Perspectives on the global economic meltdown- (Nov 28 2010)

[Neshant]

As a signalling tool, purchase of Gold is fine...But Gold to be an alternate "reserve ccy", there needs to be that kind of amount available! Between all the Asian central banks, there is about 3-4 trillion dollars of reserves...Is there enough physical gold lying around to convert of it into XAU? The simple answer is no, there isnt...

Of course there is. That's as ridiculous as asking if there are enough trees in the world to print fiat.

Obviously there is enough gold (or anything else for that matter) for it to be money no matter how much or little of it exists.

Its just that the price would have to rise substantially.

You need not be trading 24K gold coins in the streets for gold to exist as a reserve currency. All that's needed is an (honest) paper currency that's convertible to gold at a fixed rate **on demand**. Not the kind of bogus on demand US created with the so called 'gold standard' where only govts could redeem dollars 4 gold and they were blackmailed if they did. But rather an on demand system where _individuals_ can do the same (without intimidation).

As soon as that condition of 'on demand' is removed, the money reverts to being a useless paper currency and it can be conclusively assumed that a robbery is underway.

[Neshant]

Its uncanny how G. Edward Griffin (the guy who wrote the book on the federal reserve : The Creature from Jeckyll Island) predicted the present scenario many years ago. He predicted that as national fiat currencies teeter on the brink of collapse, attempts will be made to setup a global fiat currency - which in time will prove equally as worthless and will collapse.

One of my favourite videos. BTW this was before 2007/8 fiasco but note how on the money the guy is in his prediction. Its so bang on its frightning :

[Ambar]

Trouble is, nothing in this world is 'standardized',not our life nor the societies we live it. Flexible monetary instruments are required deal with ever changing social and economic conditions. The world plunged into the great depression when we did have a gold standard. Hyper-deflation is just as dangerous as hyper-inflation and a non-flexible monetary policy ensures we go into a hyper-deflation in times of crisis. Besides, a 'fixed conversion rate' for gold is hardly ideal as gold has industrial use, and hence a 'market' determined value..and we saw this parity during Bretton-Woods as well.

About Peter Schiff's book that you suggested,yes,that does seems to be the new 'Playboy' mag for those into pessimism *****.You talk about companies making record profits because of layoffs and yet the 'free market libertarians' preach about market determined employment adjustments! By the way, if i was right about markets for 4 month in 2 decades as Mr.Schiff has been, i would be taken to the laundry by my investors!

[Neshant]

Trouble is, nothing in this world is 'standardized',not our life nor the societies we live it. Flexible monetary instruments are required deal with ever changing social and economic conditions. The world plunged into the great depression when we did have a gold standard.

I just love terms like flexible. Its a nice way to disguise what's really just a counterfeiting operation that benefits a select group of thieves. If counterfeiting is good, we should all be doing it for maximum flexibility.

That is the fake history being promoted by banking crooks today. The world plunged into a recession when central banks began wildly issuing credit in the 20s. There was a recession at the start of the 20s where the govt let the market handle the situation and the recession was over in 1 year. Why no depression back then when it was still on the gold standard.

There is one central theme through all depressions and that is govt interferance at the insistance of commercial banks who try to get society to backstop their losses.

Besides, a 'fixed conversion rate' for gold is hardly ideal as gold has industrial use, and hence a 'market' determined value

Well fixed rate may be a misnomer. Perhaps I should have said floating rate although the float is on account of market demand which will decide its purchasing power. All that it needs to be is convertible on demand, untaxable and most importantly legal tender. Actually i'd settle for competing currencies with legal tender status to put an end to the monopoly of a select group of crooks leeching off the rest of society.

companies making record profits because of layoffs and yet the 'free market libertarians' preach about market determined employment adjustments!

Nothing wrong with companies making profits. Nothing wrong with layoffs. Something very wrong money printing, running up debt and passing on losses of unproductive gamblers to productive society - which is the cause of most layoffs today.

By the way, if i was right about markets for 4 month in 2 decades as Mr.Schiff has been, i would be taken to the laundry by my investors!

Peter Schiff is one of the few who predicted the collapse of the housing market before the collapse. The high priests of central banking like Uncle Ben and all financing & banking crooks slept their way into the crisis and woke up with only 1 idea - how to pass these losses onto suckers. Now they pretend as if they know what's going on blabbering on about fiddling with this metric and that but really only 3 buttons are needed in their decision making - 1) print 2) borrow 3) steal. I certainly have more respect for Schiff than those jokers.

Here he is arguing with a moron who claimed the economy was great in Aug, 2006. Note how bang on he is in his prediction :
1) http://www.youtube.com/watch?v=IU6PamCQ6zw

Also check out his mortgage banker's speach given to 3000 bankers in 2006 where he lays out exactly what's about to happen. Show me one video where a joker like Bernanke even comes close to predicting anything. If anything he claimed there was no housing crisis at the height of the bubble in mid 2005. LOL.

Ben Bernanke was wrong :
http://www.youtube.com/watch?v=9QpD64GUoXw

[somnath]

Of course there is. That's as ridiculous as asking if there are enough trees in the world to print fiat.

Obviously there is enough gold (or anything else for that matter) for it to be money no matter how much or little of it exists.

In case you did enough research on Gold, you would easily find out that Gold already exists as a "currency" in the Fx markets - it is known as XAU and is fairly liquid....But guess what most XAU contracts are settled in? No prizes for guessing..

Why? Because of logistics...It is too expensive to store, move and "tellerise" gold as a tender across the financial system..Precisely why physical gold accounts are a rare thing offered selectively by banks at select places..Heck, storing even ccy is expensive..No bank branch in the world dispenses more than 4-5 ccies, even though the number of convertible ccies in the world runs into dozens...

It is way beyond the financial capability of anyone to ensure that there is "on demand" gold for every ccy at every nook and corner of the world..One there isnt enough of it, and two it is just economically impossible to stow and store...

As soon as that condition of 'on demand' is removed, the money reverts to being a useless paper currency and it can be conclusively assumed that a robbery is underway

This tantamounts to saying barter trade was a more efficient form of trading...Every Central Bank issues ccy as an "unsecured" obligation..The circulation of the ccy refelcts the amount of goods and services being produced and exchanged in the same ccy...It is the same effect that Central Banks use to affect economic varibales, whether its growth or inflation or exchnage rates...Of course if there is runaway monetisation of deficits, it is a problem...But to somehow argue on that basis a shift to "gold ashrafis" is stretching it a few centuries too far

[VikramS]

Somnath:

That was a wonderful post about the role of the INR as a reserve currency in the Mid-East. Those claims did not pass the smell-test; how can the currency of a nation just formed and under economic bondage for centuries become the reserve currency.

All these arguments about USD debasement, miss the point about alternatives. There is no alternative, period. Buba's Weber wanted nothing of the mess to come in the Euro zone once the PIIGS finally decide to give up. His resignation seems to have upset Merkel a lot who was counting on him to keep the ship floating.

You need an economy of some size, limited controls on capital, a stable political system and a strong military to become a reserve currency. The only other alternative would have been the Yuan, if they had taken steps towards becoming a convertible currency five years ago. But there were too busy trying to cook up their GDP numbers, to think of the possibility of replacing the USD.

And a lot of people forget that the US sits on vast amount of untapped natural resources. It has a huge amount of land and can serve as the bread-basket for a lot of the world. Somehow the doomsday folks only think of the Wall Street crooks and forget about the other strengths which the US has.

At the highest level, there are two classes of assets: Hard (Gold) and Soft (Fiat). On the paper side the USD is and will continue to be the king of the one-eyed. Its value against other currencies may fluctuate dramatically buts its role will not change. Of course the Gold to fiat ratio may keep on rising, till a new world order emerges. All this talk of these IMF backed SDR currencies is bogus. You can not have a currency without a joint control over monetary and fiscal policy; the Euro is a wonderful example

[Neshant]

In case you did enough research on Gold, you would easily find out that Gold already exists as a "currency" in the Fx markets - it is known as XAU and is fairly liquid:

XAU is not gold. XAU is the weighted capitalisation of 16 companies involved in gold and silver mining on the Philadelphia exchange. This is the danger of people not knowing what paper they are invested in. A closer representative of paper gold is Eric Sprott's PHYS which has every share backed up with the serial number of each gold bar, independant audits and is redeemable though in 400 oz denominations only. Its more secure than GLD. If you read the prospectus of GLD, its full of wishy washy statements with half-assed audits and ambiguous/vague statements of what the fund actually holds at all times. As far as I can tell, there is no iron clad indication that the paper being issued is actually backed up with the physical metal.

Anyway as a general rule, I do not trust paper gold as its subject to all kinds of fraud. Recently some guy dropped a bomb shell in his testimony in front of the CFTC (Commodities Futures Trading Commission) when he claimed paper gold traded at a 100:1 leverage on the actual physical metal. If true there's a whole lot of worthless paper floating around out there masquerading as paper gold when its in fact toilet paper with multiple claims on the same physical gold.

Interestingly COMEX has rules which enables sellers to settle in dollars if they are unable to produce actual gold upon demand which is another con. An escape clause no doubt.

It is way beyond the financial capability of anyone to ensure that there is "on demand" gold for every ccy at every nook and corner of the world..

Every excuse in the book has been tried. The objective being to separate a person who earned the wealth from the wealth itself by having him hold worthless paper. That's all we need to know.

Every Central Bank issues ccy as an "unsecured" obligation..The circulation of the ccy refelcts the amount of goods and services being produced and exchanged in the same ccy...:

No it does not. If there's one thing the 2008 collapse proves, its that some central baning joker at the top fiddling around with interest rates and money printing can create a disaster of epic proportions. Uncle Ben has no clue what the value of goods & services are in the economy at any given time. He's just rolling dice when he fiddles around with money printing and interest rates. As the bailouts to banking crooks show, the so called 'unsecured' obligation will only be borne by the taxpayer, not the banking crooks behind the federal reserve. They have secured their obligations by hijacking the country's money supply, issuing bad paper and offloading losses on suckers.

I find the banking & financing sector to be a useless middle man sector which is a drain on productive society.

It is the same effect that Central Banks use to affect economic varibales, whether its growth or inflation or exchnage rates...

The objective here is for the shareholders of the federal reserve to ensure their survival regardless of outcome. Most of the fiddling around with economic variables is geared towards that and the rest is geared towards ripping off one segment of society to provide handouts to another segment which might otherwise turn against the fed.

The great thing about the collapse is the current outcome will be so disasterous that it will be impossible to hide the fact banks & financials live a parasitic existance off the real economy and central bankers are as cluelss as guys rolling dice.

You need to read the book How an Economy Grows & Why it Crashes to unlearn all the economic con artistry that has been fed to you. From your writings I can tell you are confused. Economics by its nature should be simple, not a bunch of jargon filled crap & snake oil salesmanship which is really just a cover for thievery & criminal activity.

[Hari Seldon]

The USD will continue to remain de facto if not the de jure reserve currency of the world for the foreseeable future. One can safely repeat that statement a 100 times only.

The lack of alternatives will ensure this. And the US can more easily ensure the lack of alternatives continues than rebuild robustness and confidence and trust in the USD back to 20the century levels. The latter is a long hard path with uncertain outcomes.

However, I do expect to see folks hedging where they can. Nations with extensive bilateral trade trying to take part of their trade into local currencies and other such arrangements. Even so, these will amount to little on the global scale.

India is, truth be told, small fry in the global scheme of things and it's well and good that despite loud protestations of econ-jingoes and desi dork mediawalas, the global biggies neither consider India a threat nor the rupee a serious challenge even a decade or 2 down the line. And that assessment is not far off the mark given the widening governance deficit and stuff we see on a daily basis in our national discourse.

[Ambar]

Trouble is, nothing in this world is 'standardized',not our life nor the societies we live it. Flexible monetary instruments are required deal with ever changing social and economic conditions. The world plunged into the great depression when we did have a gold standard.

I just love terms like flexible. Its a nice way to disguise what's really just a counterfeiting operation that benefits a select group of thieves. If counterfeiting is good, we should all be doing it for maximum flexibility.

That is the fake history being promoted by banking crooks today. The world plunged into a recession when central banks began wildly issuing credit in the 20s. There was a recession at the start of the 20s where the govt let the market handle the situation and the recession was over in 1 year. Why no depression back then when it was still on the gold standard.

There is one central theme through all depressions and that is govt interferance at the insistance of commercial banks who try to get society to backstop their losses.

When your body stops releasing glucagon , you inject insulin. When there is a rapid monetary contraction, you look at the lender of the last resort to restore balance. You talk about US economy entering a brief period of recession right after WW1,a sudden credit contraction was exactly the reason for that. Just the way economy slowed down drastically post 45 before picking up in 3-4 years.

Society backstopped the commercial banks loses during depression? There were bank runs,credit markets froze,defaults increased and more people lost their jobs. Countries couldn't adjust the supply thanks to gold standard,just the way Greece and its like cannot be competitive thanks to it being in the euro block.

Since you claim to be a student of depression, you might have visited the Smithsonian museum's 'depression era' section. Why do you think people resorted to using seashells as currency during depression?

Well fixed rate may be a misnomer. Perhaps I should have said floating rate although the float is on account of market demand which will decide its purchasing power.

Most countries maintain their reserves based on the mixed-currency basket, and there's nothing new here.

Nothing wrong with companies making profits. Nothing wrong with layoffs. Something very wrong money printing, running up debt and passing on losses of unproductive gamblers to productive society - which is the cause of most layoffs today.

Your earlier statement was about companies making a profit through layoffs. Hiring,freeze in hiring and layoffs are market dependent. Apple and Google are 2 examples that have continued to increase their employee strength and balance with R&D that has brought out successful products and record profits. Facebook is today valued at 50 billion $. Ofcourse, you may once again argue about it not contributing anything to the mankind, but there's a billion strong bunch of people who have used it to network,stay close to their friends,do business and voice their opinions which justifies its valuation. If the definition of productive society is just basic necessities, then we might as we go back to stones and caves.

Peter Schiff is one of the few who predicted the collapse of the housing market before the collapse. The high priests of central banking like Uncle Ben and all financing & banking crooks slept their way into the crisis and woke up with only 1 idea - how to pass these losses onto suckers. Now they pretend as if they know what's going on blabbering on about fiddling with this metric and that but really only 3 buttons are needed in their decision making - 1) print 2) borrow 3) steal. I certainly have more respect for Schiff than those jokers.

Peter Schiff also pushed 'Euro' investments through his EuroPacific capital. His neverending tripe about how Euro and European economies being far 'safer' and 'superior' fell flat last year when the water receded and the entire Euro block was found naked! Now he is busy pushing the Australian and Canadian currencies and that'll blow up too when they are done selling stones and sand (quite literally!).

It is fallacy to believe that monetary policies can be utopian as the human societies can never be one. Maybe we can go back to barter system post apocalypse, until then i'll keep my greenbags that buys me my bread and beer.Thank you!

[Hari Seldon]

Nice to see optimism and good cheer fill up the dhaga, for a change. jai ho!

Well, lemme do my bit to keep the merriment going.

Guru Sri John Mauldin comments on the latest debt report from the Bank for International Settlements (BIS) on the burning issue of rich world gubmint liabilities that we all know cannot be paid off in full:
The Future of Public Debt

If public debt is unsustainable and the burden on government budgets is too great, what does this mean for government bonds? The inescapable conclusion is that government bonds currently are a Ponzi scheme. Governments lack the ability to reduce debt levels meaningfully, given current commitments. Because of this, we are likely to see "financial oppression," whereby governments will use a variety of means to force investors to buy government bonds even as governments actively work to erode their real value.

Uh-oh. Sounds awful, doesn't it. And it's just not cricket at that! But look around and tell me it is not already starting to creep in here and there in dark corners of the emerged world? The SDRE turd world is the pits anyway, so no surprise if gubmints have been none-too-subtly bullying public sector banks and pensions funds and other state institutions to park citizen's savings in certain favored channels only.... but the TFTA rich world too? omigosh only.

BIS: "Our projections of public debt ratios lead us to conclude that the path pursued by fiscal authorities in a number of industrial countries is unsustainable. Drastic measures are necessary to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability."

Yawn. Another boring report by ivory tower-types in Geneva or some such swiss paradise. What do they know anyway, eh?

The United States has exploded from a fiscal deficit of 2.8 percent to 10.4 percent today, with only a small 1.3 percent reduction for 2011 projected. Debt will explode (the correct word!) from 62 percent of GDP to an estimated 100 percent of GDP by the end of 2011 or soon thereafter.

More fiction. The US is safe. It only needs to engineer instabilities in others around to continue to be and be seen as safe. The famous 'flights to safety', anyone? It doesn't matter if debt reaches 100% of GDP or darn, a 1000% of it. Where else will 'em investors go with their money anyway, eh? nudge-nudge wink-wink.

iscal restraint tends to deliver stable debt; rarely does it produce substantial reductions. And, most critically, swings from deficits to surpluses have tended to come along with either falling nominal interest rates, rising real growth, or both. Today, interest rates are exceptionally low and the growth outlook for advanced economies is modest at best. This leads us to conclude that the question is when markets will start putting pressure on governments, not if.

"When, in the absence of fiscal actions, will investors start demanding a much higher compensation for the risk of holding the increasingly large amounts of public debt that authorities are going to issue to finance their extravagant ways? In some countries, unstable debt dynamics, in which higher debt levels lead to higher interest rates, which then lead to even higher debt levels, are already clearly on the horizon.

"It follows that the fiscal problems currently faced by industrial countries need to be tackled relatively soon and resolutely. Failure to do so will raise the chance of an unexpected and abrupt rise in government bond yields at medium and long maturities, which would put the nascent economic recovery at risk.

More conventional analysis. And wrong. The past few months have proven such sceptics and critics and D&G prognosticators dead wrong if anything.

See, the laws of newtonian physics break down at the even horizon. And the Fed is a singularity - well within the event horizon that it itself defines and creates. Nothing can touch it and nothing will. The Fed can and will keep markets afloat for as long as necessary with whatever it takes. All this crock about bond vigilantes and investors is just crock. Everybody has his price and the Fed can buy off not just anybody but everybody at once, if it sets its mind to it, seems like.

More conventional analysis that I'd bought into because it seemed rational and logical and all that. But I'd like to cautious about now about sane things going forward:

Remember that Rogoff and Reinhart show that when the ratio of debt to GDP rises above 90 percent, there seems to be a reduction of about 1 percent in GDP. The authors of this paper, and others, suggest that this might come from the cost of the public debt crowding out productive private investment.

Think about that for a moment. We (in the US) are on an almost certain path to a debt level of 100 percent of GDP in just a few years, especially if you include state and local debt. If trend growth has been a yearly rise of 3.5 percent in GDP, then we are reducing that growth to 2.5 percent at best. And 2.5 percent trend GDP growth will not get us back to full employment. We are locking in high unemployment for a very long time, and just when some 1 million people will soon be falling off the extended unemployment compensation rolls.

Read it all, of course.

[somnath]

Neshantji,

There is a lot to be critiued about both banks and the US Fed, justifiably...But you might want to get your basics correct - your critiques will be more credible and your alternatives more plausible!

XAU is not gold. XAU is the weighted capitalisation of 16 companies involved in gold and silver mining on the Philadelphia exchange. This is the danger of people not knowing what paper they are invested in.

You wouldnt have made this mistake if you were a student/serious practitioner...XAU Ccy (or XAUUSD) is a "currency" that tracks gold spot prices, the intent is similar to that of GLD or PHYS..There is a similar "ccy" for tracking silver as well, called XAGUSD...XAU Index on the Philadepphia SE is a different animal...

XAUUSD is the LARGEST turnover gold-linked instrument in the world - gues what it is settled in?

A closer representative of paper gold is Eric Sprott's PHYS which has every share backed up with the serial number of each gold bar, independant audits and is redeemable though in 400 oz denominations only.

What is the daily volume of PHYS (or GLD, or PHDPLN) or any such ETF/fund? dont have my BBG right now, but a fraction of XAUUSD...Why? Again, structurally, because XAUUSD is the most scalable instrument around - reason? NO prizes for guessing...

Recently some guy dropped a bomb shell in his testimony in front of the CFTC (Commodities Futures Trading Commission) when he claimed paper gold traded at a 100:1 leverage on the actual physical metal. If true there's a whole lot of worthless paper floating around out there masquerading as paper gold when its in fact toilet paper with multiple claims on the same physical gold

Might well be true..And precisely the reason why it is not possible to have Gold as a reserve ccy - refer to my earlier post about the "cost" of Physical Gold as a txnal intrument...

The objective being to separate a person who earned the wealth from the wealth itself by having him hold worthless paper.

What is this supposed to mean? Infy builds a software for Carrefour...How is CArrefour supposed to pay Infy - give them truckloads to vegetables?!

If there's one thing the 2008 collapse proves, its that some central baning joker at the top fiddling around with interest rates and money printing can create a disaster of epic proportions. Uncle Ben has no clue what the value of goods & services are in the economy at any given time. He's just rolling dice when he fiddles around with money printing and interest rates. As the bailouts to banking crooks show, the so called 'unsecured' obligation will only be borne by the taxpayer, not the banking crooks behind the federal reserve.

If you say that Ben Bernanke doesnt know his job, thats fine, its a POV...But banks had to be bailed out because of insufficient/ineffcient supervision of the banks themselves, what has that got to do with use of a currency in a modern economy?

The objective here is for the shareholders of the federal reserve to ensure their survival regardless of outcome

And who are the shareholders of the Fed? the sovereign of the US..

The great thing about the collapse is the current outcome will be so disasterous that it will be impossible to hide the fact banks & financials live a parasitic existance off the real economy and central bankers are as cluelss as guys rolling dice

Again, a POV - but so?

You need to read the book How an Economy Grows & Why it Crashes to unlearn all the economic con artistry that has been fed to you. From your writings I can tell you are confused

I try to remain a little confused ..Some of the best thought leaders in the world are perpetually confused! Anyway, while I havent read the aforementioned book, what does it have in it that solves the world's problems in a book?

[somnath]

The only other alternative would have been the Yuan, if they had taken steps towards becoming a convertible currency five years ago. But there were too busy trying to cook up their GDP numbers, to think of the possibility of replacing the USD

VikramSji, the Chinese are trying..The BIGGEST (thats a big development in the ccy markets in recent times has been the floating of the "offshore deliverable CNY", or CNH...It is a tentative first step in the direction, though its a really long way off...And given the format and variables, it might die away as well...But as of now, CNH is the biggest ccy animal in Asia..

Copnversel, there is really nothing in it for China to try to make CNY the reserve ccy, barrign the ego boost...A reserve ccy by definition cannot be "pegged" to another ccy..and arguably, 2-3% of Chinese growth comes out of its "undervalued" peg to the USD!

[Hari Seldon]

Yves Smith on the 'offshore' banking system and why Mubarak's billions are unlikely ever to be traced only:

As I know by virtue of having read Nicholas Shaxson’s Treasure Islands (out in the UK, due to be published here in April) on tax havens, the world of “offshore” banking is vastly larger and more untouchable than most people realize.

He describes in considerable detail about how buffers are built in so that funds become untraceable, and have further protections (as in if the authorities walk in to shut down a banking operation, the money can be moved through rapidly through several banking centers so it cannot be found, much the less seized).

And the de facto offshore banking protectorates of the US and the UK appear to be the state of the art.

Money is fungible and loot much more so, apparently. An entire ecosys has come up to cater to laundering loot and legitimizing fraud. No surprise given that the present G7's legacy wealth was built on the pious edifice of corruption, loot and extortion and exploitation (IOW, 'civilizing mission' only) in no small measure.

The sad part is the billions looted off our country by our netas and babus post 1947 are also similarly protected and protracted only. Little if any chance of our country ever seeing them again.

[Neshant]

When your body stops releasing glucagon , you inject insulin. When there is a rapid monetary contraction, you look at the lender of the last resort to restore balance.

No you don't. You are laboring under the false belief that some wise oracle sitting at the top knows what he's doing and all of society should hand off their wealth to him to play doctor in the economy. The fact is the doctor is a quack who has CAUSED the present crisis by wrecklessly injecting away to the point where the economy almost collapsed.

The free market DOES NOT NEED these fools who are merely pretenders. Bernanke cannot predict the market price of bananas, coconuts or soft drinks. Why then should anyone assume he knows what the right price for houses should be? Housing and risks were grossly mispriced because of this joker and by some estimates 20+ trillion dollars has been vaporized from the global economy (and counting) on account of him playing doctor. Now he's running up a mountain load of debt, printing away and blowing another bubble creating conditions for yet another disaster. If he does not stop soon, this so called doctor is going to kill the patient.

The main purpose for him being on the job is to pass off losses of member banks behind the federal reserve that gambled their arse away onto productive society. That is the only doctoring he is doing! The rest is just a con to fool people like you into thinking he has some expertise or special insight into the economy when in fact he knows as much as a guy on the street rolling dice about what's going on in the economy. Why is this concept so hard to grasp?

What should be happening is that housing prices and indeed all prices should be falling to the point where it becomes AFFORDABLE. People who saved their cash instead of participating in the housing mania should have seen a 3 fold increase in the purchasing power of their cash in this fiasco. Instead that value is stolen from them through printing and handed off to banking crooks who made terrible bets and who deserve to be going bankrupt.

The federal reserve system is a con which exists to steals money from those who made the right decision and hands it off to crooks to ensure their monopoly in the system.

Society backstopped the commercial banks loses during depression? There were bank runs,credit markets froze,defaults increased and more people lost their jobs. Countries couldn't adjust the supply thanks to gold standard,just the way Greece and its like cannot be competitive thanks to it being in the euro block.

It is not money printing, going off the gold standard nor financing or high rolling which ended the Great Depression. That is the BS keynesian explaination. It was a) wringing out of the excess capacity and b) World War II. What caused the Great Depression was central bank wildly issuing credit in the 20s fueling a bubble that exploded. Exactly the current scenario. Keep the central banking fools out of the market and let the market decide for itself what the price of things should be. Its as simple as that. Stealing money from one segment of society by counterfeiting aka printing is no way to run an economy.

Facebook is today valued at 50 billion $. Ofcourse, you may once again argue about it not contributing anything to the mankind, but there's a billion strong bunch of people who have

Apparently you don't understand the meaning of productive society.

Productive society is anything that contributes value to society by fulfilling a societal demand. Facebook fulfils a demand for entertainment/social networking. Scamming others by offloading bad bets on society which is what the banks behind the federal reserve are currently doing is not fullfilling a demand. Nor is being a useless fee collecting middleman gaming the system or setting up/lobbying for rules to preserve a worthless middleman monopoly type system. There is no demand in society to be scammed by parasitical middlemen and thus is unproductive.

Peter Schiff also pushed 'Euro' investments through his EuroPacific capital. His neverending tripe about how Euro and European economies being far 'safer' and 'superior' fell flat last year

I don't much care about his investing strategies in Europe or Asia although the latter has been surging along with gold miners/gold. However he remains one of the few who called the housing bubble precisely. That's more than can be said of Uncle Ben who with all the info in the world slept his way into one of the biggest financial bubbles in history. The fact that this joker still has his job and gets to fiddle around with trillions as if he were a doctor is astonishing to me.

[Hari Seldon]

Henry CK Liu here seems to be half-agreeing with Neshant here on how gold relates to fiat only....

Gold and fiat currencies

Gold, while serving as a safe haven at times of economic crisis, possesses limited palliative power against loss of market confidence in a diseased fiat currency. Indeed, by providing an economically inert hedge against fiat currency debasement, it makes a diseased fiat currency tolerable.

[Neshant]

There is a lot to be critiued about both banks and the US Fed, justifiably...But you might want to get your basics correct - your critiques will be more credible and your alternatives more plausible!

The best alternative is a system of competing private currrencies.

You wouldnt have made this mistake if you were a student/serious practitioner...XAU Ccy (or XAUUSD)

You said XAU not XAUUSD. Anyway i don't trust paper gold. It looks for all the world like another Bernard Madoff scheme in the making. If at all I trust any of it, I would trust only PHYS and James Turk's GoldMoney which give explicit guarantees of shares being redeemable for physical gold and has the gold bars with serial numbers for shares issued. I prefer to keep physical gold myself with no third party liabilities involved given the shenanigans going on.

XAUUSD is the LARGEST turnover gold-linked instrument in the world - gues what it is settled in?

That its settled in dollars is not a compliment to the dollar. When a commodity exchange defaults on its ability to deliver physical, settling in dollars in an escape clause. Dollars can always be printed, gold cannot. Of course there is never a guarantee of that the spread will stay where it is or the paper price will reflect actual scarcity when its time to collect.

What is the daily volume of PHYS (or GLD, or PHDPLN) or any such ETF/fund?

I don't much care about daily volume of anything as long as the paper is redeemable for physical gold. GLD is not redeemable for anything. GLD is the largest ETF in the world IIRC totalling over 50 billion in investments but I do not trust it.

Might well be true..And precisely the reason why it is not possible to have Gold as a reserve ccy

As I said earlier, anything no matter how abundant or scarce can be money. I don't know about you but when I hear something that's supposed to provide security trading at 100:1 leverage to the underlying asset, it spells SCAM to me. Last thing I want to be holding is a paper receipt or US dollars if and when a currency crash occurs.

What is this supposed to mean?

It means exactly what it means. Gold has withstood the test of time as money for 4000 years. Meanwhile every paper currency that has existed has collapsed. The fact that all kinds of excuses are given when wanting convertibility between paper and gold itself tells me what's real money and what isn't. The objective of paper promisory notes is to separate a person who earned the wealth from the wealth itself. It may have started off as a convenience but has long since morphed into a con game which will end very badly for millions who have spent their lives working for the paper.

If you say that Ben Bernanke doesnt know his job, thats fine, its a POV...But banks had to be bailed out because of insufficient/ineffcient supervision of the banks themselves, what has that got to do with use of a currency in a modern economy?

I'm astounded you can even pretend there is no linkage between banks, the federal reserve and currency. The federal reserve are the banks. Their objective is to offload their bad gambling losses onto the backs of productive society through dilution of the currency, running up debt at society's expense and the preaching of what I call false economics. That you don't see this plainly obvious fact is itself troubling.

And who are the shareholders of the Fed? the sovereign of the US..

Wrong. The federal reserve is a private banking cartel. Watch the video I posted on The Fed Part 1 of 5 earlier.

Anyway, while I havent read the aforementioned book, what does it have in it that solves the world's problems in a book?

Its an entertaining book from the Austrian economics prespective. Read it but watch the aforementioned video first.

[svinayak]

You need to read the book How an Economy Grows & Why it Crashes to unlearn all the economic con artistry that has been fed to you. From your writings I can tell you are confused. Economics by its nature should be simple, not a bunch of jargon filled crap & snake oil salesmanship which is really just a cover for thievery & criminal activity.

He is confused in all the threads. This is hilarious

[shyam]

^^^ First, no bank got "funded" by the Fed @ 0%. what they had was a liquidity g'tee, effectively a sovereign g'tee on certain types of liabilities...

Oh well... it is not precisely 0%, but 0.25% or whatever rate federal reserve rate is. It is the ability of banks to borrow at 0.25% and use that to purchase treasury bonds is the reason why banks were making huge profits while small businesses were complaining that credits were not available.

And who are the shareholders of the Fed? the sovereign of the US..

Please prove this.

[VikramS]

shyam:
The profits of the Fed are delivered to the US Treasury every year. They might incur a huge amount of loss on their long term treasury purchases, once the decades long bull market in treasuries end. But that loss will be stretched over many years and unless they mark to market (which they do not have to), it is a paper loss.

The Fed by itself has the Wall Street Bankers on its board so it is not surprising that they keep the banker's interest in hand.


Neshant:
I remember you speculating in BP stock a few months ago. Now I see the classic gold bug logic (I pay to subscribe to a few gold bug letters myself). All this talk of the amount of paper contracts out there versus physical gold are good in making arguments. But very few people have the capability or the need to get physical delivery of gold. Gold by itself serves little purpose as being a hedge against debasement of paper. So it will always be measured against paper.

Without the ability to measure its value against paper, it is a metal with very little essential real-world usage. If gold disappeared from the surface of the earth, there are very few industries which will grind to a halt; there will be disruptions as alternatives are found for specific industrial uses, but next to nothing which will end modern civilization.

Paper contracts, by definition are paper contracts. Do you really think that the thousands of oil contracts traded every day correspond to real oil demand? Heck there are days when I would have traded enough oil to keep a small city running for months. They provide a liquid mechanism from everyone from speculators, investors, consumers and producers to trade the instrument and achieve their individual goals whether it is an inflation hedge, production hedge or a supply hedge.

If the people who are long gold actually take physical delivery their ability to actually hold the metal is going to be severely constrained. In fact I would argue that the ease by which you can go long paper gold substantially increases the demand for gold. If the same gold bugs had to actually buy and store the physical gold, the actual long positions would be substantially lower. Of course there is the question of leverage etc. which comes into play and helps the gold bugs leverage their gains.

While we talk about trillions printed and debt and what not, also remember that an improving economy will also help state and local finances. IIRC California's revenue has gone up about 20% on an year to year basis last quarter as economic activity picks up. Also as a total, local and state governments spend about 7% of their total revenues in servicing their debts. That can easily double or triple before it becomes an existentialist issue. Of course all the money spent servicing the debt will result in lower level of services, fewer government jobs, cutbacks on benefits etc. But it is not a dooms-day issue.

FWIW, Illinois just doubled its state tax. Wisconsin just decided to massively cut salaries (teachers are seeing $8K cuts). NJ cut back on major projects. In my area in California the short falls in state funding is being made up by local parcel taxes; people are a lot more willing to pay a little bit more in taxes which stay in the community and keep the schools running instead of sending the money to the politicians in Sacramento. There will be a lot of adjustments to be made; but the sky is not falling.

[svinayak]

The End of the Gold Standard and the Beginning of Infl ation
From 1873 to 1934, the United States was on a gold standard. This
meant that a certain number of dollars would buy an ounce of gold.
The intention of the gold standard, whether it is admitted or not,
was that the number of dollars in circulation could not be increased
indefi nitely. It was intended to create a stable exchange system. For
example, if $ 500 equaled one ounce of gold under the gold standard, it
meant that roughly $ 500 of money should be in circulation for every
ounce of gold that the government had in reserves.

This system was
designed for the sole purpose of keeping governments fi nancially stable.
Essentially, governments could not print paper money unless they
had the mandated ratio of gold to dollars in their reserves. In other
words, the government had to add 10 percent more gold to its reserves
if it decided to circulate 10 percent more currency or increase its
expenditures by 10 percent. That is the gold standard in theory.


In 1971, the United States went off the gold standard. The system
became a completely fiat system, meaning the dollar was linked to nothing.
The government could print as much money as it wanted with no
limitations. The central bank had begun to print more and more money
to pay for ventures and the pressure was too much for the pegs at $ 35 an
ounce to hold. This created infl ation because they printed more paper
money than they had gold in their reserves.

After the United States went
off the standard, the dollar was linked to nothing.


It is no accident that on this purely fi at money system we have seen a
huge increase in government spending and consequently the amount of
debt in the economic system.

The United States started down that treacherous
road of increased government spending with the growing size of the
welfare state and later when it had pay for wars in Vietnam and Korea.
The fi at money system has also resulted in fi nancial bubbles, which
have been caused by excessively loose monetary policies. From 1933
to 1971, when the United States was pegged to gold, there were no
fi nancial bubbles. The Fed during that period of time thought that its
mandate was to control infl ation — in other words, to stop the punchbowl
from being spiked when the economy and fi nancial markets got
overheated. The gold standard helped it to do this by keeping in line
the number of dollars that could be in circulation (e.g., if it wanted to
go crazy printing, the government would have to add gold or reserves
to its vault to justify this printing).

However, after 1971, the Fed could
print as much money as it wanted. As a result, in the 38 years since the
abolishment of the gold standard, there have been no fewer than four
major fi nancial bubbles, including:
1. The commodities and infl ation bubble of the late seventies
2. The stock market and technology bubble of the late nineties
3. The real estate and leverage bubble of the 2000s
4. The current bond market bubble (and the coming debt and second
infl ation bubble)

The reason you get these bubbles in a fi at monetary system is simple.
The gold standard acts as a discipline mechanism that prevents governments
from spending too much and the Fed from printing too much
paper money and creating too much credit. When the Fed can print
all the money it wants, this creates massive dislocations and therefore
creates massive bubbles.
With no discipline on spending programs, spending is unchecked
and goes wild.

[arnab]

Now I see the classic gold bug logic (I pay to subscribe to a few gold bug letters myself). All this talk of the amount of paper contracts out there versus physical gold are good in making arguments. Gold by itself serves little purpose as being a hedge against debasement of paper. So it will always be measured against paper.

Precisely - this hysteria in favour of gold is a pure and simple speculation. Which is fine - as long as you realise it (if you are buying gold you would want to increase demand for gold so that its paper price increases in future). After all, when paper money becomes worthless - do you envisage a world where you buy food (your real want) with bits of gold? Or are you hoarding gold with the hope to profit from its sale later (when you convert it back to paper money)?

It also begs the question - why are the folks who are selling you the gold doing so? and why are they willing to accept your soon to be worthless paper money in exchange?

[somnath]

Neshantji,

I am highly confused on what you are trying to say..Is it that Gold is a better investmnt than the USD? Or that PHYS is a better instrument for investin in Gold than XAU or GLD? Or that Gold should be the reserve ccy of the world?

If you are talking about the first two, I have nothing to add - there would lots of pros and cons and to each his own..

But if it is the last, then I am not clear how you propose to make physical gold a reserve ccy if

1. The volumes in your favourite instrument (PHYS) is so insignificant - less than a million contracts a day on average.
2. The cost of storing and stowing gold - it just cannot reach every nook and cranny of the world in an economically efficient manner.
3. Qty of gold available in the world - it is a finite quantity, but the economic output of the world isnt..How does supply of gold keep pace (again in an economically efficient way)?

As an investor, or fund manager, the above are of less relevance to you. As a policy maker determining global ccy policy, they are of paramount importance..

Last, as before you should not let facts cloud the content of your rant, in order to preserve credibility..

Wrong. The federal reserve is a private banking cartel

http://www.federalreserve.gov/pf/pdf/pf_1.pdf
??? Why get into the most obvious ones?

Gold has withstood the test of time as money for 4000 years. Meanwhile every paper currency that has existed has collapsed.

Every single machine/calculator invented has collapsed, but human fingers for counting has withstood the test of 4000 years..Maybe we should go back to doing differential calculus using human finger?

Its an entertaining book from the Austrian economics prespective

there are lots of entertaining books..A more "serious" entertainment about the "charlatanism" of bankers (and academics!) would be Taleb..But what does it say about solving all the world's problems?

it is not precisely 0%, but 0.25% or whatever rate federal reserve rate is. It is the ability of banks to borrow at 0.25% and use that to purchase treasury bonds is the reason why banks were making huge profits while small businesses were complaining that credits were not available

Shyamji, tht is the Fed funds rate (similar to repos/reverse repos in India - I explained in the previous post)..And it is overnight lending of money..As I mentioned below, borrowing overnight to invest in a 7 year bond is a HUGELY complicated and risky operation (any bond mathematics book will explain the details)..So it is not a brain dead arbitrage..

And if low policy rates could drive banking profitability, then Japanese bank should have been the most profitable banks!

He is confused in all the threads. This is hilarious

Acharyaji, you are in an enviable position of being completely sure of so many things - INR was a reserve ccy in the past, India's poor economic performance post independence was British perfidy, US conducted the 1965 war to knock off INR's reserve ccy status What can I say, lage raho!

[Ambar]

No you don't. You are laboring under the false belief that some wise oracle sitting at the top knows what he's doing and all of society should hand off their wealth to him to play doctor in the economy. The fact is the doctor is a quack who has CAUSED the present crisis by wrecklessly injecting away to the point where the economy almost collapsed.

The free market DOES NOT NEED these fools who are merely pretenders.

It is pointless to debate when you avoid every straight question and respond with more blanket statements. If anarchy is what you prefer,then good luck with that.

Free market? You mean the way they completed de-regulated the airline industry that led to price fixing or when CA deregulated its energy market that made Enron turn LA into a third world city?

Median home prices in Detroit dropped below 10000$ and i think we all know how savers thronged to buy those properties by the dozens,no! What it left are ruins after ruins that will stay inhabited for a long long time to come. Repeat the same in Cleaveland or Richmond,VA or innumerable other cities in rust belt/sun belt of the US.

It is not money printing, going off the gold standard nor financing or high rolling which ended the Great Depression. That is the BS keynesian explaination. I

The reasons for the great depression were many and not just credit expansion. What exacerbated the recession in depression was deflation.People were forced to stitch multiple currency notes together or use seashells as currency thanks to a frozen credit market and whirling deflation. Since you parrot the liberitarian-right, as a capitalist would you rather borrow at a lower interest rate or higher ? The central banks exists to ensure credit is available in times of need, and is tightened in times of excesses.

Apparently you don't understand the meaning of productive society.

So 'facebook' fulfills a certain demand in the society and hence it is productive, but construction/services/manufacturing fueled by demands are not non-productive? Or someone buying a iPhone through their low-interest creditcard is 'productive',but buying a house on low interest ARM is 'non-productive' ? I think i now get your drift!

Name a single bank that has 'offloaded' its debt on you or this 'productive society' that you talk of !? If you don't like the 'useless fee collection', then you are under no obligation to use their services,no? Last heard, C,BAC and JPM et al raised their own capital through public issuance of stock.

There is no demand in society to be scammed by parasitical middlemen and thus is unproductive

If there is 'no demand',then there would be 'no supply' - as a free-market prophet you should know this better. Since you cannot walk into a factory to buy a bar of soap, you go to a retailer instead and pay 'extra' for the service. And since most of here cannot convert every penny of our cash into gold, and hide the gold pot in our backyards ( to save it from those damn middlemen crooks again), we use banks,creditcards and stockbrokers.

I don't much care about his investing strategies in Europe or Asia although the latter has been surging along with gold miners/gold. However he remains one of the few who called the housing bubble precisely.

He sells gold and owns gold mining stocks, so he tugs that line. He had significant euro investment so he parroted the 'euro is so much safer than dollar' argument until euro fell flat on its face.So in your words, he too would be 'middleman','snakeoil salesman' and a 'liar', which makes me rethink about his prognosis. Ofcourse, when you have been right 4 months in the last 2 decades, you'll need plenty of alibis and you need to blame the 'money printing' everytime market goes up and take credit everytime the market goes down. Which makes me wonder why i should believe him anymore than 'the Bernake'!?

[VikramS]

Acharyaji:

The gold standard did serve the purpose of restraining fiscal and monetary policy. But it also put a cap on the value of productivity. The gold standard would have ensured that regardless of the progress made by man-kind the money supply could not grow to meet until mankind found more gold to hoard in the vaults of the central banks. Tying the future of mankind to the amount of metal available, at a fixed rate does not make sense.

If that gold-dollar rate itself was flexible, i.e. scaling with the global production AND gold supply, it would make sense as a tool to restrain fiscal and monetary excess. However a fixed rate artificially constraints the rewards of human creativity. And for by some miracle, if someone found a way to convert other base metals into gold (nuke reactor), the entire edifice would have collapsed.

At the end of day, we as individual investors have very little control over the monetary and fiscal policies being followed. What we do have control over is how we invest our capital. Do not Fight The Fed is a time-tested mantra which has not failed, yet. Like all human creations it too will eventually not work but till it does no point fighting it. One thing to remember is that Bull markets are long and winding, while bear markets are fast and furious. As long as you can avoid most of a bear, while you can ride the bulk of a bull, you should be fine.

That clown Cramer does say one thing right: There is a Bull Market Somewhere. Since 2000 it has been in the precious metal space. It may go one for some more time and end in a spectacular bubble, as Euro and then perhaps China readjusts.

Neshant:

That statement that every fiat currency has collapsed is a favorite of many gold bugs. What they forget to say is that those currency collapsed when the government/system backing that currency collapsed. A failure of the USD would require a collapse of the US Government system as we know it. Because its tentacles are spread so far and wide, a collapse of the USD pretty much means the end of the economic order as we know it.

And guess what, after that economic order collapses (if and when), the US is still likely to emerge as the strongest player. It has land, natural resources, demographics and a political system that has survived the test of almost two centuries. As a society it is a lot more integrated than it has ever been.

And the contrast with China is striking. Would you hitch your wagon behind a society with limited natural resources and a system which is so insecure that it fields that broadcasts of the unrest in Egypt would destabilize it?

[Neshant]

The profits of the Fed are delivered to the US Treasury every year.

The so called profits which is just an inflation tax on society (not a result of any value added by these money counterfeiters) is returned *after* servicing the interest of commerical banks behind the federal reserve. This occurs at GREAT cost to society. That society has to pay for these freeloading parasites who are offloading losses onto the backs of society and swiping profits is the scandal.

I remember you speculating in BP stock a few months ago.

I ended up making money off my BP speculation but it was a roller coaster ride. I'm never touching the stock again as the management has proven itself ready to throw its investors under the bus at the first sign of trouble.

All this talk of the amount of paper contracts out there versus physical gold are good in making arguments. But very few people have the capability or the need to get physical delivery of gold.

This isn't a short term speculation. I don't think you understand there is a tidal wave of debt out there that's not going to be re-paid. When it implodes, one of two things are going to happen. Either the value of cash will skyrocket and gold will decline or the value of cash will decline significantly as debt obligations are met with a load of money printing. To summarize, either creditors are going to lose money or the money is going to lose its value. This isnt some far off event in the future. IMO this will happen within the next 3 to 5 yrs.

Could you tell me how else the current massive debts that are being run up are going to be repaid or if there's even any intention to repay at today's currency value?

Without the ability to measure its value against paper, it is a metal with very little essential real-world usage.

Long before there was any paper, gold was money. The reason its always been money is because it was scarce and its above ground supply even today grows at a limited rate (about 2% a year). The claim of real-world usage is pointless. It is a metal that does not rust and conducts electricity well. If gold was $10 per ton, you can be sure your toilet seat would be made of it, kitchen counters, table tops, alloy wheels.. etc. The fact that it is expensive and is considered valuable is the reason its real world usages are limited. Same would be the case for aluminium, wood or oil if it was as rare and expensive as gold because there are always substitues.

Paper contracts, by definition are paper contracts. Do you really think that the thousands of oil contracts traded every day correspond to real oil demand?

The reason people buy gold is for security. In normal times its just like any commodity to trade back and forth and I guess the paper games can go on unhindered. But we are not in normal times. A giant bubble has exploded, a load of losses are on the books and behind hidden, a sh&tload of money is being printed and an entire generation's wealth is at the hands of some fool at the top who slept his way into the crisis.

I'm not a crazy gold bug but I do think anyone who does not see the signs and at least takes some protection against it (by which i don't mean buying paper gold) is foolhardy. If I am wrong, at most you lost 60% of your investment (think of it as insurance) in physical gold as the price collapses. But if I am right, this paper game is coming to an abrupt halt. Maybe some international currency will be devised to try and kick this paper game one level higher (and so central bankers can absolve themselves of responsibility) where default through devaluation can be more expedient at less political cost. But one way or another, a vast number of suckers are going to be cheated out of the fruits of their labor.

metal is going to be severely constrained. In fact I would argue that the ease by which you can go long paper gold substantially increases the demand for gold.

My suspicion is that these paper gold ETFs are a last ditch attempt to surpress the price of gold by making people think they have gold investments when in fact all they are holding is a paper receipt. The intention might have been to get the spot price of gold to track the ETF movement rather than the other way around so the gold price could be manipulated and physical demand kept to a minimum.

I guess if the next boom is around the corner, the gamble will pay off and people will dump gold like its going out of style. We'll see what happens. I hold gold as insurance, not as a get-rich-quick investment. I could sell my physical gold now and realise profits but I have no intention of doing so. Its with me just in case circumstances go where I think they're going.

That America DOES NOT want countries to start buying physical gold is already known. IMF sales was actually meant to keep a lid on gold prices while Uncle Ben put the printing press on high. India's purchase of 200 tons was not welcomed and seen as an unfriendly act.

An interesting fact is when America successfully invaded Iraq, the first thing flown out of Baghdad was its gold reserves and the first thing flown in was piles of paper currency in C-130 aircrafts. If that doesn't tell you what the real money is, I don't know what will. Do you think the reverse would ever happen?

IIRC California's revenue has gone up about 20% on an year to year basis last quarter as economic activity picks up.

I wonder where the money is coming from. It looks like magic that a massive bubble can implode, unemployment and food stamp usage can rise, real estate losses can be measured in the trillions ..and the stock market continues to track back to 2007 levels. Meanwhile not a single new industry capable of generating well paying jobs is in sight. If I didn't know any better, I'd say Uncle Ben is doing some good old fashioned stock market rigging.

Another thing Uncle Ben was elusive on was when asked by Ron Paul him if the fed will ultimately end up buying muni bonds of states. I suspect he already is doing a state by state bailout behind the scenes. After all if the fed can hand out money to Greece, how can he refuse a US state? It'll all come out in the wash.

[Singha]

excerpt from BBC:

China overtakes Japan as world's second-biggest economy
Factory worker fixign tyres to wheels China's growth has been powering ahead while the wheels have come off Japan's economy

China has overtaken Japan as the world's second-biggest economy.

Japan's economy was worth $5.474 trillion (£3.414 trillion) at the end of 2010, figures from Tokyo have shown. China's economy was closer to $5.8 trillion in the same period.

Japan has been hit by a drop in exports and consumer demand, while China has enjoyed a manufacturing boom.

At its current rate of growth, analysts see China replacing the US as the world's top economy in about a decade.

"It's realistic to say that within 10 years China will be roughly the same size as the US economy," said Tom Miller of GK Dragonomics, a Beijing-based economic consultancy.

[VikramS]

Neshant:

One thing I agree with you is that Gold and other precious metals have a position in all portfolios as a hedge against the collapse of the fiat system. The valuation of paper versus hard assets follows cyclical patterns and for the past decade, hard assets (as measured by gold) are the real winners. The cycle will eventually reverse. When that will be of course is open to question.

Incidentally for the last three years buying Gold as it nears its 150 Day Moving Average has been a no-brainer winner.
http://stockcharts.com/h-sc/ui?s=$GOLD& ... 4110345587

What I do disagree is this notion of the collapse of the USD versus other fiat currencies. It is very likely that the USD is going to hit a significant low in the next 3-4 months, which is going to hold for quite some time to come after that.

Also take that notion of unmanageable debt with a pinch of salt. The total debt-service burden of the US is not enormous when you keep in mind the lower tax rates in the US compared to Western Europe. As I wrote earlier, the total debt service burden of local entities is just 7% of their revenue base.

If you want to study more about the current policies, try to read up Richard Koo's works on balance sheet recessions. He has done extensive studies on different types of recessions and how government behavior can affect the outcome. http://www.scribd.com/doc/13970982/Rich ... esentation has some interesting thoughts.

Your dismay on why the stock market is going higher when there is no productive industries being created, shows a strong need to rationalize market behavior based on some assumptions which may or may not be valid. Productivity is increasing and it is showing up in the balance sheets of US corporations. It may not be increasing because of some new high-funda technology but simply because of more efficient deployment of existing resources as a result of all the investment in IT and other knowledge systems which help in more efficient decision making.

Not all inventions have to be ground-breaking. Semiconductors have been keeping up with the 10x every 6 years mantra in spite of no new spectacular break-through. Ten years ago no one thought that migration to the 22nm process could happen without some new disruptive technologies, while the reality is that engineers have been able to keep Moore's law alive with appropriate incremental changes intertwined with a few smart ideas.

Food stamps and unemployment among the less educated is not the only thing which you need to focus on. There is a lot of good stuff too happening which you are tending to ignore. In terms of the discretionary spending, it is the top 30-40% of wage earners who dictate the trend, and they are doing fine.

[Neshant]

It is pointless to debate when you avoid every straight question and respond with more blanket statements. If anarchy is what you prefer,then good luck with that.

What is the question ?

Free market? You mean the way they completed de-regulated the airline industry that led to price fixing or when CA deregulated its energy market that made Enron turn LA into a third world city?

You pick the sillyest example of what isn't free market. In a free market, competition naturally arises and any single company doing something stupid is met with competition that decimates its market share. Anytime you have monopolies, that's a result of there not being a free market.

The examples you give are more analogous to the federal reserve which is a parasitic monopoly that exists at the expense of productive society. So how about following your own advice and dismantling this monopoly in favor of a system of competing local currencies.

Median home prices in Detroit dropped below 10000$ and i think we all know how savers thronged to buy those properties by the dozens,no!

Detroit was always a crime ridden dump that nobody wants at any price. How about if prices in Beverly Hills fall to 10K? Does everything have to be kept overpriced to suit the interest of a select few crooks at the top who made bad loans.

The reasons for the great depression were many and not just credit expansion. What exacerbated the recession in depression was deflation.

What cured the depression was deflation. What caused it was wreckless credit expansion. Prices need to fall to a point where things become affordable and excess capacity needs to be wrung out of the system. Inflating is just a means of transfering wealth from those who made the right decision to those who made foolish ones. Its being promoted by the same idiots who got us in the crisis in the first place - the irony of which seems to be lost on you.

Since you parrot the liberitarian-right, as a capitalist would you rather borrow at a lower interest rate or higher ? The central banks exists to ensure credit is available in times of need, and is tightened in times of excesses.

Its a foolish notion that central bankers even know when there is excess or scarcity as the present fiasco clearly demonstrates. Another foolish notion is that the free market needs such a pretender who is really just rolling dice from day to day.

Common sense will tell you people will do a much better job of deciding who to extend their hard earned savings (credit) to instead of some guy who had no part in earning it. Despite sitting on one of the largest financial bubbles in history, Uncle Ben was blissfully unaware - even denying it existed! How this incompetent guy still has any credibility boggles my mind.

His only role which he is carrying out successfully is to transfer the losses of his croney banks onto the backs of taxpayer. All the rest is nothing more than deferring the cost of this collapse into the future and stealing what he can through inflation from those who made the right decision.

So 'facebook' fulfills a certain demand in the society and hence it is productive, but construction/services/manufacturing fueled by demands

Keyword is fueled by demand. If construction is being done by ripping off one a segment of the productive economy to fullfill a NON-EXISTANT demand, it is not productive but destructive. By definition, a recession is where a country uses less of infrastructure. Less of ports, less of power, less of roads & bridges, less of things in general. It makes no sense to start subsidizing home builders to put up more housing when there are 20 million houses sitting vacant.

but buying a house on low interest ARM is 'non-productive' ?

Its beyond unproductive - its destructive. To begin with, the market should be setting interest rates not some joker at the federal reserve. This whole mess came about by risk being underpriced for that reason alone. Central bankers were gambling with borrowed wealth to hand out houses to everyone in sight and their grandmother. Now that this has blown up good and proper, the disasterous consequences will be born by the present and especially future generations to come as their savings are ripped off through printing, living standards plummet and the credit worthyness of the US is ruined.

Name a single bank that has 'offloaded' its debt on you or this 'productive society' that you talk of !?

Are you out of your mind. Did you sleep your way through 2008. It would be easier naming a major bank that HASN'T offloaded its losses or ripped off productive society. NONE! The reason major banks and financial institutions even exist without producing anything of real value is because they live a parasitic existance through the federal reserve and fiat money. The day the federal reserve bagan is when they have been leeching off productive society and the day this scam is ended is when they will vanish.

If you don't like the 'useless fee collection', then you are under no obligation to use their services,no?

Are you just playing naieve or are you unaware that a system where taxation is forced upon people with penalty of confiscation and jail is the system that currently exists? Where can I sign up not to pay the parasite tax of these crooks. The big ripoff is occuring from every which angle and people have no refuge against it. That's the whole reason the chrade is setup at the national level. If the federal reserve was a private company trying to get you to use their currency like telecom companies trying to get you to use their service, there would be no problem.

Now where can I apply for a refund for bonuses and bailouts handed to these crooks which are the taxed/inflated fruits of my labor?

If there is 'no demand',then there would be 'no supply'

Wrong. There are no demand for parasites in the world. Yet they show up and persist until they make the host very ill if not kill the host. Watch the video on the Fed I posted earlier. You also seem confused gingerly defending this corrupt system of thievery.

So in your words, he too would be 'middleman','snakeoil salesman' and a 'liar', which makes me rethink about his prognosis.

He does not force anyone to use his sevices. Its up to you to part with your hard earned money and hand it over to him. Thus he is a middleman but not a useless one since his services exist only to the extent that a demand among clients who want to gamble with their money exists. The clients losses are their own.

By contrast, a USELESS middleman is one which shows up, drains money out of society by offloading ITS losses on everyone's back and gives itself a bonus. If you don't part take in a gambling venture, why should you have to bare the loss ?

Hence we learn the difference between a middleman and a USELESS middleman.

[Hari Seldon]

^^^ First, no bank got "funded" by the Fed @ 0%. what they had was a liquidity g'tee, effectively a sovereign g'tee on certain types of liabilities...

Oh well... it is not precisely 0%, but 0.25% or whatever rate federal reserve rate is. It is the ability of banks to borrow at 0.25% and use that to purchase treasury bonds is the reason why banks were making huge profits while small businesses were complaining that credits were not available.

And who are the shareholders of the Fed? the sovereign of the US..

Please prove this.

+1.

[somnath]

+1.

Refer to the post above! BTW, you serioulsy think (save the rhetoic) that the Fed is owned by the private sector!?

[Hari Seldon]

Deleted by self. pointless, perhaps.

[Virupaksha]

Fed is quasi public and quasi private. Its 12 Federal Reserve Banks which actually hold the power all have "shares" owned by private banks.
Ofcourse these are not true shares either, but effective day to day control is with the directors appointed by these share holders.
And to release large amount of money, they have to take permission from congress.

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

The Federal Reserve System's structure is composed of the presidentially appointed Board of Governors (or Federal Reserve Board), the Federal Open Market Committee (FOMC), twelve regional Federal Reserve Banks located in major cities throughout the nation, numerous other private U.S. member banks and various advisory councils

[Virupaksha]

For example, the most powerful of all these 12, the one is NY has three types of board of directors all elected by its member banks with "humorous descriptions"

http://www.newyorkfed.org/aboutthefed/o ... ctors.html

Class A elected by member banks to represent member banks

Class B elected by member banks to represent the public yes, to represent the public only


Class C appointed by Board of Governors to represent the public ,i.e. indirectly by the president

Yup the structure is all public with numerous legislations from congress, but at its core, the fed is effectively private.

To understand the classes and the mode of elections
http://www.federalreserve.gov/pubs/frseries/frseri4.htm

[somnath]

Privat

12 Federal Reserve Banks which actually hold the power all have "shares" owned by private banks.

dont know what you mean by regional "Fed Reserve banks holding all the power"...But those shares can neither be traded, nor can they change the charter..

But more importantly, the Fed Reserve is constitutionally under Congressional oversight, the main policy-making body (Board of Governers) is appointed by the President (and ratified by the Congress), all profits of the Fed are repatriated to the US Treasury...That seems like a govt institution..

But whats the point? That the Fed Reserve is incompetent? Maybe..That it works for the benefit of banks? Again, maybe..Its a PoV...

[Ambar]

What is the question ?

If you could have capped the usual canned "middlemen/banking crooks/parasites" responses, you would have noticed plenty of straight questions that you disregarded in the last 2 pages of this discussion.Revist them and repost.

You pick the sillyest example of what isn't free market. In a free market, competition naturally arises and any single company doing something stupid is met with competition that decimates its market share.Anytime you have monopolies, that's a result of there not being a free market.

And hence the reason anti-trust laws are passed which libertarian-right call "vile government shackles"! The examples i quoted are accurate examples of a 'de-regulated,free-market' anarchy which is ofcourse good for the companies, but bloody expensive for citizens!

The examples you give are more analogous to the federal reserve which is a parasitic monopoly that exists at the expense of productive society. So how about following your own advice and dismantling this monopoly in favor of a system of competing local currencies.

Competing local currencies? Care to explain? Why just pick on the Feds? Why not other central banks across the world who regulate the credit situation as per the needs? Shouldn't they all go ?

Detroit was always a crime ridden dump that nobody wants at any price. How about if prices in Beverly Hills fall to 10K? Does everything have to be kept overpriced to suit the interest of a select few crooks at the top who made bad loans.

Neighborhoods fell in heaps of dust as people lost their livelihood,couldn't repay loans and moved on,which was then taken over criminals.Detroit is not alone.Look at Cleavland,Cincinnati,neighborhoods in Richmond,VA, Tampa, and all the way to SoCal.Rampant foreclosures have destroyed entire counties and have left them obliterated. "Bottom scrapping" may happen in value stocks, but doesn't happen in real-estate when counties burn to ashes! And no,every neighborhood is not Beverly Hills!

What cured the depression was deflation. What caused it was wreckless credit expansion.

Think again. You said what cured it was WW-2 in your previous post and now it is deflation? In 2008 and 09, when the spread on 7/30 day commercial paper/debentures for bluechip companies widened to unsustainable levels, there was a 'real' and dangerous situation of 'productive' Fortune 100 businesses coming to a grinding halt. Such a situation is exactly what led companies to shut their door, and people to barter things during great depression. Deflation did not solve it, it worsened it!

Its a foolish notion that central bankers even know when there is excess or scarcity as the present fiasco clearly demonstrates. Another foolish notion is that the free market needs such a pretender who is really just rolling dice from day to day.

Common sense will tell you people will do a much better job of deciding who to extend their hard earned savings (credit) to instead of some guy who had no part in earning it. Despite sitting on one of the largest financial bubbles in history, Uncle Ben was blissfully unaware - even denying it existed! How this incompetent guy still has any credibility boggles my mind.

If the Fed misread the situation,so did the private sector. From the single moms who took on -ve amortized ARMs to premier investment houses like JpM,everybody missed the indicators of a impeding crisis.So blaming Fed for everything thats wrong with the economy is ridiculous.

Keyword is fueled by demand. If construction is being done by ripping off one a segment of the productive economy to fullfill a NON-EXISTANT demand, it is not productive but destructive. By definition, a recession is where a country uses less of infrastructure. Less of ports, less of power, less of roads & bridges, less of things in general. It makes no sense to start subsidizing home builders to put up more housing when there are 20 million houses sitting vacant.

Houses are constructed because there 'was' a demand.Ponds and small lakes were dried in FL and GA to make way for new housing projects during the boom.This constructions were not 'ripping' anybody of anything, but catering to the demand while it lasted.

Its beyond unproductive - its destructive. To begin with, the market should be setting interest rates not some joker at the federal reserve. the credit worthyness of the US is ruined.

Mortgage prices also track the interest rate on market determined T-Bills,MBOs and a whole lot of other factors and not just the FFR.The credit worthiness of US will be concluded as 'ruined' when competing nations first stand head over heels higher than the US economy.So lets stop the pessimism po*n driven eulogies till then.

Are you out of your mind. Did you sleep your way through 2008. It would be easier naming a major bank that HASN'T offloaded its losses or ripped off productive society. NONE! The reason major banks and financial institutions even exist without producing anything of real value is because they live a parasitic existance through the federal reserve and fiat money.

Now to think of it,i surely must have slept my way through this crisis! I vaguely do seem to remember the Treasury making 40% profit on the pile of Citi stock they sold, and are sitting on more than 50% profit on their purchase price that is yet to be sold. Banks that did borrow money through TARP paid it off as the markets stabilized,spreads on those 'toxic assets' shrunk,they could successfully raise capital through secondary issuance. I'm not sure what part of it has been 'offloaded' on me or you.

Bankers have existed since time immemorial. They existed in Hindu mythologies to the Bible and beyond. If you think they'll go away the day central banks are dismantled then think again.They provide a service and they profit from it.You may call it parasitic, but most people just call it 'banking'.

Are you just playing naieve or are you unaware that a system where taxation is forced upon people with penalty of confiscation and jail is the system that currently exists?
Now where can I apply for a refund for bonuses and bailouts handed to these crooks which are the taxed/inflated fruits of my labor?

I was hoping you would rant about taxation too. Like i said earlier,unless you prefer anarchy,i dont see how governments can function without taxation.

Wrong. There are no demand for parasites in the world. Yet they show up and persist until they make the host very ill if not kill the host. Watch the video on the Fed I posted earlier. You also seem confused gingerly defending this corrupt system of thievery.

None of these 'banking parasites' as you call them put a pistol to make you avail their services. If i'm running a company that wants to raise capital, i need someone to underwrite the security so i can attract public investment. I pay for the service. If i run a government and need to park the tax and pension money for future expenditures, i look for investment opportunities, and these 'parasites' help me invest that has made libertarian favorite Singapore and its like a lot efficient and rich in utilizing its capital.And in most normal circumstances,everybody benefits.

He does not force anyone to use his sevices. Its up to you to part with your hard earned money and hand it over to him. Thus he is a middleman but not a useless one since his services exist only to the extent that a demand among clients who want to gamble with their money exists. The clients losses are their own.

If he ever grew as significant as LTCM, then he too would threaten the government how the ripple effect could swallow the economy.

[Virupaksha]

dont know what you mean by regional "Fed Reserve banks holding all the power"...But those shares can neither be traded, nor can they change the charter..

7 out of 12 appointed by president, 5 from the fed banks with ny always being present.

But more importantly, the Fed Reserve is constitutionally under Congressional oversight, the main policy-making body (Board of Governers) is appointed by the President (and ratified by the Congress), all profits of the Fed are repatriated to the US Treasury...That seems like a govt institution..

the profits repatriated AFTER the member banks earned atleast 6% income.

But whats the point? That the Fed Reserve is incompetent? Maybe..That it works for the benefit of banks? Again, maybe..Its a PoV...

No for 1, yes for 2.

Its role is to protect the banks and it has done that job pretty well.

[Hari Seldon]

Irish Debt Rating Cut to Junk by Moody’s

Moody’s cut the ratings of Irish banks to junk status on Friday following Dublin’s decision to defer previously agreed capital increases until after this month’s general election.

This follows similar action by Standard & Poor’s last week.

Moody’s said recent announcements “call into question the government’s willingness to provide additional support to the banks beyond that which has already been provided to date, and reflect the increasing risk of some type of burden-sharing with senior creditors.”

Moody’s acknowledged the “huge fiscal burden faced by Irish taxpayers” as a result of the banking sector bail-out. But as a result it said there was an “increasing risk that this burden could be shared not only by subordinated creditors but by senior creditors, most likely through distressed exchanges.”

The election in question ain't far way. And the 'no tax increases' Oppn is leading big time. The way this zero-sum game is turning out, the only way they can implement their 'no tax hikes' poll pledge is by reneging on the bailout deals agreed upon by the outgoing gubmint.

The latest poll confirms momentum is behind Fine Gael, a party traditionally supported by big farmers and urban professionals and business.

With Fianna Fail blamed for the humiliating bail-out by the European Union and the International Monetary Fund, and with all the opposition parties pledged to renegotiate the deal, the election campaign has switched to other issues.

The issue that has caught the public’s attention is Fine Gael’s pledge not to increase taxes just as this month households see their pay packets cut by the tax hikes announced in the December budget.

Michael Noonan, the party’s finance spokesman, has attacked Labour as “the high tax party”.

Even before the campaign opened, Labour dropped its plan for a 48 per cent top rate of tax, a policy adopted by Sinn Fein, which in the latest poll has seen its support slip from 13 per cent to 10 per cent.

link

And that in turn leads directly to popular will showing up on the campaign trail despite best efforts by the fin-elite lobby to suppress the obvious:
Irish parties pledge to re-negotiate EU-IMF bailout

As Ireland’s election campaign heats up, the prospects of success in a battle to ease the terms of a massive EU-IMF bailout have become a key issue, even as Brussels insists it is non-negotiable.

To a humiliated nation, the opposition parties are holding out the hope that they can re-negotiate the terms of the 85 billion euro ($115 billion) bailout package if they gain power after the February 25 vote.

Candidates are meeting the full force of the hostility to the bailout terms and the question of why taxpayers have to pay for the mistakes of bankers as they canvas door-to-door.

An IMF review last week appeared to recognise there are difficulties, saying that while the public response to the bailout has remained favorable "a lingering domestic perception of inequitable burden sharing persists."

wow. interesting the way things are turning out, some may say. Mish, true to form, bars no holds in a frontal assault here:-

It seems like voters are fed up with taxes everywhere. From this side of the Atlantic I certainly understand a low-tax, renegotiate-the-bailout approach.

I also approve the talk "Anglo Irish Bank will not get another cent". That is exactly the correct starting point.

Thus, Ireland should tell the IMF and EU and especially Jean-Claude Trichet at the ECB where to go, and bondholders can eat 100% of the loss. Whether or not Fine Gael can pull that off remains to be seen.

Remains to be seen, sure. Don't hold your breath though. Parties making loud noises in the campaign stage is 1 thing, acting on the noise the day after the polls is quite another. Time will tell.

[svinayak]

India's poor economic performance post independence was British perfidy, lage raho!

Nobody has made such a claim. Keep going. Learn as you go.

[svinayak]

Acharyaji:

The gold standard did serve the purpose of restraining fiscal and monetary policy. But it also put a cap on the value of productivity. The gold standard would have ensured that regardless of the progress made by man-kind the money supply could not grow to meet until mankind found more gold to hoard in the vaults of the central banks. Tying the future of mankind to the amount of metal available, at a fixed rate does not make sense.

If that gold-dollar rate itself was flexible, i.e. scaling with the global production AND gold supply, it would make sense as a tool to restrain fiscal and monetary excess. However a fixed rate artificially constraints the rewards of human creativity. And for by some miracle, if someone found a way to convert other base metals into gold (nuke reactor), the entire edifice would have collapsed.

At the end of day, we as individual investors have very little control over the monetary and fiscal policies being followed. What we do have control over is how we invest our capital. Do not Fight The Fed is a time-tested mantra which has not failed, yet. Like all human creations it too will eventually not work but till it does no point fighting it. One thing to remember is that Bull markets are long and winding, while bear markets are fast and furious. As long as you can avoid most of a bear, while you can ride the bulk of a bull, you should be fine.

That clown Cramer does say one thing right: There is a Bull Market Somewhere. Since 2000 it has been in the precious metal space. It may go one for some more time and end in a spectacular bubble, as Euro and then perhaps China readjusts.

What the history shows that gold created discipline in the treasury and made the govt aware of deficit. The modern day economics is creating bubbles and making sure somebody else pays for their mistakes. This cannot go on in the future.

[paramu]

That was NOT a reserve currency, by any means...It was continuation of a British legacy where INR was legal tender in the Middle East...

One, the gulf rupees were not "unsecured/uncovered liabilities" with RBI (unlike USD, where each USD is a liability of the Fed) - they were "purchased" by the respective nations by paying in GBP (which was held with RBI rsseves)...

If it were a 100% British legacy, middle-east would have preferred to keep British Pound Sterling as reserve currency, instead of Indian Rupee. Indian Rupee, as silver coins, existed even before British came to India, and British replaced it with their versions of rupee.

It may not be like today's USD reserve currency, but attributing it entirely to British Raj will make the argument silly.