fiat
currencies of all stripes. And to do this, it will shed the albatross that is
its parity relationship with paper promises of gold from private institutions
that are backed by more paper promises of gold from other private
institutions in a perpetual loop of paper promises. This paper promise
loop/"market" is not a stable benchmark,
and it will have to go.
So now you have a choice. You can hop on the party train and buy some
physical gold before the journey is complete. Or you can join the ranks of
toy soldiers standing strong against the unstoppable force of time. The
choice is yours.
Sincerely,
FOFOA
Toy
Commander: "It wasn't my intention to mislead you
It never should have been this way
What can I say
It's true, I did extend the invitation
I never knew how long you'd stay
When you hear temptation call
It's your heart that takes, takes the fall
Won't you come out and play with me
Step by step
Heart to heart
Left, right, left
We all fall down
Like toy soldiers
Bit by bit
Torn apart
We never win
But the battle wages on
For toy soldiers
It's getting hard to wake up in the morning
My head is spinning constantly
How can it be?
How could I be so blind to this addiction?
If I don't stop, the next one's gonna be me
Only emptiness remains
It replaces all, all the pain
Won't you come out and play with me
Step by step
Heart to heart
Left, right, left
We all fall down
Like toy soldiers
Bit by bit
Torn apart
We never win
But the battle wages on
For toy soldiers
We never win
Only emptiness remains
It replaces all, all the pain
Won't you come out and play with me
Step by step
Heart to heart
Left, right, left
We all fall down
Like toy soldiers
Bit by bit
Torn apart
We never win
But the battle wages on
For toy soldiers
Step by step
Heart to heart
Left, right, left
We all fall down
Like toy soldiers
Bit by bit
Torn apart
We never win
But the battle wages on
For toy soldiers"
Sincerely,
FOFOA
FOFOA is A
Tribute to the Thoughts of Another and his Friend
Donations are most appreciated, just click
here
|
|
