Perspectives on the global economic changes

muraliravi · Post by **muraliravi** » 19 Jun 2014 00:14

Neshant wrote:From what I've heard, Argentina is sitting on one of the largest off shore oil fields ever found.

If so, they should be in the black just a few years from now.

Also uncle wants to take control of that country as it did with Eye-rack and Lib-YA.

uncle does not need to all that in arg. It is a predominantly white x-tian country which will happily co-operate with uncle sam provided unkil bribes the right people and installs a friendly govt.

TSJones · Post by **TSJones** » 19 Jun 2014 02:08

US Fed tapers QE again. Still no market collapse.

Vayutuvan · Post by **Vayutuvan** » 19 Jun 2014 02:25

Austin wrote:U.S. Economy’s First-Quarter Contraction Could Be Even Worse Than You Thought

Stock markets are going through the roof. What is going on? A bust is imminent?

Suraj · Post by **Suraj** » 19 Jun 2014 02:37

The Fed was expected to taper. There was no new information to lead to the market repricing anything. The markets are up for a correction soon. Of course one can take bets on that, but as the adage goes, the market can remain irrational longer than you can remain solvent.

panduranghari · Post by **panduranghari** » 19 Jun 2014 02:39

The world is a rich place. It is so rich that it can afford more and more people who don't have to work and more and more people -- such as Janet Yellen -- whose work reduces standards of living for practically everyone.

The waiter who brings your morning coffee is providing a valuable service. The plumber who makes sure your water flows is also giving you something of value. So is the autoworker who welded together your automobile.

All increase the real wealth of the planet.

But Yellen? Is there any evidence that any central banker from the dawn of time until June 18, 2014 added a paisa or a penny to the wealth of the world?

Not that we know of!

Instead, Yellen fiddles with the monetary base... jiggles interest rates... and generally diddles the economy.

You might say, if it weren't for her jiggling and diddling and so on, that the "crisis would be worse" or even that "we would have had a depression." But you might also say that if she hadn't been diddling and fiddling with it, we wouldn't have had a financial crisis in the first place!

So TSJ you asked

TSJones wrote:US Fed tapers QE again. Still no market collapse.

Is it even worth answering the question you posed?

Neshant · Post by **Neshant** » 19 Jun 2014 06:26

Right now the Federal Reserve is desperate to prove that the economic recovery is real and they don't need to buy bonds, print money or rig the stock & bond markets.

We are in a unique point in history where Mises claims are going to be either proven or disproven :

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

Austin · Post by **Austin** » 19 Jun 2014 16:31

matrimc wrote:
Austin wrote:U.S. Economy’s First-Quarter Contraction Could Be Even Worse Than You Thought
Stock markets are going through the roof. What is going on? A bust is imminent?

This should help

3 reasons the Dow doesn’t deserve to be at 17,000

vic · Post by **vic** » 19 Jun 2014 22:38

I think market has priced in the completion of present phase of QE. But market still has to price in possible interst rate increases, Chinese economy slow down etc.

Austin · Post by **Austin** » 19 Jun 2014 22:56

After 6 Years Of Unprecedented Central Planning, The Economy Is More Fragile Than Ever

Austin · Post by **Austin** » 19 Jun 2014 23:02

vic wrote:I think market has priced in the completion of present phase of QE. But market still has to price in possible interst rate increases, Chinese economy slow down etc.

Interest rate as Fed said will be same as it is now which is close to zero for long time to come may be till eternity , any interest rate rise it will become increasingly difficult to service the debt only creating a chain of increasing rates as money flows away from government debt.

panduranghari · Post by **panduranghari** » 20 Jun 2014 02:59

The only way to speed up recovery is to raise interest rates. But as its the right thing to do, we can safely assume central banks wont do it. The only central bank in this mess who is doing its job well is ECB. Mario Draghi though an ex-goldman sachs banker is doing the right things. Clearly these guys understand what the problem is. Only difference is when on the dark side they like loose polcies to protect their alma mater and make money. When they cros over they should be doing things differently. Draghi clearly has moved from thinking like a trader to a banker. Unlike Mark Carney of BoE, also ex-goldman and now central banker, who still thinks like a trader. How can he maintain less tgan 2% inflation and at the same time provide stimuli to create jobs at the same time? He KNOWS these 2 targets are at best fair weather friends.

Austin · Post by **Austin** » 20 Jun 2014 12:31

panduranghari wrote:Unlike Mark Carney of BoE, also ex-goldman and now central banker, who still thinks like a trader

That fella is being blamed for the current housing bubble in UK

TSJones · Post by **TSJones** » 20 Jun 2014 20:49

IMF says the ECB should start buying ogvernment bonds and other assets:

http://finance.yahoo.com/news/internati ... 02651.html

Maybe the ECB needs to do some QE also because their economy is dragging?

Austin · Post by **Austin** » 20 Jun 2014 21:16

Yes thats what IMF wants them to do but ECB is reluctant to do any QE for now.

Historical Debt Outstanding - Annual 2000 - 2012

http://www.treasurydirect.gov/govt/repo ... histo5.htm

Austin · Post by **Austin** » 21 Jun 2014 19:13

Fed is making rich richer and more income inequality - Marc Faber

For over 5 years we have been explaining the hole that the fed has been digging (most ironically here). This morning's op-ed by Warsh and Druckenmiller highlights many of the problems but we leave it to Marc Faber to succinctly sum up the dilemma that the Fed faces (and by dilemma we mean, the plan) - "The more they print, the more inequality there is, the weaker the economy will become." Simply put, "it's a catastrophe," Faber told CNBC, "what the Fed has done is to lift asset prices, and the cost of living. In the meantime, the cost of living increases are higher than the wage increases. The typical American household income is going down in real terms." Recovery?

Austin · Post by **Austin** » 21 Jun 2014 19:26

An Exclusive In Depth Interview With Dr. Marc Faber

vic · Post by **vic** » 21 Jun 2014 21:15

Asset prices increases by QE destroys the upward mobility of middle class like in Japan since 1980s. People are too poor to buy costly assets like homes, so we get long term stagnation.

panduranghari · Post by **panduranghari** » 22 Jun 2014 14:43

Austin wrote:An Exclusive In Depth Interview With Dr. Marc Faber

No one is beating around the bush anymore, are they?

Link

At the same time, the IMF is looking for an alternative to bailing out bond-holders of heavily indebted countries and forcing bond-holders to accept less than 100 cents on the dollar.

Here’s where it gets complicated: When the IMF decides that a country’s debt is sustainable – but not with “a high probability” – it wants to be able to ask creditors to voluntarily accept a delay in payments with a promise that they’ll be made whole in a few years when the borrower is in better shape. Called “reprofiling,” it’s akin to a bank telling you it’s ok to skip payments on your mortgage while you are out of work, as long as you promise to make the payments (with interest) later. Countries wouldn’t be allowed to defer repeatedly; if conditions didn’t improve, then a debt-restructuring (paying back less than 100 cents on the dollar) would be the appropriate remedy

panduranghari · Post by **panduranghari** » 22 Jun 2014 20:19

The Case for Natural Money

Austin · Post by **Austin** » 22 Jun 2014 22:47

The US Healthcare System: Most Expensive Yet Worst In The Developed World

Austin · Post by **Austin** » 23 Jun 2014 09:36

Poverty hits twice as many British households as 30 years ago

The number of British households falling below minimum living standards has more than doubled in the past 30 years, despite the size of the economy increasing twofold, a study on poverty and deprivation in the UK claims .

According to the study, 33% of households endure below-par living standards – defined as going without three or more "basic necessities of life", such as being able to adequately feed and clothe themselves and their children, and to heat and insure their homes. In the early 1980s, the comparable figure was 14%.

The research, billed as the most detailed study ever of poverty in the UK, claims that almost 18 million Britons live in inadequate housing conditions and that 12 million are too poor to take part in all the basic social activities – such as entertaining friends or attending all the family occasions they would wish to. It suggests that one in three people cannot afford to heat their homes properly, while 4 million adults and children are not able to eat healthily.

Other figures being published include the claims that 5.5 million adults go without essential clothing; that 2.5 million children live in damp homes; that 1.5 million children live in households that cannot afford to heat them; that one in four adults have incomes below what they themselves consider is needed to avoid poverty, and that more than one in five adults have to borrow to pay for day-to-day needs.

Austin · Post by **Austin** » 26 Jun 2014 22:00

Economy’s stumble in first quarter historic

2.9% drop in GDP is biggest during economic expansion since World War II

Wonder if the drop is really due to weather or due to tapering ?

Neshant · Post by **Neshant** » 27 Jun 2014 14:01

Why isn't India (the largest or second largest buyer of gold in the world) setting gold prices instead of banking crooks sitting in London or now Singapore?

Paper gold investments sound like a Madoff scheme in the making however.
________

Singapore Continues Push To Become Asian and Global Gold Hub

http://www.commoditytrademantra.com/gol ... -gold-hub/

The very negative treatment of gold by the government in India is encouraging companies involved in offering gold and gold related investments in India, to consider moving to Singapore.

panduranghari · Post by **panduranghari** » 28 Jun 2014 02:54

Neshant wrote:Why isn't India (the largest or second largest buyer of gold in the world) setting gold prices instead of banking crooks sitting in London or now Singapore?

Paper gold investments sound like a Madoff scheme in the making however.
________

Singapore Continues Push To Become Asian and Global Gold Hub

http://www.commoditytrademantra.com/gol ... -gold-hub/

The very negative treatment of gold by the government in India is encouraging companies involved in offering gold and gold related investments in India, to consider moving to Singapore.

long reply here

The 1922 Genoa conference they decided its cumbersome to move gold from Europe to US, so they made paper promissory notes to be used in lieu of real gold. The paper promissory notes were approved by US federal reserve and Bank of England.

What the 1922 Genoa Conference did was to institutionalize the "sterilization" of gold for the rest of the world through the reserve structure of the international banking system. And this bit of genius was decided by a "committee of experts" from 34 different countries. They did this by introducing paper gold—or paper promises of gold—into the international banking system as reserves equal to the gold itself. This wasn't the first paper gold, but it was the first time that specific paper gold (that from New York and London) was used as an equal reserve upon which credit can be expanded. What is acceptable as international reserves is critical because trade settlement is a function of the reserves. This conference was the birth of the IMF and it's financial system.

In 1922, they officially changed the old gold standard into the new "gold exchange standard". The stated purpose was "the stabilization of the general price level" which you can feel free to read as code for sterilizing the price mechanism and its elegant governance of an extremely delicate and complex balance. This, of course, gave birth to the arrogance of the managed economy and its attendant science, Keynesian Economics (est. 1936) and Monetarism (est.1956).

With the gold mostly staying put in London and New York, and paper promises of gold flowing as equal base money elsewhere, the monetary base was effectively duplicated. Credit could now expand without ever having to contract, at least not because of the unwanted flow of gold. But of course that's not how it actually works in practice. The "unwanted" flow of gold is not the cause, but the effect of real imbalances (physical, not monetary ones) between international production and consumption. So, obstructing the adjustment mechanism of real gold settlement set the world up for periodic busts, economically destructive punctuations and regular currency devaluations.

To use a modern buzz word, they expanded the 500 year-old international monetary base into a more flexible "basket" that included US dollars, British pound sterling, and gold. They needed Britain as USA did not have the big colonies. As dollars began to accumulate abroad, they would be deposited back in the New York banks in exchange for a book entry reserve on the foreign country's balance sheet. In this way, the unbalanced flow of trade acted only as an occasional spur, and never as a brake. The only brake would now come in the form of destructive crises and abrupt monetary resets.

---------------

The London Gold Pool was a covert consortium of Western central banks, a 'gentleman's club' of sorts, that agreed to pool its physical gold resources at predetermined ratios in order to manipulate the London gold market. Their goal was to keep the London price of gold in a tight range between $35.00 and $35.20US.

London had become the world's marketplace for gold. For more than a half century nearly 80% of the world's gold production flowed through London. The "London Gold Fix" daily price fixing began in 1919 and only happened once a day until the London Gold Pool collapsed in 1968 and an "afternoon fix" was added to coincide with opening of the New York markets.

In 1944 the Bretton Woods accord pegged foreign currencies to the US dollar and the dollar to gold at the exchange rate of $35.20 per ounce. At that time gold was not traded inside the US, but in London it continued to trade between $35 and $35.20, rarely moving more than a penny or two in a day.

Through the first decade of the Bretton Woods system there was generally a shortage of US dollars overseas which lent automatic support to the fixed gold peg. But the US was running a large trade deficit with the rest of the world and by the late 1950's there was a glut of dollars on the international market which began draining the US Treasury of its gold.

Then, in one day in October 1960, the London gold price, which would normally have made headlines with only a 2 cent rise, rose from $35 to over $40 per ounce! The Kennedy election was just around the corner and in Europe it was believed that Kennedy would likely increase the US trade deficit and dollar printing.

That October night, in an emergency phone call between the Fed and the Bank of England, it was agreed that England would use its official gold to satiate the markets and bring the price back under control. Then, during Kennedy's first year in office the US Treasury Secretary, the Fed and the BOE organized the London Gold Pool consisting of the above plus Germany, France, Switzerland, Italy, Belgium, the Netherlands, and Luxembourg.

The goal of the pool was to hold the price of gold in the range of $35 - $35.20 per ounce so that it would be cheaper for the world to purchase gold through London from non-official sources than to take it out of the US Treasury. At an exchange rate of $35.20, it would cost around $35.40 per ounce to ship it from the US to Europe. So the target range on the London markets acted as a shield against the US official gold which had dwindled substantially over several years.

The way the pool was to work was that the Bank of England would supply physical gold as needed into the public marketplace whenever the price started to rise. The BOE would then be reimbursed its gold from the pool according to each countries agreed percentage. If the price of gold fell below $35 an ounce, the pool would buy gold, increasing the size of the pool and each member's stake accordingly. The stakes and contributions were:

50% - United States of America with $135 million, or 120 metric tons
11% - Germany with $30 million, or 27 metric tons
9% - England with $25 million, or 22 metric tons
9% - Italy with $25 million, or 22 metric tons
9% - France with $25 million, or 22 metric tons
4% - Switzerland with $10 million, or 9 metric tons
4% - Netherlands with $10 million, or 9 metric tons
4% - Belgium with $10 million, or 9 metric tons

Remember this- the gold that these countries owned came from 3 centuries of raping/pillaging the rest if the world.

And since they, as a group, were doing this in secret, it turned out that they were able to make a substantial profit in the first few years of the pool. Since they were buying low and selling high within a fixed trading range that only they knew was fixed, they reaped substantial profits and even increased their reserves as much as FIVE-FOLD by 1965!

But with the cost of US involvement in Vietnam rising substantially from 1965 through 1968, this trend reversed and the dollar came under extreme pressure. From 1965 through late 1967 the gold pool was expending more and more of its own gold just to keep the price in its range. Seeing this, France (who was one of the insiders and knew of the price fixing operation) began demanding more and more gold from the US Treasury for its dollars.

And as this trend progressed, the world was flooded with more and more dollars that were backed by less and less gold, creating an extremely volatile situation. Public demand for gold was rising, the war was escalating, the pound was devalued, France backed out of the gold pool, and in one day, Friday March 8, 1968, 100 tonnes of gold were sold in London, twenty times the normal 5 tonne day.

The following Sunday the US Fed chairman announced that the US would defend the $35 per ounce gold price "down to the last ingot"! Immediately, the US airlifted several planeloads of its gold to London to meet demand. On Wednesday of that week London sold 175 tonnes of gold. Then on Thursday, public demand reached 225 tonnes! That night they declared Friday a "bank holiday" and closed the gold market for two weeks, "upon the request of the United States".

That was the end of the London Gold Pool. The public price of gold quickly rose to $44 an ounce and a new "two tiered" gold price was unveiled; one price for central banks, and a different price for the rest of us. Even today official US gold is still marked to only $42.22 per ounce, $2 LESS than the market price in 1968!

------------

Singapur or Shanghai or Dubai or London or New York or whatnot can become gold hub for all I care. The problem is in the future the trade imbalances will be settled outright. Long term Deficits will be things of the past. When there is system already supervised by BIS, who needs Singapur government to give an helping hand to do the same job.

All this gold hub talk is passe.

Neshant · Post by **Neshant** » 29 Jun 2014 23:18

But surely there is profit to be made both overtly and covertly by being a center for taking in gold orders.

For one thing, first access to information regarding gold purchases allows these countries to front run the trade and place bets ahead of big purchase orders.

Also they do good business leasing out the gold for a while on a rotating basis while they are "processing" an order.

Its a good business and if India is the primary buyer, the exchange should be in India itself.

Now what are the babuz doing to meet that objective. The idiot money printers in govt seem to be bent on destroying the gold trade to promote the worthless paper money scheme.

svinayak · Post by **svinayak** » 30 Jun 2014 01:01

Neshant wrote:
Its a good business and if India is the primary buyer, the exchange should be in India itself.

Now what are the babuz doing to meet that objective. The idiot money printers in govt seem to be bent on destroying the gold trade to promote the worthless paper money scheme.

First need to understand how the EIC took the gold and commodity trading market from Surat India to London in the last 250 years.

Information about the demand and supply of the gold (cotton and commodities) was setup 200 years ago. Reuters was the leading news agency which was setup to obtain the information of the supply of Indian products and transmit it to London exchange. This information would set the prices of commodity and would result in trading in the currency of London- pound. This is how the London became the center of the global exchange.

India has to setup its own information source from round the world about the demand and supply of the gold world wide.
India cannot depend on the western source of information.

Indian demand and supply information (from round the world)can then determine the Bullion prices in Mumbai.

Information is the key to control exchanges

Neshant · Post by **Neshant** » 30 Jun 2014 02:01

Now how do we go about doing that.

Seems the folks overseas are making boatloads of money with Libor type scams and other scams that front-run and rig the market on the basis of information which they get ahead of the crowd.

One method of forcing price discovery (at least for gold) is for India to launch a gold backed currency in parallel with the national fiat currency. Being a huge country, it would produce either a run on (foreign) gold or a price rise of gold until it reach market prices. There are huge advantages of being the first country to do this. It could be a crypto currency like bitcoin with gold backing (gold redeemable on demand at any Indian bank by any Indian) to make the currency liquid.

Essentially that would destroy any cartel that seeks to keep prices up, down or sideways. Another thing it would do is link the prices of everything in the world to gold. Indians having the largest stockpile of gold, I don't see how that cold be a bad thing.

TSJones · Post by **TSJones** » 30 Jun 2014 02:53

Neshant wrote:Now how do we go about doing that.

Seems the folks overseas are making boatloads of money with Libor type scams and other scams that front-run and rig the market on the basis of information which they get ahead of the crowd.

One method of forcing price discovery (at least for gold) is for India to launch a gold backed currency in parallel with the national fiat currency. Being a huge country, it would produce either a run on (foreign) gold or a price rise of gold until it reach market prices. There are huge advantages of being the first country to do this. It could be a crypto currency like bitcoin with gold backing (gold redeemable on demand at any Indian bank by any Indian) to make the currency liquid.

Essentially that would destroy any cartel that seeks to keep prices up, down or sideways. Another thing it would do is link the prices of everything in the world to gold. Indians having the largest stockpile of gold, I don't see how that cold be a bad thing.

I too would like to see India introduce a currency to a specified amount of gold.

svinayak · Post by **svinayak** » 30 Jun 2014 03:01

Neshant wrote:Now how do we go about doing that.

Seems the folks overseas are making boatloads of money with Libor type scams and other scams that front-run and rig the market on the basis of information which they get ahead of the crowd.

One method of forcing price discovery (at least for gold) is for India to launch a gold backed currency in parallel with the national fiat currency. Being a huge country, it would produce either a run on (foreign) gold or a price rise of gold until it reach market prices. There are huge advantages of being the first country to do this. It could be a crypto currency like bitcoin with gold backing (gold redeemable on demand at any Indian bank by any Indian) to make the currency liquid.

Essentially that would destroy any cartel that seeks to keep prices up, down or sideways. Another thing it would do is link the prices of everything in the world to gold. Indians having the largest stockpile of gold, I don't see how that cold be a bad thing.

Good question

India needs to create futures on Gold prices based on the demand at home.
Also India needs to create others instruments connected to price of gold such as currency, trad able instruments at the market.

Locally controlled market makers have to be created with domestic gold backed instruments. Indian instruments will gain credibility due to asset backing.

Neshant · Post by **Neshant** » 30 Jun 2014 09:16

But why isn't this being done?

Are idiot bankers & economists sitting at the helm of India's govt peddling bogus theories to keep paper schemes & scams going? Instead of forging its own path, the country is merely copying the failed paper money printing schemes of western economies.

The whole idea of some wise man sitting in an ivory tower central bank dictating interest rates and fiddling around with money printing is absurd. The power of money has to be in the hands of those who earn the wealth, not those who think they have some special insight to guide the economy - when they obviously don't.

panduranghari · Post by **panduranghari** » 01 Jul 2014 18:53

Saar,

Gold is already a reserve asset at Central Banking level.

Its not long until it becomes a reserve at the commercial banking level.

Why break sweat over who does what with regards to setting up a gold hub?

Also an important fact - The reserve is classified in the balance sheet of every central bank as X Tons or Kgs or Gms. The assets of central bank are however denominated in the currency of that country. The twain shall never meet. They attempted this by going for gold standard which we know failed.

panduranghari · Post by **panduranghari** » 01 Jul 2014 21:13

A brief post on competitive devaluation

This post will help understand how f*cked the current world economy is.

Austin · Post by **Austin** » 01 Jul 2014 21:55

Gold And A Time Of Universal Deceit

By Tim Price

“We are currently on a journey to the outer reaches of the monetary universe,” write Ronni Stoeferle and Mark Valek in their latest, magisterial ‘In Gold we Trust’. Their outstanding work is doubly valuable because, as George Orwell once wrote,

“In a time of universal deceit, telling the truth is a revolutionary act.”

The reality bears restating: as the good folk of Incrementum rightly point out,

“..the monetary experiments currently underway will have numerous unintended consequences, the extent of which is difficult to gauge today. Gold, as the antagonist of unbacked paper currencies, remains an excellent hedge against rising price inflation and worst case scenarios.”

For several years we have advocated gold as a (necessarily only partial) solution to an unprecedented, global experiment with money that can only end badly for money.

The problem with money is that comparatively few people understand it, including, somewhat ironically, many who work in financial services.

Rather than debate the merits of gold (we think we have done these to death, and we acknowledge the patience of those clients who have stayed the course with us) we merely allude to the perennial difficulty of investing, namely the psychology of the investor.

In addition to being the godfather of value investing, Ben Graham was arguably one of the first behavioural economists. He wisely suggested that investors should

“Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it – even though others may hesitate or differ. You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

Graham also observed,

“In the world of securities, courage becomes the supreme virtue after adequate knowledge and a tested judgment are at hand.”
Judgment has clearly been tested for anyone who has elected to hold gold during its recent savage sell-off.

The beauty of gold, much as with a classic Ben Graham value stock, is that as it gets cheaper, it gets even more attractive. This should be self-evident, in that an ounce of gold remains an ounce of gold irrespective of its price.

This puts gold (and value stocks) markedly at odds with momentum investing (which currently holds sway over most markets), where once a price uptrend in a given security breaks to the downside, it’s time to head for the hills.

There are only three ways of trying to handle a mountain of unsustainable debt. The options are:

1) Maintain economic growth at a sufficient rate to service the debt. We believe this is grossly unlikely.

2) Repudiate the debt. Since we also operate within a debt-based monetary system (in which money is lent into being by banks), default broadly equates to Armageddon.

3) Inflate the debt away.

At the risk of pointing out the obvious, which path do we consider the most likely? Which path does it suit grotesquely over-indebted governments and their client central banks to pursue?

But it does not suit central banks to be caught with their fingers in the inflationary cookie jar, so they now have to pretend that deflation is Public Enemy Number One.

Well, deflation is certainly a problem if you have to service unserviceable debts. So it should come as no surprise if this predicament is ultimately resolved through an uncontrollable and perhaps inevitable inflationary or stagflationary mess.

So we have the courage of our knowledge and experience. (In fact, of other people’s experience, too.

As the title of Robert Schuettinger and Eamonn Butler’s book puts it, we have ‘Forty Centuries of Wage and Price Controls’ and their inevitable failure to draw upon. We know how this game ends, we just don’t know precisely when.)

We have formed a conclusion based on facts and we know our judgment is sound. For the last two years, the crowd has disagreed with us on gold.

We think we are right because we think our data and reasoning are right. Not that we don’t see value in other things, too: bonds of unimpeachable quality offering a positive real return; uncorrelated assets; value and ‘deep value’ stocks. And we ask a final question: if not gold, then what?

Are we deceiving ourselves – or are our central bankers in the process of deceiving everyone?

http://www.sovereignman.com/finance/a-t ... eit-14630/

Austin · Post by **Austin** » 01 Jul 2014 22:08

The Next Global Meltdown Is Baked In: Connecting The Dots Between Oil, Debt, Interest Rates And Risk

Austin · Post by **Austin** » 03 Jul 2014 12:55

panduranghari wrote:A brief post on competitive devaluation

This post will help understand how f*cked the current world economy is.

That site needs login.

Austin · Post by **Austin** » 03 Jul 2014 12:56

David Stockman Interview On Stansberry Radio: How The Fed’s Money-Printing Deforms Washington And Wall Street

http://davidstockmanscontracorner.com/d ... ll-street/

panduranghari · Post by **panduranghari** » 03 Jul 2014 17:16

Austin wrote:
panduranghari wrote:A brief post on competitive devaluation

This post will help understand how f*cked the current world economy is.
That site needs login.

AFTER the First World War, most large economies worked to get back on the gold standard that had facilitated a huge increase in trade prior to the war. Inflation had been a problem for most every economy during the way and immediately after, and so different countries opted for different strategies in returning to gold; some chose to go on gold at new rates reflecting their higher price levels while others, like Britain, opted to pursue years of painful deflation in order to return to their pre-war gold rates. The end result was a world in which several important currencies were structurally overvalued while others were undervalued, a situation made worse by a substantial imbalance in the distribution of the world's gold supplies. America and France had accumulated substantial gold reserves while Britain and Germany had very little gold. Countries without much gold were at constant risk of speculative attack.

When the Depression struck, this gold standard became a noose around the necks of struggling economies. Economies with overvalued currencies struggled to compete in export markets and ran trade deficits which led to gold outflows. These prompted central banks to raise interest rates to retain gold, which had the effect of further gutting weakened economies. Other countries often responded in kind, lest their gold reserves come under threat.

The situation deteriorated until countries began going off gold. When an economy left the gold standard, several things happened. First, it typically experienced a substantial devaluation against gold bloc economies, which supported domestic producers (at the expense, of course, of those in the gold bloc). Second, central banks in economies off gold were freed from the need to raise rates to protect reserves, and monetary policy was thus far more expansionary in these countries. Third, gold bloc countries responded either by themselves succumbing to pressure and leaving gold or by meeting the loss of competitiveness with the erection of high tariff barriers or both.

Unsurprisingly, leaving the gold standard was very good for an economy. Importantly, the benefit of leaving gold didn't much erode as others did the same, implying that the freeing of monetary policy was at least as important as the boost from devaluation. Unfortunately, the fracturing of the world into tariff-protected currency blocs did help pave the way toward the military conflicts that followed.

What's the point of all this? This morning, the Japanese government intervened in a significant way to bring down the value of the yen. It's not the first time Japan has done this in recent months, and neither is it the only country to try and devalue its currency; the Swiss National Bank famously did so after the franc's flight-to-safety status led to significant appreciation and pain for domestic exporters. What are the potential implications of a world in which many large economies are weighing the benefits of competitive devaluation?

The first point to make is that Japan is not particularly good at this game. Large, one-off interventions against a backdrop of sustained deflation are unlikely to be effective; markets know the yen will be going back up again in no time. Second, a real intervention would be very good for Japan. Consumer prices are falling in Japan, as they tend to. Were the Bank of Japan to make a concerted effort to print yen and sell them for other things—dollars, say—then deflation might finally be vanquished and the economy might stumble into sustained growth for a change.

Third, that kind of intervention would have a direct, negative impact on other economies, whose currencies would appreciate relative to the yen. This negative impact could easily be offset, however, if those economies were to respond by printing their currencies and using them to buy yen. No one would get an exchange rate advantage, but broad monetary easing would lead to reflation, a higher level of aggregate demand, and better conditions in depressed economies. If everyone plays along, the net effect is of a coordinated monetary stimulus. Fourth, however, if other central banks are reluctant to play along, then elected governments may respond to pressure from foreign exporters by adopting trade restrictions. This was the common response among gold bloc countries to devaluations by other economies.

In sum, a crummy economic situation will encourage economies to pursue competitive devaluation. This action needn't be globally harmful and it could kick off a beneficial series of imitative efforts, approximating coordinated stimulus. There is a risk, however, that it will lead to a troubling unravelling of liberal trade regimes. It would therefore seem to be a good idea to skip right to the coordinated stimulus, which would reduce the pressure for risky economic policies in the first place.

Austin · Post by **Austin** » 03 Jul 2014 18:45

Thanks for posting in full panduranghari.

If i remember the last G8 or was it G20 summit held late last year in Russia came with the statement that countries wont devaluate their currency in order to avoid competitive devaluation.

Austin · Post by **Austin** » 03 Jul 2014 18:49

The Fed is Either Ignorant or Lying About Inflation… Neither Is Good

Austin · Post by **Austin** » 03 Jul 2014 19:55

China moving towards convertibility

China frees retail yuan exchange rate in move toward convertibility

(Reuters) - China has permitted banks to freely set their own exchange rates for the yuan against the dollar in over-the-counter transactions -- another step toward freeing the exchange rate from government control.

Banks were previously required to price the yuan/dollar rate they offered retail clients within 3 percent in either direction of the Chinese central bank's midpoint on a given day.

"The liberalisation of the retail market implies that the PBOC believes that the yuan has now reached equilibrium," said analyst Cao Yang at Shanghai Pudong Development Bank.

Such equilibrium permits the central bank to gradually free the yuan's exchange rate without worrying about excessive volatility, he said.

The new rules do not apply to the yuan/dollar's main rate in the interbank market, which is subject to controls including the central bank setting a daily midpoint from which the spot rate has been allowed to fluctuate in either direction by 2 percent since March.

Under the new policy, effective immediately, banks can price OTC yuan/dollar exchange rates "in line with market supply and demand and without any restrictions", the People's Bank of China (PBOC) said in a statement published late on Wednesday.

The move "is aimed at further perfecting the mechanisms to establish market-oriented exchange rate for the yuan," the central bank said in the statement.

However, the wholesale market that the banks trade in must still abide by the midpoint guidance rate. Because that primary market is an enormous source of forex supply and demand, posting around $15 billion in transactions every day, it will continue to exercise a strong influence on the retail market.

The world's second-largest economy is seeking to increase the use of the yuan in global trade and investment to diminish China's dependence on the U.S. dollar, and by extension its exposure to economic policy decisions made in Washington outside of its control.

Allowing the market to price the yuan against the dollar is a pre-requisite for wider liberalisation, and at the same time decreases the need for Beijing to accrue dollar reserves in the name of managing the exchange rate. The PBOC has purposefully guided the yuan to stage more two-way trading over the past couple of years, letting the yuan appreciate 2.9 percent versus the dollar in 2013, only to push it down as much as 3.4 percent this year to convince the market not to consider the currency a one-way bet on appreciation.

TESTING THE WATERS

With the first market-oriented yuan/dollar exchange rates in the OTC market, the central bank can collect data on dollar supply and demand from major state banks, traders said.

"Retailing is also an important indicator for yuan/dollar demand and supply and reflects sentiment towards these currencies," said a senior dealer at a major European bank in Shanghai.

"As such, the OTC exchange rates will have influence on the interbank rates and help banks discover market-oriented rates."

Chinese companies, which obtain foreign currencies both at the interbank market and with a less degree, via banks' OTC channels, welcomed the move.

"The opening will have a positive impact on corporate foreign exchange deals," said Wang Xinjiu, Securities Affairs Representative at China International Marine Containers (Group) Co, the world's top container producer.

"Companies, just like individuals, will have better channels to meet their foreign exchange demand with more reasonable exchange rates," he said.

The latest reform step comes ahead of bilateral economic talks between the United States and China later this month, during which U.S. officials are expected to raise their concerns about Beijing's interventions in the currency market.

Critics say China artificially suppresses the value of the yuan to protect its exporters, an accusation China has always denied.

U.S. Treasury Secretary Jack Lew, who will attend the Strategic & Economic Dialogue in Beijing later this month, said on Tuesday the yuan's value is a "very big issue" for the United States and that the currency needs to appreciate more.

Robert Minikin, forex strategist at Standard Chartered in Hong Kong, said he believed that Beijing is also preparing to change the way it manages the market in general, and that the freeing of the retail market could be a step in this direction.

"There are some hints that the PBOC is changing the way it is managing the FX market, and in particular the way the daily fix is managed. We may be moving toward a more market-driven daily fix rather than one set by the authorities."

Minikin was referring to a common complaint by participants in China's forex market, namely that the central bank has used the daily midpoint fixing as a leash to control market movements instead of an indicator of consensus price.

Economists have pointed out that so long as Beijing continues to set an official midpoint rate, it retains a tool for controlling the exchange rate; and so long as the interbank market is restrained by a trading band, the market is not truly in charge.