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

[Altair]

...hoping for a gold bounce? look east

http://finance.yahoo.com/news/hoping-go ... 00826.html

Indian wedding season will soon arrive...

I think I made the right decision. I bought 200 grams in the past month and plan another 100 gms in the next month before it shoots up.

[Neshant]

[TSJones]

...hoping for a gold bounce? look east

http://finance.yahoo.com/news/hoping-go ... 00826.html

Indian wedding season will soon arrive...

I think I made the right decision. I bought 200 grams in the past month and plan another 100 gms in the next month before it shoots up.

...be careful... it could drop again before it goes back up. some experts think some of the miners have to be forced out before the price stabilizes. but you are correct in that Indian buying patterns may give you a nice bounce. if you get a $100 bounce you might wanna sell some and cover part of your expense. but that's just my philosophy..... it's always nice to have some of your assets clear of any further risk...

....true story...I had abut a $1000 in change laying around the house so I took it to the grocery store to the automatic change counter. Paid a small fee and it took forever.....then I bought all of it in 90% silver kennedy half dollars. the price of silver was $32/oz at the time.... it's a little less than $20 now.... ....they sure are pretty though....

[Austin]

Max Keiser and Stacy Herbert discuss the failure to understand English as savior of the Japanese banking system

While price signals, the language of the market, are so manipulated as to be indecipherable by even those who speak the language. In the second half, Max talks to legendary investor, Jim Rogers, about gold, bonds and China.

http://rt.com/shows/keiser-report/episo ... eiser-482/

[Austin]

Debt crisis shrinks international use of euro

International use of the euro slipped last year because of the debt crisis in Europe, while the U.S. dollar held its own as the world’s leading currency for reserves held by central banks.

Currencies not traditionally used as reserves, such as the Canadian and Australian dollars, gained in favor as those countries enjoyed steady growth and lower debt than major economies.

The European Central bank said on Tuesday that the euro’s share among the currency reserves held globally by central banks fell to 23.9 percent in 2012 from 25.1 percent the previous year. The dollar’s share was little changed at 61.9 percent.

The ECB said the financial crisis that has afflicted the 17-country Eurozone was a factor discouraging use of the euro for reserves, which are often held in the form of government bonds. Lending across borders in the eurozone has dropped, diminishing the liquidity that reserve holders like to see. Lower liquidity means there are fewer buyers and sellers readily found.

The eurozone countries have struggled with heavy levels of public debt Greece, Portugal, Ireland and Cyprus have needed financial rescue. Even larger economies like Spain and Italy have worryingly high debt. Concern over that debt eased only after the European Central Bank came up with a plan to buy the government bonds issued by countries that promise to reform.

In its annual report on international use of the euro, the ECB also found that there was less borrowing in euros internationally by companies because they could get lower interest rates by selling bonds denominated in U.S. dollars.

Countries hold reserves of foreign currency to help backstop their own currencies’ value in case of a financial crisis and for trade purposes. The country issuing the reserve currency can benefit because demand from abroad supports its exchange rate and can mean lower borrowing costs for the government, as has been the case with the U.S. dollar in its role as the leading reserve currency.

Demand for dollars in the form of U.S. Treasury bonds by other countries such as China helps keep down the interest rate that the U.S. government pays to borrow. Money that is not spent on interest can be spent on other things, or saved.

A key finding of the report was that non-traditional reserve currencies such as the Canadian dollar and the Australian dollar are in greater demand because of their growing economies and better public finances. There have been concerns about government debt not only in Europe but also in the countries that issue the world’s other traditional reserves- the U.S., Japan and Britain.

The category of “other” currencies saw its share of officially disclosed reserves increase from 5.7 percent to 6.1 percent, ahead of both the yen at 3.9 percent and the pound sterling at 4.0 percent. The ECB said that category’s share is the highest since the early 1970s, when the earlier international currency system set up at the Bretton Woods conference in 1944 collapsed.

The ECB said, however, that the use of such non-traditional currencies might slow if major economies start reducing debt and deficits. Such currencies are also of limited use, the ECB said, because they are less liquid there are fewer debt securities and other ways of holding them available, meaning finding a seller or a buyer can be harder.

The ECB said the Chinese currency, the renminbi, had shown impressive gains in foreign trade, with the share of trade in goods settled in renminbi rising from near zero to almost 10 percent in 2012. The ECB said its widespread use as a reserve currency was hindered by China’s lack of fully developed financial markets and by its investment and foreign exchange controls. s

[Theo_Fidel]

Hmmm! No kaamment....
http://www.mineweb.com/mineweb/content/ ... &sn=Detail

Gold imports to India's diamond nerve centre dive 90% in June

[vishvak]

What is the context here for drop of gold sales in Ahmedabad or increase of gold sales in Dubai?

Any idea how is anydiscussion on gold is related to global economic meltdown? Can anyone elaborate please.

[TSJones]

What is the context here for drop of gold sales in Ahmedabad or increase of gold sales in Dubai?

Any idea how is anydiscussion on gold is related to global economic meltdown? Can anyone elaborate please.

....well sir, if you had been following this thread you would know that some posters think that gold is a answer to the imminent collapse of the dollar and western economies.....real soon now......or maybe in 5 or 10 years and that the prospect of hyperinflation rules all economic thought. Stay tuned.

Meanwhile I am listening to the music Marco Polo by Loreena McKennitt....chillax......

[Austin]

Had a question on this debate.

If gold is not as valuable as it is being made out then why does US and Germany maintain a very high gold reserve ? Why not just sell it and stick with green buck or something else ?

[TSJones]

Had a question on this debate.

If gold is not as valuable as it is being made out then why does US and Germany maintain a very high gold reserve ? Why not just sell it and stick with green buck or something else ?

...the US was on an international gold standard until the 1970's. It accumulated an enormous hode of gold plus it required US citizens to turn in their gold which was melted down and stored also. Just because the US found a better way to conduct modern financial transactions doesn't means it repudiates its emotional history. For instance there are constant accusations the gold is no longer there....etc. More on this later...I'm chillaxing at the moment...

later..... are you aware the US government hordes vast stocks of strategic commodities such as oil, rare earth, grain,etc?

[Austin]

I am aware of Oil that they keep reserves for 2-3 months , I am not aware of rare earth and grain but I guess every country has some reserves , US might have the most of it for strategic and economic reason.

Well even if US was on Intl Gold Standard and if Gold was not as worth as say other commodity then US would have sold a part of it by now but it keep huge reserves , I think its so big that its more then combine other big players but I could be wrong since its off my head.

Even EU nations keeps huge Gold Reserves , which makes me think that Gold is needed if you have a currency that is of reserve status , Even the reason China is going for Gold is perhaps the same reason as they are making their currency fully convertable by next year , so they would need a good amount of Gold to back it up.

Any way thats my though process and I am not an economist to understand the nitty gritty and complexity of the game ....As I see it no matter of Gold Reaches Bottom or Touches the Sky people continue to buy it and so do nations. There must be something about Gold

[Neshant]

US debt holders came to realize the dollar was not worth $35 per ounce in the 70s which is the reason the gold Window was closed. Essentially it was a default on the debt due to a run on gold.

US had been fortunate shortly thereafter in coercing OPEC to price its oil in dollars in exchange for keeping a bunch of corruption sheiks in power. Absent that, the world would get a glimpse at what the dollar is truly worth - my guess is substantially less than its present value.

There has of course been tremendous innovation and productivity growth since the 70s to the late 90s and certainly that has bolstered the dollars value.

However all throughout, debt has risen like a rocket.

The real problems however begin in post 2000. No major new industry was created yet the spending and private debt accumulation continued at record pace. The leveraged gambling since 2000 to the present time and the growth of the parasitic banking "industry" has expended a great deal of the national capital stock of wealth. In recent years, gargantuan amounts have been taken on as debt to profit that most useless segment of society called banking.

All of this means there will come a point when this massive debt bubble will have to be either paid or defaulted on. I suspect there is no intention to repay the debt and neither is there a willingness among suckers in the market to roll it over.

[panduranghari]

US debt holders came to realize the dollar was not worth $35 per ounce in the 70s which is the reason the gold Window was closed. Essentially it was a default on the debt due to a run on gold.

Small correction. USD was exchangeable for gold outside USA until 1971 -15Aug. Within USA, USD was not exchangeable for gold. After 15-8-1971 it was officially not convertible.

[TSJones]

China central bank says: no more easy credit

http://finance.yahoo.com/news/china-sig ... 55791.html

...for selected industrial sectors onlee......

[Theo_Fidel]

There has of course been tremendous innovation and productivity growth since the 70s to the late 90s and certainly that has bolstered the dollars value.

However all throughout, debt has risen like a rocket.

The real problems however begin in post 2000. No major new industry was created yet the spending and private debt accumulation continued at record pace. The leveraged gambling since 2000 to the present time and the growth of the parasitic banking "industry" has expended a great deal of the national capital stock of wealth. In recent years, gargantuan amounts have been taken on as debt to profit that most useless segment of society called banking.

What, Facebook is not a new paradigm shift? Who knew….

That said isn’t the entire purpose of ‘new’ industry to improve efficiency and productivity?
If that is so, a revolution is blowing through the design and manufacturing community the likes of which I have not seen and the old geezers with me marvel over.

A whole bunch of new tools are maturing at the same time.
- 3D rapid prototyping.
- 3D printing. IMHO more important than the internets.
- 3D design modeling.
- New generation of cutting tools from plasma cutters, water jet cutters, etc
- New generation of C-n-C and milling machines that simple blow away old wasteful techniques.
- New generation of testing tools and 3D failure analysis.

You know that giant 400 ton tipper truck that made oil sand profitable.
Simply could not have been built in year 2000.

IT/VITY munnas should not think the world ends at their cubicle threshold….

[vishvak]

So gold investments are as a result of global financial crisis.

As per the biggest investment fund in Europe, Amundi , invests in cash assets and less in bonds link

[Austin]

Exon Mobil Most Valuable company based on market Cap

Exxon Mobile is again the most valuable company based on market capitalization, pushing Apple to second place. Apple has lost market cap in the first half of this year, losing a total of $128 billion, Reuters reported, citing Ernst & Young analysts. Exxon Mobile stands today at a market cap of $403.24 billion, while Apple has $394.98 billion.

[TSJones]

So gold investments are as a result of global financial crisis.

Not necessarily. Some of us think that precious metals should be 10% of any well diversified portfolio. And some of us know about Black Swan events and that resilient decision making/systems are the key to not only surviving but prospsering.

[Neshant]

[Austin]

There are talks of Bond Bubble Burst in the making but does the Fed withdrawing Stimulus is leading to deflation of bubble and preventing a bond bubble burst ?

Brutal summer for bond investors as bloodbath in US credit market continues

It's shaping up to be a brutal summer for bond investors as the bloodbath in the US credit market shows no signs of letting up, even as nearly $80 billion has already been wiped from funds.

"Five years of bond investors' income wiped out in a single quarter is tough. Not knowing if next quarter will reverse that, or repeat it is tougher," said John Brynjolfsson, managing director of global macro hedge fund Armored Wolf LLC.

[vishvak]

So gold investments are as a result of global financial crisis.

Not necessarily. Some of us think that precious metals should be 10% of any well diversified portfolio. And some of us know about Black Swan events and that resilient decision making/systems are the key to not only surviving but prospsering.

So is it related to global financial crisis and are not gold investments done by many including sovereign countries in the form of gold depositories in vaults.

[Neshant]

The recently released US job report :

Part-time jobs jumped by 360,000, while full-time jobs dropped by 240,000 in June.

http://video.cnbc.com/gallery/?play=1&video=3000180896

Even with this new definition of employment where part time employment is counted as employed, the population to employment ratio has barely budged. That's in spite of all the printing & spending.

The real question however is what are the quality and pay-scales of the jobs being created. If its burger flipping jobs, that's a big problem.

[Neshant]

Andrew Jackson was the President of the US in the early 1800s. He abolished the Federal Reserve of his day which was known as "The Second Bank of the United States". He realised it was a scam by private banks to hijack the monetary system of the US by giving themselves the exclusive right to print money. He abolished paper currency and put the US back on a gold standard - with overall fair to good results for the US economy.

He literally had it engraved on his tomb stone : "I killed the bank"!

His farewell address is almost a deja-vu of on-goings today. Interestingly the current Federal Reserve (which is the 3rd attempt at setting up a central bank) put his portrait on $20 dollar bills almost as a sick joke considering he spent his entire life trying to dismantle central banking.

Andrew Jackson, Farewell Address, 1837

"The paper system being founded on public confidence and having of itself no intrinsic value, it is liable to great and sudden fluctuations, thereby rendering property insecure and the wages of labor unsteady and uncertain.

The corporations which create the paper money can not be relied upon to keep the circulating medium uniform in amount. In times of prosperity, when confidence is high, they are tempted by the prospect of gain or by the influence of those who hope to profit by it to extend their issues of paper beyond the bounds of discretion and the reasonable demands of business (read bank leveraged bets on real estate); and when these issues have been pushed on from day to day, until public confidence is at length shaken, then a reaction takes place, and they immediately withdraw the credits they have given, suddenly curtail their issues, and produce an unexpected and ruinous contraction of the circulating medium (read 2008 crash), which is felt by the whole community.

The banks by this means save themselves, and the mischievous consequences of their imprudence or cupidity are visited upon the public (read money printing & running up national debt to stimulate/square bank losses). Nor does the evil stop here. These ebbs and flows in the currency and these indiscreet extensions of credit naturally engender a spirit of speculation (read stock market pumping) injurious to the habits and character of the people. We have already seen its effects in the wild spirit of speculation in the public lands and various kinds of stock which within the last year or two seized upon such a multitude of our citizens and threatened to pervade all classes of society and to withdraw their attention from the sober pursuits of honest industry. (read productive work which means not banking, paper shuffling and other con artistry)

It is not by encouraging this spirit that we shall best preserve public virtue and promote the true interests of our country; but if your currency continues as exclusively paper as it now is, it will foster this eager desire to amass wealth without labor (read this is what a good proportion of western economy is based on today); it will multiply the number of dependents on bank accommodations and bank favors (read goldman sachs); the temptation to obtain money at any sacrifice will become stronger and stronger, and inevitably lead to corruption, which will find its way into your public councils and destroy at no distant day the purity of your Government."

[TSJones]

There are talks of Bond Bubble Burst in the making but does the Fed withdrawing Stimulus is leading to deflation of bubble and preventing a bond bubble burst ?

What is happening is that the current bonds now in existence have lost face value due to the anticipated rise in interest rates from the end of QE3.

Here is a brief tutorial on how to handle the discount on bonds....classic CPA test material......

http://www.accountingcoach.com/online-a ... Xpg06.html

My point is not to turn people into CPAs but to get investors to understand that the value of bonds can go up or down as the market place anticipates the rise or fall of interest. In fact many people think because they own a government bond the value cannot be reduced but the market place for government bonds work just like corporate bonds. So you can see that any action by the Fed can create money or detsroy money by fiat. In this instance they are destroying money by the market anticipating what the Fed will do.

Of course the Fed can directly create and destroy money by using the discount window that the banks use to get their money (raising or lowering the interest rate) ......or.... by raising or lowering the banks required reserves.

Of course, because they are bonds, you can always hold the bond until maturity and receive the full face value. But most corporations and investors don't hold until maturity because of financial events creating need for cash. Time is money. This is how the global financial system works. We can discuss derivatives involving bond interest rates in another discussion.

[TSJones]

Head of IMF says US budget cuts "inappropriate".

http://finance.yahoo.com/news/imfs-laga ... 56967.html

[Neshant]

- New generation of cutting tools from plasma cutters, water jet cutters, etc
- New generation of C-n-C and milling machines that simple blow away old wasteful techniques.
- New generation of testing tools and 3D failure analysis.

None of this is new, employed on a vast scale nor is it a revolution in anything. Printing things in 3d is old hat and even basement inventors have built 2 and 3 axis CNC machines since the late 80s.

I'm pretty sure water jet cutting isn't new either. Even laser cutting and lithography machines existed in the early 90s or even before.

I don't see a single major industry that has emerged since 2000. You got facebook, twitter, ipods and ipads none of which are a technological revolution. Other than that, its all been banking and other paper scam professions which contribute nothing (more like drain wealth) from the economy.

Meanwhile the spending has gone ballistic. As early as 2000, a few tens of billions was considered a lot of money. These days that amount does not even register a blip. At some point, creditors of this debt will realize none of this debt is going to be repaid.

[Neshant]

when control over the monetary system of a nation gravitates into the hands of a few "wise men" at the top, that's when trouble begins.

[Theo_Fidel]

Neshant saar,
Sure. What ever you say.
It appears you are now an expert at design engineering too.

[TSJones]

Higher US yields should cheer investors:

http://finance.yahoo.com/news/why-highe ... 37318.html

[Neshant]

Neshant saar,
Sure. What ever you say.
It appears you are now an expert at design engineering too.

Remember the good old days when you were pumping "cloud computing" before I told you it was just marketing hype.

3D printing is kind of following the same template - 3D printed template I might add.

[Neshant]

Higher US yields should cheer investors:

The markets are all rigged behind the scenes. It thus makes any attempt at logically justifying anything a waste of time in the short term.

Who believes the stock market can reach new highs when job prospects are sinking and the debt is even larger than in 2008 (a crisis borne out of debt!).

As I've stated before, I don't see any productive industry that has emerged since 2008. Its the same feeling I got post 2002 afterwhich there was supposedly an economic boom. When I don't see any new productive industry powering the economy, it means all claims of green shoots, recovery..etc. are bogus.

Its just a question of when and how the rigging will come asunder.

Right now bankers are employing every trick in the book most notably putting out a load of propaganda about recovery via the "mainstream" media. At the back of most peoples' mind, they all have the sneaking suspicion that the recovery is bogus and the markets are rigged. Time will tell I guess.

If I were you, I would not count on the government or even many private corporations to see you through into retirement. All those who are depending on that largess are going to get a wake up call when the answer to "how (or maybe if!) the debt is going to be repaid" is uncovered.

[svinayak]

http://www.investmentnews.com/article/2 ... /120319911#

Weekend cheer for bond bears
Yields on 10-year Treasuries reach four-month high after big sell-off

By Dan Jamieson
Mar 16, 2012 @ 5:48 pm (Updated 5:57 pm) EST

After being dead wrong for years, bond bears are feeling more confident going into the weekend.

The Treasury market sold off big this week, taking the benchmark 10-year yield up 26 basis points to 2.29%, a four-month high.

Yields had already been inching higher, but shot up Tuesday after the Federal Reserve’s Federal Open Market Committee made slightly more positive comments about the economic outlook.
Although the FOMC reiterated its view that economic conditions were likely to warrant an “exceptionally low” federal funds rate at least through late 2014, market participants didn’t buy it.

The FOMC’s wording and a series of improving economic reports appears to have flushed out already nervous holders of long-term Treasuries, some of whom may have been anticipating a third round of quantitative easing.

“If the economy continues to evolve as it has in recent months, it is hard to see how the Committee as a whole will be able to justify retaining this view for long,” said Alan Levenson, chief economist at T. Rowe Price in a research note today.

The market’s reaction “marks a notable turn in the interest rate outlook,” said Jeffrey Rosenberg, BlackRock’s Chief Investment Strategist for Fixed Income, in an update Friday.

Futures markets were already anticipating that the first rate hike would come in January 2014, Mr. Levenson said.

“Bearish speculators are finally profitable. The [short Treasury] trade has not been profitable for two years now,” said Paul Weisbruch, vice president at Street One Financial LLC, a trading firm for institutional investors.

It looks like interest rates “are starting to move meaningfully higher,” he said in an interview.

However, the selling may be overdone in the short term.

Long-term Treasury ETFs, like the ishares Barclays 20+ Year Treasury Bond Fund (TLT), have corrected down to their 200-day moving averages.

[Theo_Fidel]

Remember the good old days when you were pumping "cloud computing" before I told you it was just marketing hype.

3D printing is kind of following the same template - 3D printed template I might add.

I think your memory is failing you now.
Don't know the first thing about computers and have never pretended to either...

You are simply wrong about 3-D prototyping.
Template is in prototyping not printing.
Printing is completely different.

Used to be a design cycle was 5-10 years or so.
Now a design cycle is 6 months to 2 years.

There is a reason productivity is not stagnant and is rising 2% or so every year.
Remember productivity=wealth.

Stick to bashing bankers. That is safe ground. Even I support you on that.

[Neshant]

The problem with you is you get hyped up on any fancy marketing terminology you hear for the first time thinking its some breakthrough. I'm pretty sure all it takes for your wallet to do an open sesame is a bit of slick talking with a few well placed buzzwords.

3D printing is not new. This sh&t has been going on for at least two decades. Deposition of plastic resin or other materials in layers to create parts is old as the hills.

Mass manufacturing cannot use this technology because it takes way too much time compared to pressing & stamping. Its currently used for little more than rapid prototyping.

You can literally build your own simple 3D printer from a rather in-expensive kit that you can purchase online.

This is not a breakthrough and nor will it generate billions let alone trillions of dollars that are being expended as debt.

As for productivity, its "rising" only because staff is being laid off and the remaining staff is doing more of the work for the same or less money. That being said, all these "productivity statistics" are bogus themselves. If all this productivity growth has been occurring, why the need to run up multi-trillion dollar deficits year after year and print shytloads of money?

[panduranghari]

What, Facebook is not a new paradigm shift? Who knew….

That said isn’t the entire purpose of ‘new’ industry to improve efficiency and productivity?
If that is so, a revolution is blowing through the design and manufacturing community the likes of which I have not seen and the old geezers with me marvel over.

A whole bunch of new tools are maturing at the same time.
- 3D rapid prototyping.
- 3D printing. IMHO more important than the internets.
- 3D design modeling.
- New generation of cutting tools from plasma cutters, water jet cutters, etc
- New generation of C-n-C and milling machines that simple blow away old wasteful techniques.
- New generation of testing tools and 3D failure analysis.

You know that giant 400 ton tipper truck that made oil sand profitable.
Simply could not have been built in year 2000.

IT/VITY munnas should not think the world ends at their cubicle threshold….

If possible read this in full.

http://fofoa.blogspot.co.uk/2010/08/cre ... ation.html
Here's a neat little concept that FOA introduced briefly in 1999. I think it explains a lot about the inflation, deflation, hyperinflation debate when it finally sinks in that this is where all the money went for the past 30 years: into inflating the credibility of the $IMFS far beyond the underlying reality. And yes, it has a direct impact on the Freegold revaluation as well. So here I will try to expound on this enlightening concept just a bit.

The Setup

Part of the reason the rest of the world did not abandon the dollar in 1971 was that the rate of economic expansion flowing from Middle Eastern oil cheaply priced in U.S. dollars was already exceeding the expansion rate of the money supply. So the switch from a semi-gold-(con)strained monetary system to a much more expandable "balance sheet money system" as I like to call it — or another name I like is "purely symbolic monetary system" — allowed for the non-deflationary addition of many new "quality of life" gadgets, widgets and shipping lanes that the world had never before imagined.

For the next three or four decades we would be able to comfortably afford the new introduction of Betamax VCR's, microwave ovens in every home, personal computers, DynaTAC cell phones, camcorders, digital cameras, LaserDiscs, Compact Discs, DVD's, MP3's, and on and on. Eventually, all of these wonderful products would be built cheaper by someone else on the other side of the world and shipped to us cheaply using the oil purchased from the Middle East with easily available U.S. dollars.



The reason I like the term "balance sheet money" is that whenever there is a need for more dollars they can be easily gotten from any bank's balance sheet. The dollars don't have to be there in the bank. You simply jot down the "need" for them on one side of the balance sheet and the dollars magically appear on the other side. Presto!

Of course once that "need" (demand) is supplied, the balance sheet must then be serviced with interest. But the thing about easy money is that you can always borrow new to service the old. In the previous system (con)strained by its parity fixation to the U.S. Treasury's limited supply of gold all these wonderful life-enhancing advances would have put a deflationary pressure on the dollar.

What this means is that when all these new products came to market, the dollars we needed to purchase them would have become more and more precious with each new widget that came to market. The cost to borrow dollars to buy a new BMC-100P or DynaTAC-8000 would have been prohibitive. And even if you did borrow the money, the service of that debt would have grown more and more burdensome over the life of the loan as dollars became ever more precious.


This deflationary dynamic would have stifled the global economic growth rate and confined it to only reasonable risk-taking. Which is part of the reason the foreign central banks, represented by the BIS, did not lobby the U.S. to officially devalue the dollar against its Treasury gold in 1971.

Rather than closing the gold window, the U.S. could have, for example, raised the price of gold to $200 and kept the system going for another 30 or 40 years. A move like this would have been the mathematical equivalent of increasing the Treasury's physical stockpile 5X to double what it was at the height of the Bretton Woods experiment.

But while that would have satiated the monetary transgressions of the past, it would have done little for the future. It would not have substantially changed the system to one of easy money. It would only have extended the old system of hard money.



It was reasoned at that time that more than just the ridiculous price of gold being broken, the system itself was broken, and needed a global finance structural change. So the international consensus was to let the U.S. default outright on its gold obligations rather than lobbying for a revaluation of its gold at a new fixed rate. But then continue using the dollar anyway, as long as relatively cheap oil could be gotten for dollars.

And with this decision, the stage was set for a renewed global (Western?) economic growth spurt, much like after the end of WWII. Only this time, the value lost through the non-delivery of U.S. Treasury gold would be more than replaced by the value oil brought to the new world economy, especially with first-of-a-kind products like Pong, released for the Christmas season in 1975.

Pong™ - The first video game

Even at the higher oil prices of the 1970's, the economic demand for oil proved to be a far superior "backing" to the dollar than the depleting Treasury gold had been. And in a certain (limited) sense, the world got its first small taste of Freegold in the 1970's.

But as gold's price began freely rising in the global marketplace, the old alarm bells went off in the dollar's management office. The dollar, which had always been viewed at par with gold, was now seen to be falling as gold soared. So during the mid to late 70's the U.S. Treasury and the IMF held a series of gold auctions to flood the market and quell the perceived danger. But by 1979 the demand for gold was so overwhelming that the auctions had to be stopped.

Through '78 and '79 the dollar plunged against foreign currencies, and in July of 1979 a desperate Jimmy Carter appointed the tough New York Fed President Paul Volker to head the "deeply divided, inexperienced, soft and indecisive" Federal Reserve Board. Then in early October of that year, while attending an IMF meeting in Belgrade, Yugoslavia, Volcker received "stern recommendations" from his European counterparts that something big had to be done immediately to stop the dollar's fall. The general fear at that meeting was that the global financial system was on the verge of collapse.



Returning to the U.S. on October 6, Volcker called a secret emergency meeting in which he announced a major change in Fed monetary policy. The Fed would switch from controlling interest rates through the Fed Funds rate to directly controlling the money supply through bank reserves. One of the side effects of this sharp policy change was that interest rates would now be governed by the marketplace rather than the Fed. The Fed did still raise its discount rate from 11% to 12%, but then the market took the Prime Rate up to 20% within 6 months where it mostly stayed for the next year and a half.

It was later observed that Volcker's 1979 policy change was the most significant change in Fed policy since 1932, when in the middle of the Great Depression the Fed abandoned its "real bills doctrine" and started massive open market purchases of government bonds.

In early 1980, Volcker's new Fed policy began to bite. As interest rates rose, the Dollar first slowed its descent, then stopped falling, and then began to rise. Both the public and the investment community which had stampeded into Gold were lured back into paper by this huge rise in interest rates – and by the prospect of a higher U.S. Dollar.



Many facets went into this change in investment attitude, but one concrete change in the U.S. financial system was the most telling. Way back in March 1971, four months before Nixon closed the Gold window, the "permanent" U.S. debt ceiling had been frozen at $400 Billion. By late 1982, U.S. funded debt had tripled to about $1.25 TRILLION. But the "permanent" debt ceiling still stood at $400 Billion. All the debt ceiling rises since 1971 had been officially designated as "temporary!" In late 1982, realizing that this charade could not be continued, The U.S. Treasury eliminated the "difference" between the "temporary" and the "permanent" debt ceiling.

The way was cleared for the subsequent explosion in U.S. debt. With the U.S. being the world's "reserve currency," the way was in fact cleared for a debt explosion right around the world. It was also cleared for five of the biggest bull markets in history.

The global stock market boom of 1982-87
The Japanese stock market/real estate boom of 1988-90
The Dow (and then Nasdaq) led boom - late 1994 to March/April 2000
The great global real estate boom of 2002-06
The global stock market revival of 2006-07 [1]



And thus, in 1980, began the modern era of Credibility Inflation.

Salting the Mine

Most simply stated, credibility inflation is the expanding confidence in the fiat financial system to always deliver a higher payoff tomorrow than today. And through credibility inflation we ultimately destroy the currency structure by believing it can somehow deliver more than reality will allow.

Credibility inflation is the exact antithesis of price inflations like the 1970's. It is why we saw low consumer price inflation for the last 30 years relative to the massive monetary and financial product inflation. It is partly why we saw gold stagnant or falling for 20 years. Yet it is just as much a product of monetary inflation as regular price inflation is (more on this in a moment). And it is much more catastrophic in the end.

Periods of high credibility inflation are generally not followed by smooth cycles of credibility DEflation. Instead, they tend to SNAP BACK into sudden real price inflation when confidence abates. What happens in the most extreme cases is real price HYPERinflation.

This is one of the main concepts deflationists and mainstream economists completely miss; the SNAP-BACK of credibility inflation that can instantly take down their precious fiat currency. And it is their intentional avoidance of this obvious concept that delivers aid and comfort to masterprinters like Gideon Gono and Ben Bernanke.

When people try to protect their assets against the effects of fiat money, what are they really fighting against? The first inclination is to say "rising prices." Yet it's much more than that! Most everyone agrees that the interest rate paid by the banks never covers the loss of buying power brought on by price inflation. Especially the "after tax" return. It's the same old story, played out decade after decade. We must "invest our savings" (or become a day trader?) because the money will erode in value! Even at 3%, price inflation can eat away at any cash equivalents.

But, price inflation isn't the only story that impacts us. Rising prices come and go, but money inflation continues to affect us without fail. So why do people feel better when price increases slow or stop, even as money inflation runs ever upward? The good feelings usually evolve from the effects that money inflation (increases in the money supply) has on financial instruments. These assets take on the very same characteristic that the rising prices of goods once exhibited. They run up in currency price.

During these periods of "less goods inflation" another sinister form of mindset lurks in the shadows. Credibility inflation! Yes, it has been here many times before as every fiat currency alternates its effects upon the feelings of the populace.

Fiat currencies must, by definition, always expand in quantity. Their continued usage and acceptance is always obtained with the bribe of "more wealth to come!" Without that bribe, humans would never fall for holding a debt to receive the same goods in the future if they could get the real thing today. Human nature has always dictated that we buy what we need now instead of holding someone's IOU to receive it later. That nature is only changed through the "greed to obtain more." Like this: "I'll hold my wealth in dollars as long as my assets are going up. Later those increased assets will buy me a better lifestyle as I purchase more goods and services than I could buy now."

This is the hidden dynamic we see today. Just as destructive as "goods price increases," "credibility inflation" impacts our emotions to "hold on for the future, more is coming!" In every way, "credibility inflation" is just as much a product of an increase in the money stock as "regular price inflation" is. As cash money streams out to cover any and all financial failures, we begin to attach an ever higher credibility to the continued function of the fiat system. In effect, the more money that is printed, the higher we price the credibility factor. [2]

Selling the Salted Mine

Is this not where we are today? Interest rates – and with them, bond valuations – have run their 30 year course from 20% down to 0%. The credibility of paper assets has taken at least three severe beatings in the last decade. And now, to simply slow the acceleration of credibility DEflation, every manner of bailout and market rigging is being employed, practically in broad daylight. And this on the assumption that the global flock of sheep will only watch the numbers, not the men making them or the underlying economy from which they spring.

GDP is one of the great deceivers in the fiat money world. During the last century (??) or so, some form of GDP has always been used to measure the great mass of human endeavors. Yet, throughout this time, some form of fiat currency has always been in effect. Even during the Gold standard, fractional reserve banking expanded "gold note money" more so than the "gold money" in existence. Prior to 1929 this effect, if not creating outright "price inflation" during a time of Gold standard policy, was creating "credibility inflation" in the minds of investors. Using the backdrop of a growing GDP, people bought into inflating financial assets and ignored these signals as evidence that the fractional currency system was failing. Even though the dollar contained a policy statement to supply gold, back then a gold loan was still only good until everyone asked for gold.

The same thing is happening today. People destroy the currency structure by thinking it can deliver more than reality will allow. Instead of all debt failing slowly with each upward march of price inflation, prolonged "credibility inflation" snaps all at once as investors try to suddenly revert to a "buy now mentality." The inability of government authorities to contain the fiction of "good debt" is usually the feature behind the investor mood change. The "snap back" into a sudden "real price inflation situation" caused during this stage by a currency failure always breaks the whole structure. We approach this end today!

The GDP has been the relative gauge to mark all other measurements against. Even so, its numbers reflect little more than the result of an "expanding fiat money supply." Yes, there have been recorded downturns in GDP, but these contractions would have been worse if measured in real (gold) money. In opposite fashion, expansions paint a much brighter picture as all financial liabilities seem less a threat if held against a rising GDP. I submit that the GDP figures offer little more than a way to entice investors to increase their "credibility image" of our monetary system. Fiat moneys are always on a long term upward expansion, and they can hardly do less than bloat the picture.

Someone I know once said; "your wealth is not what your money say it is!"

A great historical example of credibility inflation with parallels to our present financial and monetary system was the system in France under the direction of the esteemed Scottish economist, John Law. In 1716 Law established the first French central bank, the Banque Générale, which was later nationalized and renamed the Banque Royale. Law used the Banque to introduce paper money in France.

Simultaneously, Law aggregated the trading companies in the French colony of Louisiana into a singular monopoly under the name "Company of the Indies" and sold shares of this company back in France. Law exaggerated the prospects of the company so well that he was actually appointed Controller General of Finances (essentially the first French Central Banker) by Philippe d'Orléans and given the official job of pumping this stock. In a way, John Law was kind of like the "Jim Cramer meets Larry Summers" of his time.

Wild speculation on the shares of the Company of the Indies led to the Banque Royale issuing more and more paper money to fund the monetary demands of the buying frenzy. And the "company profits" owed to the shareholders were also paid in fresh paper money. John Law's credibility was being entirely financed by his printing press.

Then, in late 1720, opponents of John Law's paper money attempted en masse to exchange their paper notes for gold. This forced the Banque Royale to cease physical gold "delivery," declare the essence of "force majeure" (which incidentally is a French term from French law), and admit it had issued much more paper than it had in gold. Both the Company stock value and the paper money itself plunged, ultimately to worthlessness. The monetary system in France was revamped six years later, but by the end of 1720 John Law had been disgraced, relieved of his official job, and had to flee France a poor man. He died in poverty nine years later.

Trading Salted Mines

One observation we can make is that in the long-line cycles of monetary history, technical (momentum) trading emerges in the very late stages of cycles in its most frenetic fashion. This is when it draws the most people into the unproductive activity of trading for trading's sake. And this is when it draws in the greatest profits, right before it delivers a catastrophic total loss.

In the early stages of these long-line cycles the greatest profits in society come from productive enterprises like building large companies from the ground up. But in the very late stages the greatest profits seem to come from paper churning and speculation in things that were previously traded mostly on fundamentals, based on actual, physical use.

We can see this in the famous bubbles like the tulip bubble, the Mississippi bubble, the South Seas bubble, the dot com bubble and the housing bubble. But it also occurs at the end of currency cycles. History is full of stories of traders frantically trying to trade out of their positions at the end of long-line cycles, while the currency burns around them. Look at any list of historic hyperinflations to find examples.

The modern version of this late-stage trading fad is most prevalent in the West, because that is where modern currency flows into financial assets at the highest rate relative to their real world, physical counterparts. For example, Western paper gold traders look to the seasonal preferences of Eastern physical gold users to plan their buys and sells. The Asian harvest season, after which farmers invest some of their year’s surplus income in gold is closely watched by Western traders. As is the Indian wedding season where every year Indian brides are adorned with physical gold.

Western paper gold traders love front-running these Eastern gold-buying seasons. Recall ANOTHER's comment on this from my last post:

Everyone knows that western minds don't like or want gold, but if they think you like it they will trade it up in price for the sake of "sticking it to you." Enter the world of "paper gold."

This paper trading mentality works really well right up until the moment it doesn't. And that's when it can deliver a total loss. I sometimes wonder if it should even be considered a profitable activity when a split second of fundamental phase transition can take away a decade of technical trading profits. Or the inverse, when the price of a fundamental misjudgment can be the opportunity cost of generations' worth of wealth. In a way, this is the hard question Freegold poses.

Getting Out Before the Collapse

Above I mentioned that the snap-back effect when a fiat currency loses its credibility (hyperinflation) is one of the obvious concepts intentionally ignored by deflationists and mainstream economists alike. Another obvious concept they remain oblivious to is that the two primary functions of money are in no way necessarily tied together. Those two functions being: "medium of exchange" and "store of value." Just because we have suffered their apparent fixation for centuries, they are most definitely not fixed by nature.

As long as you have the freedom to spend your money – the freedom to spend the fruits of your labor, which exists everywhere outside of outright whips-and-chains slavery – you have the choice of how to save your money. If you can spend your money then you can save your wealth in something other than money.

This is the essence of Freegold.

A medium of exchange need only have value in its usage (trade clearing) function. It can quickly lose all value when it is no longer used. This long-forgotten principle can be easily comprehended in Antal E. Fekete's "A 'fairy' tale" which I used in The 100 Year Clearing:

A ‘fairy’ tale

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

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

In this example the scrip money at the fair had value only through its use at the fair, not intrinsic in itself. After the fair, if you ended up with a trade surplus (extra scrip money), you turned in your medium of exchange for gold coins, the tradable store of value at the time. Can you imagine how this concept could work in a fair that's open for business 24/7/365?

So how can we possibly have one thing as a medium of exchange and something else as the store of value in our modern world? Has this ever been tried before in recent times? Of course it has! We have been doing it all along!! But the problems that ultimately come arise from those stores of value that are denominated in, and tied to, the durability of the scrip money, the medium of exchange.

Once upon a time, when the medium of exchange was physical gold coin, it was very durable. And stores of value denominated in that durable medium of exchange, denominated in gold, were quite durable for a time. But through the gold standards of the past century that "paper denominated in gold" became the medium of exchange. And now gold will once again become the store of value.

You see, these two monetary functions play off each other in a see-saw fashion. As "assets" (claims really) denominated in the medium of exchange fail and collapse, true physical "store of value" assets alternately rise to the occasion. It is only our ingrained misconception that both monetary functions must be somehow fixed at parity with each other that leads us to foolish ends. And understand also that the Giants of this world know better.

The Freegold Monetary Quadrangle – Explained in Gold is Money - Part 3

Today all governments of the world hold only two assets in reserve, meaning "for a rainy day." They hold claims against counterparties denominated in the medium of exchange and they hold gold, the store of value. And some of the more forward-thinking governments are already floating their gold reserves on the books, for all to see.

Now, the claims held in reserve have two vulnerabilities; the solvency of the counterparties and the durability of the scrip they are denominated in. Of course new scrip can be easily conjured on the national balance sheet to keep the counterparties technically solvent so most assuredly it will be the scrip itself that fails. The gold in reserve, on the other hand, has no counterparty and plenty of durability. So what monetary asset do you think will rise to fill the global monetary reserve void when the scrip finally fails? Palladium?

Bear in mind too that these Giant balance sheets can move the price (value) of gold more in a split second than all of us could in a lifetime of buying. And with any such tectonic shift in the importance of gold on international balance sheets, you can say goodbye to the fractionally reserved commodity (paper) gold trading arena and anything remotely associated with it.

The Collapse of the Salted Mine – Hyperinflation

First of all I would like to clear up probably the most common misconception about hyperinflation. What most people believe is that massive printing of base money (new cash) leads to hyperinflation. No, it's the other way around. Hyperinflation leads to the massive printing of base money (new cash).


Hyperinflation, in most people minds, conjures images of trillion dollar Zimbabwe notes. But this image is simply the government's reflexive response to the onset of hyperinflation, which is actually the loss of confidence in the currency. First comes the loss of confidence (hyperinflation), then, and only then, comes the massive printing to keep the government and its obligations afloat.

And what sets the stage for hyperinflation is a period of high credibility inflation followed by the loss of credibility. During our period of high credibility inflation the dollar was invisibly hyperinflated in a near-monetary sense. This has already happened. We are already there.

When I say the dollar has already hyperinflated in a near-monetary sense, I am talking about the number of dollars people, entities and even foreign nations think they have in reserve. Not in a shoebox, but in contractual promises of dollars to be delivered more or less on demand by somebody else. Claims denominated in dollars. This is how the vast majority of "dollars" are held; as promises to deliver more dollars. And this is why they are held this way. Because of the more in "more dollars." "Let me spend your dollars today and I will give you more dollars tomorrow!"

The Credibility Waterfall

I think it is fair to say that we have finished our 30-year run of high credibility inflation and we are now in the early stages of credibility deflation. The real question now is, can the credibility of the financial system deflate without tripping a breaker, without causing a credibility waterfall in the currency in which it is denominated?

The difference between today and a few years ago is that a few years ago credibility inflation was being fed by private credit (debt) expansion. Asset values, like homes, were being sustained and driven higher with the arrival of new marks. But today the Ponzi cycle of credibility inflation has peaked, there are no more new marks, and its decline is being managed centrally with the government expansion of new base money to conceal the failures one at a time.

And as in any Ponzi scheme there comes a point when redemptions can no longer be financed by new marks. I think the tipping point of credibility must come once it is clear that Bernie Madoff, I mean Uncle Sam is writing redemption checks that can never be cashed. The point is, we are already past the tipping point. So timing isn't really a question anymore. The credibility waterfall has already happened. But somehow we still have early marks continuing to stockpile rubber checks as if they are worth something. Does this mean credibility still exists? I think not.

I suppose this begs the question, is all that dollar debt out there in the world really worth anything anymore? If you answer yes simply because you cashed some of it in today for new underwear, then I say you didn't answer the question. The question is, is all that dollar debt out there in the world really worth anything anymore? The answer is no, it is not. Only at the margin, where you reside, can it still be cashed in for new underwear. But in aggregate, it is worthless, even today.

And then the next logical question should be, what is gold really worth today? If you answered $1,240 per ounce simply because you bought a gold Eagle today for $1,240, then I say you didn't answer the question. The question is, what is gold REALLY worth today? And the answer is it is priceless, but probably could be had in extremely large volumes for somewhere between $10,000 and $50,000 per ounce. (How much physical gold could China realistically get today if it tried to cash in $2T in debt paper for gold? At today's price it could get more than 50,000 tonnes, but only if that's the real value of gold.)

Only at the margin, where you reside, can physical gold still be had for $1,240 per ounce. But in aggregate, in the vaults of the world's central banks as the only reserve asset not tied to the medium of exchange, it is priceless, in the truest sense of the word.

My advice: Get as much of this priceless reserve asset as you can while it's still going for $1,240 at the margin. Seems like a bargain to me.

Sincerely,
FOFOA

[Theo_Fidel]

So no confirmation on the wild cloud computing claim I see.
Well saar you are the one trying to market your wild a$$ ideas here. With big big words as well.
Along with the gentleman who parked his gold in a swiss airport locker.

When I point out data does not back you up, you get all sniffy.
saar, productivity continues to rise, ask yourself why that is.
How have companies been able to squeeze so much work out,
while folks are being over worked that is not automatically mean more productivity.

BTW I use cloud computing just about every day, FYI.
It takes me 5-6 hours to run a simulation on our fastest computer.
5 minutes on the cloud computing node we use.
See productivity....

As I said stick to bashing bankers.

[svinayak]

Thomas O., You forget that it was the American consumer who left for the foreign shores long before our manufacturing companies did. It was only a select few industries that actually were in the process of going overseas for a cheaper labor pool during the seventies while many American consumers had already abandoned our American manufacturers. One in particular was the textile industry which probably was the first to leave. I remember watching an episode of 60 Minutes back in the late seventies, I can not remember who was the broadcaster but he was discussing the textiles industry and how horrible it was that they were leaving hundreds of thousands of American workers without jobs. Then he went on-site to a laid-off employee's home to discuss the situation with him. They were talking outside of his home, actually in front of his car, the car was a 1977 Honda, you know the one made in Japan. That was long before the foreign car manufacturers began creating transplant factories. So it was rather ironic that this textile worker was chastising Americans for buying cheaper foreign goods and chastising American textile manufacturers for chasing after cheaper labor forces while he himself was not supporting his union brotherhood with the UAW.
Now we have allowed ourselves as consumers to chase the almighty cheapest product regardless of where it was made and under whatever conditions the employees may have been forced to work. Currently, there is only one manufacturer left in the USA that makes American Flags, how sad is that. Over 90% of American Flags are made overseas. Is that horrible, yes, but did you actually check to see where that Flag that you proudly display (and rightfully so) was made? Did it say "Made in China", well you just put a proud American who makes flags in Ohio out of a job. Look in the mirror before we start casting our stones at our American manufacturers. We have seen the enemy and they are us. Just something to ponder.

grocery store deli at country mart grocery store
I live in a small area.It was very much alive during the 60's when the miners were here.We had a movie theater,restaurants,clothing stores on main street etc.Jobs for everyone.Now it is a ghost town.The only thing opened.Of course the store were i worked at one time in the past ,a service station,subway,churchs,and a funeral home. Not only do people mow lawns for a living.They now use the lawn mower for there transportation.For the person that is to lazy to walk . The lawn mower is there vehickle for transportation .They use the wheelchair.Which i think is very wrong. Its not bad enough they use the wheelchair for transportation .They actually play the part as being disabled which they are not.Amazing! Healthy Citizens can drive electric wheelchairs around town .Someone that is really disabled .They have to go to a doctor to see if they qualify for a wheelchair.If they don't qualify.They just buy one at a yard sale like the healthy citizen. Jobs around this area that is going to make you a living. Probably in the next town.That would be the prisons or small factoys.

[svinayak]

http://fofoa.blogspot.com/2010/07/debto ... avers.html

[vishvak]

Fed made $9 trillion in emergency overnight loans
On December 1 2010 , the US Fed made overnight secretive allocations worth 9 trillions of $$, which was paid back.

So why the secrecy? On what basis the allocations were made and why this shortcut to fiscal problems ? ?

Between bankruptcy of financial institutions, secretive bailouts that were paid back what happened?

My wild guess is a lot of 'selective' activities. The market structures with credit and debit funds were selectively rated so that flow of market funds can be manipilated in free market economy which was selective ie some were well funded at the cost of free market mechanism ie at the cost of others. Then bailouts occurred secretly- without correcting such selective movement of funds. So effectively bailouts means that profits can be distributed selectively and so also losses when crisis hit the market. Without accurate rating of structures no one can be sure anyway.

[Austin]

American treasury incurs record losses to its investors

Investors in US Treasury securities have lost over $300 billion in the past two months. During this period of time, price quotations of American 10-year securities have lost over 3% due to a possible roll up of its economic stimulus measures by the Federal Reserve System. Discussing the issue with the Voice of Russia Professor Alexander Abramov of the Higher School of Economics siad that the economy might cope with the situation without FRS.

The unemployment situation in the US has been improving in the past three consecutive months, and in fact, it is faster than expected. The American economy created 195,000 new jobs in June, while the forecast was 165,000. This means the support for the economy by the FRS produced results. The FRS head Ben Bernanke has already said that the Federal Reserve System could reduce the volume of purchasing securities by the end of the year and could stop this by the middle of 2014 if economy continued to recover.

In this respect, Professor Abramov said that “the measures that have been taken in the past three or four years to support the American financial system will be suspended. The Quantitative Easing programme that we have observed is a necessary step to assure a continuous work to the American financial system. The FRS is forced to provide cheap money for the financial system. It’s impossible to resume this for a long time, because when it is protracted, financial bubbles will appear, and businesses lose an impetus for the development,” Alexander Abramov claimed.

The decision by the Federal Reserve System on winding up the quantitative easing programme was inevitable. The question concerns only the rate of this process. Most likely, this will continue throughout the year. As the American state security market winds up, there will be big fluctuations. It will be difficult to place these securities, and this means it will be difficult to refinance the US state debt which is estimated at $16 trillion.

The pure loss in the treasury obligations market was $80 billion in June alone. The earning power of these reached record 2.69% in the past two years. Despite of the fall in price quotations, the largest foreign banks such as Mizuho, Dautsche Bank and HSBC continue to buy assets relying on long-term prospects of American treasury securities. They have other reasons for not getting rid of these securities, says chief analyst at “RGS - Assess Management” company Alexander Potavin.

“The volatility on the US treasury securities market will be quite high in the near future, while their profitability might grow slightly. But the primary dealers in the US are obliged to buy these securities, and they have a large amount of securities in their hands. A further fall in the prices is disadvantageous for them because they will lose in the balance price,” Alexander Potavin said.