Saturday, May 29, 2010

Open Forum

Gold-dispensing ATMs: Coming to a city near you
By Blake Ellis, staff reporter
May 28, 2010







Jon Nadler, senior analyst at Kitco Metals [said] that he would be surprised if investors bought into the new invention ... "I would like to see that same machine... spit out cash," said Nadler.

Full story here

Thursday, May 27, 2010












The 21st Century Bank Run
GOLD & MONEY: More Than Meets the Eye
Greece is the Word
Living in a Powder Keg and Giving Off Sparks
Gold: The Ultimate Hedge Fund
I can feel it coming...
Gold: The Ultimate Wealth Reserve
Gold is Wealth
Gold is Money - Part 1
Gold is Money - Part 2
Gold is Money - Part 3
Fair Value Gold?
Your Own, Personal, Freegold
Say Goodbye to Wall Street
Shake the Disease
The End of a Currency
No Free Lunch
Confiscation Anatomy - A Different View
The Waterfall Effect
The Call of the Century
Bondage or Freegold?
Call Me Contrarian
The Triumvirate of Wealth
Dead End
The Bermuda Triangle of Currency
Mona Lisa or Ben Franklin?
Weimar Reloaded
Taking Delivery of Physical
The Underwater Beach Ball Effect
Worst Case Scenario (12" Remix)
The Judgement of Value
All Paper is STILL a short position on gold
Bankrupt Economics
On "Hyperinflation"






























Time for America to come clean and pay its debts…



A Tribute to the Thoughts of Another and his Friend











Wednesday, May 19, 2010


h/t Capt Goodvibes

Thursday, May 13, 2010

Hair of the Dog?

Yes indeed it is.



Here is the interview...




You probably noticed that Nassim is not only a theoretician, but also a practitioner. (Join Nassim's 12,590 followers on Twitter here.)








Hair of the dog, Dennis, really? Here is something Philipp Hildebrand, Chairman of the Governing Board of the Swiss National Bank, said during opening remarks at the High-Level Conference on The International Monetary System in Zurich...







Normal debt = dollar demand up, dollar supply down.








(The above diagrams came from my post Greece is the Word)




Here is what the BIS thinks...

The Western world keeps spending its way to disaster
by Neil Reynolds
The Globe and Mail
Published on Wednesday, May. 12, 2010














© Copyright 2010 CTVglobemedia Publishing Inc. All Rights Reserved.
Presented here unmodified under the
Fair Use Doctrine of International Copyright Law








2) To destroy the dollar as the worlds reserve currency.



I'll also remind you of this Q&A I posted in "The Gold Man" (not Goldman) at the BIS:


A: Perhaps, "who control them"?

Q: **The Swiss?

A: Yes.

Q: **The eurocentral banks?

A: Yes.

Q: **Who does BIS really represent?



A: answered.

Q: **Has Saudi Arabia gone with Europe?

A: Yes.








Sunday, May 9, 2010

Open Letter to EMU Heads of State

Dear Angela, Nick, Silvio, Jose, Jan, Yves and the rest of you too,

I was just sitting here thinking about some of your statements this weekend like, "We will defend the euro, whatever it takes," and "When the markets re-open Monday, we will have in place a mechanism to defend the euro. If you don’t think that’s significant, you haven’t been to many EU summits," and that you will "confront speculators mercilessly." Sounds exciting, I thought.

And then I started to wonder, Could they really be ready to use "The Nuclear Option" on Monday? (And by the way, the nuclear option I was thinking about was NOT printing up another 500 bn euros.)

But then it hit me. "Holy Cannoli!", I thought, "they don't even know!"

All of a sudden it hit me that I know something you guys don't! Please bear with me as I try to explain this.

What hit me like 400 tonnes of BOE gold pitched by Gordon Brown was that none of you politicians know what the Central Bankers know. That there is actually another option for saving the euro. You see, unlike Central Bankers, you slick politicians come and go with some regularity (I noticed a couple elections just the other day). And also unlike Central Bankers, you guys have notoriously loose lips and wild-ass socialist political agendas. So chances are they don't fill you in on all the minutiae of everyday central banking. So it would be easy to also leave out a whopper of a secret along with the minutiae.

Now what I'm about to tell you might sound a little "tinfoil-esque", but I'll back it up with a logical proof and some whistleblower testimony. I'm going to tell you about a secret market that maybe only 100 people in the whole world know exists, because they transact in it. And I will also present what I see as a logical proof that this market MUST exist, or else other markets would not be the way they are today.

Every scientist knows that there are invisible objects that can only be observed because of the effect they have on other visible objects. Black holes are a good example. And this secret market is the same kind of thing. It is like a black hole around which all other markets rotate like a giant gravitational galaxy. It exists because it MUST exist for things to be the way they are. And in addition to this logical proof, I'll also point you to a Central Bank insider that leaked this information to a few of us 12 years ago when he predicted something like today's Global Financial Crisis was eventually, inevitably going to happen. More on that in a moment.

The point is, these Central Bankers do have a secret "Nuclear Option" at their disposal (other than printing more euros). And they WILL use it if and when they are backed into a corner. They know it's going to blow up on its own soon anyway, so they have no guilt about it. But in their back pocket they have a secret trigger, just in case. But the question for you, Angela, Nick, Silvi, Jose, Jan and Yves is, Will they use it in time to save your political careers, or will they only use it if it is needed to save their own butts?

Now you might be thinking, "How can this secret help us now if it is so secret and under the control of the Central Bankers?" Well here's the beauty of it: All it will take to deploy this "Nuclear Option" and reset the monetary and financial world back to a sustainable basis is one simple announcement, the revelation of the existence of this market, or even a credible leak will do the trick. (You guys are good at leaking stuff, right?) So here we go.

In case you haven't guessed it yet, this secret market I'm talking about is a gold market. But it is a separate gold market from the LBMA and the COMEX that we all know about. It has a different market-maker and a different price! It is the other half of a two-tiered gold market that has been operating in secret for at least 15 to 20 years.

But this is nothing new, of course. The Central Banks ran a two-tier gold market openly prior to 1971. They traded their CB gold with each other for $35/ounce while the plebes traded gold in the ordinary market at around $44/ounce. But even that $44/ounce price wasn't a totally free market price because the market had to price in the probability that the two-tier system would eventually end and the 'membrane' separating the Central Banks' 30,000 tonnes and the private ~100,000 tonnes would be broken. And apparently the market was right, it was broken!

Alexandre Lamfalussy wrote about this two-tier gold market in 1969 in his paper presented at the IMF titled The Role Of Monetary Gold Over The Next Ten Years:

"Even in the absence of effective purchases or sales on this market by the central banks, this price would only become the “true” price if all the buyers and sellers of the metal acquired the conviction that no central bank will ever connect the two markets in any way. As long as this conviction does not exist--and it does not appear to exist today--the price on the ordinary market will take into account potential purchases and sales by the official institutions. Quite clearly, the market is at the moment discounting possible purchases (rather than sales) by the central banks."

(Incidentally, I should point out that Lamfalussy made the news just this weekend saying, "The euro zone is stable despite the financial woes of Greece.")

What Lamfalussy said the markets were facing in 1969, the rejoining of CB gold and private gold in one market, is exactly what we are facing today. It did happen back then and it will happen again. The only question is the timing. And that's where you come in! More on this in a moment.

So anyway, the two-tier market ended in the early 70's as we all know. But what we don't all know is that it started back up some time later. My best guess is that the BIS started it back up sometime between 1985 and 1995. But why would the BIS do this? The answer in one word... size!

What the gold market evolved into after 1980 was a market based mostly on legal contracts instead of physical gold. Futures contracts, forward contracts, mining contracts, custodial contracts etc, etc... And while this contract gold market worked well for the plebes, it did not have the physical liquidity to supply really big orders, like the ones that come from sovereign entities and central banks. So the choice faced by the BIS was to either let these large entities bid for their gold in the contract market (and bring down the system like almost happened in 1979/80), or to restart the two-tier system where very large orders of physical gold could be transacted without affecting the contract market price. And restart it they did!

Now, since you guys are politicians and probably love the fiat money system, I need to give you a little background on the importance of gold. This is simply factual economic stuff. Trust me, I won't bore you with goldbug gobbledygook.

The first thing you must understand is that gold is the monetary metal precisely because it is NOT scarce. There is misinformation out there about rarity and scarcity giving something a monetary value. Rubbish! The fact of the matter is that gold is valuable as a monetary commodity because its price is STABLE! At least it is supposed to be. All the gold ever mined is mostly still with us. That's about 160,000 tonnes. Most of that is in private hands now, not with the central banks.

The FLOW of gold on the markets is tiny compared to the stocks of gold in the world. Gold is not used up in industry like other commodities. It is just moved around like poker chips on the table. It is this extremely large stock (all the gold ever mined) that makes the price of gold relatively immune to supply and demand shocks unlike other commodities. So if there is EVER a severe supply shortage of physical gold it means only one thing: There is something wrong with the price discovery mechanism!

Now, the effect of the contract gold market on the ordinary price of gold has been to keep it at manageable levels for 30 years now. But physical gold and contracts for gold are different things entirely. New contracts can be produced much faster than new physical gold can be mined. But when demand shifts from contracts to physical (which is happening) this puts great strain on the market that tries to price them as equals. And what must ultimately happen when this strain breaks the parity between physical gold and contract gold is that the membrane separating the BIS' physical gold price from the ordinary market will break.

When this happens, all your debt problems will be reset to manageable and sustainable levels again. In fact, the entire monetary and financial order will be reset. This is going to happen. And the Central Bankers can make it happen whenever they want, when they finally feel the heat of the fire on their own butts.

Jim Rickards, Senior Managing Director for Market Intelligence at Omnis, Inc., made this comment recently:


Interesting statements, eh? And believe it or not, they actually let this guy on CNBC! "Keep their intentions to themselves." Do they? That would be mighty benevolent of them. Or do they have another place to go for their big transactions?

So here's what's going on: The regular gold market suffices for the general public, some of the "big money" like the ETFs and hedge funds, and the hedging needs of the commercial banks. The majority of this demand for gold is for hedging against a currency crisis like... uh... this one! And the banks are perfectly happy with their contracts to show on paper that they are hedged. Fine. Whatever. But what the regular market CANNOT handle is the really big physical gold transactions. That's where the BIS comes in.

So this is what the BIS is doing, and has been doing for probably 20 years. It is making the market for a second-tier, physical only, sovereign and central bank gold market. This market is totally separate from the LBMA and the COMEX because it has a separate market-maker and... a separate price! More on this in a moment, because we do have a clue as to what that secret price might be!

Now, before you run to your respective national central bankers to verify my story, let me just say that this is a very small secret market. That is, there are only a small number of people in positions of authority that know about it. And I don't know if all the EU member states' national central banks ever participated in the "bid and offer" portion of this second-tier market. It probably started during the run-up to the euro launch and the BIS might have been dealing with EU members differently.

You see, before 1971 central bank gold transfers were part of the monetary adjustment mechanism. And during the run-up to the euro launch it is reasonable to assume that eurosystem gold was returned to this function. So inter-central bank gold transfers within the EMU during the 1990's were likely "managed" by the BIS to smooth the monetary transition, rather than being a free market system of bids and offers. So go ahead and ask them, but if they don't know what I'm talking about that doesn't mean it doesn't exist.

I'll tell you who probably does know... The ECB knows. Trichet. The BIS. The SNB. The PBOC. The Saudis. Probably Russia and maybe even the BOE. I also suspect the IMF knows about it because they refused to sell any of their announced "gold for sale" to the private sector at the COMEX price...

See: Eric Sprott: "That left 191.3 metric tonnes left available for purchase to qualified buyers, which include central banks and sovereign nations. According to Kitco, Eric Sprott bid to buy the remaining 191.3 tonnes and the IMF refused to sell it"
GATA: "Coincidentally, GATA learned this week on the best authority that a financial house far bigger than Sprott also recently tried to purchase gold from the IMF, also was refused, and wasn't very happy about the refusal."

Hmm... strange.

What this tells me is that unlike pre-1971, the second-tier gold price is now actually HIGHER than the regular market price. The opposite situation! And of course this makes perfect sense. Why wouldn't it be higher? How could extremely large orders, so big they would send the price on the ordinary market to the moon, be handled in physical only at a lower price like, say, $42.22/ounce (that's the US Treasury price, in case you didn't know!)? Precisely... they couldn't.

Just because we're talking about central banks and sovereign entities here doesn't mean regular market forces don't apply. They do! And as such, consider the BIS' role as the market-maker in this extraordinary market. From Wikipedia:

A market maker is a company, or an individual, that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid-offer spread... the market maker sells to and buys from its clients and is compensated by means of price differentials and for the service of providing liquidity, reducing transaction costs and facilitating trade.

So here's a big point in the logical proof: This market does exist. If it didn't we would have to accept some very unlikely assumptions about large interests like the Saudis, the Chinese and the Russians. For one thing, that they are benevolent to the outside world when it comes to protecting their wealth. What I'm saying is that a market for very large transactions (buy and sell) of physical gold does exist separate from the LBMA and the COMEX, because they cannot handle the size. The BIS is the market-maker in this market and in that role, it must be discovering a price that would rock the financial world if published!

Now, before I move on to the current price on this second-tier gold market, which I've already shown must be higher than the LBMA paper fix, let's look at how exposing this market would help the EMU and the euro. I'm sure you are aware that, unlike the US Treasury that keeps its gold booked at $42.22/ounce in perpetuity, the ECB marks all eurosystem gold reserves on its financial statements to the market price each and every quarter. What this does to the balance sheet is quite amazing to watch, even at LBMA/COMEX prices! Just imagine what it would look like at BIS prices!!

This is the elephant in the euro chamber that no one wants to talk about. But not so for the dollar. Back in December of 2008, right after the market collapse, none other than former Federal Reserve Governor Lyle Gramley hinted that a big upward revaluation of gold could figure heavily in the Fed's attempt to rescue the U.S. economy and its own balance sheet during an interview with Niall Ferguson on the Business News Network in Canada.

In the interview, Ferguson asked: "I've heard it said that the Fed has turned into a government-owned hedge fund, leveraged at 50 to 1. Do you feel nervous about what this might actually do to the Fed's reputation?"

Governor Gramley replied: "I think you have to reckon with the fact that one of the Fed's assets is gold certificates, which are priced, as I remember, at $42 an ounce, and if we were to price them at market prices, the Fed's leverage would look a lot less than it is now."

The video: BNN interview with Gramley

Here's a thought, what do you think would happen to Greece's reputation (and balance sheet) if its gold were revalued to the physical price at the BIS? I have some trivia (or not-so-trivia) for you:

Did you know that Greece alone has 14 times as much gold per capita as China? Do you realize that your "PIGS" actually have the same amount of gold per capita as the US claims to still have? (PIGS=25 tonnes/million people; US=26 tonnes/million people) And did you know the PIGS combined have 34 times as much gold per citizen as China? Astonishing really. A big gold revaluation should do quite a job on their reputation as swiney muddlers, especially compared to, say, California? I forget. How much gold does California have left?

So, what could I possibly know about this super-secret price on the super-secret central bank and sovereign-entity physical gold market? Well, I have a whistleblower! ANOTHER, we'll call him, since he could get in trouble if we knew his real name...

"...Then, in October of 1997 at the internet's only gold discussion forum of the day, a series of remarkable postings began appearing under the pseudonym "ANOTHER", offering plausible answers to those questions. What followed in a seemingly incongruous stream of thought over many months was, in the fullness of time, seen to blend into a logical whole by many astute readers following the complete text...


"As explained by ANOTHER, an opportunistic arrangement for massive physical gold acquisition among important petroleum producing and exporting nations could be comfortably facilitated..."

That's part of the introduction to the archives found here and here. Here's the real stuff...

Date: Sat Apr 18 1998 19:18

"What Is The Real Price Of Gold IN The Central Bank World?"

The one that posts using SDRer, has shown many times how "Gold Value" is used in international trade. What cannot be seen is the value of gold in the "INTERBANK" world. Here is the realm of "true valuations" in paper currency terms. It is a real shocker for lesser eyes.




This is why oil can take a small amount of physical gold out of world supply, at current "freely traded", "managed prices", and hold it at a many times valuation. That is what gives this "new world gold market" much value in trade at high levels. Look even at your "Comex", and divide the daily volume by the "eligible stocks for delivery". That number (perhaps three million ounces divided by 150,000 stocks), deliverable, times the spot close gives close, real world price of physical, $6,000. It follows close to paper trade on LBMA.

You see, "physical gold is of much greater value than public traders can move it for"! In your world, this cannot be, but it is, and will show for all to see in your time.

Date: Sat Apr 25 1998 22:55

It is true, that in times past when a currency is inflated (over printed) to a point of only 10% real gold backing, the government could revalue gold upward and the currency was 100% backed again! A terrible blow to the holders of this paper, but at least the money system survived! Today, the world's currency, the US$, by default, would require a gold price of many, many thousands to back it without using its citizens as collateral! The only problem with this is the US gold stock is so small, that even at $10,000/oz, a large deflation would be necessary to decrease the outstanding US currency to this gold backing level!

Now, consider the Euro. It will have much real gold backing from the beginning. Even at 10% to 30%, the Euro will be the equivalent of a 100% gold backed dollar, when the world comes off the dollar standard! The selling of old dollar reserves alone will reprice gold in US$ terms of at least $6,000/oz! Its present interbank reserve value.




Sir, The history of "Hot" paper money does show it to "burn easily" from " much heat"! If you read my Thoughts in today's replies, we see much "fuel" in dollar derivatives trading in foreign markets. Much of this trading represents a "claim" on physical gold that may become "a transaction for physical gold" as dollar reserves are displaced. The $6,000 valuation of gold can only be true if currency deflation destroys enough dollars to bring it down to that range. Without deflation, the dollar will be devalued much lower than this (higher gold price)! Once the Euro is created and begins to effect world trade (late 1999 perhaps), the gold market will begin a transition as never before! I think it will be interesting to follow the politics of this change, yes?


I assure you, there is much more where that came from. But the point of these quotes I selected is ANOTHER's implication that $6,000 was the "interbank" --meaning interCENTRALbank-- valuation of gold back in 1998, while the ordinary market price was only $300. What do you think the extraordinary price is today? The market price has gone up 4x. Has the interCENTRALbank value gone up to $24,000/ounce?

Not much has changed since then on the central bank money printing front. At least nothing in the direction that would imply a lower multiplier. Perhaps the BIS price is actually up 5x. Is that possible? $30,000/ounce if you want 200 tonnes of physical gold? Sounds like a lot of money, but it's really not that much if you can print your own money!

The other thing to consider here is the presently thin customer base of the BIS. If this market were to reconnect with the public like it did in the 1970's, meaning if the public were able to buy and sell physical to and from the central banks, where would the price go? Would it plummet? Or would it skyrocket? I think the answer is clear. Even the higher BIS "interbank" price is a false market construct.

So what does this mean for the euro? Well let me ask you this: Why was the euro conceived in the first place? The ECB's own website lists "the road to the euro" as beginning in 1962:

1962 - The European Commission makes its first proposal (Marjolin-Memorandum) for economic and monetary union.

May 1964 - A Committee of Governors of central banks of the Member States of the European Economic Community (EEC) is formed to institutionalise cooperation among EEC central banks.

Link - See pg. 52

I believe Alexandre Lamfalussy, who I mentioned earlier, may have been "on this road" 5 years later in 1969 when he wrote...

"On the one hand, I would like to see gold lose its monetary function; on the other, however, I would not like a national currency to assume the role of a reserve and international currency, that is to say, that the unsteady gold-exchange standard be replaced by the dollar standard. Consequently, I would like that the demonetization of gold takes place alongside with the creation of an international reserve currency. At the risk of repeating myself, I would emphasize that these are my wishes and not my forecasts.

"...It is this same mistrust, which made it impossible for the gold-exchange standard to function properly and which therefore led to the “negotiated” creation of reserves. Seen from this point of view, the establishment of the two-tier system is an act of despair, the survival of which is more than doubtful. Instead of a decline of the monetary function of gold, we are on the road to more frequent monetary crises, to exchange restrictions of all kinds and finally to a collapse of the economy--which could be avoided only by the reestablishment of the gold standard."

Again, from: The Role Of Monetary Gold Over The Next Ten Years

Lamfalussy went on to join the BIS seven years later in 1976 where he remained until 1993. From there he became the founding president of the European Monetary Institute in Frankfurt, forerunner to the ECB. And from 2000 to 2001 he chaired the "Committee of Wise Men on the Regulation of European Securities Markets".

I read a great comment the other day that said, "The only true hope at this stage of the game is some kind of miracle that would produce sufficient real wealth in excess of our compounding debt loads." The revaluation of all the gold reserves in the world at the true price discovered on a physical-only global gold market would be just such a miracle. And with the ECB "Mark to Market" policy and the eurosystem gold in place, the euro is built to receive just such a miracle.

Now I might be completely wrong. I suppose it is possible that all the wealthy sovereigns and overflowing central banks of the world are so benevolent as to withhold their bids for actual physical gold from the LBMA and the COMEX and patiently wait in line for a few scraps from the IMF. It is possible, but is it probable?

It is also possible that ANOTHER was just an Internet crackpot looking for attention. I suppose such a person could persist in capturing people's attention for over four straight years of writing and then have his words carry on for another eight years without being debunked as a complete crank. It is possible, but is it probable?

All I'm suggesting, dear leaders, is that you might want to look into this. Do a little digging, so to speak, while you still have political careers that allow you to dig into extraordinary things. You might be surprised what miracle you will find.


Disclosure: Long physical gold

Thursday, May 6, 2010

The Dukes of Wetton

As he left town, James could hardly believe he now owned the hotel he had just slept in the night before. He thought back to earlier that morning, when he looked out his hotel room window to see the former investment banker in the funny helmet delivering his transportation to the front entrance...

66 Years Earlier

Once upon a time there was an old western town so isolated that it was, for all practical purposes, like a continent unto itself. It looked something like Gunsmoke, but bigger. Maybe like Little House on the Prairie with let's say about 10,000 residents in the vicinity and a long one-street business district called Main Street.

On a hill at the west end of town, in a humongous white mansion (the largest building in town) lived a big fat man. Let's call him Boss Hogg. Boss Hogg owned about half of all the businesses in town including the saloon, the bank, the livery, the foundry and the jail. He was also well known to have the largest stash of gold by far. He made no secret of the fact that he had 22,000 ounces of gold, twice as much as the rest of the town combined!

No one knew how Boss Hogg came into so much wealth, but it didn't really matter. For all intents and purposes, Hogg was the effective "King of Wetton Broods" (that's the name of the town).

One fine day in July Boss Hogg called a meeting on the grassy knoll in front of his mansion overlooking Main Street and the sprawling Wetton Broods. The whole town was in attendance as Hogg had a big announcement to make. He stood there in front of the masses with one large object on his left and a smaller one on his right, both concealed with draped bed linens.

As he spoke, Hogg first unveiled the object on his left by pulling the sheet. It was a large printing press. Hogg announced that he had just purchased the finest press in the world: the Greenben-5000.

He went on to explain that he would begin printing new money for the entire town of Wetton Broods. Never again would the town have to worry about a shortage of money every time one of its wealthy residents left for foreign lands with his gold. Boss Hogg himself would provide all the liquid money the town would ever need!

The people in the front of the crowd stood up cheering and applauding wildly until their Special Ed chaperones motioned for them to sit down and put their safety helmets back on. From the back of the crowd a businessman hollered, "Why would we use your money, Hogg?"

"Ah" replied the Boss loudly, "I knew someone would ask that question." And as he spoke he jerked the cover off a three-foot pile of gold coins to his right. The crowd in front gasped in amazement at the sight of such shininess and started beating their heads with their fists.

"My money," proclaimed Hogg, "shall be redeemable in my gold!"

18 Years Later

As the years went by, Boss Hogg's paper money became very popular in Wetton Broods. Everyone wanted more and more of it, and just as he had promised, there was never a shortage.

Boss Hogg himself amassed almost unbelievable wealth through the success of his money. And incredibly, he was also able to do less hard work in the process. He tore down his magnificent mansion and built an even bigger one. And he bought up other things as well, like the love and adoration of the people. Boss Hogg was living the good life.

Now you can call it jealousy or simply an alert eye, but a few businessmen from the east side of town were not as impressed by Hogg as most of the people were. They made note of a few curiosities and gathered together occasionally to discuss them.

For one thing, it seemed that everyone in town (including themselves) who was really productive and refused to be lazy, was cashing in their HoggBucks for gold. This trend, to the best of their calculations, had already depleted HALF of Boss Hogg's gold. They figured Boss Hogg may now own more than half of the town's businesses, but his hoard of gold was probably down to only 11,000 ounces remaining. And this was in a town with maybe 33,000 ounces of gold total.

And the other troubling observation was that the entire town, now grown to around 12,000 people, was entirely engrossed in this system of HoggBucks. They had literally forgotten that there was ever anything else. This was most disturbing because they realized that with half of his gold gone after only 18 years, there would probably be less than 18 more years until it was ALL gone!

9 Years Later

27 years after his first meeting, Boss Hogg called another one. This time he announced that his HoggBucks would no longer be redeemable in his gold. Instead, he said, they would be redeemable in fancy paper IOUs from he, himself, the richest man in Wetton Broods, Boss Hogg, himself. And that he would print these IOUs on the same Greenben-5000 that he used to print money! And once again, the helmeted crowd went wild. (This time the chaperones were so confused they neglected to calm down their patients.)

By this time the group of business-owners from the east side of town had given themselves a name. They called themselves "The Dukes" in honor of their noble old-world heritage and values.

And at this point, especially after Hogg's new announcement, the Dukes were seriously concerned about what would happen to commerce in their town when the rest of Wetton Broods finally realized what they already knew: That Boss Hogg's HoggBucks were nothing more than a Ponzi scheme, only valuable as long as the false confidence in their value persisted. And they began to discuss buying a Greenben-5000 themselves with the thought of launching a redundant backup currency for the purpose of maintaining economic continuity when the HoggBuck scheme finally failed.

To date the Dukes themselves had accumulated more of Boss Hogg's "redemption gold" than he had left himself. Hogg was down to maybe 8,000 ounces and the Dukes had about 10,000 ounces between them. The rest of the Wetton Broods' 33,000 ounces of gold was now widely disbursed among the people of the town.

In preparation for the possibility of launching their own currency sometime in the future, the Dukes agreed they would continue to accumulate any gold that anyone in town wanted to sell, even though Boss Hogg was no longer selling what he had left.

25 Years Later

For two and a half decades following the closing of Hogg's gold window the town of Wetton Broods grew more and more acclimated to using his "unbacked" money. Those that still wanted gold traded it for HoggBucks amongst themselves. And for 25 years the roughly 15,000 ounces of gold in general circulation seemed to suffice.

Sometimes the price of this "free gold" would spike upward and other times it would fall. Meanwhile the Dukes found it increasingly difficult to accumulate more gold without causing the price to spike.

With Hogg's gold window open at a fixed price they had accumulated 10,000 ounces in 27 years. Now in 25 years they had only added another 1,000 ounces between them. But they also noticed an interesting secondary effect. With the price of "free gold" rising 1,000% in 25 years, so too did the value of their gold hoard. So while they were only able to add 10% more physical gold, their overall wealth went up more than ten-fold during that same timeframe!

This was a curious development for the Dukes, and because they were not flashy with their wealth the way Boss Hogg was with his, it went largely unnoticed by anyone but the Dukes themselves. The Dukes consisted of Bo the stagecoach builder, Luke the tannery owner, Uncle Jesse who owned the local food diner and Daisy who entertained the visitors that came to Wetton Broods.

And for the first time in decades the Dukes could see clearly what they needed to do for the good of the community. They had already ordered their own Greenben-5000 which was being shipped. And now they had a plan for their new currency. If they wanted it to perform as a failsafe for the Wetton Broods economy they would have to correct the flaws in Hogg's HoggBucks that had become very apparent to the Dukes.

The first flaw which was apparent to the Dukes 34 years earlier was Boss Hogg's original gold exchange strategy. By comparing the first 27 years of "redeemable" HoggBucks to the last 25 years of "unbacked" HoggBucks, the solution became clear. As long as Boss Hogg was redeeming his money with his gold, the flow of gold was one direction only, out, and relatively quick. Hogg had lost 14,000 ounces of gold in 27 years and the Dukes had found it quite easy to accumulate 10,000 ounces themselves during that time.

But ever since Hogg's exchange policy was ended and the price of gold floated, the flow of gold was many-directional making it much more difficult to accumulate a large hoard.

The second flaw, and perhaps the more important one, was clearly visible in Boss Hogg's own flashy ways. For 52 years now Hogg had grown more and more fat and lazy. He had sold off most of his businesses in town and he now seemed to rely solely on his Greenben-5000 for maintaining his flamboyant lifestyle.

The common people in town hardly noticed, but the Dukes being business owners themselves could see that with each increase in his own lifestyle Boss Hogg was diluting the value held by everyone else in town. In fact, the only compensation the Dukes realized, the only relief from Boss Hogg's personal profligacy they found was in the ten-fold rise in the value of the gold they had redeemed from Hogg in the early days.

In addition to these two glaring flaws the Dukes also noticed a couple other subtle changes in Boss Hogg's money management strategy, ever since he had given up real work in order to focus solely on the maintenance of public confidence in his Ponzi scheme.

The first had to do with his fancy paper IOUs. 25 years earlier Hogg had replaced his gold exchange window with an "IOU window". This IOU window had been so successful that Hogg literally gave up all productive work just to keep up with demand for his paper IOUs. Part of the reason for their popularity was that Boss Hogg would date each IOU for some time in the future. And the farther off the date, the more money he would promise as a "kicker" on the IOU at maturity.

So the people of Wetton Broods were literally lining up for these high-paying IOUs. Some of the helmeted ones even laughed at the fact that they had ever wanted gold from the same window without any time-related kicker.

But the best part for Boss Hogg was that he never had to deliver anything real to these people that held his IOUs. The more productive people that were earning plenty of HoggBucks would just exchange their mature IOUs for fresh ones with new dates and new kickers. And in this way, they "watched their savings grow." This was Hogg's most popular slogan: "Watch your savings grow!"

For the people that couldn't roll over their IOUs, Hogg would just print them up some fresh HoggBucks, further diluting the wealth of the town. And no one except the Dukes seemed to notice.

And finally, for the people in town that were so poor they couldn't even afford Hogg's IOUs, he started a very special program. He called this program "Change You Can Believe In" and he taught these people how to issue their own IOUs directly to him in exchange for fresh HoggBucks. This was a troubling development.

The second change in Hogg's Ponzi management strategy was even more interesting to the Dukes. Hogg had apparently noticed the rise in the overall value of his remaining gold hoard, the same development the Dukes had noticed. But unlike the Dukes who saw this as a positive result, Boss Hogg apparently saw it as a threat to his IOU business.

What he had found with a simple calculator was that the rising value of his gold actually kept up pretty well with his "Watch your savings grow" program, and actually surpassed it at times. It seemed to the Dukes that Boss Hogg was afraid other people in town would notice this simple math. And that they would then start to question what real things they would ever be able to buy with their IOUs down the road. Perhaps they would find it smarter to take something real now that would rise in value, rather than an IOU with a Ponzi kicker.

Anyway, Hogg decided to do something about it. He wanted to flood the Wetton Broods gold market with his significant gold supply in order to sink the price and conceal the math. But he didn't want to part with the ownership of any more of his gold. So he came up with a brilliant scheme to loan his gold to the town bank which would then sell it into the Wetton Broods marketplace, flooding supply and lowering the price, and the best part was that the bank would still owe the gold back to Boss Hogg at some point in the future! (Years earlier Hogg had sold the bank to "The Chaperones" who now staffed it with "helmet-heads", because "banking is so easy even a caveman can do it.")

So the Dukes now realized what they needed to do. They had identified the two principle flaws in the HoggBucks design as well as two Achilles' heels in Boss Hogg's Ponzi management strategy. In creating their 'Dukes' currency they simply had to design the flaws right out of it and then pretend to engage in and encourage the most unsustainable elements of Hogg's strategy: IOU proliferation and buying up his lent gold from the helmet kids.

5 Years Later

'Dukes' now circulated alongside the HoggBuck. Of course Boss Hogg had not been happy when he found out another Greenben-5000 was in town. But there wasn't much he could really say out loud about it since his own scheme was quite precarious in its maturity. Almost everyone in town now held their savings and their debt in IOUs denominated in HoggBucks, but no one yet held IOUs denominated in the new 'Dukes'. So Boss Hogg rightfully feared that any exposition of his Ponzi scheme might panic the people of Wetton Broods to attempt redemption in 'Dukes' because they didn't carry the baggage of all that debt.

Meanwhile the Dukes themselves had begun issuing IOUs denominated in HoggBucks and even using some of those borrowed HoggBucks to buy some of Hogg's lent gold from the bankers in helmets. Quite a game really. Even Boss Hogg himself didn't catch all the nuance in it.

Also around this time some other curious developments emerged which posed an even greater threat to expose Hogg's Ponzi scheme. The Boss had long ago convinced the people of Wetton Broods that he would no longer print HoggBucks specifically for his own indiscriminate spending habits. Instead, he explained to the masses, his income now relied solely on his booming IOU business which brought in a healthy flow of old HoggBucks for his spending pleasure.

But over the last few years it seemed that everyone in town was issuing their own IOUs, ever since Boss Hogg taught them all how to do it. And now those "townsfolk IOUs" were circulating like hot potatoes among the people squashing the demand for Hogg's own IOUs. More and more frequently he found himself late at night printing up new HoggBucks under the cover of darkness and "buying" his own IOUs -- from himself -- just to have some spending cash.

Another frightening development for Hogg was that he had lent nearly all of his gold to the bank, and now the price was once again rising. So feeling the heat of these two new threats Boss Hogg arranged a meeting with his buddies at the bank and together they hatched a new scheme to bring in a fresh stream of income.

Their scheme entailed opening a new "side business" at the bank. They literally opened a new window on the side of the building (with their heads) and called it a "ride through window". But this new "side business" was more like a casino than a bank.

What Hogg and his challenged friends were selling were bets on whose IOUs in town would fail the confidence test first. Of course he had to take bets against his own IOUs, but because he would be printing the winnings himself this didn't concern him much. Also, he gave three of the slowest bankers the job of rating everyone's IOUs in town to assist in setting the odds for the casino. They were instructed to rate everyone against Boss Hogg's own IOUs which would always carry the highest rating.

7 Years Later

Now there's something I forgot to tell you about the Dukes. Years earlier when they first introduced their new currency, they too held a meeting for everyone on the east end of town. And at that meeting Bo gave a speech in which he laid out for the townsfolk just how the Dukes' currency would be different than the HoggBuck. Here is a bit of that speech:


"'The Duke', much more than the 'HoggBuck', represents the mutual confidence at the heart of our community. It is different from the HoggBuck in that it will never be linked to gold thereby suppressing the value of your gold savings on the free market, but it also will never be linked to the benefit or enrichment of any single member of our community above another. It is not backed by the durability (or weakness) of any other thing, nor by the authority of a single fat man. Indeed, what Sir Thomas More said of gold five hundred years ago – that it was made for men and that it had its value by them – applies very well to 'The Duke'."

Back to my story: It was about this time that Boss Hogg's Ponzi scheme reached the pinnacle of its complexity and instability. His casino bet receipts now circulated along with IOUs, HoggBucks and 'Dukes'. But the bet receipts numbered more than ten times the amount of IOUs! And there were also more than ten times as many IOUs as HoggBucks! Doing the simple math, that's 100 times as many bets as HoggBucks. So what began decades earlier as a simple Ponzi scheme had morphed into a very large upside-down pyramid scheme, balancing ever so precariously on its point.

It wouldn't take much to trigger a collapse, and in fact it didn't. The way it actually played out is still being analyzed to this day, and probably will be for many years to come. But basically what happened was an interconnected collapse of confidence as Hogg's own IOU rating crew inadvertently exposed his own system's weakness in no uncertain terms.

What followed was months of social and economic pandemonium and chaos. But somehow Hogg seemed to get it back under control by running his Greenben-5000 24/7 and quantitatively easing the debt-woes of Wetton Broods by air-dropping HoggBucks from his hot air balloon.

Curiously though, he wasn't so kind to the Dukes on the east side of town.

2 Years Later

Poor Daisy ran into a rough patch. What with the pandemonium and all, her tourism business had a tough couple of years. As it turned out she had engaged in Boss Hogg's IOU and casino system the most of any of the Dukes by issuing too many IOUs of her own. She had issued them denominated in both HoggBucks and 'Dukes'. And now she didn't have enough HoggBucks or 'Dukes' to pay off her debt.

Ol' Hogg jumped on this opportunity to not only discredit the Dukes as a group, but their paper 'Dukes' as well. But unlike Hogg and his helmet-heads, the Dukes had vowed not to print their 'Dukes' for the benefit of individuals. This seemed to amplify Daisy's problems, especially when Boss Hogg publicly mocked the Dukes for their "short-sighted policy" of no bailout printing.

Of course Daisy still had all of her gold. She wasn't so foolish as to sell it at a low price or worse, to loan it to the banker-brigade. So the Dukes held a meeting in private to discuss their options. It was clear that Boss Hogg's ridiculous system was coming to an end, but how should the Dukes deal with Daisy's debt crisis?

When they emerged from their meeting the Dukes announced that Daisy's debt problems would be quantitatively eased. Boss Hogg laughed out loud shouting to the whole town that the Dukes had sold out, that they were no better than him. But after the announcement the Dukes just went back inside quietly, confident in the knowledge that it would all soon be over.

Some Time Later

James, the first tourist to visit Wetton Broods in two years, on a tip from his lovely hostess Daisy whom he had paid with gold for a night of excellent hospitality, also paid for his hotel room with gold, receiving the kicker of the deed for the entire hotel itself. Included in this kicker was the hotel's seemingly insurmountable debt owed to Boss Hogg, which was the reason James got it. And as such, the gold paid at the front desk flowed directly back to Boss Hogg himself, extinguishing the debt. And for the first time in weeks, Hogg and his band of merry but hungry ex-bankers ate very well at Uncle Jesse's diner.

Oh, and after paying for the feast with gold, Boss Hogg happily took his change in 'Dukes'. The End.