I might be speaking with an authoritative tone, but even I'm still learning from every source I can while applying my own take. Some excellent rebuttals from several in this thread have forced me to review a few items to help clarify my assessments. As long as we're forcing each other to think, we're making progress. In addition, much of the discussion that focuses on gold, I view as applicable to Bitcoin as well.
On with the games!
i just don't think they get all the way there before the gold price reverses down to correct for the 11 yr rise.
All good - we can agree to disagree there.
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.
Indeed, it's a catch-22. On one hand, as you state, there is no alternative but to take the write downs that have been put off as long as possible. On the other, the deflationary effects of contracting derivatives that will cause margins to be completely wiped out, triggering the waiting defaults across the board (assuming no more Enron-style book-cooking magic). Rock, meet hard place.
Even at that, I don't think the banks (and government, being complicit in the game) are out of delaying strategies just yet. Granted, most of their solutions are one-off tactics (asset fire sales being one) but when pressed, people can get very creative. Everything possible will be done to reduce defaults and write-offs to a trickle rather than a deluge.
I'm not blindly saying that the dollar is going to be on a one-way flow back to the US. Obviously, there will be arbitrage to balance the flows, but the problem could escalate faster than rebalancing and recapitalization can take place. If the system deflates faster than the defaults can be absorbed and capital can be balanced, the
easiest solution to make up the difference is a slip of the finger that adds a few instances of 10^12 zeroes to the monetary base.
This is irrespective of which currency is involved, as they're all in basically the same situation to varying degrees. Gold comes a little further down...
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.
Thanks for sharing - excellent explanation of the debt developments. I took some issue with a few of the concepts presented, but that's for another time.
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.
but in essence the gold bugs are relying on Ben to do another QE despite him not having done it. talk about wild speculation.
Absolute power corrupts absolutely...
Even the chairman can't force the markets to his will indefinitely. I've interpreted the act of calling off the working group as a scolding, where the politicians and Wall Street are the spoiled brats and Bernanke is the bumbling (and misguided) parent. With growing opposition from the more responsible elements of society, further stimulus became less of a foregone conclusion (momentarily taking away the punch bowl).
Paying lip service to responsibility has quelled the opposition somewhat. Now, with the brats' eyes tearing up and tantrums being thrown, the Fed is ready to relinquish; they can have their proverbial candy back (punch bowl refilled and re-spiked) as long as they stop screaming.
This way the Fed reasserts its relevancy enough to carry on, establishes a path for additional stimulus and virtually guarantees a boost for the current administration through election time in 2012. It's a win-win-win for the Fed, Obama administration and Wall Street. The consequences will have to be dealt with by everyone else.
When is enough, enough? When enough people have had enough. Until then, business as usual.
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.
Real money is like the term infinity: it's an abstract concept. There are two primary components.
A definition of
money:
- A medium that can be exchanged for goods and services and is used as a measure of their values on the market...
- Assets and property considered in terms of monetary value; wealth.
The first definition describes a
means of exchange; the second describes a
store of value. Any asset can act along a continuum as one or the other, its location in the spectrum determined by subjective perception (agreement a la bid/ask negotiation). Some assets have attributes that make them more suitable as a means of exchange (currency, seashells) while others function as stores of value (fine art, real estate). In modernity, gold has acted primarily as the latter, but in times of fiscal duress it can be called to function as a means of exchange (e.g. to replace a failed currency).
It's a concept that I had to come to terms with as well. I think the difficulty arises from the whole social mindset of attributing wealth exclusively to debt/dollars as discussed earlier. Not many people make the distinction between a means of exchange (contemporary concept of money) and store of value (the other side of the coin - ha ha). Who thinks of their wealth in terms of how many computers they own, or how many cars? It's possible, just not common, even though the GDP attempts to do just that.
It might help to visualize a bell curve - at the apex is the ideal means of exchange. The farther out toward the tails, the better suited an asset is as a store of value. In my interpretation, gold normally lies at the very end of the tail, but when there's a void at the apex it can fill the spot. If society hadn't narrowed down the ideal properties for a means of exchange, we probably wouldn't be having this conversation. Over 6,000 years, society has consistently returned to gold as money (in both underlying meanings), so I'd say that's a pretty strong vote of confidence and very unlikely to break anytime soon.
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!
Do you mean that in reverse? Gold has been proven throughout history to be the choice of money, but we can't say that won't change sometime in the future... ?
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.
! It isn't just belief, but mathematically-provable certainty. Currencies over the ages have been structured in a bid to mitigate the human intervention element. Bitcoin actually does it - it's as abstract as the concept of money itself. And yes, the network
is the reason it has value; existence of the network
is the belief and therefore the existence of Bitcoin. Well, that in combination with the way individual, relatively straightforward technologies are utilized in conjunction with each other (cryptography, distributed networking, triple-entry accounting) to form a truly unique system that is (as cliche as the saying is) greater than the sum of its parts.
Forget just gold bugs, almost nobody (even some economists with doctorate degrees) grasps that distinction thus far. For now, it's just a bunch of nutcases pushing computers to melting points who "get it". I'd even go so far as to say this is as big a development as written language, but to go down that road I'll have to start talking about Gaia theory and human-machine integration - i.e. fringe.
We
definitely agree on Bitcoin.
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.
Hey, I didn't say it had to be especially likely, just possible. Two words:
solar flare.
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.
Military might can only do so much (another case of diminishing returns), particularly if met with growing resistance.
Wasn't Libya supposed to only be a month-long ordeal?
By the numbers,
Saudi Arabia is perhaps 1/7th of the overall
United States forces. That needs to be tempered by the land mass available and necessity of preserving the integrity of desired natural resources. There's also the issue of allies. Nothing is ever as simple as it seems... just like dating.
Also, with the US forces engaged in multiple fronts and being worn down from extended campaigns, is that military at full strength? To my knowledge, every great empire has overextended itself militarily.
Martin Armstrong has done immense work in exploring such history. For additional perspective from an anthropological point of view,
Jared Diamond's
Guns, Germs & Steel and
Collapse are seminal works.
you've convinced me!
Good
It's never a bad idea to diversify a little.
i won't be losing any sleep over that!
Heh, neither will I. At least until the angry mobs are knocking on our doors. Got a
last plane out plan?
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?
Both bullion and shares have been rising for a decade. What's to say a reversal in the spread would stop that? An even better spread will eventually be discovered and adopted.
As Norcini suggested, long mining shares and/or bullion while short the broader equity markets. That's where my money has been for a few weeks now. As soon as treasuries take their first major swan dive, I'll be shorting them on a retracement as well. I might be waiting a while yet.
yes, 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.
Just buy back in when it comes back down to the $1,600s from $2,500+ and hold it this time.
i'm on the plane right now to Juneau. King Salmon look out!
Jealous lol.
