Perspectives on the global economic changes

[Austin]

What Happens After The Bubble Bursts: 85% Of Pension Funds Could Fail Due To An Era Of Niggardly Returns

[svinayak]

http://www.herbalifepyramidscheme.com/p ... n-waldron/
Herballife under investigation

[Austin]

40 Central Banks Are Betting This Will Be The Next Reserve Currency

As we have discussed numerous times, nothing lasts forever - especially reserve currencies - no matter how much one hopes that the status-quo remains so, in the end the exuberant previlege is extorted just one too many times. Headline after headlines shows nations declaring 'interest' or direct discussions in diversifying away from the US dollar... and as SCMP reports, Standard Chartered notes that at least 40 central banks have invested in the Yuan and several more are preparing to do so. The trend is occurring across both emerging markets and developed nation central banks diversifiying into 'other currencies' and "a great number of central banks are in the process of adding yuan to their portfolios." Perhaps most ominously, for king dollar, is the former-IMF manager's warning that "The Yuan may become a de facto reserve currency before it is fully convertible."

[panduranghari]

Yeah right. All china needs to do is just set price of gold high - say 1gm for 5000 RMB and then within few years we will be back where we are now.

The only consequence is we are going to see unnecessary bloodshed by supporting this nonsense. Anyway i feel its a non starter.

[Austin]

I for one would be Happy if Yuan and eventually some other BRICS nation currency gets reserve currency status ....its similar to Economic Equation of having a Multipolar world.

We have seen too much of Pain and Agony with US Dollar as reserve currency status for decades , its high time we have other big players in the block so that countries have flexibility to choose their own Forex Reserves along with Gold and SDR and is not held hostage ( Geopolitically & Economically) to a single reserve currency.

[Austin]

Is the Market Primed For a Major Collapse?

Today the markets face a number of major headwinds.

They are:

1) Abenomics is failing. Inflation has risen in Japan, increasing the cost of living. At the same time period, incomes have fallen, as has household spending. And Year to Date the Nikkei is down over 14%, making it the worst performing stock market in the world thus far for 2014.

2) We are entering a period that has historically been very poor for stocks. According to the Ned Davis (NDR) database, had you invested $10,000 in the S&P 500 every May 1st starting in 1950 and sold October 31 of the same year, your initial position would only be worth $10,026 today in 2007. Put another way, by investing only from May through October, a $10,000 stake invested in 1950 would have only made $26 in 57 years.

3) The regulators are beginning to crack down on High Frequency Trading. While this is overall a very positive development for the capital markets, it will be removing one of the primary props for asset prices over the last five years.

4) The Federal Reserve is tapering the pace of its QE purchases. This is also very positive for the capital markets in the long-term as it lowers the Fed’s manipulation of the world’s risk profile. However, short term the tapering of liquidity will generally be market negative.

5) The market is sharply overbought and overvalued with a record number of investors bullish, margin debt at record highs, record high profit margins, and a forward valuation that matches that attained during the 2007 peak.

All in all, the market is facing an increasingly negative environment. Historically speaking April and May have not been big months for crises, but the number of negatives the market is facing today is rather unique.

Watch the key support line below. In particular, the key issue is how the market reacts if we break it. A sharp drop below followed by a strong bounce would maintain the momentum of the last two years. But if we break this line and fail to reclaim it… we’re in more serious trouble.

[Austin]

This Is Not A “Healthy Correction”: The Mother Of All Financial Bubbles Is Beginning To Crack

[Austin]

Gold at three-week high on Ukraine tensions

[chanakyaa]

panduranghari, as you highlighted

Euro drags on ECB's price stability objective: Noyer

The euro is a drag on our objective of price stability, says Christian Noyer, Banque de France governor, discussing his concerns over the euro and the potential European QE.

how worried are you about the euro? roughly your precision of the euro, all currencys over the last 40 months explains a half a percentage points of the inflation, it means that if it were not for the depreciation instead of being .5% of the depressioniation, we would have a 1%, it's a drag on our objective of price stability. so this is the second piece of verbal intervention from mario draghi over the weekend. the first came 20 days ago when he said all council members stood unanimously by to potentially launch qe, one of the reason for the euro gains people don't think you can find enough assets to buy that would push down bank loans on small to medium size businesses, it's too complex. what would you say to those people? can you find stuff to buy? oh, sure. there is a lot of securities, qe and the other policies we normally use, we finance banks, we provide huge amounts of liquidity. we provide a kind of option to all banks to get lick wittied because we have more options and food allotments but if we want to go to buying securities, which is really the heart of qe, we have to take some securities. we can buy private ones and sovereign securities. i beg your pardon, are you saying as a part of qe, you could buy sovereign debts. that we thought was illegal? no, we have done so in the past when we implemented our securities market program. we have done so when we started the so-called omt policy, when we, mario draghi explained you were committed to whatever it takes to save the euro. and so it's absolutely possible to intervene on this secondary market.

[Austin]

WT............ Some crazy Forex Reserves held by china reaching $4 Trillion .....Thats like more than Russia and India GDP combined

China forex reserves hit 3.95 trln U.S. dollars

BEIJING, April 15 (Xinhua) -- The People's Bank of China (PBOC) said on Tuesday that China's foreign exchange reserves hit 3.95 trillion U.S. dollars at the end of March.

The figure was 130 billion U.S. dollars more than that at the end of 2013, according to the bank.

Growth of China's foreign exchange reserves got back on the fast track in 2013. The country's foreign exchange reserves hit 3.82 trillion U.S. dollars at the end of 2013, up 509.7 billion U.S. dollars from that at the end of 2012.

The nation's foreign exchange reserves totaled around 100 billion U.S. dollars in 1996. It took only a decade for China to surpass Japan to become the largest holder of foreign exchange reserves in 2006, when reserves topped 1 trillion U.S. dollars.

Currently, the nation's foreign exchange reserves are almost three times that of Japan.

[panduranghari]

panduranghari, as you highlighted

Euro drags on ECB's price stability objective: Noyer

The euro is a drag on our objective of price stability, says Christian Noyer, Banque de France governor, discussing his concerns over the euro and the potential European QE.

how worried are you about the euro? roughly your precision of the euro, all currencys over the last 40 months explains a half a percentage points of the inflation, it means that if it were not for the depreciation instead of being .5% of the depressioniation, we would have a 1%, it's a drag on our objective of price stability. so this is the second piece of verbal intervention from mario draghi over the weekend. the first came 20 days ago when he said all council members stood unanimously by to potentially launch qe, one of the reason for the euro gains people don't think you can find enough assets to buy that would push down bank loans on small to medium size businesses, it's too complex. what would you say to those people? can you find stuff to buy? oh, sure. there is a lot of securities, qe and the other policies we normally use, we finance banks, we provide huge amounts of liquidity. we provide a kind of option to all banks to get lick wittied because we have more options and food allotments but if we want to go to buying securities, which is really the heart of qe, we have to take some securities. we can buy private ones and sovereign securities. i beg your pardon, are you saying as a part of qe, you could buy sovereign debts. that we thought was illegal? no, we have done so in the past when we implemented our securities market program. we have done so when we started the so-called omt policy, when we, mario draghi explained you were committed to whatever it takes to save the euro. and so it's absolutely possible to intervene on this secondary market.

`
Austin Saar,
I did not predict anything. Its ECB mandate to maintain inflation below 2 %. And they are sticking to it no matter how much all the financial press is asking them to undertake QE. All the scare stories about Euro collapsing ware nonsense.

only 3 possibilities of Euro collapse
break up a nation state within Eurozone
military takeover of a Eurozone country
revolution within Eurozone state

I don't see any of these things happening.

[Austin]

panduranghari , its not me but udaym.

I am not sure of EU collapse or not but from what I understant EU is exposed to US markets and derivatives stuff etc .....so in the event if US Stocks collapses like it happened in 2008 EU will be significantly impacted.

[panduranghari]

^^ OOPS.

Yes Euro will devalue against gold. They would reduce exchange rate from 940 Euros for 1 oz to say 5000 euros for 1 oz. I doubt US could match it.

The rationale is simple. Gold is valued by US treasury at the statutory price of $42.2222 per fine troy ounce. The number of fine troy ounces of gold was 261,498,927 as of September 30, 2013 and 2012. The market value of gold on the London Fixing was $1,327 and $1,776 per fine troy ounce as of September 30, 2013, and 2012, respectively.

See here page 66.

Comparing it to ECB - 1 Gold and gold receivables 350,667oz as of now and it has reduced by 16,769oz since last quarter.
They however value gold at Gold: EUR 1,007.250 per fine oz

See here

If ECB increases price of gold in Euro, their balance sheet increases.

UST can do that too, but it will cause loss of value to USD. Remember US wants its currency to be as good as gold, though it has not been so for the past 40 years.

The consequences will be-
1. All gold ETF will stop trading
2. Gold mines all around the world will be nationalised
3. Gold price on COMEX will fall to 200$/oz BUT if you go to a dealer, he will not sell you gold for that price
4. People will liquidate their holdings of FORWARD CONTRACTS and settle for whatever they can get in dollar value- then go and buy gold which will be selling at a high value.

[svinayak]

The consequences will be-
1. All gold ETF will stop trading
2. Gold mines all around the world will be nationalised
3. Gold price on COMEX will fall to 200$/oz BUT if you go to a dealer, he will not sell you gold for that price
4. People will liquidate their holdings of FORWARD CONTRACTS and settle for whatever they can get in dollar value- then go and buy gold which will be selling at a high value.

This will reset the global financial system
This is what India wants.

[Austin]

Bond bubble bursts anew

Patrick L Young is expert in global financial markets working in multiple disciplines, ranging from trading independently to running exchanges.

Celebrations over Greece returning to bond markets mask a whole new problem: Athens hasn’t returned to economic health. Rather, it’s the bond market which has gone quite mad.

The Greek economy lies in ruins. After six years (yes, six years!) of depression, 27.5 percent of the workforce, and some 58.3 percent of youth, are unemployed. Over a quarter of the economy (26 percent) has been destroyed on the sacrificial altar of saving the flawed euro, spurring Athens’ lost decade. True, unemployment peaked nearer to 30 percent, but the economy can barely be said to be recovering with gusto… Well, unless you belong to the curious ‘troika’ tribe who promised rescue loans. Rather, their austere prescription delivered damnation.

Remarkably, ECB-EC-IMF lenders applauded last week as Greece returned to the international bond market. The curious political machinations of these unaccountable bodies meant the truth was not merely different to the PR swagger, it was quite astounding in its twisted reality. Greece has not healed its fiscal holes: the Hellenic Republic remains on life support. Investors buying this issue demonstrated a desperate market driven mad as a massive bubble inflates to bursting point.

This Greek bond wasn’t even truly Greek, being governed by UK law to help investors feel more secure that they would not be subject to arbitrary restructuring! Meanwhile, the 4.75 percent coupon placed Greek bonds back around low levels last seen just before Lehman Brothers collapsed. Therein lies a huge conundrum: the investors who bought this bond didn’t deliver a vote of confidence in the Greek economy. Rather theirs was a much more cynical calculation - buyers are gambling that having come so far, the Mario Draghi ’whatever it takes’ approach to saving the euro will be maintained by the troika come what may.

Hence this bond is not a Greek issue, but really a proxy from the troika who will guarantee euro stability by repaying the debt. The insanity of today’s bond market writ large.

This increasingly desperate ‘yield chasing’ is common when a glut of investor cash is in the bond markets struggling to find a decent return. Following years of Quantitative Easing ‘funny money’, interest rates have remained almost at zero. Banks - those medieval institutions indulged with a regulatory monopoly to store savings inefficiently - pay a pittance on Western deposits. Hence, bond investors have become restive. Like a form of fiscal wildebeest roaming the plains of financial centers, they are searching desperately for anything which can pay them a decent dividend. Thus when a basket case economy like Greece - immolated on the pyre of the EU’s vanity eurocurrency - issues a bond, investors rush in to buy what seems like a five-year manna-from-heaven deal, paying almost 5 percent per year!

Meanwhile, during 2013, US high yield corporate bonds reached a record gross issuance of $378 billion, while $455 billion issued as institutional leveraged loans also trumped the last pre-crash peak of 2007. After six years of fatuous German-led moralizing about Athenian mismanagement without permitting them an equitable chance at recovery (i.e. leaving the euro, devaluing and rebuilding afresh), the West has not merely immolated Greece, it has simultaneously permitted a frankly obscene debt bubble to flare up which now threatens a crunch at least the equal of the last government-banker fiasco.

Make no mistake: the bond market is in a frenzy. Inside the bubble, investor symptoms include desperately lunging after anything which might pay interest a fraction in excess of a few percent. Outside the bubble it is still possible to smell the coffee while gazing in horror as bond markets facilitate cheap multi-year loans to borrowers holding dubious credentials. Investors are failing to competently calculate the overall risks while regulators are, as always, ignorant of the problem.

Thus bond markets are peaking. Such a massive bubble is unlikely to be deflated elegantly. Once interest rates start edging up, the subsequent burst is likely to result in a Western credit crunch easily the equal of 2007, albeit with government without the resources to intervene defensively as it did last time around.

With worries about a new recession growing, the bond market will play a pivotal role in whether the Western economy expands, or endures another bruising fall. Confidence is fragile and bond markets have been at remarkable highs for some time. Values will return to historic bond benchmarks with interest payments well above the current bubble levels (and bond prices thus well below today’s heady values). That transition means another painful bubble bursting, which further threatens the fabric of Western prosperity.

[TSJones]

The consequences will be-
1. All gold ETF will stop trading
2. Gold mines all around the world will be nationalised
3. Gold price on COMEX will fall to 200$/oz BUT if you go to a dealer, he will not sell you gold for that price
4. People will liquidate their holdings of FORWARD CONTRACTS and settle for whatever they can get in dollar value- then go and buy gold which will be selling at a high value.

This will reset the global financial system
This is what India wants.

You might want to rethink what India wants. India may not be immune to a global financial failure. It's economy is not isolated........unless you do not care about the impact of such huge global failure on India's institutions and people.

To think that gold mines around the world can be nationalized is laughable. Or, are you trying to be funny?

[Austin]

The End Result of the Fed’s Cancerous Policies and When It Will Hit

Many commentators consider what the Fed has done to be akin to providing stimulus, morphine, juice to an ailing economy.

We believe Fed’s actions would be more appropriately described as permitted cancerous beliefs to spread throughout the financial system, thereby killing Democratic Capitalism which is the basis of the capital markets.


Today we’re going to explain what the “final outcome” for this process will be. The short version is what happens to a cancer patient who allows the disease to spread unchecked (death).

In the case of the Fed’s actions we will see a similar “death” of Democratic Capitalism and the subsequent death of the capital markets.

We are, of course, talking in metaphors here: the world will not end, and commerce and business will continue, but the form of capital markets and Capitalism we are experiencing today will cease to exist as the Fed’s policies result in the market and economy eventually collapsing in such a fashion that what follows will bear little resemblance to that which we are experiencing now.


The focus of this “death” will not be stocks, but bonds, particularly sovereign bonds: the asset class against which all monetary policy and investment theory has been based for the last 80+ years.


Indeed, basic financial theory has proposed that sovereign bonds are essentially the only true “risk-free” investment in the world. While history shows this theory to be false (sovereign defaults have occurred throughout the 20th century) this has been the basic tenant for all investment models and indeed the financial system at large going back for 80 some odd years.


The reason for this is that the Treasury (US sovereign bond) market is the basis of the entire monetary system in the US and the Global financial system in general. Indeed, US Treasuries are the senior most assets on the Primary Dealers’ (world’s largest banks) balance sheets. To understand why this is as well as why the Fed’s policies will ultimately destroy this system, you first need to understand the Primary Dealer system that is the basis for the US banking system at large.


If you’re unfamiliar with the Primary Dealers, these are the 18 banks at the top of the US private banking system. They’re in charge of handling US Treasury Debt auctions and as such they have unprecedented access to US debt both in terms of pricing and monetary control.

The Primary Dealers are:

Bank of America
Barclays Capital Inc.
BNP Paribas Securities Corp.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Daiwa Securities America Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
HSBC Securities (USA) Inc.
J. P. Morgan Securities Inc.
Jefferies & Company Inc.
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
Nomura Securities International Inc.
RBC Capital Markets
RBS Securities Inc.
UBS Securities LLC.


You’re bound to recognize these names by the mere fact that they are the exact banks that the Fed focused on “saving” thereby removing their “risk of failure” during the Financial Crisis.

hese banks are also the largest beneficiaries of the Fed’s largest monetary policies: QE 1, QE lite, QE 2, etc. Indeed, we now know that QE 2 was in fact was meant to benefit those Primary Dealers in Europe, not the US housing market. The same goes for QE 3 and QE 4.

The Primary Dealers are the firms that buy US Treasuries during debt auctions. Once the Treasury debt is acquired by the Primary Dealer, it’s parked on their balance sheet as an asset. The Primary Dealer can then leverage up that asset and also fractionally lend on it, i.e. create more debt and issue more loans, mortgages, corporate bonds, or what have you.

Put another way, Treasuries are not only the primary asset on the large banks’ balance sheets, they are in fact the asset against which these banks lend/ extend additional debt into the monetary system, thereby controlling the amount of money in circulation in the economy.


When the Financial Crisis hit in 2007-2008, the Fed responded in several ways, but the most important for the point of today’s discussion is the Fed removing the “risk of failure” for the Primary Dealers by spreading these firms’ toxic debts onto the public’s balance sheet and funneling trillions of dollars into them via various lending windows.


In simple terms, the Fed took what was killing the Primary Dealers (toxic debts) and then spread it onto the US’s balance sheet (which was already sickly due to our excessive debt levels). This again ties in with my “cancer” metaphor, much as cancer spreads by infecting healthy cells.

When the Fed did this it did not save capitalism or the Capital Markets. What it did was allow the “cancer” of excessive leverage, toxic debts, and moral hazard to spread to the very basis of the US, indeed the entire world’s, financial system: the US balance sheet/ Sovereign Bond market.

These actions have already resulted in the US losing its AAA credit rating. But that is just the beginning. Indeed, few if any understand the real risk of what the Fed has done.


The reality is that the Fed has done the following:


1) Set itself up for a collapse: at $4 trillion, the Fed’s balance sheet is now larger that the economies of Brazil, the UK, or France. And with capital of only $54 billion, the Fed is leveraged at over 50 to 1 (Lehman was at 30 to 1 when it failed).

2) Called the risk profile of US sovereign debt into question: foreign investors, now fully aware that the US’s balance sheet is suspect (the US has lost its AAA credit rating), are dumping Treasuries (see China and Russia). This has resulted in the Fed now being responsible for the purchase of up to 91% of all new long-term (20+ years) US debt issuance.

3) Put the entire Financial System (not just the private banks) at risk.


The Financial System requires trust to operate. Having changed the risk profile of US sovereign debt, the Fed has undermined the very basis of the US banking system (remember Treasuries are the senior most asset against which all banks lend).

Moreover, the Fed has undermined investor confidence in the capital markets as most now perceive the markets to be a “rigged game” in which certain participants, namely the large banks, are favored, while the rest of us (including even smaller banks) are still subject to the basic tenants of Democratic Capitalism: risk of failure.


This has resulted in retail investors fleeing the markets while institutional investors and those forced to participate in the markets for professional reasons now invest based on either the hope of more intervention from the Fed or simply front-running those Fed policies that have already been announced.


Put another way, the financial system and capital markets are no longer a healthy, thriving system of Democratic Capitalism in which a multitude of participants pursue different strategies. Instead they are an environment fraught with risk in which there is essentially “one trade,” and that trade is based on cancerous policies and beliefs that undermine the very basis of Democratic Capitalism, which in the end, is the foundation of the capital markets.

In simple terms, by damaging trust and permitting Wall Street to dump its toxic debts on the public’s balance sheet, the Fed has taken the Financial System from a status of extremely unhealthy to terminal.

The end result will be a Crisis that makes 2008 look like a joke. It will be a Crisis in which the US Treasury market and sovereign bonds in general implode, taking down much of the US banking system with it (remember, Treasuries are the senior most assets on US bank balance sheets).


We cannot say when this will happen. But it will happen. It might be next week, next month, or several years from now. But we’ve crossed the point of no return. The Treasury market is almost entirely dependent on the Fed to continue to function. That alone should make it clear that we are heading for a period of systemic risk that is far greater than anything we’ve seen in 80+ years (including 2008).

The Fed is not a “dealer” giving “hits” of monetary morphine to an “addict”… the Fed has permitted cancerous beliefs to spread throughout the financial system. And the end result is going to be the same as that of a patient who ignores cancer and simply acts as though everything is fine.

That patient is now past the point of no return. There can be no return to health. Instead the system will eventually collapse and then be replaced by a new one.

[TSJones]

Sorry Austin, but the above is extremist nonsense. Can a Black Swan event happen? Yes, most assuredly. But it usually happens by sector not overall. Consumer debt has been running down in the US contributing to a sluggish economy. I suspect it will remain that way for a while despite the Fed QE program. In other words people are tucking in their exposure and not taking out loans. But these things have a cycle and trying to predict it can cause madness per your quoted source.

[Austin]

TSJ the way I see that report is its alarming but certainly not nonsense.

The fact remains that the cheap credit available post 2008 crises has gone into inflating multiple sectors and off my head i can remember reading bubbles created in Bond/Stock , Housing Sector , Tech Sector ....but there could be many more hidden beneath

The total credit market is risen to $58 trillion as of Sept 2013 ....it would be more today but I need to check the latest figure.

US inflates its GDP growth every quarter only to revise it lower. Fed are always way off mark when it comes to predicting GDP Growth.

Thanks to the rigging in Interest Rates , Inflation and lack of monetary and financial discipline over the years things are more worse today ( Fed printing helping top 1 % while the real economy gets nothing )

So I really dont see when the next crash happens why should it remain to specific sectors and this time around the Government have little instruments to bail them out and worse far less credibility ,because the previous bail out did little to heal the financial system on the contrary it just helped the people who created the 2008 financial mess

[panduranghari]

The consequences will be-
1. All gold ETF will stop trading
2. Gold mines all around the world will be nationalised
3. Gold price on COMEX will fall to 200$/oz BUT if you go to a dealer, he will not sell you gold for that price
4. People will liquidate their holdings of FORWARD CONTRACTS and settle for whatever they can get in dollar value- then go and buy gold which will be selling at a high value.

This will reset the global financial system
This is what India wants.

Exactly saar. Hence I advocate buying gold. AS Indians we do not need to be told. But the 'western' thinking makes them believe mutual funds and stocks are the in thing to be seen in. They all will learn with time. I know they will. Experience is a best teacher and all that.

So buy physical gold. It will be worth it. Also dont look at the currency value of it. That will go up and down like a roller coaster ride. Its of no consequence in the longer term.

[akashganga]

Exactly saar. Hence I advocate buying gold. AS Indians we do not need to be told. But the 'western' thinking makes them believe mutual funds and stocks are the in thing to be seen in. They all will learn with time. I know they will. Experience is a best teacher and all that.

So buy physical gold. It will be worth it. Also dont look at the currency value of it. That will go up and down like a roller coaster ride. Its of no consequence in the longer term.

I agree. Physical Gold is the only asset which lasts generations and still retains value. Science tells us that gold was created as a byproduct of creation of universe (big bang?). All fiat currencies printed by idiotic central banks including the ultra powerful united states dollar will one day give way to gold. That is guaranteed. It may not happen immediately but will certainly happen in a few generations. My 2 cents.

[Theo_Fidel]

If you already are wealthy gold will preserve your wealth. If you are poor the stock market or mutual funds will increase what little wealth you have. It is two separate things. If you already have a sumptuous income or saved wealth, Gold is not a bad idea. Bad for the economy but not a bad idea. It is only the phata abduls who need the returns of the stock market. The more long term you look stocks crush gold.

One can compare the DOW to the value of gold for instance. If you had $1000 in gold in 1980 you will have about $1500 now adjusted for inflation. With the DOW even after the down of 2008 and not including the recent rally you will have $12,000. The SENSEX shows an even greater spread.

[TSJones]

If you already are wealthy gold will preserve your wealth. If you are poor the stock market or mutual funds will increase what little wealth you have. It is two separate things. If you already have a sumptuous income or saved wealth, Gold is not a bad idea. Bad for the economy but not a bad idea. It is only the phata abduls who need the returns of the stock market. The more long term you look stocks crush gold.

One can compare the DOW to the value of gold for instance. If you had $1000 in gold in 1980 you will have about $1500 now adjusted for inflation. With the DOW even after the down of 2008 and not including the recent rally you will have $12,000. The SENSEX shows an even greater spread.

The problem is, the stock market is going to collapse real soon now, and this is what they are avidly waiting for. Not only would such a collapse make thier decision to buy and hold gold victorious, India would have a better position at the global economic table. Why they would think this, I haven't got the foggiest clue. But they are dead certain sure that India would be better off if the rest of the world's currencies collapsed. Such is the thinking of nationalist zealots. To their mind, for India to grow and prosper, the US and Europe must be economically devastated. This they are sure must happen and indeed, fervently hope in their fondest wishes that it does.

[Theo_Fidel]

TSJ,

I don't think that is true. Most of these folks live in USA or EU . The idea is that buying gold might protect them from another financial collapse. As with anything risk and reward are coupled tightly. The stock market is not without risk as we found recently. For the capital poor, which is definitely folks like me and most others on this board, trying to grow their capital, the stock market is one of the few return positive options available.

Other than a few discredited cold war warriors booming aimlessly, no one wishes the destruction of USA or EU. India is short of capital and the only place to get the capital we need is USA, EU, Japan, type places.

But folks do remain concerned about how the financial systems are concentrating wealth to an obscene level in these places. The seeds of collapse are there, now will the USA & EU figure out how to defuse these issues. Right now it is not clear. In the USA in particular the folks who want to damage the economy for personal gain remain very strong. Americans appear paralyzed on how to drive back these folks and find a way forward. As long as these issues are not settled the doom sayers will have a point.

[panduranghari]

An old friend, Pierre Lemieux, wrote in with the following comment:
The production of things is not done with money, but with real resources. If I see a car, I know it has been produced with steel, aluminum, plastic, labor, etc. That‘s the real side of the economy.
We get on the financial side when we ask how this production was financed, that is, how people were motivated to release control of real resources. In most cases, they are motivated in doing so by receiving in exchange claims to other resources or consumer goods. Finance is the domain of the exchange of claims to real resources.
The question, then, is in which circumstances does money (a very liquid claim on real resources) help production (by reducing transaction costs), hinder it or, as you point out, create gainers and losers?

link

In a better world, credit depends on savings… which represent real resources. This restrains credit growth, because there are only so many real resources… and only so much savings representing them.

But in the world created by the Fed, credit has no savings behind it. It is just notations in the banking system… with no effective limit on the quantity of credit available.

That is how $33 trillion came to exist. It pretended to be real savings… representing real resources… which were then put to work to make the autos and houses that people wanted, but couldn’t afford.

In other words, the system created new claims on resources… which drew resources into the real economy. Neither past earnings (savings), nor current earnings (output) supported this economic expansion. Instead, it was all a claim on future earnings.

This is all a way of saying the obvious: If future output cannot keep up with this $33 trillion of excess debt, this debt must go bad.

That is, of course, the problem. The economy limps along… even with $1 trillion of extra QE money per year. It depends on more credit and more debt just to stay in the same place.

Every year, more resources must be drawn from the future and enjoyed in the present. Every year, the claims on future earnings increase… and every year the debt becomes even more unsupportable.

Somehow. Someday. Those claims on the future will be marked down.

[KrishnaK]

Other than a few discredited cold war warriors booming aimlessly, no one wishes the destruction of USA or EU. India is short of capital and the only place to get the capital we need is USA, EU, Japan, type places.

+25

[member_22733]

Exactly saar. Hence I advocate buying gold. AS Indians we do not need to be told. But the 'western' thinking makes them believe mutual funds and stocks are the in thing to be seen in. They all will learn with time. I know they will. Experience is a best teacher and all that.

So buy physical gold. It will be worth it. Also dont look at the currency value of it. That will go up and down like a roller coaster ride. Its of no consequence in the longer term.

I agree. Physical Gold is the only asset which lasts generations and still retains value. Science tells us that gold was created as a byproduct of creation of universe (big bang?). All fiat currencies printed by idiotic central banks including the ultra powerful united states dollar will one day give way to gold. That is guaranteed. It may not happen immediately but will certainly happen in a few generations. My 2 cents.

Gold was not created in the Big Bang. Trace amounts of Lithium was created during the big bang.

Gold is forged in a supernova sized star. Usually at the heart of it, and expelled out of it once the star goes nova.

[TSJones]

Not to be too pedantic and truely I have a very brief science education, but I am pretty sure scientists have changed their minds about this. It is now thought that gold has to be formed by a rare collision between two neutron stars. How or why they think this I have no idea. Anyway, here's the reference:

http://phys.org/news/2013-07-earth-gold ... stars.html

[Gus]

. Such is the thinking of nationalist zealots. To their mind, for India to grow and prosper, the US and Europe must be economically devastated. This they are sure must happen and indeed, fervently hope in their fondest wishes that it does.

that is your fevered imaginations...for reasons that i hope not to hear about because they are surely as nonsensical as the idea that indians want US and EU to be 'economically devastated'.

and we grow rich borrowing from who and trading with who???

[member_22733]

Its funny that western folks always think Indian jingoes are planning for destruction of US and Oirope. I have a ton of money invested in US, Oirope, Japan and India. I want all to prosper without screwing each other over.

The western mind always sees the development and prosperity of the "other" as a zero sum game and an existential threat. Very abrahamic trait I must add.

EDIT: This existential threat by invasion of the "other" is a constant western sci-fi movie theme. EXCEPT much of the Star-Trek series, which anyway is a disguised social commentary ridiculing the western zero sum mentality.

[Austin]

The ECB vs. the Fed, Let the Currency Wars Begin

[panduranghari]

Austin Saar
The above article sees the world from currency perspective. If they only change seeing the world differently. They could see a solution for the problem. Not that US does not see it, it chooses not to. The primacy of USD is the idea that it's still good as gold, while it has always sought the support of oil. Gold is the only commodity where oil can hide in.

Look at this





Foreign governments are withdrawing from dollars structural support. No wonder the Fed is trying to say they are TAPERING.

One thing is saying they are tapering, other thing is to do it.

One thing is to do it, without worrying about how GOTUS will react. The political will backing US dollar within its country will force treasury to not taper.

[panduranghari]

The problem is, the stock market is going to collapse real soon now, and this is what they are avidly waiting for. Not only would such a collapse make thier decision to buy and hold gold victorious, India would have a better position at the global economic table. Why they would think this, I haven't got the foggiest clue. But they are dead certain sure that India would be better off if the rest of the world's currencies collapsed. Such is the thinking of nationalist zealots. To their mind, for India to grow and prosper, the US and Europe must be economically devastated. This they are sure must happen and indeed, fervently hope in their fondest wishes that it does.

Just once I am going to break my vow to not feed a troll but this essay is for you TSJ. Enjoi!!!

By Bill Bonner

…..In the early 20th century, John Maynard Keynes came up with a new idea about economics. The politicians loved it; Keynes explained how they could meddle in private affairs on a grand scale – and, of course, make things better.

Keynes argued that a government could take the edge off a business recession by making more credit available when money got tight … and by spending itself to make up for the lack of spending on the part of consumers and businessmen.

Keynes suggested, whimsically, hiding bottles of cash all around town, where boys might find them, spend the money, and revive the economy. The new idea caught on. Soon economists were advising all major governments about how to implement the new “ism.” It did not seem to bother anyone that the new system was a fraud. Where would this new money come from? And what made anyone think that the economists’ judgment of whether it made sense to spend or save was better than any individual’s?

All the Keynesians had done was to substitute their own guesses for the private, personal, economic opinions of millions of ordinary citizens. They had resorted to what Franz Oppenheimer called “political means,” instead of allowing normal “economic means” to take their own course. The economists wanted what everyone else wants – power, prestige, women (except for Keynes himself, who preferred men). And there are only two ways to get what you want in life, dear reader. There are honest means, and dishonest ones.

There are economic means, and there are political means. There is persuasion … and there is force. There are civilized ways … and barbaric ones. The economist is a harmless crank as long as he is just peeping through the window. But when he undertakes to get people to do what he wants – either by offering them money that is not his own … by defrauding them with artificially low interest rates … or by printing up money that is not backed by something of real value (such as gold) … he has crossed over to the dark side. He has moved to political means to get what he wants. He has become a jackass.

Keynesian “improvements” were applied in the 1920s – when then Fed governor Ben Strong decided to give the economy a little “coup de whiskey” – and later in the 1930s when the stock market was recovering from the hangover. The results were predictably disastrous. And along came other economists with their own bad ideas. Rare was the man, such as Robert Lucas or Murray Rothbard, who pointed out that you could not really improve economic results with political means.

If a national assembly could make people rich simply by passing laws, we would all be billionaires, because assemblies have passed a multitude of laws and seem capable of enacting any piece of legislation brought before them. If laws could make people wealthy, some assembly somewhere would have found the magic edicts – simply by chance.

But instead of making them richer, each law makes them a little poorer. Every time political means are used they interfere with the private, civilized economic arrangements that actually get people what they want.

Here Come the Meddlers

One man makes shoes. Another grows potatoes. The potato grower goes to the cobbler to buy a pair of shoes. He must exchange two sacks of potatoes for one pair of penny loafers. But then the meddlers show up and tell him he must charge three sacks … so that he can pay one in “taxes,” to the meddlers themselves. And then he needs to put in an alarm system in his shop, and buy a hardhat, and pay his helper minimum wage, and fill out forms for all manner of laudable purposes. When the potato farmer finally shows up at the cobbler’s he is informed that the shoes will cost seven sacks of potatoes!

That is just what he has to charge in order to end up with the same two sacks he needed to charge in the beginning. “No thanks,” says the potato man, “At that price, I can’t afford a pair of shoes.”

What the potato grower needs, say the economists, is more money! The money supply has failed to keep pace, they add. That was why they urged the government to set up the Federal Reserve in the first place; they wanted a stooge currency that would be ready to go along with their plans.

Gold is fine, they said, but it’s anti-social. It resists new “isms” and drags its feet on financing new social programs. Why, it is positively recalcitrant! Clearly, when we face a war or a Great National Purpose we need money that is willing to stand up and sign on. Gold malingers. Gold hesitates. Gold is reluctant and reticent. Gold is fine as a private money. But what we need is a source of public funding … a flexible, expandable national currency … a political money that we can work with. We need a dollar that is not linked to gold.

In the many years since the creation of the Federal Reserve System as America’s central bank, gold has remained as steadfast and immobile as ever. An ounce of it today buys about the same amount of goods and services as an ounce in 1913. But the dollar has gone along with every bit of political gimcrackery that has come along – the war in Europe, the New Deal, World War II, the Cold War, the Vietnam War, the War on Poverty, the War on Illiteracy, the New Frontier, the Great Society, Social Security, Medicare, Medicaid, the War in Iraq, the War on Terror – the list is long and sordid.

As a result, guess how much a dollar is worth today in comparison to one in 1913? Five cents.



The Road to Hell

Keynesianism is a fraud. Supply-siderism is a con. The dollar is a scam. All were developed by people with good intentions. But these good intentions not only paved the road to Hell, they greased it. There was no point putting on the brakes. Once underway, there was no stopping it. Right now, the US slides towards some sort of Hell. Half a century of deceit has produced a nation that is ready to believe anything … and go along with anything … provided it promises to make them rich.

They will be very disappointed when they discover that all the political means they counted on – the phony money, the laws, the regulations, and the wars – have made them poorer. That is when we will really need cages …

“Nothing in nature is evil,” said Marcus Aurelius. Keynes was human. Even Adolf Hitler was a man, a part of nature himself. And the Evil Empire, was it not created by men too, men who – like economists and politicians – followed their own natural impulses? Adolf may have erred and strayed. But he did so with the best of intentions: He thought he was building a better world. And he had all the “reasons” you could ask for. He could argue all day; “proving” that his plan was the best way forward.

Not that there weren’t arguments on the other side. What were smart people to do? People argued about Keynesianism for many years. Each side had good points. One was convincing; the other was persuasive. It was like a couple arguing in divorce court – the husband forgot to take out the trash and knocked over a vase; the wife ran him over with the family car. “He had it coming,” she says. What would an observer think?

No amount of logic could help him. Both parties made good points. All the judge could do was to fall back on his own deep sense of right and wrong, of proportion … and good taste. “She shouldn’t have run him down,” he says.

“Love the man, hate the sin,” say the Baptist preachers. They have a useful point. There’s no point in hating Adolf, Josef, Osama … John Maynard … or any of the other thousands of clowns who entertain, annoy and murder us. They are God’s creatures too, just like the rest of us. What they did wrong was what they always do wrong … they all resorted to political means, to get what they wanted.



We do not hate them; we just hope they get what they deserve.

[Austin]

panduranghari , Indeed I was thinking the same even if the Fed wants to taper would they get the necessary political support , Fed recently mentioned that even though the QE Tapers they would keep interest rate low ( close to zero ) for some time citing Unemployment Weakness and Inflation

Hence I am reluctant to take Fed word on Tapering at Face Value ....they might just wait for some time and could start with QE 5 for all we know.....ofcourse the Markets would cheer with the idea of QE 5

The statements from Yallen is so loose and can be interpreted any ways it seems to be use the term "Wide Range of Information" ( beyond Inflation and Labour Market to "Financial Development " ) almost calls for QE 5

Yellen: Fed will keep interest rates low even when economy recovers

The central bank, frustrated with the slow U.S. recovery from recession, aims for maximum sustainable employment and a rise in inflation from just above 1 percent now to 2 percent.

"I hope it's completely clear that while monetary policy is very accommodating at this point, and I focused on the need to keep it so or to adjust it to make sure the recovery remains on track," Yellen said during a question-and-answer session at the Economic Club of New York. "As the recovery proceeds and healing occurs, it's obvious that we will need to tighten monetary policy to avoid overshooting our target."

She added that the Fed remains focused on removing accommodation when the time is right and that the central bank has learned that overshooting its target can be "very costly to reverse."

"The larger the shortfall of employment or inflation from their respective objectives, and the slower the projected progress toward those objectives, the longer the current target range for the federal funds rate is likely to be maintained," she said. "This approach underscores the continuing commitment of the (Fed's policy-setting committee) FOMC to maintain the appropriate degree of accommodation to support the recovery."

"The new guidance also reaffirms the FOMC's view that decisions about liftoff should not be based on any one indicator, but that it will take into account a wide range of information on the labor market, inflation, and financial developments."

Yellen also sought to tame any concerns about a recent run of disappointing economic data.

"In recent months, some indicators have been notably weak, requiring us to judge whether the data are signaling a material change in the outlook," Yellen said. "The unusually harsh winter weather in much of the nation has complicated this judgment, but my FOMC colleagues and I generally believe that a significant part of the recent softness was weather related."

Yellan also addressed the problems experienced in Europe -- saying that the area has been held back by its banking section though she said there has been progress.

It was Yellen's second major address in as many days. On Tuesday she said the Federal Reserve was considering adopting more measures to address the remaining financial-stability risks in the short-term wholesale funding markets.

Her speech Wednesday also comes amid a flurry of comments by Fed officials about the central bank's policy on rates guidance.

The Fed should try to make its communications on the expected path of interest rates and the economy consistent with its policy statements, the Atlanta Fed's Dennis Lockhart said Wednesday.

Meanwhile, the Boston Fed's Eric Rosengren said Tuesday the Fed should "explicitly" state that it will keep interest rates near zero until the U.S. economy is within one year of reaching the central bank's employment and inflation goals.

[Neshant]

The market is going to force a resolution just like the market did in 2008.

Since the stock market is being rigged, the collapse will not start in stocks.

It will happen in an area where the Federal Reserve cannot control.

[Gus]

I doubt the fed will do anything that harms the presumptive nominee Hilary's prospects.

[member_28440]

US To Target Putin’s Personal $40 Billion Stash

[Neshant]

Interestingly even prominent bankers are speaking out against the monetary system which has been monopolized by private banks. Although the moment they speak out, they are marginalized.

India should never allow private banks (or its ex-employees) anywhere near the national exchequer or any post in govt that controls the monetary system. To do so is to subject the vast population of the nation to slavery by these shysters via paper thievery.

[youtube]0Br8mx_uwlY&index[/youtube]

11 parts in all, this is the first.

[Austin]

I doubt the fed will do anything that harms the presumptive nominee Hilary's prospects.

I doubt its any thing like they want or dont want or like or dont like ....the Fed tries to do things that they think they know well and can control but since we are in uncharted territory we dont know what will break first something they think they have in control or as Neshant says something they are not fully aware but is dangerously lurking out there , it needs a catalyst to spurn a chain reaction.

Not really sure if Hillary will stand for 2016 , The Ghost of Bhengazi will haunt here for long.

[panduranghari]

What can be the catalyst? European Bank run in France would do it. They seem to be the weakest.