yes, we both do understand what is happening. the only difference we see is how we get there. deflation now or later. hyperinflation now or later. i just happen to think we go now into an extended period of deflation to wash out the bad debt and correct imbalances whether or not Ben tries to stop it or not.
Margin increases will only do so much. With margin comes volatility as overextended players are forced out with the calls. When the exchanges go to full cash backing, the manipulation can no longer carry much weight by forcing players out. All players involved then will be very strong; the game reserved for the very wealthy. How many traders can put up the full backing of $175,000 to control each 100oz COMEX futures gold contract, and how many of these professionals will be forced out by a 5% drop in price?
i just don't think they get all the way there before the gold price reverses down to correct for the 11 yr rise.
Once credit is extended, it is extremely difficult to reel it back in. It isn't as though a simple recall can be issued on fractional reserves.
sure it is. what are margin calls? calling in a debt is easily within the purview of banks. they do it all the time. i just had a large credit line shut down even tho i'm an equivalent AAA with no debt on my books at all and a good income. the banks are stressed and they don't believe in the consumer anymore. they are bracing for the storm. these types of margin calls are whats tipping us over right now IMO.
Even if a bank calls in a debt, will it be paid? They can only call in what hasn't been squandered. The banks did this during the past year, as many businesses' and peoples' credit limits were slashed with hardly any notice, even yours. There's the threat of debtors filing for bankruptcy too. You might not have had any debt, but how many countless others had maxed out lines?
in the scramble for cash USD's, the banks are beginning to finally foreclose on bad debtors. they prolonged this for as long as possible hoping for the turnaround in the economy. its now failed and they have no choice but to salvage what they can get for pennies on the dollar to try and scrape up as much capital as possible bracing for the storm. the banks have no choice. we're even beginning to see it at the high end. my hedge fund friend says they have huge CDS on CMBX's which are in severe trouble. the derivative pyramid is going to collapse and you can already clearly see the decline in the shadow banking system. from todays Zerohedge:
http://www.zerohedge.com/news/lack-offshore-dollars-reflected-widest-spread-between-socgen-and-jpm-libor-fixing-early-2009these european banks desperately need DOLLARS not gold to keep from collapsing. the scramble for cash is on. as the USD skyrockets, gold is going to reverse and this, contrary to 2008, its going to be a much bigger plunge as a result of a much bigger crash in general markets. at least thats what i'm sensing.
Is it debt that people want or the assets they go into debt to acquire? If you choose debt, let's talk - I could use some new Penta IPS drives.
listen to Admati on Econtalk. this is a great podcast:
http://www.econtalk.org/archives/2011/08/admati_on_finan.htmlbottom line is, the system has rewarded taking on debt itself to finance asset purchases even if those assets themselves don't perform substantially. the preferential tax tx given to debt funding has discouraged equity funding for corporations and has contributed to how the system has morphed into a debt backed system.
Asset deflation is the primary dynamic; debt deflation is directly tied to that. Monetary base inflation is the reaction in order to stave off complete financial implosion.
absolutely.
There's a problem if debt is separated from assets: the debt becomes worthless because it's an abstract - a promise. With debt having been used as collateral (effectively money), the whole spider web can be dragged down by a few large credit lines. Why should I put in the same work to pay off my debt when someone else's debt was written down to 1% of its former value? That will be the public realization of what a counterparty is. The other side is a loss of investment for the creditor and reticence to supply more. That can cripple a heavily credit-dependent economy.
yes again.
this is fundamentally where we disagree. i think its naive to think the Fed will sacrifice itself for the good of the debtors of this nation and worldwide. i think they want to stay in power, i think they want to keep their USD franchise, i think they want to preserve their constituents wealth (the wealthy bankers), i think they want to preserve their distributed central banking system based on the USD which have made them Kings, and i think the Fed has the upper hand on their Congressional lackies who are powerless to stop them. i think they are going to try to manage the USD UP while slowly eroding the avg Americans wealth to prevent rioting. i think they realize the Euro experiment has failed and that trying to build a one world currency will never work and the best course of is to make the best of the current situation. they know that of the 12 bankers in the room, probably 4 of them will die, but thats better than all of them dying from hyperinflation and WW3.
That's entirely reasonable. Self-preservation is an incredibly strong force. This also suggests to me that you view institutions as collective entities unto themselves, having properties normally reserved for an individual human.
absolutely. we talked about the Fed Reserve Bd of Governors earlier. in reality, the Chairman is all powerful. what he wants is what he gets. Econtalk has another podcast about a year ago from a former governor who outlined in detail the decision making process and how it worked with Greenspan. it was all HIM. yes the governors can try to influence him but if the Chair is a pig headed, insane, arrogant bastard like Greenspan AND Ben then we have a problem. which is precisely where we find ourselves. i don't think Ben is stupid and i think he is sensitive to all the criticism. which means i think he reverses course and tries to surprise the markets. they are so distorted and inflated that the resulting inflationary-induced problems of riot/revolution in Libya, Egypt, Greece, Saudi, Syria, London can no longer be ignored. not to mention the complaining of big corporations and now the banks themselves (whodathunk) from the declining USD and their cost explosions. have you heard Steve Wynn lately? clearly the PPT has stepped back from stocks which is a huge red flag for me. i'm not willing to be trapped in the gold parabola in a quick selloff.
It would certainly help to explain their behavior, after all we often look at pets as little people so why not corporations and governments as giants? That also means they may not agree with each other.
What if the Fed thinks it'll be crushed no matter what it does? Will it do what it thinks is best no matter what anyone says, hoping that when it has fallen, things will be better than they were before? Do these type of organizations have aspirations of heroism arising from their personality as represented by the corporate culture?
Who knows, maybe the Fed actually will reject the act of initiating another round of monetary inflation, though I highly doubt it. Lot's of wild questions and I think we're getting a little off the topic of economics here...
but in essence the gold bugs are relying on Ben to do another QE despite him not having done it. talk about wild speculation.
wait a minute. you agree with Ben that gold is just another asset, not money? that means that golds value as an asset depends on the USD. which means that the USD is of primary significance and gold is secondary!
I do agree that it's an asset, but not
just another asset. Money is an abstract concept that can be applied to anything involved in facilitating an exchange, whether it be a shiny metal or a smelly sardine. Both of those examples are assets and can be used to determine a common value for trade.
Gold is
the asset. Its properties of relative rarity, divisibility and durability lend it suitability as the ideal yardstick for commonly agreed-upon value. We can agree upon the value of a piece of paper, but is gold or paper more likely to change wildly in supply? Gold has no nationality, no borders to limit its acceptance. It is as readily recieved in Bali as it is in Boston.
wait a minute. i'm going to have to call you out on this one. either gold is money OR an asset. the whole premise of the gold argument is that its real MONEY. the true medium of exhange. assets on the other hand are what you use that same money to invest in. if you believe gold is an asset then you believe the USD is the main form of money, not gold. therefore it will be subject to the whims of the market demand for the real money which by your definition is the USD. yours is not the traditional gold bug argument.
There has never been anything else that could quite match the balance of features gold has (silver, platinum, rare gemstones, etc); not even Bitcoin, as close as it gets.
its way to early for you to make this statement!
Paper currencies (including digital variants) were as good as it came for ages, but the manifestation has always proved too whimsical to be stable. The only difference between any of them is physical presence.
Paper is subject to human nature, which can be unreliable to put it nicely. And you never know, the internet could conceivably be completely shut down and take Bitcoin with it, as unlikely as that is. Gold would still exist, even though it's harder to transport.
In a sense, Bitcoin provides debt with its own measure of value - it gives the abstract concept a definable quantity without being backed by anything other than its sheer existence, which is why it works as long as it exists. But again, if it somehow ceases to exist, we still have gold - the final insurance policy.
heres where it gets fascinating. the argument for Bitcoin as money. i would argue that Bitcoin is backed; by the network. the huge amount of hashing power which has been brought to bear to process tx's and the blockchain. this is what the gold bugs miss when they say there is no "backing" for btc. the network comes with a cost and a BELIEF. you said earlier belief in money makes it what it is. lose that belief and it vaporizes.
the bond floors of Japan are littered with shorts. i hate this argument but look at UST's rally. i hate them too but you can't deny reality and where MOST of the money is fleeing to. BTW, i can't wait to short UST's but that could be years before that trade is good.
Oh, no arguing with that. I'm not suggesting taking a short position in treasuries just yet, though I do think another leg down is in the works eventually. Japan's situation was a prelude to what the US is doing now. There's a major difference, though - the whole system is coming unraveled. At least when Japan was being stupid, the rest of the global economy was still bounding along and there were always plenty of buyers for government-issued debt. Lucky for Japan, the carry unwind is helping to keep them afloat.
Who are the buyers of US government debt? Are they buying out of confidence or fear? What will they do with those instruments when startled by further signs of instability? When the debt is called in and the government can't pay because its credit line is maxed out, what happens? Another debt ceiling raise? Who will extend the credit?
damn good questions.
they will NEVER be able to shut down the Internet even if they wanted to. that would kill everything incl the banks and gov't. this is one reason why i'm bullish on btc.
Exogenous factors can occur. For example: a once-in-a-century
hurricane and/or tsunami knocks out an entire region of your country or a cascading transformer switching problem
cuts electric power to a quarter of the country.
whose engaging in wild speculation now? the internet was designed to withstand a nuclear attack wiping out multiple metropolitan areas. as i said before, never gonna happen.
Collective sentiment is everything - money's value arises from subjective perception. Otherwise, gold would just be metal. Nothing would be worth anything relative to anything else. If people lose their belief in the dollar's value, it no longer has value.
fair enough but we're not at that point yet except in the case of the gold bugs.
Not yet, no. However, propagation of an idea can happen very quickly once it takes root. I choose to overestimate it rather than be caught in a rioting London.
there is more dependency than you think. look at Saudi Arabia and petrodollars. they can afford to live like Kings of the Middle East b/c of the US military protecting their borders and oil. and you know what? the US will FORCE thru guns the acceptance of USD's for oil. unfair yes, but this is something we haven't touched upon as an argument for why the USD won't go away.
My view is that the dependency on petrodollars is reversed. The asset is oil and the debt is the dollar. FOFOA does an amazing job of explaining the whole structure in these two posts:
this is true. my point is will all those US troops sit idle if Saudi decides to change petrodollars to say yuandollars? uh, i don't think so. we will just TAKE the oil at gunpoint.
Actually, one of the only things I disagree with FOFOA on is Bitcoin's fate.
no pain, no gain.
Just don't get bowled over, and fer cryin' out loud - keep at least
some of your golden insurance!
you've convinced me!
they won't be coming to any large degree. they don't have the "cash". we're 11 yr into this; ain't gonna happen. mining stocks and silver are telling you as much.
In regard to Americans and Europeans still believing in their fiat, perhaps. The world beyond has increasing interest in precious metals and a growing wealth to back it. It's a sad proposition to think that much of the wealthiest 10% of the world may soon be among the poorest.
i won't be losing any sleep over that!
With the stocks, I'm siding with
Dan Norcini. Large funds have been shorting the shares and buying the bullion as a spread trade. The ratios are at extreme levels, and as the mining companies are beginning to pay dividends, it will become very painful for the shorts to hold on. Watch for the ratios to snap back, making the gold and silver miners gain in value relative to their products. Correlate that principle with
George Soros selling his bullion while buying gold mining company shares. The rich get richer.
I hope your brain is really churning with that bit; mine did.
no, i've been well aware of this for a while. but the other half of this trade means gold has to turn down. which is it?
Men who can be both right and sit tight are uncommon. I found it one of the hardest things to learn. ~
Jesse Livermoreyes, you are so right and i have heard this before. i am annoyed that i've sold gold at 1550 and 1620 with it now at 1750ish. but not if it reverses here.
A quick story - in 2005, I was playing the gold carry trade. I got in at a little over $650, looking to ride the capital gain to Disney Land after paying my bills with the interest earned. Instead, I foolishly held on until $700 was broken and closed the position for a solid loss. Thankfully it didn't wipe me out despite being the "trade of a lifetime", but since then I've respected gold the way a sailor respects the sea - majestic and powerful, but deadly if you aren't careful. And when the waves start noisily slapping against the hull, turn into them to silence the turbulence so you can focus.
It's a pleasure to discuss these topics intelligently. We may agree on a few points while disagreeing on most; rational discourse is how humanity learns. Enjoy the PacNW. Now it's time for
RAPTOR JESUS! (for anyone who takes offense to that, you have no soul)
i'm on the plane right now to Juneau. King Salmon look out!
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