Perspectives on the global economic changes

Neshant · Post by **Neshant** » 17 Jun 2015 12:33

great interview

but worrysome.

Austin · Post by **Austin** » 17 Jun 2015 13:08

Budget office: U.S. debt picture has 'worsened dramatically'

Congress' budget office again warned that the U.S. faces a massive debt problem Tuesday, using stark language to describe the government's long-term mismatch between spending and revenues even as it slightly upgraded its projections for debt over the next 25 years.

"The long-term outlook for the federal budget has worsened dramatically over the past several years, in the wake of the 2007-2009 recession and slow recovery," the Congressional Budget Office reported in its long-term budget outlook for 2015 released Tuesday.

The Budget Office, a nonpartisan in-house think tank for Congress, projected that the federal debt is set to rise from 74 percent of economic output today to 103 percent by 2040, driven by spending on government healthcare and retirement programs and interest payments on the debt.

The projection issued Tuesday, which is subject to significant uncertainty, is a slight improvement from last year, when the budget office estimated that debt would hit 106 percent by 2039. The outlook has gotten brighter, if only trivially, because financial markets now expect lower interest rates in the future, which will lower the cost of servicing the debt for the Treasury.

The budget office warned that debt would still be growing in 2040. It also could be nearly twice as large by 2040 as in the baseline estimate if a more realistic guess about how Congress will act in the years ahead and the economic feedback from higher debt placing a drag on economic growth are taken into account.

Although the long-term budget picture is dark thanks to the anticipated costs of the Baby Boom generation retiring, the federal debt is anticipated to decline for the next few years, thanks partly to spending cuts and tax increases imposed by Congress in recent years.

But the larger development is the government dedicated more and more tax dollars to entitlement and healthcare programs.

Spending on Social Security, Medicare, Medicaid, Obamacare subsidies and other healthcare programs will rise from an average 6.5 percent of gross domestic product over the past 50 years to 14.2 percent of GDP by 2040.

Under current law, on the other hand, all other government programs would feel the pinch. Spending on items other than entitlements and interest payments would drop from an 11.6 percent of GDP average to 6.9 percent.

The run-up in debt will come even as revenues rise gradually to 19.4 percent of output, about the 17.4 percent long-run average. Taxes receipts will go up mostly because income is expected to grow faster than inflation for most people, pushing them into higher tax brackets.

Tuesday's report is the first long-run budget estimate released by the Budget Office under new director Keith Hall, appointed by Republicans in the spring.

Neshant · Post by **Neshant** » 17 Jun 2015 13:16

chanakyaa · Post by **chanakyaa** » 18 Jun 2015 07:05

Panduranghariji, first of all thanks for the details post. Not many disagreements.

The third function of money is the store of value which USD did well but not long enough. The value of dollar fluctuated and we ended up with regular inflation

We ended with up inflation, but wasn't it a strategy and not a side effect? What I mean is, "inflation" has been the necessary "evil" of fiat currency. I'm not sure what an end solution is, but is it possible that the USD worked well for a while because of the following. Post WWII, "money printing", "inflation", and "lowering of interest from mid teens to almost zero" all three works perfectly in harmony. Thus, third function of the currency worked well. Money printing debased the fixed income debt, but lowered interest rates held up the value of debt. Once the rates dropped to near zero, the game came to an end. Now any additional money printing, with artificial interest rate control (due in part to floor), will directly debase the debt.

Where will the global trade go while you wait to get consensus? The nature abhors vacuum.

Understand the "global trade" and "deflationary" argument, but why does govt. decides how new money should be distributed? What has definition of money has to do with Global Trade?

panduranghari · Post by **panduranghari** » 19 Jun 2015 12:56

Uday M ji,
definition of money has everything to do with global trade.

Just like a fractal, this concept has infinite resolution.

The misunderstanding of what money is has lead us to where we are. Without sounding like a 'harbinger of doom', the concept of deficit spending, trade imbalances, current account deficit/spending is the vestige of current dollar denominated economic paradigm.

The excess generated by China needs outlet. They have a few choices- internal investment, buy assets, increase reserves. The reserves are interesting, because reserves are essential to defend currency status overseas. Currently dollars and to a limited extent euro acts like a reserve. As oil is denominated in dollar, its status is predominant.

China has bought a lot of gold using its surplus. China has also bought lots of raw materials and farm land overseas. They have also invested a lot internally to improve infrastructure. They still have more surplus so they invest overseas directly through their sovereign wealth fund and now using multilateral institutions like AIIB.

This issue is mainly due to the absence of suitable mechanism to extinguish the debt. There is no settlement mechanism for the imbalances. The money as it is now, gives us the quantity of imbalance ( by unit of account ), what will be used to settle the imbalance (medium of exchange) and how that imbalance will be settled (using the stores of value).

ForChina, they gain dollars by selling their wares. China uses a lot of resources to do the manufacturing. They use dollars to gain resources. For US they have to generate dollars by doing ingeneous accounting. But the simplistic way to put it is - the US produces dollars by printing. No hard work needed.

If USA was told, instead of settling its debt by printing dollars, they should settle it using something tangible. Would they be willing.

Can you read this viewtopic.php?p=1805157#p1805157 please. The international use of dollar depends of the assumption in the valuation of dollar.

I know my explanation here is incomplete. If you critique the link, I would be thankful.

Neshant · Post by **Neshant** » 20 Jun 2015 15:26

Interesting how banking & corporate goons are trying to subvert national sovereignty and decision making by demanding global treaties be signed & adhered to. Of course they are the ones drafting these treaties to prevent national govts from operating in society's best interest.

Interview with Julian Assange - who's still holed up in the Ecuador embassy in London.

Austin · Post by **Austin** » 21 Jun 2015 08:39

Neshant wrote:great interview

but worrysome.

That is what even Peter Schiff mentioned in his latest video blog , the interest rate hike would be very minimal in range of 0.25-0.5 , they would then say Interest rate is hiked and life will go on

Austin · Post by **Austin** » 21 Jun 2015 09:12

Talks about China Economy and US

Real Conversations: Stephen Roach on Global Imbalances, Risks and How It All Ends

Neshant · Post by **Neshant** » 22 Jun 2015 04:11

Austin wrote: That is what even Peter Schiff mentioned in his latest video blog , the interest rate hike would be very minimal in range of 0.25-0.5 , they would then say Interest rate is hiked and life will go on

That's what I'm expecting. A big fan fare about how interest rates have been raised a little even though it will still be well below real rates of inflation.

However at this point, there must be a massive amount of bad investments made with cheaply borrowed money piling up in the system. The longer this goes on the further back the sling shot is stretched.

chanakyaa · Post by **chanakyaa** » 23 Jun 2015 06:38

Panduranghari, thanks for the linked. It was a deep post. Took me a while to chew. Still ruminating on it.

Yes, the thollah and youro are definitely more "valuable" and the international trade is one of the pillars that provides the strength. But there could be more to it. Here is how I think about it.

Assume one day an island was discovered in the pacific ocean, that no one knew about. The island had decent population. The island was self sufficient, meaning its population lived off the things that grew on the island and material available to sustain human life. Life was good. The only things that were missing were modern amenities and communication with the rest of the world. Other countries decided that this island should become an island nation and should have its own currency. Very soon UN calls it a nation and EyeMF agrees name of the currency. What is the wealth of the nation? What should be the value of its currency to thollah, youro, or rupee? Who decides what the exchange rate should be? Should be near zero or infinity? In theory, we can value the material things available on the island in terms of world currencies, but what about human capital? The island did not trade anything in the past with the rest of the world. Does it mean, the island was worthless? Will the pricing of the currency help if the island had gold reserves? Would EyeMF be more comfortable with gold reserves? If the island nation does not perform any international trade for the next 25 years, will it grow to be more richer or poorer? The island will definitely get poorer once it gets into the trap of fiat currency, which will use its most powerful weapon of inflation to transfer all material things out of the island country in exchange for highly inflated/priced modern day amenities.

This issue is mainly due to the absence of suitable mechanism to extinguish the debt. There is no settlement mechanism for the imbalances. The money as it is now, gives us the quantity of imbalance ( by unit of account ), what will be used to settle the imbalance (medium of exchange) and how that imbalance will be settled (using the stores of value).

Agree, but isn't it a side effect and not the root cause? What I mean is that first decision may have been made to create imbalances (like convincing the island nation that they need modern amenities). Once the imbalance was created, fiat currency was used to strip importer off its material resources. For example, Yourope was given a lot of loan during WW to satisfy their desires (khujli) to fight with each other. Once the war was over, they had to come up with thollahs to settle the debt. Wars and lack of modern technology destroyed youropean economy so badly, that they couldn't produce enough to come up with enough thollahs. Worst yet, devaluation of its currencies made it worse to come up with enough thollahs to satisfy the debt. Dropping the value of currencies did not help as not many markets were available to sell and earn enough thollas. And, the whole thing went spiraling out of control so much that they lost all their yellow metal. But yes, it is a vestige of current thollah denominated economic paradigm.

TSJones · Post by **TSJones** » 23 Jun 2015 07:09

like gold every national economy has an intrinsic value. guaranteed somebody will want what you have depending on location, climate, natural resources including the cultural and inventive talent of the people.

israel....fiji.....iceland......etc....

fiji water, my son has it delivered by the case load every month to his house.

Austin · Post by **Austin** » 23 Jun 2015 08:56

Any reason why Dollah is Flash Crashing ?

TSJones · Post by **TSJones** » 23 Jun 2015 10:53

oh yeah the "dollah" is crashing and the American economy is not for real and is gonna collapse. real soon now.

just you wait.

http://finance.yahoo.com/echarts?s=EURU ... king":true}

panduranghari · Post by **panduranghari** » 23 Jun 2015 12:31

udaym wrote: What I mean is that first decision may have been made to create imbalances (like convincing the island nation that they need modern amenities). Once the imbalance was created, fiat currency was used to strip importer off its material resources.

Interesting perspective. However, on the island what was the wealth. It could have been shells or may be fishing net or perhaps with 'progress' it could have been a fishing trawler. In the present monetary system, wealth is commonly held as ambiguous claims against the economy. We call it stocks, bonds, money market funds, mutual funds, etc… People hold their wealth in this way for the promise it makes of more wealth forthcoming! Are you making this assumption here?

Say IMF enters the island and wants to bring about 'development' 'progress' whatever. They promise American investments which are dollar denominated. They say you give us interest for our investments (which may be prohibitive) or give us resources at affordable rate in lieu. They could say no. Lets assume they said no. The Americans could say lets leave them alone but we all know Americans are not like that. They will do a Ukraine if need be. But they will start a conflict to do whatever they want. Until USSR collapsed, the world used to accuse USSR for doing this. Its not that USSR was alone responsible but that was the image created. What gives America the ability to wage these wars? Wars are expensive.

Lets assume cowrie shells were the wealth reserve on the fictitious island. If America invaded and occupied the island, the dollar becomes the harder currency. The local inflation within cowrie shells forces people to exchange whatever they can gain by using up the cowrie shells or exchanging them for USD. USD becomes the harder currency.

However, imagine there is a secret society on this island who understands the problem with the cowrie shell economy but they see the bigger problem with the dollar economy. They say until the Americans came, everyone could hunt for cowrie shells and add to his own purchasing power. They can find cowrie shells but then they could not find 100000000 every minute or every day, unless everyone was just doing that and no one was doing the necessary occupations like fishing, farming etc. They could see the occupations not paying in US dollars were becoming unsustainable. What do they do then? Its the conundrum of Indians serving the British EIC as 'sepoys'. Carry on with traditional occupations and not earn much or earn the current currency in vogue by serving the exploiters? The people will inevitably choose to work for the currency which has the most value. And most value is derived from usage. More people use it, more value it has. People willing to save in cowrie shells will reduce with time while those in dollars will increase. And that is what has happened in the West.

The problem is for America, oil was what made their economy huge. The value of cheap oil for USA was and is very high. They unfortunately do not produce much of it. So they had to get oil for cheap. The only way to do it was through Saudi Arabia.

From USA gold website http://www.usagold.com/goldtrail/archives/another1.html

Another wrote:In the final analysis, ANOTHER offers one of the more plausible hypotheses for why the financial markets have acted as they have in the past few years, and therein lies his immense value to the reader, no matter who he is. Again, knowledge as is conveyed in his series of "THOUGHTS!" is rarely to be found outside the highest levels of international finance, and is seldom to be seen bandied about on the front pages of The Wall Street Journal or your favorite financial newsletter.

As explained by ANOTHER, an opportunistic arrangement for massive physical gold acquisition among important petroleum producing and exporting nations could be comfortably facilitated within these astronomical trading volumes now being publicly revealed via the LBMA. For the oil states this meant receiving real money (as opposed to government-sponsored paper) in payment for their depleting oil reserves. For the industrialized countries, this meant a continuing supply of cheap oil to fuel the economic boom already in progress. These transactions were to be cleared through the bustling London gold market. Up until late 1996, the volumes were a tightly kept secret so "the deal" proceeded without the knowledge of the general public.

When the LBMA went public with its figures, it raised the shroud off "the deal." But by then, according to ANOTHER, it no longer mattered. The oil states had already (almost inadvertently) cornered the gold market. As implied by ANOTHER's own words, his motivation for these postings was the discovery by "big traders" in the Far East of this opportune facility to buy gold at ever lower prices. Their subsequent heavy purchases of physical gold upset the delicate balance. Now there was no longer a reason to keep it secret, and hence, the revelation of this extraordinary tale.

And this

Date: Sun Oct 05 1997 21:29
ANOTHER ( THOUGHTS! ) ID#60253:

Everyone knows where we have been. Let's see where we are going!

It was once said that "gold and oil can never flow in the same direction". If the current price of oil doesn't change soon we will no doubt run out of gold.

This line of thinking is very real in the world today but it is never discussed openly. You see oil flow is the key to gold flow. It is the movement of gold in the hidden background that has kept oil at these low prices. Not military might, not a strong US dollar, not political pressure, no it was real gold. In very large amounts. Oil is the only commodity in the world that was large enough forgold to hide in. Noone could make the South African / Asian connection when the question was asked, "how could LBMA do so many gold deals and not impact the price". That's because oil is being partially used to pay for gold! We are going to find out that the price of gold, in terms of real money ( oil ) has gone thru the roof over these last few years. People wondered how the physical gold market could be "cornered" when it's currency price wasn't rising and no shortages were showing up? The CBs were becoming the primary suppliers by replacing openly held gold with CB certificates. This action has helped keep gold flowing during a time that trading would have locked up.

(Gold has always been funny in that way. So many people worldwide think of it as money, it tends to dry up as the price rises.) Westerners should not be too upset with the CBs actions, they are buying you time!

So why has this played out this way? In the real world some people know that gold is real wealth no matter what currency price is put on it. Around the world it is traded in huge volumes that never show up on bank statements, govt. stats., or trading graph paper.

The Western governments needed to keep the price of gold down so it could flow where they needed it to flow. The key to free up gold was simple. The Western public will not hold an asset that going nowhere, at least in currency terms. ( if one can only see value in paper currency terms then one cannot see value at all ) The problem for the CBs was that the third world has kept the gold market "bought up" by working thru South Africa! To avoid a spiking oil price the CBs first freed up the publics gold thru the issuance of various types of "paper future gold". As that selling dried up they did the only thing they could, become primary suppliers! And here we are today. In the early 1990s oil went to $30++ for reasons we all know. What isn't known is that it's price didn't drop that much. You see the trading medium changed. Oil went from $30++ to $19 + X amount of gold! Today it costs $19 + XXX amount of gold! Yes, gold has gone up and oil has stayed the same in most eyes.

Now all govts. don't get gold for oil, just a few. That's all it takes. For now! When everyone that has exchanged gold for paper finds out it's real price, in oil terms they will try to get it back. The great scramble that "Big Trader" understood may be very, very close.

Now my friends you know where we are at and with a little thought , where we are going.

UdayM wrote:Will the pricing of the currency help if the island had gold reserves?

The islanders who were used to cowrie shells (all of us) cannot see a dollar collapse without a simultaneous revaluation of something else. It's a seesaw. The dollar isn't collapsing against gold. It is collapsing against the physical plane of goods and services. That's the fulcrum, not gold. Dollar collapse is the force, goods and services the fulcrum, and gold the load. So gold is revaluing against goods and services. The gold revaluation is against the physical plane so as to fill the reserve void left by the dollar's collapse.

chanakyaa · Post by **chanakyaa** » 24 Jun 2015 03:18

like gold every national economy has an intrinsic value. guaranteed somebody will want what you have depending on location, climate, natural resources including the cultural and inventive talent of the people.

israel....fiji.....iceland......etc....

fiji water, my son has it delivered by the case load every month to his house.

TSJ, Fiji?? It does take "inventive talent" to sell someone the idea that a bottled water can have more than H2O. Sorry, being little cynical. But, I agree that Fiji Water is a marketing genius. Fiji Water was actually started by a Canadian businessman. I agree with the marketing talent of the Canadian businessman, not sure how it ties to "intrinsic value" of Fiji.

After FIJI Water ran an ad joking that it “wasn’t bottled in Cleveland,” the Cleveland Water Department proved that Fiji Water contained the highest levels of arsenic and other contaminants when compared to Cleveland tap water and other bottled brands(washingtonpost.com)

Comparison to Israel is apples and oranges. Ahh daring Icelandic default post-2008 crisis. Not sure about Iceland either.

TSJones · Post by **TSJones** » 24 Jun 2015 07:09

udaym wrote: TSJ, Fiji?? It does take "inventive talent" to sell someone the idea that a bottled water can have more than H2O. Sorry, being little cynical. But, I agree that Fiji Water is a marketing genius. Fiji Water was actually started by a Canadian businessman. I agree with the marketing talent of the Canadian businessman, not sure how it ties to "intrinsic value" of Fiji.

After FIJI Water ran an ad joking that it “wasn’t bottled in Cleveland,” the Cleveland Water Department proved that Fiji Water contained the highest levels of arsenic and other contaminants when compared to Cleveland tap water and other bottled brands(washingtonpost.com)

Comparison to Israel is apples and oranges. Ahh daring Icelandic default post-2008 crisis. Not sure about Iceland either.

what you have somebody else wants. guaranteed. thus intrinsic value there of.

why else would Africans be dropping out of the sky splattering London apartment buildings? a modern day blitzkreig of sorts.

lights out London!

KrishnaK · Post by **KrishnaK** » 24 Jun 2015 08:16

panduranghari wrote: The excess generated by China needs outlet. They have a few choices- internal investment, buy assets, increase reserves. The reserves are interesting, because reserves are essential to defend currency status overseas.

The only defending they've done is to keep the RMB artificially weak so they could continue to export to the US. To be fair, that looks to be changing.

ForChina, they gain dollars by selling their wares. China uses a lot of resources to do the manufacturing. They use dollars to gain resources. For US they have to generate dollars by doing ingeneous accounting. But the simplistic way to put it is - the US produces dollars by printing. No hard work needed.

By allowing Japan, S. Korea and China to export vast amounts of goods to the US, the US has effectively exported some of its manufacturing base to those countries. Along with the market, it must've provided some of the capital to finance it too. Without commenting on the wisdom of that course of action, it wasn't without cost to the US. That the US just prints dollars and holds the rest of the world in thrall is more CT than fact. All the countries involved partook of the gravy in full knowledge of what they were doing.

If USA was told, instead of settling its debt by printing dollars, they should settle it using something tangible. Would they be willing.

I think the US would be more than ready to settle it using tangibles like software, iPhones and what not that the US has an upper hand in, if China were willing to import more.

RoyG · Post by **RoyG** » 25 Jun 2015 02:48

The only defending they've done is to keep the RMB artificially weak so they could continue to export to the US. To be fair, that looks to be changing.

As long as oil is traded at the NYMEX and IPE, oil sales will be denominated in dollars. China has to engage in competitive devaluation to export to maintain its dollars reserves. It is indeed changing though with the combined military might of Russia and China along with poaching of GCC countries.

By allowing Japan, S. Korea and China to export vast amounts of goods to the US, the US has effectively exported some of its manufacturing base to those countries. Along with the market, it must've provided some of the capital to finance it too. Without commenting on the wisdom of that course of action, it wasn't without cost to the US. That the US just prints dollars and holds the rest of the world in thrall is more CT than fact. All the countries involved partook of the gravy in full knowledge of what they were doing.

It's actually more fact than CT. Everything from IMF loans to transactions in commodity markets are denominated in dollars which was a natural outcome of post bretton woods in which the US essentially took control of the majority of the worlds sweet crude. Of course countries had full knowledge. They needed to industrialize and the US wanted to increase it's standard of living. However, the US ran the risk of creating future industrial powerhouses with significant military capabilities. Along with this came the risk of GCC moving away from NYMEX and IPE. Global dollar trading is decreasing at about 1%/year.

I think the US would be more than ready to settle it using tangibles like software, iPhones and what not that the US has an upper hand in, if China were willing to import more.

Background noise. One thing to keep an eye on is gold imports.

chanakyaa · Post by **chanakyaa** » 25 Jun 2015 06:21

KrishnaK wrote:...That the US just prints dollars and holds the rest of the world in thrall is more CT than fact....

Technically you are right. They "digitize" it, not "print" it, to be super precise.

Neshant · Post by **Neshant** » 25 Jun 2015 12:51

RoyG wrote:Background noise. One thing to keep an eye on is gold imports.

More than imports, they have massively expanded their domestic production of gold. They are now the largest producers of gold in the world - and the largest consumers. The money rolls round and round in their economy.

India has failed to produce any gold. We import practically all our gold at huge costs. The money does not circulate in the economy.

The govt should really focus on boosting domestic gold production from mining. Instead of silliness like putting a tax on gold imports which just promotes smuggling and more of the useless banking industry, domestic production of gold should be massively expanded. Our gold consumption habits are not going away so it is local production that should rise to meet the demand.

Is India's geology any good for gold prospecting?

panduranghari · Post by **panduranghari** » 25 Jun 2015 13:52

Neshant wrote: India has failed to produce any gold. We import practically all our gold at huge costs. The money does not circulate in the economy.

Gold is funny that way- everyone thinks its money, but its supply tends to dry up as its price rises. Gresham's Law may be partially responsible for this.

http://www.tara.tcd.ie/bitstream/handle ... sequence=1

So far back as the time when Pliny termed India the sink of the
precious metals, silver was a favourite article of export to the East.
It has continued so since, but of late the trade has assumed an
extraordinary magnitude. In the five years prior to the present,
over £22,000,000 have been exported through England alone to
India and China; and from other countries a similar movement has
been in operation. In 1855, the exportation from England reached
the amount of £6,400,000, and this year it is proceeding at the rate
of upwards of £10,000,000 per annum,

Neshant · Post by **Neshant** » 25 Jun 2015 14:23

panduranghari wrote: Gold is funny that way- everyone thinks its money, but its supply tends to dry up as its price rises.

Other way around, price rises as supply dries up - as with everything.

A simple thought experiment will prove this.

If you could exchange a 1oz gold coin for 5 luxury apartment buildings right this minute, would you do it.

Of course you would. In fact everyone would. It would be foolish not to.

Gold will flow from vaults & jewelry onto the market by the hundreds of tons if prices rose to that level.

When you see Indians dishoarding & exporting their gold rather than importing & saving it, that's when you know the price of gold has hit a peak and is on its way down.

I remember reading someone here posting about a Roman chronicler who wrote that India was a place where the wealth of the world came to rest. Not sure about the exact wording but he was talking about the massive flows of gold from Europe and other parts of the world that got consumed and absorbed by India.

3 times in history, India built up massive gold reserves and twice it was taken away. Once by the muslim invasion and a second time by the British & other colonial armed robbers. Sadly India was not able to defend itself from this act of piracy.

This is the 3rd time in history where India has built up a massive stockpile of gold which fortunately resides in the hands of the people rather than centralized in some location like temples or govt. Fortunately this time round India has the means to defend itself.

The only thing that can f... things up now are bankers and their schemes & scams to trick people out of their gold and leave them with worthless paper, digital currency.. etc. In the west, these bankers have co-opted govt and use the power of the state to impose through violence schemes of taxation, imprisonment, confiscation, denial of employment opportunities and other evils to force people to transact in a monetary system designed by and for the benefit of bankers.

Any monetary system that a person is forced into through threats as opposed to voluntary adoption is a robbery scheme.

abhischekcc · Post by **abhischekcc** » 25 Jun 2015 14:37

Panduranghari ji,

That is not correct.

Gold unlike other commodities, does not perish. This means that almost all the gold mined throughout history is still available for purchase - but only at the right price.

So, when gold price swings up, some people (who bought gold earlier) find it profitable to sell. The reverse is also true.
This is the same as saying that gold price changes are sell/buy signals to the largest gold buyer in history - India.
Experience shows that this observation is correct.

panduranghari · Post by **panduranghari** » 25 Jun 2015 16:54

Neshant ji and Abhishekcc ji,

No ji for me saars. Too small for a ji.
I hear you. Have you heard about 'Giffen Good'?

wikipedia wrote:In economics and consumer theory, a Giffen good is a product that people consume more of as the price rises—violating the law of demand.

When you look at gold as money, it does not act like a Giffen good. However, when it is not money but just a valuable good is acts like a Giffen good. Somehow, the ordinary Indian housewife gets it. Forget the theory behind it, there is a cultural element here. For e.g. Hey its धनत्रयोदशी, lets go and buy some gold. Its a story that repeats all over India and some other places every year.

There is a naive assumption made that attach gold to a currency and you will find a top at some stage. Dishoarding gold happens/has happened/will happen at a terminal stage of well being of the Indian population.

May be you have wondered (I have) - Why does the Western public not hold an asset that going nowhere, at least in currency terms? Does the understanding of price and value have any effect on the reason why a particular asset is held or not? Or does western thinking differ from the thinking of eastern people? If one can only see value in paper currency terms then one cannot see value at all!

TSJones · Post by **TSJones** » 25 Jun 2015 18:22

China plans to launch yuan gold fix by end of 2015

http://finance.yahoo.com/news/china-pla ... 18339.html

KrishnaK · Post by **KrishnaK** » 26 Jun 2015 02:39

RoyG wrote: As long as oil is traded at the NYMEX and IPE, oil sales will be denominated in dollars. China has to engage in competitive devaluation to export to maintain its dollars reserves. It is indeed changing though with the combined military might of Russia and China along with poaching of GCC countries.

China needs to maintain 4 trillion in reserves for a GDP that's ~ 10 trillion because oil is denominated in USD ? Sounds like hogwash to me. China's exports as a percentage of its GDP is going down. They have also been making noises about permitting capital account convertibility. While I don't fully understand the implications of such a change, I think that the government's ability to control the economy tightly by maintaining low rates of consumption along with high rates of savings will be taken away. People could just move their money elsewhere.

The only thing China's increasing military might is causing, is for countries like Japan, S. Korea, India, Philippines, Indonesia, Vietnam to increase military co-operation with each other directed squarely at China, if not build outright alliances, with the backing of the US. Russia is irrelevant. This is also OT.

It's actually more fact than CT. Everything from IMF loans to transactions in commodity markets are denominated in dollars which was a natural outcome of post bretton woods in which the US essentially took control of the majority of the worlds sweet crude. Of course countries had full knowledge. They needed to industrialize and the US wanted to increase it's standard of living. However, the US ran the risk of creating future industrial powerhouses with significant military capabilities. Along with this came the risk of GCC moving away from NYMEX and IPE. Global dollar trading is decreasing at about 1%/year.

What does this have to do with my claim that the US printing dollars and *holding the rest of the world in thrall* is a bogeyman. My point is those policies had a cost to go along with whatever advantages that might have accrued. One of the costs was to export US jobs abroad wholesale. What's stopping China from doing the same today ?

chanakyaa · Post by **chanakyaa** » 26 Jun 2015 06:07

GOVERNMENT OF JORDAN ISSUES $1 BILLION BOND WITH U.S. GUARANTEE (Jordan's GDP is $60bn)

WASHINGTON D.C. – Today, the Hashemite Kingdom of Jordan closed on its offering of a $1 billion sovereign bond issuance guaranteed by the United States Government. This second loan guarantee reinforces the firm U.S. commitment to the people of Jordan by strengthening the Government of Jordan’s ability to maintain access to international financing, while enabling it to achieve its economic development and reform goals.

The United States’ guarantee will allow Jordan to access affordable financing from international capital markets, helping Jordan to continue to provide critical services to its citizens as it enacts transformative economic reforms and hosts more than 600,000 refugees who have fled the violence inside Syria. The loan guarantee agreement is designed to support specific economic reforms the Government of Jordan is pursuing to promote the economic stability and growth needed to provide opportunity and prosperity to the Jordanian people.

Today’s issuance of a $1 billion, five-year Jordanian sovereign bond was supported by a 100 percent guarantee of the repayment of principal and interest by the United States Government. The $1 billion issuance was priced at a coupon rate of 1.945%.

U.S. SIGNS LOAN GUARANTEE AGREEMENT FOR UKRAINE (Monday, May 18, 2015)

KYIV, Ukraine - The United States today reaffirmed its strong commitment to the people of Ukraine by signing a $1 billion sovereign loan guarantee agreement with the Government of Ukraine. The guarantee will help the Government of Ukraine continue to institute reforms that tackle corruption, improve the business climate, put the economy on a sustainable path to growth, and make government more responsive to the people.

"The $1 billion loan guarantee will help the Government of Ukraine to carry out its ambitious economic reform agenda," said USAID Acting Administrator Alfonso Lenhardt. "The guarantee sends a strong signal of U.S. support for Ukraine in achieving its reform goals and fulfilling the Ukrainian people's aspirations for a prosperous and democratic future."....

abhischekcc · Post by **abhischekcc** » 26 Jun 2015 07:45

panduranghari wrote:Neshant ji and Abhishekcc ji,

No ji for me saars. Too small for a ji.
I hear you. Have you heard about 'Giffen Good'?

wikipedia wrote:In economics and consumer theory, a Giffen good is a product that people consume more of as the price rises—violating the law of demand.
When you look at gold as money, it does not act like a Giffen good. However, when it is not money but just a valuable good is acts like a Giffen good. Somehow, the ordinary Indian housewife gets it. Forget the theory behind it, there is a cultural element here. For e.g. Hey its धनत्रयोदशी, lets go and buy some gold. Its a story that repeats all over India and some other places every year.

There is a naive assumption made that attach gold to a currency and you will find a top at some stage. Dishoarding gold happens/has happened/will happen at a terminal stage of well being of the Indian population.

May be you have wondered (I have) - Why does the Western public not hold an asset that going nowhere, at least in currency terms? Does the understanding of price and value have any effect on the reason why a particular asset is held or not? Or does western thinking differ from the thinking of eastern people? If one can only see value in paper currency terms then one cannot see value at all!

Western (white) people certainly have different investment traits - for example, in the run up to the housing crash in 2008, US whites were far more heavily invested in stocks than other races (mostly 401k accounts), so white middle class suffered the highest.

I think whites trust their institutions more than other races, hence they invest in stocks because CNBC, et al say so.

Other races are wiser because they have seen more vicissitudes.

Hindus of course have no trust of government, so we invest in gold and real estate (also in education). These are the only two commodities that go only up in the long run.

panduranghari · Post by **panduranghari** » 26 Jun 2015 14:08

Abhischekcc ji,

You hit the right point - Hindus of course have no trust of government.

Hindus, where ever they are, still have this innate understanding that money is not what it is. So an Indian who lives in the US still values gold more than a non Hindu. Even Arabs outside Arabia do not hoard gold like Indians do.

When you say - the westerners trust their institutions more than we do, I have to ask you has it always been the case? Or is it a relatively recent development?

I think it is deeper than that. I only wish I had the ability to express my thoughts in words as well as Dr Shiv saar can.

Western Universalism is the main reason why we have started to think like the westerners and ignore the value of gold at our own peril. I would say many on BRF here are relatively better off than the general population. Otherwise, they would never have the time to discuss these things. Understanding the difference between 'price' of X and 'value' of X is critical. And here the cultural conditioning of the east trumps the trust the westerners have for their institutions.

Probably the most common misconception is that price and value are the same thing. They are not. They are related but different. Price can be precisely known, but true value can only be estimated or guessed. And because price changes, price is always wrong while true value is always right, even though it is unknown. So price and value are always different. Value is always either higher or lower than price.

There is a little trick to knowing whether value is higher or lower than price. This trick will reveal the direction of value, but not the magnitude of the disparity. The trick is to look at which direction the government wants to influence any price. If the government is attempting to manage a price upward, then it is a safe bet that the value is lower than the price. And if the government would like to keep a price down, then you can be pretty sure the value is higher than the price.

It is certainly fair play to place your bets on the ability of government to overpower the gravitational pull of value. But when you do, you should be aware that you have just purchased the opposite of real value. And to understand why this may be detrimental to our financial well being, we must first understand the concept of value.

Where did the westerners and easterners inherit their investment traits? Or is it because easterners have seen institutional failure more often than the westerners, so they always go back to the roots? Understand this- the issuers of the currency do not tell you the value of their currency, that choice is entirely dependant on the person who chooses to accept this currency.

Do you really hold dollars?

It is important to understand that few persons or governments hold US dollars! Look at any investment portfolio and what you will find "are assets denominated in US$". This sounds simple, but it is not. You have heard the phrase, "money is moving into real estate, land, oil, stocks or bonds". It is a bad meaning, as it does not what it says.

All modern digital currencies do not go into an investment, they move THROUGH it. The US unit is only an exchange medium to acquire assets valued in dollars. US government bonds are the usual holding. No Central Bank (CB) holds any currency! They hold the bonds of that currency. The major problem today, is that digital currencies have erased the currency denominations of all government/nation debt holdings! Even thou a debt is marked as Euros, Dollars, YEN, they are in "real time" / "marked to the market" and cross valued in all currencies! No currency asset, held by CBs today are valued in the light of a single issuing country, rather "all currencies are locked together". To lose one large national currency, is to lose the entire structure as we know it!

There is an alternative. Gold! It is the only medium that currencies do not "move through". It is the only Money that cannot be valued by currencies. It is gold that denominates currency. It is to say "gold moves through paper currencies". Gold can be used to revalue any asset, and not be destroyed in the process!

In times of plenty, people say one thing about physical gold, but in time of change they do the opposite. History has shown that when paper assets start to be revalued downward by gold ( gold rises ) , it's physical supply dries up! People and governments "HOLD" the real physical and trade the paper, even gold paper. Never before in history have we had a gold market such as today's! It has cross currents from every direction.

Does it make sense?

TSJones · Post by **TSJones** » 26 Jun 2015 17:40

just holding currency usually does not make you richer, cash for emergencies excepted. you have to put it to work earning interest or some other income producing idea.

I would note that gold commands less goods and services from the economy this year than it did last year.

ldev · Post by **ldev** » 26 Jun 2015 18:24

I think whites trust their institutions more than other races, hence they invest in stocks because CNBC, et al say so.

Other races are wiser because they have seen more vicissitudes.

When you say - the westerners trust their institutions more than we do, I have to ask you has it always been the case? Or is it a relatively recent development?

Stable and predictable institutions have played a very large role in the development of the West....a transparent government, an impartial and responsive judiciary, an ethical police force, a responsive bureaucracy/civil service, an evolving legal structure to meet the requirements of an evolving society etc. etc. These institutions have been able to channel and direct and focus societal energies into national development.

The last 20-30 years have seen cracks develop in these structures as a technology led economy especially in the Anglo-Saxon countries has morphed into a finance led economy.

When people in the West ask me as to when India will become a "developed country", I respond by saying that in the forseeable future a lot of Indians will become wealthy and some will become very very wealthy. But individual wealth does not translate into national development unless a critical mass of people in a country believe in something larger than themselves. That critical mass was reached over 100 years ago in what we call developed countries. It has not yet happened in India.

Austin · Post by **Austin** » 26 Jun 2015 22:23

China to become biggest outward investor in 5ys – research
http://rt.com/business/269863-china-inv ... nce-world/

China is expected to become the world’s biggest overseas investor by 2020. Beijing’s global offshore assets will likely triple from $6.4 trillion, to more than $20 trillion by then, says research reported in the Financial Times (FT).

ramana · Post by **ramana** » 27 Jun 2015 00:10

So how much is each of the economic majors are invested in Greece?

US, UK, France, Germany?

From the rhetoric looks like Germans are most at risk in Greece.

panduranghari · Post by **panduranghari** » 27 Jun 2015 01:35

http://demonocracy.info/infographics/eu ... greek.html

In all it glory.

ramana · Post by **ramana** » 27 Jun 2015 01:58

Neshant, Pliny the Elder bemoaned the Roman women love for Indian goods that was transferring the gold to India.

http://www.newworldencyclopedia.org/ent ... with_India

Pliny (NH VI.101) complained about the drain of specie to India:[14]

"India, China and the Arabian peninsula take one hundred million sesterces from our empire per annum at a conservative estimate: that is what our luxuries and women cost us. For what percentage of these imports is intended for sacrifices to the gods or the spirits of the dead?" - Ibid., 12.41.84.

China was different. They wanted silver. All the silver from South America ended up there.

PH, The short answer is EU and Euro System SMP and Greece itself are biggest lenders.

panduranghari · Post by **panduranghari** » 27 Jun 2015 02:25

TSJones wrote:just holding currency usually does not make you richer, cash for emergencies excepted. you have to put it to work earning interest or some other income producing idea.

Why should a poor man like me risk the hard earned money in pursuit of additional income? Don't answer that - I am being rhetorical. I am not an investor (don't have enough funds as I have wife and 2 kids to look after) nor am I am speculator (I run a healthcare business). I am a saver. Have always been. I am not in debt because I do not need to be in debt. So why can't I just be and do my business, pay my tax, contribute a bit to the society and sleep sound?

Why should I risk my earnings? As you said - you have to put it to work earning interest or some other income producing idea.

It takes extreme courage in today's era to live within your means. Many people are incapable or they just do not have the courage to accept that not everything is affordable.

TSJones wrote:I would note that gold commands less goods and services from the economy this year than it did last year.

That's true for all currencies too except the US dollar.

Ramana ji,

At least Greece is facing up to its debts, albeit reluctantly. How many countries or individuals around the world are willing to do that? The world is Greece, we just do not know that yet.

TSJones · Post by **TSJones** » 27 Jun 2015 04:09

one of the problems that gold enthusiasts complain about is that a lot of gold trade is denominated in dollars. China is attempting to set their own gold market in the yuan bypassing the London market. we'll have to wait and see how the market responds to that especially considering that the yuan lacks full convertibility and has some transparency issues. time will tell.

the swiss franc is looking very good right now.

chilarai · Post by **chilarai** » 27 Jun 2015 12:05

panduranghari wrote: Why should I risk my earnings? As you said - you have to put it to work earning interest or some other income producing idea.

It takes extreme courage in today's era to live within your means. Many people are incapable or they just do not have the courage to accept that not everything is affordable.

Putting your savings in a bank with interest rate less than the inflation is a risk as well. The risk that your money will lose its purchasing power.
Financial prudence is always a good thing and it's very important to live within your means. At the same time i think if you can set aside some amount for emergencies ( most financial pundits advise 6 months of expenses ) it may be a good idea to invest the rest. Based on your risk profile you can either invest in safe and stable instruments( relatively speaking , there is always the risk of losing all your money) or one with higher risk ( but with possibility of higher returns)

panduranghari · Post by **panduranghari** » 27 Jun 2015 12:45

chilarai wrote:Based on your risk profile you can either invest in safe and stable instruments( relatively speaking , there is always the risk of losing all your money) or one with higher risk ( but with possibility of higher returns)

Who determines if a particular product or investment idea is risky or not? Credit rating agencies? Investment managers? Snake oil salesmen?

chilarai · Post by **chilarai** » 27 Jun 2015 13:08

panduranghari wrote:
chilarai wrote:Based on your risk profile you can either invest in safe and stable instruments( relatively speaking , there is always the risk of losing all your money) or one with higher risk ( but with possibility of higher returns)
Who determines if a particular product or investment idea is risky or not? Credit rating agencies? Investment managers? Snake oil salesmen?

For my own very modest portfolio ( less than 10,000 USD) I do my own risk analysis (in a very unscientific way I have to admit, if the past performance shows huge fluctuations it is risky for me but then they always say past performance is no gurantee of the future. ). But generally govt bonds are considered less riskier than say stocks or commodities.