Podcast

Harvey Organ: Get Physical Gold & Silver!

Gold & silver prices suppressed with prejudice
Friday, April 20, 2012, 6:10 PM
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Harvey Organ has been analyzing the bullion markets closely for decades. The quality and accuracy of his work is respected enough to have earned him an invitation to testify before the CFTC on position limits for precious metals back in 2010.

And he minces no words: Gold and silver prices are suppressed. With extreme prejudice.

In this detailed interview, Harvey explains to Chris the mechanics of how he sees this manipulation occurring, why he predicts this fraudulent pricing scheme will collapse soon, and why it's critical to be holding physical (vs. paper) bullion when it does.

The real suppression of the metals started in 1988. That’s when the leasing game started and was invented by J.P. Morgan.

These guys would go around to the mining companies and say, Listen, I’m going to pay you for your gold in the ground and I will sell it. You just pay me as you bring it out. So that was cheap financing to the miners. Barrick, the biggest mining company of them all, went in on this and it financed a lot of Nevada projects.

Once the leasing game came, the actual selling, the extra selling, suppressed the price. In the first five years, it started at maybe three hundred to four hundred tons. It didn’t start to get really bad until probably ’97-’98 with the Long Term Capital affair. And that’s when the leasing started to become around maybe 1,000 tons of gold. And it hasn’t stopped.

And silver is the same.

And that’s why you've had a long-term, 20 years of suppression of the metals. The problem now is that the physical is now gone. Where is going? It’s gone from West to East. 

A lot of people don’t know that China used to refine close to 80% of the world’s supplies of silver, because it’s very toxic. Up until probably 1985, the Chinese handled 80% of the world’s refining of silver. Now they're down to 40%, but that’s still a major part of China’s industry. They are keeping every single silver ounce they refine, and gold. They are keeping it for themselves; their reserves are rising (though they don’t tell exactly). Two years ago they went up to 1,054 tons and I can assure you it’s probably triple that now. These guys are not stopping. Just like they are not stopping in oil. They know what the game is, and they are slowly taking all their U.S. dollars that are on their shelf and converting them to gold, oil, copper – anything that’s real.

And the game ends when the last ounce of gold has left London – not COMEX, because in a nanosecond it will come back to here. 

The big problem in London is that their derivatives on gold are about 50 to 100-to-1. That’s the amount of derivatives. So if I take out that 1 ounce, the balloon around it – the derivative – is getting bigger and bigger and bigger until it’s ready to totally implode.

And that’s what you are seeing now. So right now, people are going to say: How high can it go? And I’m going to tell you: You are going to go to sleep on Thursday night and gold may be $1,670. And then you wake up the next day and it’s going to be a banking holiday. And gold will be $3,000 bid, no offer. No offer – and it will be a banking holiday. Because there will be a failure to deliver.

You’ve got to have physical coins or bars. If all you have is a piece of paper – that’s all it is!  It will just blow up in smoke.

So just go buy your physical and be thankful that you are getting it at a cheaper price today.     

Click the play button below to listen to Part I of Chris' interview with Harvey Organ (runtime 32m:36s). 

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To listen to Part 2 - Click Here.


Harvey received his Bachelor of Science degree in 1970 and an MBA in 1972 at McMaster University, majoring in finance. It was during this time period where Harvey got exposed to the derivative market that was just starting on Wall Street.  Harvey has been trying to expose the fraudulent manipulation of the gold market ever since  the "Long Term Capital" downfall in 1998.  It has been Harvey's duty to share what he knows and expose the fraud and educate the intricacies of of the gold and silver paper and physical markets, which he does through his website Harvey Organ's Daily Gold and Silver Report.


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372 Comments

Travlin's picture
Travlin
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Posts: 1322
Can you enlighten us?

Erik T. wrote:

I would certainly welcome SUBSTANTIVE discussion - like someone explaining what the paper to physical ratio has to do with leverage, for example.

Erik

Perhaps you can enlighten us. Here is how it looks to me.

If a bank has $10 million in reserves, plus $100 million in deposits, it can write $100 million in loans. It is leveraged 10 to 1 as it has created $100 million new dollars. This is the essence of fractional reserve banking.

So let’s say the COMEX has $10 million in bullion in the vaults, to back $100 million in contracts. Isn’t it leveraged 10 to 1, and hasn’t it temporarily created $100 million new dollars?

If a futures trader deposits 10% margin (in dollars or bullion) on his contract isn’t he leveraged 10 to 1?

When you have very large players with enormous amounts of money, that they can multiply 10 times, they can certainly manipulate prices. And it seems like those prices could vary significantly from what people would pay to actually buy and sell bullion.   Futures markets started for agricultural products. They had to be sold due to a limited storage time, and they had to be bought so people could eat. Futures were a way to smooth out prices. But precious metals can be stored forever, so big futures market players can dominate price setting for a while to enrich themselves, while bullion owners are chased to the sidelines waiting for prices to stabilize. That would be the tail wagging the dog.

Now I don’t understand futures markets, but I know a little about banking. Why wouldn’t this analogy be valid?

Travlin

Erik T.'s picture
Erik T.
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Posts: 1232
Travlin

Travlin wrote:

Erik

Perhaps you can enlighten us. Here is how it looks to me.

If a bank has $10 million in reserves, plus $100 million in deposits, it can write $100 million in loans. It is leveraged 10 to 1 as it has created $100 million new dollars. This is the essence of fractional reserve banking.

So let’s say the COMEX has $10 million in bullion in the vaults, to back $100 million in contracts. Isn’t it leveraged 10 to 1, and hasn’t it temporarily created $100 million new dollars?

No, not even close. The COMEX inventory exists to provide a BUFFER for delivery FAILURES. A popular goldbug misconception is that some day all the longs will stand for delivery and there won't be enough metal in the COMEX warehouse. This reflects a fundamental misunderstanding of how the exchange works. The metal needed to satisfy longs standing for delivery is obtained from shorts who are issued delivery notices. The COMEX inventory comes into play as a BACKUP if the short fails to deliver, but in that case the short has to settle in cash AND pay a delivery failure penalty, which is substantial. Another myth is that there might not be enough shorts to meet the needs of all the longs. This reflects another profound lack of comprehension about how the exchange works. There are always an equal number of longs and shorts.

Trav wrote:
If a futures trader deposits 10% margin (in dollars or bullion) on his contract isn’t he leveraged 10 to 1?

Yes. But that has nothing to do with the exchange being leveraged, or any of the other ignorant nonsense Messr. Maguire has opined about.

Quote:
When you have very large players with enormous amounts of money, that they can multiply 10 times, they can certainly manipulate prices.

In the very short run, yes. That's why nobody disputes the reality of stop-clearing runs, which do occur. But there is no intelligent reason I am aware of to suspect or assume that central banks are behind them. I am convinced it is discount online brokers doing most of the stop-clearing manipulations. They are the ones with the critical information, i.e. visibility into their clients' stop orders.

Trav wrote:
And it seems like those prices could vary significantly from what people would pay to actually buy and sell bullion. 

Wrong. So long as any formative spread can be arb'd, it will be arb'd. Law of efficient arbitrage.

Trav wrote:
Futures markets started for agricultural products. They had to be sold due to a limited storage time, and they had to be bought so people could eat. Futures were a way to smooth out prices. But precious metals can be stored forever, so big futures market players can dominate price setting for a while to enrich themselves, while bullion owners are chased to the sidelines waiting for prices to stabilize. That would be the tail wagging the dog.

Your statement lacks logical consistency. If the long-term storage compatibility of metals somehow makes them possible to manipulate while ags are not, you haven't said why. You say "big futures market players can dominate price setting for a while to enrich themselves", but you don't say how they could do that (they can't).

This was all covered a hundred or so posts ago in an exchange with Bron Suchecki who explained price transmission through arbitrage.

Trav wrote:
Now I don’t understand futures markets, but I know a little about banking. Why wouldn’t this analogy be valid?

It's not even close; sorry. As to reasons why not, those have been explained more than once earlier in this thread. I'm willing to discuss new ideas, but not willing to rehash what's already been discussed ad nauseum here for the sake of those who are unwilling to read the whole thread before posing the same questions again.

All the best,

Erik

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bbacq
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@Travlin, ErikT

I wrote elsewhere of Truth, truth, the difference betwixt, and of why I post on the internet, and why I am optimistic about our prospects now that it exists.  There was a time I was more of a cynic, but  I have been able to live my life in optimism gained through epiphany over two decades ago.

I again feel the need to respond as I feel we are diverging from Truth here again.

The use of a term from physics, "leverage", in the soft science of economics can lead to misunderstanding.  In physics, the meaning in clear.  In finance and economics it might have multiple meanings.  Wittgenstein would tell us to make sure to define our terms carefully else risk being misunderstood.

Travlin I think your ideas have merit.

In a private margin-account, we think of "leverage" as the ratio of capital we have deposited to the total market exposure in the account.

In a bank's balance-sheet, we consider leverage as the inverse of the reserve ratio.  Perhaps I should speak for myself.  I think that if a bank has on deposit by creditors N currency units, and is operating at a reserve ratio R, less than or equal to one, then the "leverage" the bank is operating under is 1/R.  If it is a 25% reserve ratio, the bank is 4:1 leveraged.

We have considered in this thread modelling markets such as the COMEX and LBMA as banks in order to better understand the dynamics that might apply.  Another way to think of the analogy is in the other direction, to consider a bank as making a market in currency.  The bank has vaults, as does the COMEX.  The bank has different places to store its customer's deposits.  It has demand-deposits and safety-deposit boxes.  The bank can (legally) use as collateral for loans demand deposits.  It cannot (legally) encroach on customers' safety deposit boxes to satisfy demand for currency.  A loan by a bank is analogous to a rolling futures contract in currency.  The debtor sells short some currency (gets a loan) to start it.  The bank is like the COMEX, and finds a long (some demand deposits) to mate the contract against.  Every month, the contract is rolled over, and the debtor has to pay contract-roll premiums (interest).  The creditor is paid contract-roll premiums.  The bank takes a cut, as does the COMEX on its contracts.

The COMEX analogously maintains inventory in vaults as "customer" inventory that is "eligible" to fulfill contracts and "registered" that is ready-for-withdrawl.  From the first google hit I got:

The Eligible category means that the silver meets the exchange requirements.  Exchange requirements include purity, size (eligible silver bars must weigh within 10% plus or minus of 1000 ounces), and also must be from (stamped with) an exchange approved refiner.
Eligible silver essentially means that the silver is stored in COMEX warehouses, and conforms to exchange standards.  It is being stored in the COMEX warehouse for a private party, but it is NOT available for delivery to contracts...

... Registered silver means that the silver is fully available for delivery to longs who stand for bullion delivery.

I am sure the situation is the same for gold.  The banking analogy is that a bank's demand deposits are like Registered inventory, while safety-deposit boxes are like Eligible inventory.  The bank can't use safety-deposit capital to satisfy currency demand unless its depositors choose to move their assets from safety-deposit to demand-deposit "vaults".  The COMEX can't use Eligible inventory to satisfy contract delivery unless customers first move that inventory to the Registered vaults.

A bank's customer who chooses to withdraw his currency is equivalent to a long standing for delivery from the registered inventory, and removing the delivered inventory from eligible vaults.  I see the analogy as quite apt and quite valid.  Maybe I miss a detail here or there, readers please advance my understanding if so.

Travlin:  So let’s say the COMEX has $10 million in bullion in the vaults, to back $100 million in contracts. Isn’t it leveraged 10 to 1, and hasn’t it temporarily created $100 million new dollars?

Yes, I think you are quite close.  Just as long contract-holders may choose to stand or not, and withdraw their inventory from eligible vaults or not, bank depositors may choose to withdraw deposits, or not.  The inventory available for a bank to supply currency is the sum of its demand-deposits.  That is its "buffer" to deal with the case that "its longs stand for delivery".  If there is insufficient inventory, the bank must begin the process of unwinding its loans, which are exactly analogous to futures contracts on currency: in exchange for N dollars now (and minor detail of periodic interest payment), I promise to deliver F dollars on future date D.

So yes, the concept of money-creation within futures markets is sound.  In this strange fiat world, virtually all debt is equivalent to money.

ErikT: A popular goldbug misconception is that some day all the longs will stand for delivery and there won't be enough metal in the COMEX warehouse.

I am not sure what a "goldbug" is, nor what misconceptions they might have.  But it is worth noting that if the open interest exceeds the total inventory, then the exchange itself is "leveraged", much as a bank is leveraged by the inverse of its reserve ratio.  If all depositors at a bank line up and "stand for delivery", the bank must unwind its balance sheet.  Doing so requires the calling of loans.  It must apologetically go out to all those to whom it has loaned currency (equivalent to short futures-contract holders whose contract is not yet due) and say: "sorry, I know we said the loan (contract) wasn't due till December, but we need the currency (metal) now, else we are insolvent, and will be defaulting on currency-delivery (metal-delivery) to our demand-deposit creditors.  Erik given your negated conjunction, I am not sure whether you think the misconception is that "all the longs will stand" or "there won't be enough metal".  It could be either, given your wording.

ErikT: The COMEX inventory comes into play as a BACKUP if the short fails to deliver, but in that case the short has to settle in cash AND pay a delivery failure penalty, which is substantial. Another myth is that there might not be enough shorts to meet the needs of all the longs. This reflects another profound lack of comprehension about how the exchange works. There are always an equal number of longs and shorts.

Yes.  Ish.  I think.  I think the COMEX choice of how to deal with short-failure-to-deliver is fairly opaque to customers, and it appears as luck-of-the-draw to shorts who hold put options through expiry, for example.  It is true that the COMEX has an escape-clause the banks lack in terms of cash-settlement and penalty options.  Banks and their debtors don't have paper to fall back on, that is where they start.  Debtors who fail to pay when legally demanded to do so just go to jail, or get wages garnisheed.  I think the interesting question in terms of whether COMEX prices are "true market prices" is determined by exactly the ratio of shorts who deliver to longs who demand delivery.  The "effective price" in fiat dollars for the commodity is the contract value plus the penalty, not the contract price alone.  There is an equal number of longs and shorts, yes, but there may not be a short who delivers for every long who stands.  It is this latter ratio that is important in determining if the market is functioning properly, and if price discovery within it is working well.

ErikT: "...or any of the other ignorant nonsense Messr. Maguire has opined about."

Erik, aren't we supposed to be trying our best to stay away from condescension, pejorative, and ad-hominem?

Travlin: "And it seems like those prices could vary significantly from what people would pay to actually buy and sell bullion."

Yes, exactly.  Just as I describe above.  When deliveries fail and cash-settlement and penalties are invoked, the market is failing to properly discover price.  Or, perhaps, better said, the real market price is closer to the sum of contract value and penalty.

ErikT: Wrong. So long as any formative spread can be arb'd, it will be arb'd. Law of efficient arbitrage.

Wrong.  Erik, you gloss over the value of the penalty, which forms part of the cost to the short.  Yes, arbitrage occurs, but it includes the sum of all the costs to the short, not just the contract cash-settlement cost.

Travlin: Futures markets started for agricultural products. They had to be sold due to a limited storage time, and they had to be bought so people could eat. Futures were a way to smooth out prices. But precious metals can be stored forever, so big futures market players can dominate price setting for a while to enrich themselves, while bullion owners are chased to the sidelines waiting for prices to stabilize. That would be the tail wagging the dog.

As long as cash-settlement exists within both the "true commodity" and precious metals markets, I am not sure that what you are saying is true.  If physical delivery failure and cash settlement is tolerated in both markets, even common, then there is not much difference.  I think the difference may lie in such minutiae as differences in position limits, margin requirements and the clever timing of margin hikes to control price etc, as well as the huge self-interest the banks have in keeping the fiat-price of metals suppressed.  It is true that gold doesn't rot, but neither does aluminum or copper.

Travlin: Now I don’t understand futures markets, but I know a little about banking. Why wouldn’t this analogy be valid?

Aside from the nits I pick above, your analogy is quite valid, Travlin, and perhaps you understand futures markets better than you give yourself credit for.  I'd be happy to chat more about this, if ErikT isn't.   As I wrote at the link at the start of this post, it is important that we figure all this stuff out on the net and let people know as close as we can, the truth.  I don't blindly assert my truth is any closer to Truth than yours, but I will argue and discuss it until I feel comfortable I understand and can communicate the difference.*

bbacq

* Or I run out of time or become unaware I am involved in dialog.  I can be nudged through personal messaging over at tfmetalsreport.com where I am more likely to see responses.

bbacq's picture
bbacq
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Posts: 26
Mistakes...

I made mistakes in expressing myself:

I think the COMEX choice of how to deal with short-failure-to-deliver is fairly opaque to customers, and it appears as luck-of-the-draw to shorts who hold put options through expiry, for example.

I should have had the short position as a sale of a call, not the purchase of a put in my example.  More correctly the idea would have been expressed as:

"...as luck of the draw to shorts who fail to close a sold call before expiry..."

further:

The inventory available for a bank to supply currency is the sum of its demand-deposits.

is imprecise, as the cash inventory includes reserves as well as demand-deposits, for example.  I should remind readers my preferred bank model (ie when not referring to today's wacky fiat) is specie-backed, so deposits are in specie like gold and silver, as are reserves.

There may be more little errors.  I am fallible and the edit-comment time-limit feature while good as a guard against revisionism means one must pollute the board with corrigendae.

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Travlin
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Bbacq and Erik

Bbacq – Thanks for your response. You spent a lot of time and effort on that.  It sounds like you understand futures markets well enough to make a valid judgment. I know very little about futures. That’s why I asked if my analogy seemed valid. Here’s a technical point for your edification. Most loans cannot be “called” for early payment. When a bank needs cash they borrow from another bank, using their loan portfolio as collateral. One justification for the Federal Reserve was to act as a “lender of last resort” when commercial banks lacked the liquidity to help each other this way.

Erik - I opened my post 351 with a quote from you asking “what the paper to physical ratio has to do with leverage”. 

You replied that “The COMEX inventory exists to provide a BUFFER for delivery FAILURES.”  That is exactly my point. In effect they are guaranteeing all the contracts with only a small reserve. In practice, that reserve is sufficient in normal circumstances. That is analogous to a fractional reserve bank. When borrowers default on their loans the losses are absorbed from the small reserve, which is sufficient in normal circumstances to guarantee the depositors can be repaid.

You said, “A popular goldbug misconception is that some day all the longs will stand for delivery and there won't be enough metal in the COMEX warehouse. This reflects a fundamental misunderstanding of how the exchange works. The metal needed to satisfy longs standing for delivery is obtained from shorts who are issued delivery notices.” That is the same as banks where the money to honor withdrawals from deposit accounts comes from the loan payments by borrowers. Reserves are for imbalances. Of course, if the bank experiences massive defaults on loans those reserves can be exceeded in a short time. A similar effect could be produced by massive defaults on futures contracts in a financial crisis.

It is because of the small COMEX bullion reserve, and the COMEX guarantee, that traders can buy and sell paper

contracts worth many times the bullion that is backing the exchange. That still looks like leverage to me. To be more precise than my previous post, the COMEX corporation may not be leveraged, but the COMEX market they operate is. To me that’s still, “what the paper to physical ratio has to do with leverage”. You obviously see it differently. That’s fine. Let’s leave it at that.

Regarding the other issues and your responses, it seems neither one of us thinks it would be fruitful to discuss them further.

When I compared the COMEX to a bank I asked, “Why wouldn’t this analogy be valid?” You responded, “It's not even close; sorry. As to reasons why not, those have been explained more than once earlier in this thread. I'm willing to discuss new ideas, but not willing to rehash what's already been discussed ad nauseum here for the sake of those who are unwilling to read the whole thread before posing the same questions again.”

That’s a very nice example of typical Erik T sarcasm. I don’t remember anyone specifically raising the bank analogy in this thread. I have indeed read all 354 posts on this thread. However, over the last 35 days most have blurred together, much I can’t remember, and some were more technical than I could comprehend. However, my career put me in many situations where others knew more than me on technical issues. I’ve found that it they explain them well I can grasp the principles and evaluate the accuracy of their views. In other cases they were selling a rigid point of view and disguising it in technicalities. I reserve the right to make my own judgment.

Your demeanor in the forums reminds me of Dr. Jeckle and Mr. Hyde. Depending on your mood you can be encouraging, and helpful with your time and knowledge. Or you can be supercilious, sarcastic, and demeaning. I’m sure I’m not the only one who would appreciate less of the latter.

Travlin

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bbacq
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COMEX, analogies...

I get the ideas of non-call loans, lender of last resort, and the interbank overnight market.  In the analogy, I don't see the lender of last resort for the COMEX.  Fed/USG, US taxpayer?  Who knows these days, they bail out everything.

ErikT: The metal needed to satisfy longs standing for delivery is obtained from shorts who are issued delivery notices.” 

True.

Travlin:That is the same as banks where the money to honor withdrawals from deposit accounts comes from the loan payments by borrowers

It's similar.  But more like the calling of call loans than interest payments on uncallable loans.

I think you are right, the corporation isn't leveraged, but the market they make is, because the players are.  But since there is cash settlement and penalty as an option, all that happens is price discovery and delivery fail when the "reserve" is insufficent for standing longs. 

Travlin: It is because of the small COMEX bullion reserve, and the COMEX guarantee, that traders can buy and sell paper

I'm not sure what reserve and guarantee you are talking about, Travlin.  If a short is a member bank itself, it could choose to fail to fiat or deliver from its registered inventory, or shift eligible to registered and then deliver.  It it was a customer of the bank that fails, say by holding a sold call through expiry and who doesn't have either the gold or the cash, the bank could choose to pass the fail along or cover for its client and deliver.  The COMEX itself gets off scot-free and doesn't guarantee much except handling the transaction and arbitrating price in fiat in the case of failure. 

Despite this, I still think the analogy is reasonable, except that the reserves are held indpendently by the members.  As far as I know, any inventory actually held by the COMEX itself is in-transit between members, and they  own no commodities, they just make the market.  All members' inventory is not up for grabs as reserves for delivery, just that of those who are short.  I mean, why should, say, JPMorgan be responsible for, say Bear Sterns' delivery problems?  Blink.  Ooops!  Look now!  They are! 

Travlin, I think the "leverage ratio" you are seeking is some composite of the net-short-position to inventory ratio of all net-short members.  I don't think they want to tell you this info.  I'd dearly love to see it broken down member-by-member. But inventory of net longs doesn't count in the reserve pool analogy if you ask me.  What matters is whether the shorts have enough to deliver.  Or does it?

There are lots of weasle-words in there, by the way...

From http://www.cmegroup.com/rulebook/NYMEX/1/7B.pdf

7B14. FAILURE TO DELIVER
In the event a clearing member fails to fulfill its specific delivery obligations pursuant to Exchange rules, in connection with a product listed for trading and clearing or for clearing-only by the NYMEX Division or the COMEX Division, the sole obligation of the Clearing House is to pay reasonable damages proximately caused by such delivery obligation failure, in an amount which shall not exceed the difference between the delivery price of the specific commodity and the reasonable market price of such commodity at the time delivery is required according to the rules of the Exchange. The Clearing House shall not be obligated to: (1) make or accept delivery of the actual commodity; or (2) pay any damages relating to the accuracy, genuineness, completeness, or acceptableness of certificates, instruments, warehouse receipts, shipping certificates, or other similar documents; or (3) pay any damages relating to the failure or insolvency of banks,depositories, warehouses, shipping stations, or similar organizations or entities that may be involved with a delivery.

I wonder what constitutes "Force Majeur" for these guys:

7B01. DECLARATIONS OF FORCE MAJEURE
If a determination is made by the Chief Executive Officer, President or Chief Operating Officer, or their delegate, that delivery or final settlement of any contract cannot be completed as a result of Force Majeure, he shall take such action as he deems necessary under the circumstances, and his decision shall be binding upon all parties to the contract.

Oh! They tell me here:

For purposes of the CME Group Exchanges’ rules, Force Majeure is any circumstance which is beyond the control of the buyer or seller and precludes either party from making or taking delivery of product or precludes the Exchange from determining a final settlement as provided for in Exchange rules. The new definition provides a non-exhaustive list of such circumstances, which can include an act of God, strike, lockout, blockage, embargo, government action or terrorist activity.

Would enough longs standing together thus exhausting one or more large banks' inventory be considered an act of God?  Would the government take action?  I think there are enough weasle-words and the system is so broken we don't really even have rule of law operating in the financial markets, so if TSHTFan all bets are off and the best you will get is paper, not metal.  IMHO.

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Erik T.
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Posts: 1232
bbacq wrote:I again feel

bbacq wrote:
I again feel the need to respond as I feel we are diverging from Truth here again.

You're entitled to whatever feelings you may have, but in reality you, sir, not I, diverge from the truth.

bbacq, you seem to share this trait with GATA: You seem to quite enjoy pontificating at length in Internet discussion forums about subjects you simply don't understand very well yourself. I just don't get it, bbacq. You clearly have spent considerable time and effort on your lengthy, detailed posts. Surely that time would be better spent learning some basic things about these markets yourself. But instead, you seem to prefer to lecture others on subjects that you obviously are not well informed upon yourself. WHY? I just don't get it. By doing this, you mislead others by spreading your own lack of comprehension. I just don't understand what motivates you to spend so much time on these pontifications when you could instead spend that time learning the material, so that you could then go on to comment more intelligently.

Respectfully, in my opinion, bbacq, just like GATA, you are wasting your time and ours by posting these long diatribes, which frankly amount more to flaunting your ignorance than to teaching anyone else anything real or useful. I mean no disrespect to you personally; I just don't get why you and so many gold bugs like you feel compelled to this behavior. I think my True Believer hypothesis is the most likely explanation, but it still baffles me to understand your motives.

bbacq wrote:
The use of a term from physics, "leverage", in the soft science of economics can lead to misunderstanding.  In physics, the meaning in clear.  In finance and economics it might have multiple meanings.  Wittgenstein would tell us to make sure to define our terms carefully else risk being misunderstood.

No, I'm sorry but you're wrong. Leverage as used in finance is defined just as precisely as in the hard sciences. In this case it means assets over collateral (equity).

bbacq wrote:
We have considered in this thread modelling markets such as the COMEX and LBMA as banks in order to better understand the dynamics that might apply.

I respectfully opine that such "considering" is counter-productive. Your time would be better spent learning how the markets actually function, rather than drawing specious analogies between things you obviously don't understand.

bbacq wrote:
Another way to think of the analogy is in the other direction, to consider a bank as making a market in currency.  The bank has vaults, as does the COMEX.  The bank has different places to store its customer's deposits.  It has demand-deposits and safety-deposit boxes.  The bank can (legally) use as collateral for loans demand deposits.  It cannot (legally) encroach on customers' safety deposit boxes to satisfy demand for currency.  A loan by a bank is analogous to a rolling futures contract in currency.  The debtor sells short some currency (gets a loan) to start it.  The bank is like the COMEX, and finds a long (some demand deposits) to mate the contract against.  Every month, the contract is rolled over, and the debtor has to pay contract-roll premiums (interest).  The creditor is paid contract-roll premiums.  The bank takes a cut, as does the COMEX on its contracts.

Your analogy is specious because the capital reserves of a fractional reserve bank serve a completely different purpose (as reserve against total obligations of the bank to depositors) than the warehouse inventory of COMEX (which facilitates delivery of other customers' obligations to longs and also serves as a buffer to make delivery fails opaque to longs standing for delivery).

bbacq wrote:
The COMEX analogously maintains inventory in vaults as "customer" inventory that is "eligible" to fulfill contracts and "registered" that is ready-for-withdrawl.  From the first google hit I got:

The Eligible category means that the silver meets the exchange requirements.  Exchange requirements include purity, size (eligible silver bars must weigh within 10% plus or minus of 1000 ounces), and also must be from (stamped with) an exchange approved refiner.
Eligible silver essentially means that the silver is stored in COMEX warehouses, and conforms to exchange standards.  It is being stored in the COMEX warehouse for a private party, but it is NOT available for delivery to contracts...

... Registered silver means that the silver is fully available for delivery to longs who stand for bullion delivery.

I am sure the situation is the same for gold.  The banking analogy is that a bank's demand deposits are like Registered inventory, while safety-deposit boxes are like Eligible inventory.  The bank can't use safety-deposit capital to satisfy currency demand unless its depositors choose to move their assets from safety-deposit to demand-deposit "vaults".  The COMEX can't use Eligible inventory to satisfy contract delivery unless customers first move that inventory to the Registered vaults.

Your analogy is still invalid because your understanding of the flows and roles of various counterparties is fundamentally flawed. The COMEX Registered Inventory is NOT the ultimate source of metal for deliveries to longs. The source of that metal is the shorts who have been noticed for delivery. The Registered Inventory acts only as a buffer, but it does not serve as a reserve that all the longs standing for delivery must rely upon. The metal to satisfy longs ultimately comes from the shorts, not from the COMEX. It's true that longs who show up to pick up their metal will get Registered inventory, but that inventory is replaced as soon as the corresponding shorts deliver.

bbacq wrote:
A bank's customer who chooses to withdraw his currency is equivalent to a long standing for delivery from the registered inventory, and removing the delivered inventory from eligible vaults.  I see the analogy as quite apt and quite valid.  Maybe I miss a detail here or there, readers please advance my understanding if so.

No, you don't miss "a detail here or there". You miss the point completely, and your comments reveal a complete and total lack of understanding on your part as to the most basic aspects of how the market functions. This brings me back to my original question, bbacq: Why are you doing this? You obviously don't know what you are talking about, yet rather than spending your time learning about the market (or even asking others here to help you learn about it), you insist on these long, involved diatribes in which you make specious, irrational analogies. Please stop. It just serves to mislead others who seek to learn how these things really work.

bbacq wrote:

Travlin:  So let’s say the COMEX has $10 million in bullion in the vaults, to back $100 million in contracts. Isn’t it leveraged 10 to 1, and hasn’t it temporarily created $100 million new dollars?

Yes, I think you are quite close.  Just as long contract-holders may choose to stand or not, and withdraw their inventory from eligible vaults or not, bank depositors may choose to withdraw deposits, or not.  The inventory available for a bank to supply currency is the sum of its demand-deposits.  That is its "buffer" to deal with the case that "its longs stand for delivery".  If there is insufficient inventory, the bank must begin the process of unwinding its loans, which are exactly analogous to futures contracts on currency: in exchange for N dollars now (and minor detail of periodic interest payment), I promise to deliver F dollars on future date D.

So yes, the concept of money-creation within futures markets is sound.  In this strange fiat world, virtually all debt is equivalent to money.

No, it's not "exactly analagous". Your analogy is completely bogus and based on a fundametal lack of understanding of how COMEX operates. Your analogies to fractional reserve banking are specious, misleading, and not useful. Your contention about "money creation" in the futures market is not "sound" - it is specious and invalid. Again, I don't understand why you and so many like you feel so compelled to behave this way. You're certainly not alone, bbacq. The goldbug forums are full of people like yourself who are prone to pontification on subjects they know nothing about. I just can't figure out what motivates you.

bbacq wrote:

ErikT: A popular goldbug misconception is that some day all the longs will stand for delivery and there won't be enough metal in the COMEX warehouse.

I am not sure what a "goldbug" is, nor what misconceptions they might have.  But it is worth noting that if the open interest exceeds the total inventory, then the exchange itself is "leveraged", much as a bank is leveraged by the inverse of its reserve ratio.

No, your statement is blatantly false, and reveals that you simply have no idea of what you speak.

bbacq wrote:
If all depositors at a bank line up and "stand for delivery", the bank must unwind its balance sheet.  Doing so requires the calling of loans.  It must apologetically go out to all those to whom it has loaned currency (equivalent to short futures-contract holders whose contract is not yet due) and say: "sorry, I know we said the loan (contract) wasn't due till December, but we need the currency (metal) now, else we are insolvent, and will be defaulting on currency-delivery (metal-delivery) to our demand-deposit creditors.  Erik given your negated conjunction, I am not sure whether you think the misconception is that "all the longs will stand" or "there won't be enough metal".  It could be either, given your wording.

Those are both misconceptions. All the longs will never stand for delivery because they don't have the capital to do so. If they did, there WOULD be enough metal, because the shorts would either deliver it or be forced to bid up the contract price to the point that the longs are persuaded to accept cash settlement. It is NOT analagous to a bank unwinding it's balance sheet - not in any way, shape or form, and the analogy is misleading. COMEX does not have to call any loans, because all the shorts are on the hook to deliver all the needed metal in the same month the longs can accept delivery. The COMEX inventory is ONLY drawn down in the case of delivery fails, which are very uncommon because an astute short can generally exit the position by paying whatever the ask is on the first notice date. Delivery fails have to pay that same amount plus a penalty.

bbacq wrote:

ErikT: The COMEX inventory comes into play as a BACKUP if the short fails to deliver, but in that case the short has to settle in cash AND pay a delivery failure penalty, which is substantial. Another myth is that there might not be enough shorts to meet the needs of all the longs. This reflects another profound lack of comprehension about how the exchange works. There are always an equal number of longs and shorts.

Yes.  Ish.  I think.

Please notice how I already gave you the information (in this quote) you needed to avoid making the incorrect analogies you insisted on making anyway. At this point, my interest in this conversation is limited to studying the psychology of what makes people like you behave this way when you have already been given the information you need to understand how it really works.

bbacq wrote:
I think the COMEX choice of how to deal with short-failure-to-deliver is fairly opaque to customers, and it appears as luck-of-the-draw to shorts who hold put options through expiry, for example.  It is true that the COMEX has an escape-clause the banks lack in terms of cash-settlement and penalty options.  Banks and their debtors don't have paper to fall back on, that is where they start.  Debtors who fail to pay when legally demanded to do so just go to jail, or get wages garnisheed.  I think the interesting question in terms of whether COMEX prices are "true market prices" is determined by exactly the ratio of shorts who deliver to longs who demand delivery.  The "effective price" in fiat dollars for the commodity is the contract value plus the penalty, not the contract price alone.  There is an equal number of longs and shorts, yes, but there may not be a short who delivers for every long who stands.  It is this latter ratio that is important in determining if the market is functioning properly, and if price discovery within it is working well.

No, your analysis is wrong and I didn't forget to consider the penalty. The "effective price" is the ask, not the ask plus the penalty. Someone (including the exchange replenishing its inventory from the spot market to compensate for delivery fails) pays the ask, not the ask plus the penalty. Your contention that the "effective price" is the ask plus the penalty is ridiculous and further reveals your failure to understand the basics.

bbacq wrote:

Travlin: "And it seems like those prices could vary significantly from what people would pay to actually buy and sell bullion."

Yes, exactly.  Just as I describe above.  When deliveries fail and cash-settlement and penalties are invoked, the market is failing to properly discover price.  Or, perhaps, better said, the real market price is closer to the sum of contract value and penalty.

No, completely wrong. The market continues to properly discover price so long as the arbitrage trade to other markets is possible, as was already discussed at length much earlier in this thread. Or perhaps better said, your insistence on making these assertions of fact when you obviously don't understand the basic functioning of the market serves only to mislead others, add confusion, and to thwart your own learning process. You would do better to ask questions and allow people who actually know the answers to educate you.

bbacq wrote:

ErikT: Wrong. So long as any formative spread can be arb'd, it will be arb'd. Law of efficient arbitrage.

Wrong.  Erik, you gloss over the value of the penalty, which forms part of the cost to the short.  Yes, arbitrage occurs, but it includes the sum of all the costs to the short, not just the contract cash-settlement cost.

Dead wrong, bbacq. I didn't "gloss over" anything. I simply recognize the fallacy of your assertion that the penalty is part of the transaction cost of arbitrage. It isn't. The penalty is ONLY a cost to shorts who fail to cover before being obligated by a delivery notice. It is not levied on arbs who profit from price discrepancies between markets.

bbacq wrote:

Travlin: Futures markets started for agricultural products. They had to be sold due to a limited storage time, and they had to be bought so people could eat. Futures were a way to smooth out prices. But precious metals can be stored forever, so big futures market players can dominate price setting for a while to enrich themselves, while bullion owners are chased to the sidelines waiting for prices to stabilize. That would be the tail wagging the dog.

As long as cash-settlement exists within both the "true commodity" and precious metals markets, I am not sure that what you are saying is true.  If physical delivery failure and cash settlement is tolerated in both markets, even common, then there is not much difference.  I think the difference may lie in such minutiae as differences in position limits, margin requirements and the clever timing of margin hikes to control price etc, as well as the huge self-interest the banks have in keeping the fiat-price of metals suppressed.  It is true that gold doesn't rot, but neither does aluminum or copper.

Your comments here simply don't make sense. See my prior reply to Travlin for an accurate explanation.

bbacq wrote:

Travlin: Now I don’t understand futures markets, but I know a little about banking. Why wouldn’t this analogy be valid?

Aside from the nits I pick above, your analogy is quite valid, Travlin, and perhaps you understand futures markets better than you give yourself credit for.  I'd be happy to chat more about this, if ErikT isn't.   As I wrote at the link at the start of this post, it is important that we figure all this stuff out on the net and let people know as close as we can, the truth.  I don't blindly assert my truth is any closer to Truth than yours, but I will argue and discuss it until I feel comfortable I understand and can communicate the difference.*

Now we're at the real heart of the matter. Is is you, bbacq, who simply don't understand the first thing about futures markets and how they function, and the shortcomings of your knowledge are revealed by your astonishingly ignorant post, which contains far more misinformation than fact.

The part of this that fascinates me is your motivation. Why are you doing this, bbacq? What makes you feel inclined to spend so much time and effort writing a post that ends by authoritatively reassuring Travlin that "his analogy is quite valid" and that he "understands futures markets better than [he] gives himself credit for", when you yourself rather obviously don't know the first thing about the subject at hand, and aren't qualified to offer such opinions?

You have obviously spent hours composing your posts to this thread. Surely your time would be better spent reading up on futures markets and learning how they function, so that some day you can offer accurate information in online discussion groups. It almost seems is if your learning technique is to pontificate at length about subjects you know little or nothing about, so that others will correct you. I submit there are more effective and efficient ways to learn about new things.

Travlin wrote:

Bbacq – Thanks for your response. You spent a lot of time and effort on that.  It sounds like you understand futures markets well enough to make a valid judgment. I know very little about futures. That’s why I asked if my analogy seemed valid.

This is the part that drives me nuts, bbacq. You come across confidently enough to persuade people who know the limits of their knowledge that you have the knowledge they don't. But that's simply not true. I, too, apprecaite that you have put considerable effort into these posts, but honestly I think the net value is negative. You've caused Travlin to incorrectly conclude that his analogy was valid, when in fact it was not.

bbacq, I've spent considerable time responding to you here only because I'd hate to see others misled by making the errant assumption that you actually know of which you speak, which you clearly don't. Please, stop doing this, and go learn the subject matter instead.

All the best,

Erik

[Moderator's note:  The author of this post (while clearly aroused) has taken pains to avoid gratuitous personal insults and irrelevant character attack.  It is this restraint which puts this post the correct side of the forum rules, while the later post by bbacq falls on the wrong side.]

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Erik T.
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Travlin wrote: Erik - I

Travlin wrote:

Erik - I opened my post 351 with a quote from you asking “what the paper to physical ratio has to do with leverage”. 

You replied that “The COMEX inventory exists to provide a BUFFER for delivery FAILURES.”  That is exactly my point. In effect they are guaranteeing all the contracts with only a small reserve. In practice, that reserve is sufficient in normal circumstances. That is analogous to a fractional reserve bank. When borrowers default on their loans the losses are absorbed from the small reserve, which is sufficient in normal circumstances to guarantee the depositors can be repaid.

No, it's not analagous to a fractional reserve bank. In the FRB scenario, the bank has an obligation to the depositor, and maintains a reserve to satisfy expected withdrawals. The reserve is the source from which withdrawals must come - there is no 3rd party who has to meet withdrawal requests - that's the bank's responsibility. If too high a percentage of depositors demand withdrawal (bank run), the reserve can run out and the bank is forced to unwind its balance sheet by liquidating whatever it can, or asking for regulatory intervention.

The situation with COMEX is completely different, and not analagous. The long is due metal, but that metal doesn't (in normal circumstances) come from COMEX. It comes from the shorts. The mechanism to resolve a bunch of shorts unable to deliver is already covered in all but the most unbelievably extreme cases by the price mechanism. If the shorts can't deliver, they are forced to close their positions by paying whatever the ask price is. Some longs will be persuaded to accept cash delivery rather than standing for physical delivery. If they don't, the price keeps going up. The COMEX inventory is not serving as a fractional reserve. It serves to insulate longs from the details of delivery fails. When a short fails to cover or deliver, the exchange uses its inventory to make good on the contract, then buys the metal to replace the lost inventory on the spot market, whose price is kept in like through arbitrage.

Even in relatively fast markets, the performance bond mechanism assures that the COMEX inventory doesn't get consumed. If the market suddenly moves up, the shorts will be force-liquidated at high prices, wiping out their equity (margin). The only way for the exchange to get screwed so it has to deliver to the longs but doesn't get paid an appropriate amount of cash to stay whole is if the market were to suddenly go offerless. Consider a nuclear bomb flattening New York City. In that case, the exchanges would probably all close, but if they didn't, it's conceivable the offer price could go from 1582.70 to 25,000 in a single tick. If that happened, the shorts would be instantly force-liquidated, but their performance bonds would be insufficent to cover the loss. In a scenario like that, the government would probably change the rules retroactively, and anything is possible. But in any reasonably plausible scenario, the shorts would be wiped out and COMEX would be able to acquire new metal to replace what was consumed by delivery fails.

Travlin wrote:
You said, “A popular goldbug misconception is that some day all the longs will stand for delivery and there won't be enough metal in the COMEX warehouse. This reflects a fundamental misunderstanding of how the exchange works. The metal needed to satisfy longs standing for delivery is obtained from shorts who are issued delivery notices.” That is the same as banks where the money to honor withdrawals from deposit accounts comes from the loan payments by borrowers. Reserves are for imbalances. Of course, if the bank experiences massive defaults on loans those reserves can be exceeded in a short time. A similar effect could be produced by massive defaults on futures contracts in a financial crisis.

No, that analogy is not quite correct. In case of COMEX, the transaction is effectively between the long and short traders. The exchange serves as middleman for clearing, and also insures the long against delivery fails. But the shorts are obliged to deliver the same time as the longs can take delivery. The buffer only comes into play when there is a delivery fail, and the penalty gives the exchange room to replace the metal even after a little price slippage. In the fractional reserve banking case, the borrowers are NOT obliged to repay their loans whenever depositors request their money, and the bank is gambling against a limited "fractional" reserve that the scenario where the loans are not being repayed but the depositors want their money all at once (bank run) will never happen. There is no mechanism equivalent to the performance bond, to assure that the exchange or bank can liquidate the shorts or borrowers and recover sufficient capital to replace the depleted reserves. It's simply not a valid or meaningful analogy.

Travlin wrote:
It is because of the small COMEX bullion reserve, and the COMEX guarantee, that traders can buy and sell paper

contracts worth many times the bullion that is backing the exchange. That still looks like leverage to me. To be more precise than my previous post, the COMEX corporation may not be leveraged, but the COMEX market they operate is. To me that’s still, “what the paper to physical ratio has to do with leverage”. You obviously see it differently. That’s fine. Let’s leave it at that.

The market is certainly leveraged - that's the whole point of why futures are so popular with speculators. But you mix different concepts here. The business about cash- to physical-settled transaction ratio being 100:1 had absolutely nothing to do with leverage, but is what GATA and Andrew Maguire made out to be about leverage. It is still true that the paper transactions between market participants are indeed leveraged, but more like 10:1 than 100:1. That's a completely, totally different concept than the exchange being leveraged, or the ratio of paper to physical transactions having anything to do with leverage. It maddens me to see people like GATA and bbacq misleading you with so much horribly wrong misinformation, and that's why I've put considerable effort into debunking these myths in this thread. If prefer to "leave it at that", fair enough.

Travlin wrote:
That’s a very nice example of typical Erik T sarcasm.

For a much better example, see my last reply to bbacq.

Travlin wrote:
I don’t remember anyone specifically raising the bank analogy in this thread. I have indeed read all 354 posts on this thread. However, over the last 35 days most have blurred together, much I can’t remember, and some were more technical than I could comprehend. However, my career put me in many situations where others knew more than me on technical issues. I’ve found that it they explain them well I can grasp the principles and evaluate the accuracy of their views. In other cases they were selling a rigid point of view and disguising it in technicalities. I reserve the right to make my own judgment.

I apologize if I've dismissed valid questions. Frankly, I find bbacq's "contributions" to this thread to be outright maddening. He continues to pontificate confidently, giving you and others (by your own description) the strong impression that he knows all about futures markets and is a good source of expert knowledge on them. In reality, bbacq, just like GATA, fails to understand the basics. When I see him posting misleading, blatantly incorrect information, it frankly outrages me. In this case, my annoyance with bbacq led me to be intolerant of what was perhaps an entirely legitimate and reasonable question. My comment that "this stuff has already been discussed" should have been directed at bbacq, not you, Travlin, and I sincerely apologize. I'd be happy to do my best to answer any further questions you may have.

Travlin wrote:
Your demeanor in the forums reminds me of Dr. Jeckle and Mr. Hyde. Depending on your mood you can be encouraging, and helpful with your time and knowledge. Or you can be supercilious, sarcastic, and demeaning. I’m sure I’m not the only one who would appreciate less of the latter.

Fair criticism. To help you and others understand what flips my switch and causes me to turn into Mr. Hyde, it is quite maddening to me when I spend a lot of time trying to help dispell myths, then a guy like bbacq or Harvey Organ or GATA comes along and starts authoritatively, confidently spewing utter bullshit. When they do it with confidence, people like yourself who (by your own description) have a limited knowledge of futures markets come to the errant conclusion that the knows what he's talking about. He doesn't.

I'm sorry if I've offended you with my "mood swings", Travlin. I confess that people like Harvey, Ted, GATA and bbacq make my blood boil when I see them misleading people with factually inaccurate nonsense that serves to undermine rather than promote investor education. I just don't understand why these guys are so willing to spend so much time spreading so much misinformation, yet they seem completely unwilling to spend any time actually learning how this stuff really works. I admit that this frustrates me so much that my temper occasionally shows through, and I sincerely apologize for that. I only hope that somehow I've still managed to help just a few people see that these guys don't know what they are talking about.

All the best,

Erik

Travlin

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bbacq
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Posts: 26
Erik

Travlin, we seem to have elicited Mr Hyde.

Erik/Hyde, you said you weren't willing to rehash things.  That appears not to be the case.  You question my motivation, but I already provided it, by linking to my thoughts on Truth. If you truly seek to understand my motivations and psychology as you say, I can think of no better place to start.

I sit beside a volume entitled: "On Truth" by Harry G Frankfurt of Princeton.  He has a companion volume, "On Bullshit".  I have literally read volumes on how to distinguish the two.  I recommend them.

I agree with you when you speak clear truth, Erik (Jekyll?  Hyde?): [Moderator's note: * ]

ErikT: "The metal needed to satisfy longs standing for delivery is obtained from shorts who are issued delivery notices.” 

bbacq: "True"

I couldn't have been clearer.  But then you spend pages of obfuscating vitriol ignoring the fact that I violently agree with you!  I hope this also clears up whether I understand from whence delivery occurs.  Shorts must provide, else face penalty.  In fact, I posted both the text and links to the COMEX/NYMEX rules and regs.  I consider that kind of post useful and helpful, maybe you don't.  Reading the rule-book certainly helps to understand the game, I find. 

Sorry, that's a metaphor, Erik, it might confuse you. [Moderator's note: * ]

I stand by the notion that in physics, "leverage" has common-knowledge definition.  In economics, it is imprecise.  We must argue what constitutes an "asset", what "collateral", what "equity", and all their relative values.  Book?  Mark-to-market?  Some other discount or premium?  At the instant of credit-lock-up in 2008, who amongst you think "leverage" was well-defined and well-known?  I submit it wasn't.  I speak of the mis-application of mathematics in the soft sciences at my link above.  I recommend reading Nassim Nicholas Taleb to get one's head around these ideas.  They are extremely important, and true.  Beware black swans, our financial pond is now full of them.  My bad.  Another metaphor.  (Erik, like a masochist, you seem to beg for this treatment;-). [Moderator's note: * ]

Analogy and metaphor is a useful tool to aid in understanding, but it does not require identity 'twixt the compared, and that seems to confuse Erik. [Moderator's note: * ]  The frac-bank/COMEX analogy was raised long ago on this thread by others, starting somewhere near here.

It is pointed out bacq there, and worth repeating here, as the expression is now bandied yet again by ErikT in rehashing what he says he will not - and we must not let this slide by if we seek truth -  that not "all longs" need to stand to have a broad COMEX delivery failure.  A small fraction standing might be sufficient to exhaust the shorts' inventory.  It is not inconceivable that a large enough group actually do have the fiat cash to stand, especially as, after so many well-timed margin-hikes, trading account leverage is way down from historic levels: there is a much smaller gap to cross now in order to stand if you are already playing the game.

Travlin, it is this fact, and that participants are "leveraged" (in this case the meaning being "not running 100% margin in trading accounts") that makes your frac-bank analogy apt and even Erik acknowledges "the market is certainly leveraged".  We can ignore specifics of which counterparties are renegging on their deals in the analogy (Erik stumbles on this).  It is because I understand from whence delivery occurs (or should) in the COMEX  that I suggest in a previous post above that the appropriate way to interpret "leverage" in the COMEX analogy is the overhang between commitment and inventory for all those players net short.  Members who are net long don't get their inventory encroached upon.

I think it might be useful in providing clarity to get agreement on who owns what and what responsibilities they have.

For example, Erik refers to "buffer" inventories.  Not sure what he speaks of.  My understanding is that the COMEX has a limited number of members, they have inventory reported under two classifications, and members are free to offer trading services to the public.  Members store physical inventory both for their customers and for their own trading activity.  Delivery obligations of end-customers are in general met by COMEX members on their customers' behalf.  If a member is net-short for any contract, either because they want to be for their own prop-desk trades, or because their clients are net-short in aggregate, and the member has failed to take offsetting positions, then that member is under obligation to deliver some physical for that contract.  The rules of the COMEX state that if the member fails to deliver, he has to pay fiat.  They also state that a long that gets stiffed for delivery will be compensated for value of the contract plus some premium they cook up based on "reasonable market price" in fiat.  I quoted the rules and provided links above.

Travlin wrote:

That’s a very nice example of typical Erik T sarcasm.

ErikT: For a much better example, see my last reply to bbacq.

Huge smiles!  Thanks, Erik, it was masterful.

 A bbacq summary: 

- The COMEX market is "leveraged";

- It is hard to figure out how deeply, because we are not provided the information with which to determine the "leverage ratio";

- Others may have made mistakes in using the term "leverage" and this is not surprising;

- Some number of longs standing could force massive exercise of the fiat-settle rules; 

- We don't know what percentage of longs this is;

- With every margin hike for longs, the gap between simply playing with paper and standing for delivery shrinks.

Erik, please consider the possibility that you simply aren't smart enough to follow the bouncing ball of logic under the abstraction of analogy and metaphor. [Moderator's note: * ]

I am happy to discuss it further, and will, if responded to.  I will agree with truth, but bullshit must be met head-on. I suggest quoting the COMEX rule-book as a way to arbitrate discord and guide us towards the Truth.

[Moderator's note:  This post is a violation of the forum rules. Points marked in the text above -- [Moderator's note: * ] -- represent personal insults which are a violation of the forum rules in any case, and particularly destructive in a highly contentious conversation such as this.  This is the line between acceptable and unacceptable, and this post crosses it.]

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Erik T.
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Posts: 1232
I give up.

bbacq, your inability to comprehend simple ideas is mind-boggling. [Moderator's note: Ahem.] You still fail to grasp the basic concept of leverage, and why the COMEX inventory is not analagous to the reserves of a fractional reserve bank. I'm sorry; I just don't know how to get through to you. Perhaps Bron or Victor will be willing to try to simplify these concepts so that you can understand them, but my own patience has run out.

I'm sorry I wasn't able to get through to you, and I wish you all the best. But I'm just not interested in beating my head against a wall trying to get through to you any longer. I pity those here who are foolish enough to think you have the faintest idea what you're talking about, and hope that some day you'll recognize the limits of your knowledge so that you do less damage to others whose own naivity may cause them to assume you know what you're talking about.

Best wishes,

Erik a/k/a Mr. Hyde

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@ others_than_Erik

ErikT: "I'm just not interested in beating my head against a wall trying to get through to you any longer"

He needn't feel obliged, and I don't really mean any harm in that.  I think we agree more than he realizes.  His senses may have failed-to-deliver, he may not have been served notice, so to speak,  that I re-entered this fray when he responded in a deplorable way to Travlin for being interested in exploring an analogy.  Yes, it had been discussed before.  He should be ashamed, he seems not to understand that, so I engaged so others could see his shameful behaviour for what it is.  I make no comment on his understanding of the COMEX or the frac-bank analogy in this, but on his character.  Has the man no decency?  If he were not a bully and a coward he would retract a great deal of that said above.

I feel I understand ErikT's positions well, but the opposite seems untrue. 

Many of his positions I have agreed with, stated so explicitly, and this is a matter of record on this thread.  I will agree with anything he or anyone else says that I consider true.  I will argue with what I consider false.  Stick to the ideas.  I provided an analogy- and metaphor-free summary of where I believe the discussion has proceeded, in bold at the end of my post above.  I find it useful to occasionally summarize positions in discussions, as it helps to differentiate common ground from areas still in dispute..

Though I feel the need to respond to a few points Erik makes above, I think it would be more fruitful to proceed from the summary in bold above, or my succinct summary of COMEX operation, re-quoted at the bottom of this message.

You are always free to scroll on down, of course.

When I see [bbacq] posting misleading, blatantly incorrect information, it frankly outrages me.

We are in much greater agreement about how the COMEX really operates than he realizes.  The analogy is not the reality.  He seems occasionally to attribute to me the thoughts and words of others.

That's a completely, totally different concept than the exchange being leveraged, or the ratio of paper to physical transactions having anything to do with leverage. It maddens me to see people like GATA and bbacq misleading you with so much horribly wrong misinformation

I want to point out that Erik himself is misleading you in misattributing these ideas to me.  I speak of a leveraged market and leveraged players, not the leverage of the corporation-that-is-the-exchange-that-makes-that-market, and nowhere (yet) of ratios of transactions having anything to do with leverage.  I acknowledge in my bullet-list that it is not surprising some have misused the term "leverage", and don't appreciate Erik's putting those words above in my mouth.  Further, see below.

bbacq: I am not sure what a "goldbug" is, nor what misconceptions they might have.  But it is worth noting that if the open interest exceeds the total inventory, then the exchange itself is "leveraged", much as a bank is leveraged by the inverse of its reserve ratio.

ErikT: No, your statement is blatantly false, and reveals that you simply have no idea of what you speak.

Actually, it's blatantly true in the sense I meant, pertaining to a single months' contracts, in the context of a, haha, long-standing challenge, which I had thought clear.  One month's delivery eating more than the whole inventory?  I'd say that's pretty leveraged, because there would be nothing left in the vaults to support any future futures contracts.  I meant in this that when it comes time for final delivery on a set of contracts, the open interest remaining defines the total delivery for the month and that if this exceeds the total inventory of COMEX members who are net short that month, we are certainly going to have delivery failures and forced cash settlement.  In the analogy the similarity is in the institution/organization failing to have immediately on-hand the assets it owes to creditors, and only being able to deliver a fraction to each, or to a fraction of all.  There are many differences.  A numerical formula for a COMEX market "effective monthly reserve ratio" or suchlike could potentially be defined as one minus the sum of all members' delivery deficit divided by open interest at delivery. That would be like a monthly-bank-run model.  It might have value.  Yes, there is lots of inventory not considered if modelled this way, etc etc.  It is just an analogy, folks, and clearly one ErikT doesn't like, and since they don't publish the data to analyze it this way, it is largely moot. 

Such vitriol from Erik, he is positively foaming at the mouth about this.  Does he go on like this all over this site?

ErikT: "... your analogy..."

No, not exclusively mine, folks, others proposed it, and I have provided a link to near where on this thread the analogy begins, in a spirit of helpfulness.  I am guilty of putting flesh on other's bones.  I hope the meaning of that metaphor is clear.  Others earlier and Travlin recently were finding it a helpful idea.  Excepting the weasle-word escape-clauses in the COMEX rules I quote above, the COMEX market, like a failing bank, can fail to clear properly should enough longs stand.  We can debate how probable that is and under what conditions it might occur.  We could drop the metaphor and discuss the details of actual clearing under crisis conditions, as I and Erik both start to do above.  I would propose quoting the COMEX rules and other sources in supporting the arguments, so we can know what is true and what isn't.  But blathering "you know nothing" and "I know better" is unproductive.

You still fail to grasp the basic concept of leverage

I think I demonstrate that the concept is clear in physics and subtle and open to interpretation in both definition and numerical value in economics, and that I understand the difference, and am therefore wary of blanket statements without suitable definition.  It is because I am aware of the limits of my knowledge that I am wary.

I pity those here who are foolish enough to think you have the faintest idea what you're talking about, and hope that some day you'll recognize the limits of your knowledge so that you do less damage to others whose own naivity may cause them to assume you know what you're talking about.

See above.  I share Erik's sentiment, in reverse, but also think he does have a faint idea.  (That means I am both foolish and self-pitying, if you do the math...;-)

Erik does say some things that are true, I'll even grant many, but I think fails to adequately recognize not just his own limits, but the limits on knowledge in general, and lashes out at people when he should be more circumspect.  We can't exactly predict chaotic systems, and markets are chaotic.  I mean the latter in the mathematical sense as well as colloquial.  That doesn't mean we shouldn't try and work it all out, but it does mean we can be wrong in our predictions, and need to take that into account in our planning.  Analogy is a useful tool.  One needs to be careful in drawing conclusions from them.  Did I draw any?  I don't think so... I was exploring a concept others found useful.  I don't think that is dangerous, as Erik accuses me of being.  Hey, folks, you are your own arbiter of truth.  I can pose no danger to you that you do not willingly embrace.  Pick dance partners carefully.

ONWARD!

Anyone interested in discussing ideas and not reputations and "authority", in order to advance our understanding? 

The bullet-list above was meant to summarize the state of the argument here, free of analogy.  Comments welcome.  I also provided a single-paragraph summary of the COMEX, with a couple of improvements, below.  Can anyone help improve on it in conciseness, completeness, or accuracy?  You might also pipe up if you think it is true ;-)  My understanding from what Erik wrote, which could be incorrect, is that he believes the COMEX itself carries inventory, insures delivery, and renders opaque delivery failures by COMEX members.  I didn't include that because I don't believe it is true.  Correct me, with links, please.

My understanding is that the COMEX has a limited number of members, they publicly report inventory in various aggregates, and members are free to offer trading services to the public.  Members store physical inventory both for their customers and for their own trading activity.  Delivery obligations of end-customers are in general met by COMEX members on their customers' behalf.  If a member is net-short for any contract, either because they want to be for their own prop-desk trades, or because their clients are net-short in aggregate, and the member has failed to take offsetting positions, then that member is under obligation to deliver some physical for that contract, to the exact extent that they are net short at contract close.  The rules of the COMEX state that if the member fails to deliver, he has to pay fiat, including a penalty.  They also state that a long that gets stiffed for delivery will be compensated for value of the contract plus some premium they cook up based on "reasonable market price" in fiat.  I quoted the rules and provided links above.

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bbacq
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More untruths looking back on this thread... it's littered...

From:  http://www.peakprosperity.com/blog/harvey-organ-get-physical-gold-silver/73933?page=33#comments

JAG writes:  A gold standard does nothing to limit credit-money expansion in the banking system, or the "roaring '20s" would have never occured.

Central banking had already been implemented at that point.  Central banking eliminates the natural market disincentives to excess.  Credit-money expansion is limited in a competitive gold-standard system, this system was centralized, not de-centralized, so correct market incentives were not present.

I might have addressed this before, but it is worth mentioning again.  It is frequently glossed over.

People should be very careful reading what is written on this site, this thread anyway.

Lots of half-truths and bafflegab.

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bbacq
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A joke to lighten the mood

ErikT: Wrong. So long as any formative spread can be arb'd, it will be arb'd. Law of efficient arbitrage.

Actually the below wasn't a joke, it happened. 

An economist is doing a presentation to a roomful of PhDs and asks: "How many of you teach an introductory first-year economics course?"

A large proportion of the hands in the audience go up.

"Leave your hands up if you teach the efficient market hypothesis in that course."

No hands drop.

"And how many of you believe in the efficient markets hypothesis?"

All the hands drop.

Houston, I think we have a problem.

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bbacq
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Economics, game theory, and message boards

Economics and message-board interactions can be modelled using game theory.

It is an interesting result that the simplest and smallest program wins the "game of life" competition.
Emergent order and information theory tells us this must be so, I believe.

http://en.wikipedia.org/wiki/Tit_for_tat

As in all economics, because it is a soft science, one that tries to model a complex system within the same level in the complexity hierarchy, game theoretic models are liable to be wrong and inaccurate and fail when stressed.  The concept of Nash equilibrium must be treated with great care, because power-law processes and black swans do exist in economics.  Look what happened to the lovely, elegant, Nobel-winning models of LTCM, mere months after they began implementing trading based on them.  They nearly blew up the entire financial system as we knew it.

Maybe all that is all too subtle for some.  More directly:

Folks, the bankers do not understand the systems they attempt to create and control.

End fiat central banking before it ends you.

Please educate yourselves, people, so that you are not made stupid though being "educated" by others.

Ask yourselves: do I see "central banks" in nature, or are all processes distributed in nature?

Ask yourselves: do I see coercive authority exercised in Nature, or does nature rely on competitive processes?

Ask yourselves: do animals and plants and spiral galaxies consult experts in making decisions?

We must get our heads out of the classical Newtonian mindset in the soft sciences, just as this paradigm has been evicted from the throne in virtually every hard science.  Thomas Kuhn tells us it will happen, and how.  In economics, we are currently at the right-hand side of the evolution, at the point labelled "crisis".

ErikT's alleged claim of abandoning his attempts to change the system, to instead focus on predicting within it is like chaining oneself to a sinking ship while drilling holes in its hull.  He likely does not realize this himself, but you have an opportunity to escape the trap into which ErikT willingly walks.

Think, or be enslaved.  We do have a chouce.

ErikT wishes to analyze my motivations, he claims.  Erik, I am giving you lots of fodder so that you and others can try to figure it out.  ErikT: My true believer theory.."  I am sure it would make interesting reading, Erik, to understand the psychology of those who would attempt to resist the advancement of knowledge.  My best wishes to believers in truth, and confounding confusion to those who would seek to halt the advancement of our knowledge. Tit/Tat.

Truth is not a four-letter word.

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shudock
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Posts: 37
Thank you

bbacq, thank you.

I for one greatly appreciate your very fair and articulate assessment of the discussion here. As I believe I mentioned previously, many pages back, I do not need anyone, least of all self-important blowhards on the Internet, to teach me how to think. I have to say, and I know for a fact that I speak for more than just myself here, I am extremely grateful for the balancing perspective you have brought to this thread.

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victorthecleaner
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Posts: 50
hard money

I haven't followed this thread for a while (since page 33), but now I see that you are still alive and kicking.

I'd like to come back to the question by darbikrash

To continue, the thesis around endogenous money creation fundamentally disagrees with the widely held belief on how money (debt) is created, and represents that this is a demand driven system that simply responds to debtor requests for loans, and backfills these requests (after the fact) with capital reserves, fiat or otherwise. Further, Minsky’s instability hypothesis suggests that a dominant failure mode in such a credit based economy is speculative and Ponzi based lending, all of which we can readily observe.

And from here we of course have the system of credit default swaps, estimated by some to be in the vicinity of $600+ trillion, which are really more akin to insurance policies than monetary instruments, overhanging the substantially credit based economy.

So, how, exactly does a gold standard provide any relief to this system, what would change specific to these subjects if we had a gold standard, and how would it change?

I like the endogenous money models of Keen and especially Richard Werner very much because they can actually be confirmed empirically (see Werner's work on Japan).

Darbikrash, you are right. A gold standard wouldn't provide any relief. In fact, it would make things a lot worse. The reason is that the present problems are due to excessive credit creation. This depends on the trust (or call it gullibility) of the savers who bring their surplus to the bank, but not on the question of whether the tokens are paper or metal. The problem is the lending of the tokens and that the borrowed tokens are now impossible to return, but not the nature of the tokens themselves.

A gold standard would make things a lot worse because once a bank runs out of gold, not only those at fault would get wiped out, but rather in addition also a whole number of innocent third parties would lose their deposits. Well, just as in 1929-33.

The problem of a gold standard is that two very different things trade at the same price:

1) physical gold (e.g. gold coins in circulation)

2) promises to deliver physical gold (including bank deposits and all loans)

The problem is that these two are not the same. (1) has no counterparty risk, but (2) has a lot of counterparty risk. So Gresham's Law will be in effect, and people who understand the system will hoard physical gold, but spend credit. This eventually causes the system to run out of reserves and eventually collapse.

This is not to say that gold wasn't a fantastic asset to own. But the "hard money school" (including the U.S. branch of the Austrians) totally miss the point. They always want to make gold the tokens of exchange and then lend these tokens. This is foolish. The fantastic property of gold is that you own it outright. It doesn't have any counterparty risk. So why would you want to construct a system in which people are encouraged to lend their gold? That negates the main advantage of gold. This is like noticing you can run 100m in 9 seconds and then have both legs amputated.

No, the answer is to own gold outright as wealth (just as wealthy people own paintings, fancy diamonds, etc.), but not to lend it to other poeple. Gold (in your possession) is an ideal store of value.

The medium of exchange, in contrast, can be anything that works in practice and that is reasonably stable (i.e. has a predictable rate of inflation). If you want to lend something, lend the medium of exchange. There is no reason why government issued paper money couldn't work as the medium of exchange. Look around you. It works fine.

The problem with government issued paper money is that it fails as a long terms store of value. That's why you need gold.

It should be clear now that saving in physical gold in your possession while transacting in and lending paper money, solves a problem of the present financial system, whereas going back to a gold standard, creates a problem that people had already solved.

Sincerely,

Victor

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bbacq
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Posts: 26
Victor leaps to the defense?

Victor!  Hello again.  What a surprise.  Others, please excuse me, but I have bumped into Victor and his spurious and specious argument before.

Victor, I may not have directed you, as I did ErikT, to Harry's Frankfurt's "On Bullshit" but I believe I provided links to ErikT that you could follow, above.

A gold standard wouldn't provide any relief. In fact, it would make things a lot worse.

There are an infinite number of possible "gold standards".  I am sure the one you have in your head wouldn't work, Victor, because that is your objective, ie to demonstrate that because one version does not work, all cannot.  It is a common mode of rhetoric, and can easily confuse people if they are not familiar with it as a sly way of misleading them.

The problem of a gold standard is that two very different things trade at the same price:

1) physical gold (e.g. gold coins in circulation)

2) promises to deliver physical gold (including bank deposits and all loans)

One of EriktT's favourites, the law of efficient arbitrage, will take care of this price differential.  Arbitrage works very well to flatten value disparities when coercion is not used to preclude its operation in markets.  If there are multiple freely-competing gold-backed currency issuers competing in the market, the situation you describe does not occur.  In the pre-broken straw-man system that you propose, yes, that will fail, and prices will separate, as they did for the USD in '71.  You prove nothing.  Gold-backed currency doesn't work with only a single issuer.  Move on.

(1) has no counterparty risk, but (2) has a lot of counterparty risk.

Door number 2 has no counter-party risk unless some coercive authority, like a government, say, forces one to use a currency issued by an untrustworthy issuer.  Left free, the market will eschew untrustworthy issuers and the problem is resolved.  The only passengers who go down with a sinking currency ship are those who decide to.  The rest escape to the life-rafts provided by all the other currency issuers, whose boats are not so leaky.  That is, as long as there are enough lifeboats (other issuers), and no-one is standing at the gunwales with guns and shackles to stop us from dis-embarking.

This is all very, very, simple folks.  Twelve-year-olds can figure it out, once the blinders are removed.

This is not to say that gold wasn't a fantastic asset to own. But the "hard money school" (including the U.S. branch of the Austrians) totally miss the point. They always want to make gold the tokens of exchange and then lend these tokens. This is foolish. The fantastic property of gold is that you own it outright. It doesn't have any counterparty risk. So why would you want to construct a system in which people are encouraged to lend their gold? That negates the main advantage of gold. This is like noticing you can run 100m in 9 seconds and then have both legs amputated.

Victor, you, ErikT, and others I have observed in the anti-sound-money, anti-sound-banking camp (tit for tat!) seem to often lump together a whole class of people under some common flag, like "US branch of Austrians" or "goldbugs" whatever they might mean.  I suppose you seek to discredit some group, and some whole class of ideas in one swell foop.  I have no need for "gold tokens".  I would like it if we had sound and boring banks, so that I could save my surplusses, and the bank could worry about making prudent loans to productive people who will pay them back.  It's pretty simple, Victor.  Gold-backing does not mean pieces-of-eight, peg-legs, and parrots make a big comeback.

We don't really know "the advantage of gold".  The market does, it picked it over an evolutionary process of thousands of years duration.  My sister asked me "Why gold?"  I responded "Why tree?".  Same question/answer.

The problem with government issued paper money is that it fails as a long terms store of value. That's why you need gold.

My god, Victor, you are either dense or have a hidden agenda.  The problem with government-issued paper money is that it is issued by a centralized government.  A central bank is no better.  Centralized system control does not exist in nature, and that is why it doesn't work for man.  Get over it, move on.  The math proves it.  Seriously, we need to get this through our heads and move on.

Victor, you advance the same stupid idea here as was soundly discredited over at tfmetals, where the cockroach of deception was caused to scurry away by the light of truth.  Before making a mess over here, you should at least try to clean up the intellectual mess you made over there.

Victor you are clearly not ignorant, but the profoundness of your stupidity is staggering. 

"Men are born ignorant, not stupid.  They are made stupid by [the wrong] education." 

People, Bertrand Russell asks you from the grave not to follow the ideas this man presents.

 [Moderator's note: This post is a violation of the forum guidelines.  Appropriate corrective action has been undertaken with the user.]

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bbacq
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Posts: 26
Who benefits from fiat?

darkbikrash: So if you buy this frame of reference, than the key is not trying to modulate the economy with how fast a mineral is extracted from a hole in be ground, but how and to what purpose is the vast amount of credit that is being extended used.

bbacq: I will be candid.  I don't buy the frame, no one should be trying to modulate the economy at all, other than by their own productive work, talk of holes in the ground makes me suspicious of your agenda, and credit is still extended under sound specie-backed money, and it is extended and the money supply expanded beyond the quantity of specie to the exact extent of the inverse of the fractional reserve ratio, dynamically, in response to market demand, with appropriate feedback mechanisms to ensure prudence, by the banks, if fractional reserve banking is present.

If Victor were not being duplicitous, he would have addressed the arguments after darkikrash's message that he quotes.

Why does Victor not deal with the model I proposed in response to darkbikrash?

Those that argue for more fiat are those who benefit from it: the unproductive, the coercive.

Those that argue for sound money are those who would benefit from it: everyone else.

Which are you?  Please abandon the dark[bikrash] side, see the light and let the force be with you.

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Travlin
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Joined: Apr 15 2010
Posts: 1322
Bbacq -- That’s not helpful

Bbacq

Since I’ve already criticized one poster for their demeanor it is only fair to point out the same to you. You have directed a harsh personal attack at Victor that spoils your arguments. Here is just one example, “Victor you are clearly not ignorant, but the profoundness of your stupidity is staggering. “

With Victor and Erik T it looks to me like you are baiting them. These forums are for debating ideas, not denigrating people or indulging in theatrics. If you don’t see this, and persist in this manner, we can call in the moderators to decide. Please read and follow the forums guidelines so that does not become necessary.

http://www.peakprosperity.com/forum/forum-guidelines-and-rules/9528

Travlin

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bbacq
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Posts: 26
Thank you Travlin...

... for the link to guidelines and rules.   I will read them and abide by them.

I pre-apologized for what I was about to do to Victor, I hope you caught that.

It may not have been sufficient, and I apologize to others who may have been offended by my words.

I think the arguments stand on their own merit they are ideas, and without "reputation", but you are right to call me out, as I do do myself a disservice when I let emotion get the best of me.

I have spent a great deal of time in trying to elicit and summarize the details of Victor's position, elsewhere, which I linked to.

I was hoping to head off a lengthy repetition here of exactly the same discussion, which remains unresolved.

I would be extremely interested in Victor's response to "F: Frederico the Foreigner" in his toy gold-economy model from his own site.  Frederico is an imaginary Italian Lamborghini enthusiast who provides an arbitrage function in Victor's model, one who was conveniently overlooked within the model, but fundamental to understanding how the system would actually work.

I use terms like "truth" and "bullshit" in the formally-defined sense, as defined in the volumes linked.

The same is true of my use of "ignorance" and "stupidity", I mean them as Russell does.

I don't regularly bandy these terms about.  I am quite civil in fact.

I just don't tolerate bullshit well, and I have a particular distaste for those who would try to feed bullshit to others, and thus move them from a position of ignorance to one of stupidity.  Of the two, ignorance is far preferable.

I repeat my apology to those readers who finds my use of these words offensive. 

Perhaps these words, in the sense I mean them, are censored on this site.

I will consult the guide.

Thank you again, Travlin.

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bbacq
Status: Bronze Member (Offline)
Joined: May 1 2012
Posts: 26
@Travlin

Travlin I had not read the terms of use.  My bad.  I would have read and quoted them if I had, instead of be as confrontational as I have been.

If CM chose to censor my posts above, I think it could be justified under his terms of use.  They are not unreasonable.

I hope that censorship does not occur in the interest of providing (non-stupefying) education to those who would choose to see my words anyway, despite the occasional outburst.  I'll rein it in some and abide hereon...

[Moderator's note: All users on this website are required to certify that they have read the forum guidelines and rules.  The user must indeed check a box specifically stating that they have read and understood the forum rules before they can post.  We take the forum rules seriously, as they embody ideas which form the foundation of our community.  Appropriate corrective action has been undertaken.]

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Travlin
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Joined: Apr 15 2010
Posts: 1322
Too late

Bbacq

I did not flag your post 370 to alert the moderators. I preferred using a personal reminder. Apparently someone felt your response wasn’t suitable.

Travlin

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