Perspectives on the global economic changes

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Austin
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Re: Perspectives on the global economic changes

Postby Austin » 16 Feb 2014 11:54

Really matter in terms how you spread your reserves , If not for paper currency , Gold is what ones assets is graded against .......reason why you see in those list , country and institution hold gold and country with reserve currency or fully convertible one hold significant amount of gold.

If Gold is really useless tell those Central Bank of these top countries to sell it off and prove its uselessness.

Private gold is good for those holding it specially in country like India where value of Rupee depreciates significantly and inflation is high .....and Government who specialises in stealing public money. For people this is some reassuring against future screwups by GOI.

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Re: Perspectives on the global economic changes

Postby Suraj » 16 Feb 2014 12:10

Why would countries with a reserve currency or one of the primary traded currencies (USD, EUR, JPY) NEED any reserves ? Their own currency is the reserve. They don't 'need' gold as much as a developing country who would otherwise need either gold or the reserve currency to pay any external debt.

The US doesn't have the reserve currency because it has the most gold. The reserve currency status is backed by economic and military power, not a dormant store of value like gold. It confiscated peoples' gold in order to break deflation and encourage paper money spending during the depression.

This 'really matters' business is extremely questionable. The country with the most gold (not just in the central bank) is the one with most insurance in the case of a complete breakdown in the fiat currency system. Keep in mind that a lot of central bank reserves are not even within the country. A lot European, Japanese and Indian central bank gold is in US.

Compare that to private gold, which is in local private hands. Indian people aren't poor, as much as the fact that they have excess dormant savings in the form of gold. That table provides no meaningful information. If you really want a list of central bank holdings, it should be a list of holdings that are physically located within the owning country only.

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Re: Perspectives on the global economic changes

Postby JE Menon » 16 Feb 2014 12:22

>>If you really want a list of central bank holdings, it should be a list of holdings that are physically located within the owning country only.

Right on the money (no pun intended of course).

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Re: Perspectives on the global economic changes

Postby Austin » 16 Feb 2014 12:28

Well they need Gold Reserves to back up their Reserve Currency .....Military Power and Other Resources are part of the Triangle.

If they didnt need good or if it didnt had any importance neither would Europe Key Countries like Germany or US or China or Russia would be stashing Gold......May be the Central Bank need a lesson or two on the worthlessness of Gold Reserves.........the Chinese and Russian might be stupid to keep increasing Gold Reserves YOY.

Indian People aren't poor , WoW ......Great .......Tell me which part of India do you stay ......because many many Indians are poor and they dont have excess dormant gold most certainly not the poor ones

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Re: Perspectives on the global economic changes

Postby Theo_Fidel » 16 Feb 2014 12:34

Suraj wrote: The country with the most gold (not just in the central bank) is the one with most insurance in the case of a complete breakdown in the fiat currency system.


Not sure about fiat system breakdown but when society itself breaks down gold is the last thing on most peoples mind. You can see what is important in places like Chad, Congo, NoKo, Haiti, etc. Drinking water filters, Baby food, Anti-Biotics, painkillers, Petrol/Diesel, milk powder, dried grains, etc. These are the real currency of a society imploding on itself.

Gold is useful for newly urbanizing societies trying to find their footing. For everyone else it is a very expensive to produce money supply that is prone to hoarding. probably triggering deflation.

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Re: Perspectives on the global economic changes

Postby Suraj » 16 Feb 2014 13:02

Austin: You're repeatedly misquoting me here. I'm going to simply ignore the rhetoric about 'indians are poor' because you misquoted me using one half of a sentence. Gold is a dormant financial instrument; it generates no interest and cannot be invested like paper can, unless held in bullion form, which most private holders in India do not hold.

Back on topic: of course gold is important! I'm stating something very specific here - that that particular table is meaningless because:
a) just gold in central banks' hands is nor a useful piece of data.
b) gold within ones own borders matters more than any central bank holding held in another country.

Point (a) specifically matters because of the dramatic outlier of Indian data. It is the only country where private gold exceeds central bank gold holdings by way more than an order of magnitude. By conservative estimates that put the number at the 25-35K ton mark, Indian private gold holdings don't just exceed its own central bank holdings by 50x, it exceeds that of the top 10 central banks combined. Our data is a massive outlier to the norm, where most national gold is held in the central bank. American, European or even Chinese private gold holdings is chump change in comparison.

Point (b) is important because when the fecal matter hits the fan, you only care about the gold within your borders, no matter whose hands it is in. India will come in at 30K tons plus. The next biggest country will have about a third of that.

PS: none of the reserve currency nations need gold to back up their currency. The gold standard is dead.

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Re: Perspectives on the global economic changes

Postby Austin » 16 Feb 2014 19:52

Suraj wrote:Austin: You're repeatedly misquoting me here. I'm going to simply ignore the rhetoric about 'indians are poor' because you misquoted me using one half of a sentence. Gold is a dormant financial instrument; it generates no interest and cannot be invested like paper can, unless held in bullion form, which most private holders in India do not hold.


Suraj this is what you said

Indian people aren't poor, as much as the fact that they have excess dormant savings in the form of gold.

So its an irony that Indians have savings in Gold and yet they are poor . Indians save in gold for the reason I mentioned , corrupt government , rupee depreciating and tradition.
a) just gold in central banks' hands is nor a useful piece of data.


It really matters for the simple reason if you economy is screwed up you end up mortgaging Gold in Central Bank like we did in 1991


b) gold within ones own borders matters more than any central bank holding held in another country.


When was the last time when India was in trouble and people in India actually gave up their gold

So private gold helps those who have it when in need ....Central Bank Gold helps the country when in need ....as simple as that no need to twist facts

If Gold was dead Central Bank wouldnt be accumulating it and many countries and IMF would have sold their gold long time back and wouldnt have kept it as a form of reserve :lol:

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Re: Perspectives on the global economic changes

Postby chanakyaa » 16 Feb 2014 21:19

Austin wrote:
If Gold is really useless tell those Central Bank of these top countries to sell it off and prove its uselessness.

Usefulness of gold is a subjective, but only looser Central Banks hold gold, including India. When you have strong economy, sound monetary policy, strong legal system, and good governance why put faith in yellow metal and demonize your own currency?

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Re: Perspectives on the global economic changes

Postby Austin » 16 Feb 2014 21:33

chanakyaa wrote:Usefulness of gold is a subjective, but only looser Central Banks hold gold, including India. When you have strong economy, sound monetary policy, strong legal system, and good governance why put faith in yellow metal and demonize your own currency?


Well you check the list of World Gold Council and the amount of Gold Reserves they hold including India and then tells us who are the loosers.

If the yellow metal didnt had the value that deserved the kind of position that virtually all the Central Bank hold including the countries with Reserve Currency then they would have long replace that with something else ....hell even IMF hold 2nd largest reserves of Gold.

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Re: Perspectives on the global economic changes

Postby Suraj » 16 Feb 2014 23:18

Austin wrote:Suraj this is what you said
Indian people aren't poor, as much as the fact that they have excess dormant savings in the form of gold.

What is unambiguous about this ? All you have done is latched on to the first 4 words. That sentence does not state that there are no poor people; it says that many hold their savings in a form that does not generate a productive return. They do so for a good reason too - because avoiding inflation matters more than growth, of which there's little.
Austin wrote:It really matters for the simple reason if you economy is screwed up you end up mortgaging Gold in Central Bank like we did in 1991

Which is much easier for them to appropriate when the gold is not in India at all. Why do you think everyone's started the process of moving their central bank gold back home ? A powerful country can refuse to mortgage anything. For example, the US will probably never pay back the Chinese their $3 trillion. They'll pay back probably part of that using more printed paper, but that's it.
Austin wrote:When was the last time when India was in trouble and people in India actually gave up their gold

Which is precisely the point. The gold in the central bank is the people's wealth. It has no business being mortgaged abroad. The best form of maintaining it is in the peoples' hands. Ideally the RBI should never mortgage their stores, but use it as a hedge against competitive devaluation due to QEs. If there's a BoP crisis they should reevaluate the exchange rate accordingly. That's it. The 1991 mortgaging activity occured because the Rupee was not convertible at all. That's no longer the case now. Current account convertibility has been around for over a decade now.

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Re: Perspectives on the global economic changes

Postby chanakyaa » 17 Feb 2014 03:04

Austin wrote:
chanakyaa wrote:Usefulness of gold is a subjective, but only looser Central Banks hold gold, including India. When you have strong economy, sound monetary policy, strong legal system, and good governance why put faith in yellow metal and demonize your own currency?


Well you check the list of World Gold Council and the amount of Gold Reserves they hold including India and then tells us who are the loosers.

If the yellow metal didnt had the value that deserved the kind of position that virtually all the Central Bank hold including the countries with Reserve Currency then they would have long replace that with something else ....hell even IMF hold 2nd largest reserves of Gold.

Valid argument to which I'll definitely get back, but in the meantime lets check out IMF. IMF is second largest holder of gold, enhh??

(From IMF)
How the IMF acquired its gold holdings?
The IMF acquired its current gold holdings prior to the Second Amendment through four main types of transactions.
- First, when the IMF was founded in 1944 it was decided that 25 percent of initial quota subscriptions and subsequent quota increases were to be paid in gold. This represents the largest source of the IMF's gold.
- Second, all payments of charges (interest on member countries' use of IMF credit) were normally made in gold.
- Third, a member wishing to acquire the currency of another member could do so by selling gold to the IMF. The major use of this provision was sales of gold to the IMF by South Africa in 1970–71.
- Finally, member countries could use gold to repay the IMF for credit previously extended


The IMF held 90.5 million ounces (2,814.1 metric tons) of gold at designated depositories at mid-September 2013. The IMF’s total gold holdings are valued on its balance sheet at SDR 3.2 billion (about $4.8 billion) on the basis of historical cost. As of September 17, 2013, the IMF's holdings amounted to $118.7 billion at current market prices.


The IMF’s legal framework for gold

Role of gold. The Second Amendment to the Articles of Agreement in April 1978 fundamentally changed the role of gold in the international monetary system by eliminating its use as the common denominator of the post-World War II exchange rate system and as the basis of the value of the Special Drawing Right (SDR). It also abolished the official price of gold and ended its obligatory use in transactions between the IMF and its member countries. It furthermore required the IMF, when dealing in gold, to avoid managing the price of gold, or establishing a fixed price.

Transactions. Following the Second Amendment, the Articles of Agreement limit the use of gold in the IMF’s operations and transactions. The IMF may sell gold outright on the basis of prevailing market prices, and may accept gold in the discharge of a member country's obligations (loan repayment) at an agreed price, based on market prices at the time of acceptance. Such transactions require Executive Board approval by an 85 percent majority of the total voting power. The IMF does not have the authority under its Articles to engage in any other gold transactions—such as loans, leases, swaps, or use of gold as collateral—nor does it have the authority to buy gold.

Restitution. The Articles also provide for the restitution of the gold the Fund held on the date of the Second Amendment (April 1978) to those countries that were members of the Fund as of August 31, 1975. Restitution would involve the sale of gold to this group of members at the former official price of SDR 35 per ounce, with such sales made to those members who agree to buy it in proportion to their quotas on the date of the Second Amendment. A decision to restitute gold requires support from an 85 percent majority of the total voting power. The Articles do not provide for the restitution of gold acquired by the IMF after the date of the Second Amendment.



At < $40 on historical cost basis, why wouldn't IMF hold on to its gold? When the time came to promote IMF's new income model, IMF needed money so they sold 400 metric ton to countries because they (in their language) wanted to convert the gold "non-income producing assets" to income producing loans to member countries. Even if the gold value drops by half, they are deep in-the-money.

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Re: Perspectives on the global economic changes

Postby Austin » 17 Feb 2014 08:47

Suraj wrote:What is unambiguous about this ? All you have done is latched on to the first 4 words. That sentence does not state that there are no poor people; it says that many hold their savings in a form that does not generate a productive return. They do so for a good reason too - because avoiding inflation matters more than growth, of which there's little.


What you wrote is there to see.

Coming back to topic , The productive returns in Gold are in form of rising prices YOY ..if some one bought gold a decade back you know what the prices are right now.

You can always mortgage your gold or sell it off ..so its no different then having an FD or investing in Shares except its less risk compared to latter.

Which is much easier for them to appropriate when the gold is not in India at all. Why do you think everyone's started the process of moving their central bank gold back home ?


The point being when the chips are down you had something to mortgage thats worthwhile and accepted ...we never sold Land or Government paper to IMF but mortgage our gold.

People keep gold in US for safety purpose but then Governments can be naive , recent gepolitical situation shows that you might simply not get back or can be sanctioned .....any sane government will keep their gold to itself. if not done till now then better do it.,


A powerful country can refuse to mortgage anything. For example, the US will probably never pay back the Chinese their $3 trillion. They'll pay back probably part of that using more printed paper, but that's it.


And then what risk the powerful country credit rating and reputation ......US cant afford to do that without causing domino effect in the economy and would end up crippling it .... you dont want to loose Trust with your powerful creditor.

And you think China does not have military to back its economy and that its ICBM cant reach US ?

US can only do such tricks with 2nd rate country like Iran or Gulf .......they cant afford such risk with China without risking their own economy or risking a full scale war.

Which is precisely the point. The gold in the central bank is the people's wealth. It has no business being mortgaged abroad. The best form of maintaining it is in the peoples' hands. Ideally the RBI should never mortgage their stores, but use it as a hedge against competitive devaluation due to QEs. If there's a BoP crisis they should reevaluate the exchange rate accordingly. That's it. The 1991 mortgaging activity occured because the Rupee was not convertible at all. That's no longer the case now. Current account convertibility has been around for over a decade now.


Every thing is people wealth only ... GOI does not pay from its own pocket but uses tax as a way to run and steal money so its our money only.

Why do you think GOI keeps a part of its reserves in Gold and why did last year the Governor said if they had any problem with BOP they had enough gold to back it up ...Think.

Just think why would Central Bank keep a portion of reserves in Gold ... they would have easily kept US Bonds or Euros or SDR or Silver or something else...... because they know for a fact that its Worth it and is your rainy day reserves.

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Re: Perspectives on the global economic changes

Postby Suraj » 17 Feb 2014 11:14

Austin, do you have a point to make in any of the above ? I'm afraid I have no idea what you're trying to say.

Let's go back to the original post: 11 countries are listed on a table. The first 10 of them primarily hold their national gold within their central bank, i.e. the central banks holdings exceed private holdings.

#11 (India) does not fit this template. The gold in Indian private hands exceeds that in the central bank by 50x. Private gold holdings in India most likely exceeds the sum total of all the holdings of all of the top 10.

My original response pointed out the futility of the statistics in that table, in view of the above, because it provides a limited amount of insight. I understand you have a different position, but I don't know how to parse something like 'gold in the central bank is what really matters'. If it really matters, then do you also support the government confiscating private gold ?

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Re: Perspectives on the global economic changes

Postby Austin » 17 Feb 2014 11:44

Ok We are just beating around the bush ..... Stastics that done not suite is deemed as futile is the argument passed on.

Answer my one simple question , If Gold has little or zero value hey because we are now on Printed Paper and Military Power .....why are those countries keeping Gold in their reserves ?

Why not silver or Diamonds or crude oil or something else ......why does IMF keep gold , why does Germany or Italy or France or India does.

Why does Central Bank of China and Russia are accumulating Gold ?

Are these Central Banks too naive to understand that investing in US Bond are the best option since they are backed by word and military power ?

IF Private collection of Gold is all that matters and I am sure if India is no 1 then there are No 2 and 3 too in this world then why did GOI mortgage its Gold Reserve Asset to IMF and why did RBI Governer say this ?

http://articles.economictimes.indiatimes.com/2013-10-14/news/43027295_1_raghuram-rajan-imf-meeting-external-debt

We bought over $60 billion dollar gold last year. $60 billion accounts for three-fourth of our current account deficit. If the push comes to shove, we can pay the world in gold," Rajan added.


IF all you have to say those List are just Futile and private collection of Gold is all that matters because we are No 1 in it .....then I have nothing much to say.....we can happily agree to disagree

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Re: Perspectives on the global economic changes

Postby Liu » 17 Feb 2014 17:30

Austin wrote:Ok We are just beating around the bush ..... Stastics that done not suite is deemed as futile is the argument passed on.

Answer my one simple question , If Gold has little or zero value hey because we are now on Printed Paper and Military Power .....why are those countries keeping Gold in their reserves ?

Why not silver or Diamonds or crude oil or something else ......why does IMF keep gold , why does Germany or Italy or France or India does.

Why does Central Bank of China and Russia are accumulating Gold ?

Are these Central Banks too naive to understand that investing in US Bond are the best option since they are backed by word and military power ?

IF Private collection of Gold is all that matters and I am sure if India is no 1 then there are No 2 and 3 too in this world then why did GOI mortgage its Gold Reserve Asset to IMF and why did RBI Governer say this ?

http://articles.economictimes.indiatimes.com/2013-10-14/news/43027295_1_raghuram-rajan-imf-meeting-external-debt

We bought over $60 billion dollar gold last year. $60 billion accounts for three-fourth of our current account deficit. If the push comes to shove, we can pay the world in gold," Rajan added.


IF all you have to say those List are just Futile and private collection of Gold is all that matters because we are No 1 in it .....then I have nothing much to say.....we can happily agree to disagree


gold of course is a more universally acceptable hard cash then USD,however, Gold is too limited to give enough liquidity for economy activity in the world ,so Gold was replace by GRB and USD as global hard cash,because the ammount of USD can grow as the pysical wealth-creating activity and provide enough liquidity for such growing ecnomoy activities.


Besides, gold itself is not wealth.
those physical products,which can raise people's life quality from food,accomodation,clothes to communication, are real wealth.

Thus, if one country were to have billions tons of gold,but can not supply enough food,clothes,houses ,cars and household appliance to its people, then the country would still be a poor country and still can not feed its people.

Instead,
If one country were to have zero gold, but it can produce enough food,clothes,cars,houses and household appliance for its people, then the country would still be a rich country and its people still can enjoy a high life quality.

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Re: Perspectives on the global economic changes

Postby Liu » 17 Feb 2014 17:55

Suraj wrote:
Austin wrote:Suraj this is what you said
Indian people aren't poor, as much as the fact that they have excess dormant savings in the form of gold.

What is unambiguous about this ? All you have done is latched on to the first 4 words. That sentence does not state that there are no poor people; it says that many hold their savings in a form that does not generate a productive return. They do so for a good reason too - because avoiding inflation matters more than growth, of which there's little.
Austin wrote:It really matters for the simple reason if you economy is screwed up you end up mortgaging Gold in Central Bank like we did in 1991

Which is much easier for them to appropriate when the gold is not in India at all. Why do you think everyone's started the process of moving their central bank gold back home ? A powerful country can refuse to mortgage anything. For example, the US will probably never pay back the Chinese their $3 trillion. They'll pay back probably part of that using more printed paper, but that's it.
Austin wrote:When was the last time when India was in trouble and people in India actually gave up their gold

Which is precisely the point. The gold in the central bank is the people's wealth. It has no business being mortgaged abroad. The best form of maintaining it is in the peoples' hands. Ideally the RBI should never mortgage their stores, but use it as a hedge against competitive devaluation due to QEs. If there's a BoP crisis they should reevaluate the exchange rate accordingly. That's it. The 1991 mortgaging activity occured because the Rupee was not convertible at all. That's no longer the case now. Current account convertibility has been around for over a decade now.


well, guy,
1. For time being, Chiina doesn't want USA to pay 3 trillion USD at all. ,what China wants is to help USA maintain USD the position of global hard cash,so that China can buy the raw resources CHina needs ,which usually outside USA.

what CHina is interested in is not the asset in USA,but those raw resources outside USA,such as oil in Africa and MD,iron ores in Brazil and Australia.


2. In a mid run or long run, RMB would inevitablly replace USD as main trade currency in the world.

first, it can decrease the exchange cost,for example
Sino-Africa trade in fact is a exchange of "African raw resoruces for China's industry products",and USD as hard cash is a trade mediation which can be easily replaced by RMB.

second, to accept RMB, the currency of global largest industry-product supplier means that one can more easily buy what it need most in its daily life ,from food,cloths,to accomodations and household appliances.

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Re: Perspectives on the global economic changes

Postby panduranghari » 17 Feb 2014 18:20

Liu wrote:2. In a mid run or long run, RMB would inevitablly replace USD as main trade currency in the world.

.............. USD as hard cash is a trade mediation which can be easily replaced by RMB.


Why would Africa accept RMB? Do oil producers accept RMB? Until that changes, you can only build castles in the air.

When Shanghai Gold Exchange replaces London as the main exchange for gold, you will be closer to your wishes. How close is it? Dont have a clue.


Please tell me whats different between USD and RMB?

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Re: Perspectives on the global economic changes

Postby chola » 17 Feb 2014 21:49

Liu wrote:well, guy,
1. For time being, Chiina doesn't want USA to pay 3 trillion USD at all. ,what China wants is to help USA maintain USD the position of global hard cash,so that China can buy the raw resources CHina needs ,which usually outside USA.

what CHina is interested in is not the asset in USA,but those raw resources outside USA,such as oil in Africa and MD,iron ores in Brazil and Australia.



You have no idea what Suraj said because your grasp of economics is pretty elementary.

Now sit back and let me explain to you in very simple terms what Suraj said so you will understand.

You have $3T US today which could be exchanged for about 20T RMBs today. You said want do not want the US to pay back today. Good, the US doesn't want to pay back today.

It wants to pay you back later AFTER the US Treasury has printed another $20T in paper and AFTER the RMB has risen in value. Compounding inflation of paper and depreciating exchange rates.

By that time, you will be lucky if the $3.3T in principle and interest in Treasuries can net you 10T RMB.


2. In a mid run or long run, RMB would inevitablly replace USD as main trade currency in the world.


By the time, the US is done with inflating its currency it will be far more competitive in trade than China. If you look at the US dollar, it doesn't lose its value no matter how much it prints. With the one major exception of China.

While the US currency remains stable across the globe, it gains in competitiveness with the RMB at the same time.

China cannot play this game with the US and win.

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Re: Perspectives on the global economic changes

Postby Suraj » 17 Feb 2014 22:03

Austin wrote:Answer my one simple question , If Gold has little or zero value hey because we are now on Printed Paper and Military Power .....why are those countries keeping Gold in their reserves ?

Gold doesn't have 'zero value' - that is just an assumption you're making to frame your question. That central bank data table has about that much value, though :)
Austin wrote:IF Private collection of Gold is all that matters and I am sure if India is no 1 then there are No 2 and 3 too in this world then why did GOI mortgage its Gold Reserve Asset to IMF and why did RBI Governer say this ?

India used gold because the Rupee was NOT convertible in 1991-92 . I've already mentioned that twice above. Is that so hard to understand ?

How can you frame a question in the form of 'if private collection of gold is all that matters, why did RBI governor say this' in this context ? He's literally saying nearly all the gold is in private hands and if it was in RBI's hands he'd use it instead of currency reserves.

In other words what he says accepts the power of private gold holdings in India, as opposed to what RBI holds. That's the primary reason why Indian gold holding differes from ROW - everywhere else, the central bank is the prime mover. Even in the year in which RBI bought 200 tons of gold recently, private purchases were 3-4 times that.

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Re: Perspectives on the global economic changes

Postby Adrija » 18 Feb 2014 10:07

2. In a mid run or long run, RMB would inevitablly replace USD as main trade currency in the world.


RMB will replace USD as the main trade currency if and ONLY if

1. the Chinese consumer market becomes the largest in the world
2. China becomes the world's largest IMPORTER
3. Other nations have "faith" in China's macroeconomic stability

Please note that ALL conditions have to be satisfied

While #s 1 and 2 are "objective" measures and progress can be benchmarked relatively transparently, # 3 is more of a subjective assessment and hence hostage to China's good behaviour by the "establishment" i.e. global financial superstructure i.e. Western firms...........so perhaps quite some time away......

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Re: Perspectives on the global economic changes

Postby panduranghari » 18 Feb 2014 15:23

What use is it to become a main global trade currency when the current paradigm changes from deficits to settlements?

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Re: Perspectives on the global economic changes

Postby Adrija » 18 Feb 2014 19:36

....the current paradigm changes from deficits to settlements?


Sorry, Panduranghari ji, not sure I understand?

Deficits and surplus are conjoined twins, so both must exist simultaneously (in different national accounts of course)...........what do you refer to as "settlements" please?

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Re: Perspectives on the global economic changes

Postby Austin » 18 Feb 2014 21:05

Opinion: Next world economic recession to happen in 2018-2019

Russia's Deputy Economic Development Minister Andrei Klepach believes that the world's next economic recession might happen in 2018-2019.

“We should not forget that economic development is wave-like. It has to be taken into account, so the next major cyclic slump should be expected in 2018-2019 and around 2028, with a high degree of probability,” Klepach said at a session of the presidium of the Russian Academy of Sciences on Tuesday. “We have to be ready for it and keep it in mind that such a crisis always shows what the economy is worth.”

In his opinion, Russia should not hope for high economic growth rates in 2014 and 2015.

“Our objective is to expedite economic growth rates. As the situation develops, Russia will not have high economic growth in 2014-2015,” Klepach said. “The years 2016-2020 are actually the time when it will be possible to achieve considerable economic upturn, otherwise we'll be unable to resolve the task of restructuring our transport, health care and education.”

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Re: Perspectives on the global economic changes

Postby svinayak » 19 Feb 2014 03:30

Image

Scottish separatists can have their cake, or they can eat it, but they cannot do both. That was George Osborne's message in a speech on the future Scottish currency on February 13th, in which the chancellor of the exchequer set out to demolish claims by the separatists that, in the event that Scots vote to leave Britain next September, they could retain its currency http://econ.st/1b24GxP

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Re: Perspectives on the global economic changes

Postby Suraj » 19 Feb 2014 04:04

The pound issue seems to be manufactured by the English, as opposed to one Scotland wishes definitively. A currency union would at best be a temporary one borne out of history and convenience to minimize disruption. It's unlikely that in the long term Scotland wants out of Britain and still want to keep the British pound. They'll probably have a smaller but more dynamic economy, and would want monetary autonomy. The English are appealing to emotion with a 'don't leave! you'll lose the pound if you do!' message. If the Scots moot their own currency right now, or speak of monetary union with EU, the balloon of England's bluster might deflate rather quickly.

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Re: Perspectives on the global economic changes

Postby chanakyaa » 19 Feb 2014 07:42

One you accumulate a $hit load of debt, what do you do next?? Start justifying it.....

Debt and Growth: Is There a Magic Threshold?

Using a novel empirical approach and an extensive dataset developed by the Fiscal Affairs Department of the IMF, we find no evidence of any particular debt threshold above which medium-term growth prospects are dramatically compromised. Furthermore, we find the debt trajectory can be as important as the debt level in understanding future growth prospects, since countries with high but declining debt appear to grow equally as fast as countries with lower debt. Notwithstanding this, we find some evidence that higher debt is associated with a higher degree of output volatility...

http://www.imf.org/external/pubs/ft/wp/2014/wp1434.pdf

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Re: Perspectives on the global economic changes

Postby Austin » 19 Feb 2014 10:26

Suraj wrote:How can you frame a question in the form of 'if private collection of gold is all that matters, why did RBI governor say this' in this context ? He's literally saying nearly all the gold is in private hands and if it was in RBI's hands he'd use it instead of currency reserves.


That proves the point that the Gold held by Central Bank is all that matter as that is what they can sell if push comes to shove and that is what he said.

All this Priviate Gold is good is really of no consequences to Central Bank or for the country .....except for private individuals who hold it .......unless we are some communist nation that says every thing you hold belongs to the state.

I hope this is clear to you now.

In other words what he says accepts the power of private gold holdings in India, as opposed to what RBI holds. That's the primary reason why Indian gold holding differes from ROW - everywhere else, the central bank is the prime mover. Even in the year in which RBI bought 200 tons of gold recently, private purchases were 3-4 times that.


He doesnt say any thing like that ....he never even mentions private gold , all he is talking of CB gold.

If I hold x amount of gold why should it help the country .....i can use it in ways I want to ..... the only ways such private gold really helps the country is when you export gold jewellery and government earns tax revenue ...that is what it is ........rest is irrelevant.

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Re: Perspectives on the global economic changes

Postby Suraj » 19 Feb 2014 11:06

Austin wrote:That proves the point that the Gold held by Central Bank is all that matter as that is what they can sell if push comes to shove and that is what he said.

All this Priviate Gold is good is really of no consequences to Central Bank or for the country .....except for private individuals who hold it .......unless we are some communist nation that says every thing you hold belongs to the state.

He spoke in the context of foreign currency reserves being drained to purchase gold. Unlike forex reserves in currency, that must be exchanged with the RBI for local currency, there's no such restriction that gold must be kept in the central bank. The RBI has to keep track of the BoP situation, and he stated that having the gold within the central bank - which people exchange for local currency - would give the central bank another way to pay down any current account deficit.
Austin wrote:If I hold x amount of gold why should it help the country .....i can use it in ways I want to ..... the only ways such private gold really helps the country is when you export gold jewellery and government earns tax revenue ...that is what it is ........rest is irrelevant.

I'm curious what your position on gold holding is. I first thought you support private gold holding and oppose any effort by GoI to confiscate it or punish private holding. Now it sounds like you advocate the opposite, and that private savers have an obligation to help the country.

Regardless, when was the last time you saw central banks conduct day to day trading payments using gold ? It's not common, and gold stocks are almost always a stockpiled holding. Gold as a means of payment on a day to day basis has a substantial carrying cost. Not every country is willing to keep gold in another country and just using an electronic ledger to track quantities of gold credited and debited. In fact, countries are increasingly unwilling to store their gold in another country's vaults, which only increases transactional costs for gold as a means of payment.

The purpose CB gold reserves serve is to let central banks protect some of the accrued national wealth from their own actions. Under the fiat currency system, as they print money, the value of the gold rises in that paper money. Hold a lot of your reserves in gold and print money, and your reserves rise in paper value along with it. It doesn't really matter who's holding the gold, as long as the gold is within national borders. Thats why I said originally that either that list should only show CB gold within national borders, or just show the aggregate gold holding estimates per country, private or central bank held.

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Re: Perspectives on the global economic changes

Postby Austin » 19 Feb 2014 14:37

So are you saying the Gold that currently RBI holds are private gold that people have kept in bank in exchange for currency and not the one that CB bought to keep its Reserves in various medium ?

You are mixing the two issue .......India has tons of private gold but thats little use to Central Bank , what is useful to CB is the hold reserves they hold as part of larger currency reserves and that would save their arse some day.

You have a different opinion than I do on Gold in Government and Private collection ..... I dont give much value to most of the write up there as many are paid but see what the Central Bank are doing and when I see what they are doing they are ammazing gold every year .....there is a good reason they do that and do not put all the money in US Bonds or Euro or SDR

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Re: Perspectives on the global economic changes

Postby member_26147 » 19 Feb 2014 18:25

Image

Look at the graph above. What do you see? All the economies have gold reserves less than 6% of GDP and less than 6% of their Debt as percentage of GDP. What does that tell you? Gold is inconvenient and a dinosaur. Gold should be about 10% of one's portfolio and that too only for extreme in-contingencies.

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Re: Perspectives on the global economic changes

Postby panduranghari » 19 Feb 2014 20:10

Adrija wrote:
....the current paradigm changes from deficits to settlements?


Sorry, Panduranghari ji, not sure I understand?

Deficits and surplus are conjoined twins, so both must exist simultaneously (in different national accounts of course)...........what do you refer to as "settlements" please?


Adrija ji,

It's a simple concept.

For example, you go to work for an employer. Thus you are an employee. You work as per the contracted hours, at the end of the month - you get your salary. If the employer pays you as promised, the efforts you have taken have been settled in monetary terms. It was the contract which stated your salary should be paid at a pre determined date and the amount is fixed unless there is also a performance related bonus.

Will you still go to work if you are not getting paid? Perhaps you will, perhaps you won't.

Now if the employer says I will settle your salary in full only after 5 years, until then you will be paid a certain amount. The certain amount the employer pays you is a lot less than contracted amount. Even after 5 years, the employer refuses to settle the deficit, what will you- the employee- do? Quit and then file court cases to settle the outstanding dues? Carry on hoping the dues will be settled in due course? Find another job?
You tell me how long you are willing to wait for the deficit to be settled?

Similarly, in 1968 France demanded settlement of its trade and requested US to settle in gold. Then others followed and on 15 Aug 1971, the Gold window was closed. The gold kept rising until 1980. But still the world stuck with USD as there was no option on quitting. There was no replacement to the lubricant effect of fiat currency unrestrained by any backing. When the 1982 elimination of temporary debt ceiling lead to explosion of US debt -ergo Global debt- the world saw 5 huge stock bubbles.

How long can the waxing and bursting of bubbles go on?

The debt money is trying to find a home. This is the cause of bubbles.

The question everyone is asking is- why not settle the debt every quarter? It make immense sense to producers and consumers. Producers get paid in full on time. Consumers only buy what they can afford.

It makes sense to me. Does it to you?

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Re: Perspectives on the global economic changes

Postby TSJones » 19 Feb 2014 20:56

^^^^^Evidently, you don't understand the bond market or the fact there is a huge private, market for the bonds. In fact, nobody is stuck holding the bonds, because the demand is so large for them.

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Re: Perspectives on the global economic changes

Postby panduranghari » 19 Feb 2014 21:38

Bond market arose to service the need of the debt money I.e. To sterilise its effect. Even Bill Gross- the king of bond market- has thrown in the towel. If he sees the decline, you or me are just amoeba in the water infested with giant sharks.

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Re: Perspectives on the global economic changes

Postby Suraj » 19 Feb 2014 21:40

Austin wrote:So are you saying the Gold that currently RBI holds are private gold that people have kept in bank in exchange for currency and not the one that CB bought to keep its Reserves in various medium ?

I have no idea how you came to such a conclusion. But no, I said that *foreign currency* is held within the RBI by law, since every private person is required to surrender unused foreign currency in exchange for rupees. It's gold, for which there's no such rule, so that they can keep gold on hand.
Austin wrote:You are mixing the two issue .......India has tons of private gold but thats little use to Central Bank , what is useful to CB is the hold reserves they hold as part of larger currency reserves and that would save their arse some day.

What are the two issues ? And how is gold helpful to the RBI when they already have current account convertibility and flexibility to set interest rates, unlike 1991 ? Hardly any central bank ever conducts day to day trade in gold, despite Rajan's nice press soundbite. The gold holding serves as a hedge against local inflation and, inflation within the external currencies.

The Chinese, for example, would love to swap most of their $3 trillion of useless 'Sure I'll pay you back, dude! Promise! We're buddies, right ?' IOU notes from the Fed with equivalent quantity of gold. That would serve as a hedge against QE-based dollar devaluation, because the gold would correspondingly appreciate.

To do this, it doesn't matter who holds the gold - people or the central bank. All that matters is that the gold be within national borders. The Chinese are doing the same thing we are, belatedly - encouraging domestic gold consumption, and last year overtook India as the biggest consumer.

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Re: Perspectives on the global economic changes

Postby Suraj » 19 Feb 2014 21:44

What does 'Bill Gross has thrown in the towel' imply in financial terms ? I got out of his fund (PTTRX) last year to move into equities which gained nicely, but haven't followed news from PIMCO recently. I do know that his sidekick El-Erian quit, but the financial news has been mixed, with many claiming El-Erian was never a great money manager, having made a mess of Harvard's investment fund before his PIMCO stint.

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Re: Perspectives on the global economic changes

Postby panduranghari » 19 Feb 2014 22:07

^ the overwhelming trend suggested rise in the interest rates which never materialised. And PIMCO lost more money in 2 years than they ever did.

The macro economic outlook in my layman opinion is a rise in interest rates. Bonds do poorly in such environment anyway.

The double whammy is when Bill gross himself has tapered in the treasury purchases, so he knows the yields are going down. He cannot stand stationery to deliver for his clients.

And that's the point I was making when TSJ brought in bonds. Bonds are necessary to sterilise the debt money. But when the king of bonds himself is bearish on A++ rated bonds, the outlook is very poor if anyone still believes bonds will save the day.

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Re: Perspectives on the global economic changes

Postby Suraj » 19 Feb 2014 22:18

A lot of bond guys had egg on their faces last year, yes. Bond folks do well when rates are stable/falling or telegraphed in advance. Most of the big bond price falls came upon unexpected Fed announcements last year that had not been priced in. On the other hand, this year seems to suggest a different prognosis for treasuries:
Gundlach shows why betting against treasuries is a fools game
The market was “entering 2014 struck by a greater consensus entering any year that I can remember, that the dollar has to do well, gold is for losers and bond yields will rise,” Jeffrey Gundlach, chief executive officer of DoubleLine Capital LP, which manages $49 billion, said in a telephone interview from Los Angeles on Jan. 28. “Things were so lopsided in terms of that positioning. That was late in that way of thinking.”

The amount of bets against 10-year Treasuries by hedge-funds and other large speculators shrunk to as low as 58,000 contracts last month from a 19-month high of about 189,000 in November, data from the Commodities Futures Trading Association in Washington show.

Gundlach predicts yields will fall in 2014, with demand rising from investors such as banks seeking high-quality collateral to meet new regulatory requirements and as a haven for others from political and economic turbulence in nations ranging from Turkey to Argentina. Gundlach outlined his views for investors in a conference call Jan. 14.

I would also suggest not using the word 'bonds' to describe every debt instrument. Not everything in the bond world moves the same way or to the same extent. It's confusing to parse.

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Re: Perspectives on the global economic changes

Postby Austin » 19 Feb 2014 22:23

WoW both Russia and Swiss hold a very large reserve portion of Gold .....The Russian Government buys out 90 % of Gold produced locally and they have worlds 2nd largest Gold Reserves.


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Re: Perspectives on the global economic changes

Postby Suraj » 19 Feb 2014 22:39

Austin wrote:WoW both Russia and Swiss hold a very large reserve portion of Gold .....The Russian Government buys out 90 % of Gold produced locally and they have worlds 2nd largest Gold Reserves.

China increasingly does the same thing. India on the other hand has >2000 years of history of sucking in gold, as Ptolemy, or some other Roman historian, lamented.


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