Does anybody read FOFOA?

[Filthy Keynes]

Any thoughts on the Shoeshine Boy?

Added Link:
http://fofoa.blogspot.com/

[mamboni]

Everything I've read by FOFOA is first rate and should be mandatory reading for the goldbug.

[Olmstein]

Link?


edit: found it

http://fofoa.blogspot.com/

[Filthy Keynes]

Link?


edit: found it

http://fofoa.blogspot.com/


It took me two days to digest the Shoeshine Boy. It's not easy reading, and it requires some contemplation. But this is NEW/THOUGHTFUL material to those who consider themselves experts.

[Ponce]

I do have my modern version of "The Shoeshine Boy"...............back in 2006 NBC had an interview with this Mexican kid of about 23 years of age who was a real state agent in Las Vegas and who SPOKE NO ENGLISH, the guy was the owner of four houses and was in the process of buying house humber five..........nuff said.

[Glass]

This was the article I was looking for and asked about in another thread. Very good article and worth the time to read.

[uranian]

interesting link (http://www.financialsense.com/contributors/christopher-quigley/a-guarantee-too-far) from one of the comments about the situation now in Ireland:


As with Portugal and Greece in Ireland the economic situation on the ground is becoming desperate. The main banks are basically insolvent and unable to lend. Capital expenditure by the government departments has stagnated. Taxes are rising to pay for the bloated interest charge on ballooning foreign borrowings. Business cash flow has collapsed and credit is non existent. Many enterprises now no longer accept cheques and insist on cash or payment through credit or debit cards. Money has become very scarce

If that's true (and I find no confirmation in the blogosphere), I'm thinking this is equivalent to the velocity of money rising (given that cheques take a while to clear, cards don't), which is an early stage in the hyperinflation game.

[Gknowmx]

FOFOA and Fekete are both refreshingly original. Back in the day, we used to have a few folks here who could more than hold their own in expounding on the deep monetary concepts that the likes of FOFOA discuss. In fact, FOFOA used to quote from GIM if you read the older posts. He used to follow some of the inflation/deflation debates we had.

As far as his last post. I think it is brilliantly insightful as usual. But really, one should really be asking about the FreeGold concept. What do you think about FreeGold? FOFOA is pretty convinced that FreeGold as a complete monetary concept is pretty well locked down. All roads lead to FreeGold.

I think folks like Bearster on ZeroHedge have asked some of the most hard-hitting questions and I like his focus on the non-declining marginal utility issue. As Stravinsky pointed out early on, it all depends on Morality.

I do think the FreeGold concept is incomplete and not even original. As one of the early commenters on the column pointed out, Gesell dicussed FreeMoney 100 years ago. FreeGold is incomplete because it is not a monetary system but rather a store of value function currency. Gold, and FreeGold are NOT money. They are merely currency.

FreeGold is incomplete; to complete it we need to discover a currency that is the ultimate medium of exchange as FreeGold is the ultimate store of value. While these two functions of the concept of money can be separated as currency, it is a mistake to equate either function alone with the more complex concept of money.

I have read a lot of FOFOA, but not all, so I may have missed his discussion of demurrage currency concepts. If he has not addressed this yet, it is a shame because a demurrage currency fits hand in hand with the freegold concept.

Demurrage drives the productive creation of wealth. And not just any wealth but long-term durable wealth based on the same concept of marginal utility that Bearster points out on ZeroHedge.

But how to implement such a system in this modern (global) world? It would seem that we need an element with anti-gold properties; something that is inherently NOT stable over time to discourage hoarding (as opposed to saving using gold) such a currency.

It needs to be transmutable with declining value over time as you have indicated. I believe we have such a thing: radioactive elements that decay over time. The rate of decay is dictated by nature, not man, as are the qualities of gold not defined by man.

Imagine a plastic card containing a fixed amount of a decaying element (just need a Geiger counter at the cash register; relax, the amount and nature of radioactivity is not going to harm anyone).

Once the element of choice has decayed to the limit of detection, the currency becomes useless encouraging its self-liquidation by returning it to the originator for the return of some prorated amount of deposit left with the originator when the charged card was originally purchased. The discount value is dictated by the detectible radioactivity.

So how would this work? First, as a demurrage currency, no one will just have this currency sitting around like spare change on the nightstand. Instead, only when a monetary transaction is required to transfer wealth (store of value) does one create the self-liquidating medium of exchange.

Perhaps I take my gold to a dealer who “charges” a plastic card with a defined quantity of a radioactive compound. Say I transfer 20 grams of gold to the dealer for such a medium of exchange. The time-dependent prorated redemption value of the card is dependent on the amount of radioactivity that remains on the card. Radioactivity decays with a known half-life.

Perhaps the half-life in our theoretical example is 30 days. If I start out with 1,000,000 detectible decay events per second on my card at the moment of “charging”, 30 days later there will only be 500,000 such events per second—one half the decay events per unit time that I started with. If I redeemed my card at this time (back to the same issuer or another) I could get 10 grams of gold in return.

Thus, if I want to make the most of my exchange currency, the key is to make the exchange as fast and as efficiently as possible. Time is risk. Hoarding is discouraged. In fact, if I were to hold the currency too long, it could decay to a value of zero (below the detection threshold).

To boot, since we have different radioactive elements with different rates of decay, it would be entirely possible to set up various discount rates to match risk and creditworthiness.

Technology involved in creating, and concentrating such elements creates a barrier of entry that could prevent the biggest problem that so many ‘medium of exchange’ currencies suffer: counterfeiting. Select radioactive elements can no more easily be created than gold itself.

Thus, we could separate and mate the best store of value with the best medium of exchange our natural world has to offer to encourage human action.

[uranian]

agreed that gessell's work on demurrage is the only currency system that appears to have actually worked to the benefit of the general public. the miracle of worgl (http://en.wikipedia.org/wiki/W%C3%B6rgl#The_W.C3.B6rgl_Experiment) being the example here. to my knowledge, the only way a person could save during that period was to invest in the stock market, which forces people to be more speculative than they probably would choose to be. i can see the logic behind using radioactive elements, but i don't see the need to add complexity. in worgl, they just stamped the currency at the local post office every month or 2, the stamp cost money to buy and lowered the value of the note, hence demurrage. we can probably come up with some more high tech equivalent of the same via RFID chips or some encrypted alternative, but the idea is the same (and less dangerous than carrying some uranium in your pocket!). i don't know that there is a money system that fulfills all of the functions of money at once, my thoughts on gessell's work are that it worked excellently as a medium of exchange, poorly as a medium of saving, so why not just add gold to the equation and allow people to save by buying gold coins? i guess you could combine the two by lopping off a fraction of the coin as the demurrage charge, but you'd end up with some ugly coins that way.

[Gknowmx]

i can see the logic behind using radioactive elements, but i don't see the need to add complexity. in worgl, they just stamped the currency at the local post office every month or 2, the stamp cost money to buy and lowered the value of the note, hence demurrage. we can probably come up with some more high tech equivalent of the same via RFID chips or some encrypted alternative, but the idea is the same (and less dangerous than carrying some uranium in your pocket!). i don't know that there is a money system that fulfills all of the functions of money at once, my thoughts on gessell's work are that it worked excellently as a medium of exchange, poorly as a medium of saving, so why not just add gold to the equation and allow people to save by buying gold coins? i guess you could combine the two by lopping off a fraction of the coin as the demurrage charge, but you'd end up with some ugly coins that way.


The biggest problem with medium of exchange currency, especially in this age of technology, is counterfeiting. This is why I propose natural radioactive elements. Computers based on atomic clocks, using aluminum for example, keep time well. Now we need to use atomic elements to ‘lose time’ in a natural fashion, so to speak.

Actually, you probably could use an encrypted RFID-based currency that has a start time stamp/numeric sequence that is linked to a decay rate algorithm that is defined by a naturally decaying element. The key is to have a global standard of measure for the rate of decay. One that is not defined by man.

A high tech substitute, however, is still subject to counterfeiting. The whole idea of a demurrage system is not that it fosters ‘saving’ or ‘hoarding’ per se, but that it promotes man to be productive and to produce things that last: Wealth.

Currency is not Money, and neither is all Wealth. Money only involves the portion of Wealth that offered in lieu of a promise to pay in the future, which itself is a function of Human Labor (as opposed to robot labor, animal labor, or pure physical labor).

[DMac]

Interesting points and thoughts, Gknowmx.

[MNeagle]

I've wondered what does FOFOA stand for?

[uranian]

friend of friend of another (http://www.usagold.com/goldtrail/archives/another1.html)

[Dogman]

I've wondered what does FOFOA stand for?


http://fofoa.blogspot.com/

This may be more to your liking ;D

[Hatha Sunahara]

FOFOA has to overcome the inertia in peoples thinking that Gold is an investment. Owning gold is not an investment. I tend to view it as an insurance policy. Has anyone been able to come up with a good model for supply and demand for insurance? Buying gold is betting that what is being used as money (paper) is not a viable 'storehouse of value'. Paper is good as a medium of exchange, but it has no intrinsic value. You can't eat it. Of course you can't eat gold either, but unlike paper, it is better money because it can't just be printed up in unlimited quantities.

FOFOA, and Fekete as well are advocates of decoupling the 'medium of exchange' function of money from the Storehouse of Value function. Gold is something that is good at both functions, but since our bankers decided it should not be money, and call the paper they issue money, they have destroyed the storehouse of value function of paper money. People understand this at a deeper intuitive level. They own 'investments' like houses (which also are not investments--but the land underneath them is similar to gold in its ability to hold value). The problem with investments is that their value can be manipulated in the marketplace by the bankers. To compound the instability of investments, people 'invest' money they haven't saved, but have borrowed from the bankers--fiat debt money. The value of their houses not only depends on the real estate market, but on the value of the paper money itself. Owning gold is insurance against a drop in the value of the paper money. That value drops because of a loss of confidence triggered by reckless policies of government and banks.

I personally believe that the medium of exchange function should be decoupled completely from the storehouse of value function of any money that is not based on precious metals. FOFOA has an interesting illustration by Fekete of the 'medium of exchange' function that he has presented multiple times:


A ‘fairy’ tale

Let us look at another historical instance of clearing that was vitally important in the Middle Ages: the institution of city fairs. The most notable ones were the annual fairs of Lyon in France, and Seville in Spain. They lasted up to a month and attracted fair-goers from places as far as 500 miles away. People brought their merchandise to sell, and a shopping list of merchandise to buy. One thing they did not bring was gold coins. They hoped to pay for their purchases with the proceeds of their sales. This presented the problem that one had to sell before one could buy, but the amount of gold coins available at the fair was far smaller than the amount of merchandise to sell. Fairs would have been a total failure but for the institution of clearing. Buying one merchandise while, or even before, selling another could be consummated perfectly well without the physical mediation of the gold coin. Naturally, gold was needed to finalize the deals at the end of the fair, but only to the extent of the difference between the amount of purchases and sales. In the meantime, purchases and sales were made through the use of scrip money issued by the clearing house to fair-goers when they registered their merchandise upon arrival.

Those who would call scrip money "credit created out of nothing" were utterly blind to the true nature of the transaction. Fairgoers did not need a loan. What they needed, and got, was an instrument of clearing: the scrip, representing self-liquidating credit.


http://fofoa.blogspot.com/2010/08/credibility-inflation.html

My conclusion is that whether gold is money or not, it retains its 'storehouse of value' function because it cannot be 'counterfeited' or debased, and therefore is a great insurance policy against the failure of any other form of money. Gold has no 'counterparty risk'. No promises attached to it that could be broken. It is the anchor of all storehouses of value. It is also a good medium of exchange--but it is heavy, so paper is a better medium of exchange.

I think that our paper money should only be regarded as a medium of exchange only, and issued without the issuer demanding interest and collateral. The medium of exchange function is a public utility. Since it has to be a monopoly, the issuer should be tightly regulated like all monopolies should. The founding fathers of America understood this, because several decades prior to the American Revolution, they had their own scrip in the colonies that allowed them to prosper. The revolution happened because the British required them to use British money, regulated by the Bank of England, and that caused the economy in the colonies to contract.

FOFOA does something interesting. He gives us history lessons with his discussions about money and gold. History that they do not teach us in school. History that is far more interesting and revealing than what they do teach us in school. FOFOA believes that history is not an accident--but a product of conspiracies that either succeed or fail. We're not allowed to believe that. We have to believe that history is 'accidental' at best. Or that 'sh*t happens.' That's what history is in our public schools.

Hatha

[Filthy Keynes]

We have to believe that history is 'accidental' at best. Or that 'sh*t happens.' That's what history is in our public schools.


That is a very good point. The same applies to the inability of the common man to understand "recessions". To the common man they "just happen", like the weather.

[Hatha Sunahara]

Here's another piece about the clearing function that people don't know from the history they are taught:

http://fofoa.blogspot.com/2008/11/100-year-clearing.html


Hatha

[agnut]

Great thread Filthy Keynes. Thanks.

I read the “Just Another Hyperinflation” articles 1, 2, and 3 and hard copied them (for posterity, haha ).

Some great thinking there. I began reading Another, FOA and FOFOA back in 1998 on Timebomb 2000. True and deep then and now more than ever.

FOFOA mentioned that the Euro was originally backed with 30% physical gold but has been readjusted many times since as the price of gold has risen against the Euro. Additionally, he stated that a Euro holder could go to a bank and exchange for physical gold without a value added tax of 17%. Pretty cool but I wonder if that will hold true in a future currency crisis.

Of course, we can’t do this here in the U.S.; no gold to give out (but probably tons of tungsten).

The dual money of paper money for spending and gold for saving and wealth preservation sounds like the best/least bad workable money for mankind. But hard to say since man(un)kind always seems to find a way to screw it up.

Gold and silver are “hard money” since they are hard to mine and process. Also harder to attain than merely going to the bank.

Anyway, these three articles bear rereading until it all sinks in.

Best wishes,

agnut

[Buster]

Central Bank fiat currencies are radioactive. Their half-life is determined by the rate of inflation.

I do not need any more urgency-to-spend economics. Gold and silver make perfectly good stores of value.

Digital precious metals is the future trustworthy currency as long as it is not a tool of governments, multinational corporations or central bankers. And the velocity nears the speed of light.

Where do you think this worldwide fiat currency debasement ends: world war, slavery or freedom?

It will be an individual's choice I think.

[AndreaGail]

looks like i'll have to give this blog a look

thanks for the suggestions :)