Eric Sprott On Bonfire of the Currencies

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Tue, 10/26/2010 - 16:42 | 678645 ZeroPower
ZeroPower's picture

$1350 gold? Fine whatever. 1300 SPX. Wheres the higher return, chief?

Tue, 10/26/2010 - 16:51 | 678687 Teaser
Teaser's picture

sure looks like gold to me.  In fact as far back as I can see from here, it looks like gold.  Pretty much since they invented the printing press in 1999, sure seems like the return is in gold and not  spx.  But, I could be wrong.  You can't even eat gold!

Tue, 10/26/2010 - 17:36 | 678767 DavidPierre
DavidPierre's picture

A week away ... Fed's announcement of how badly they intend to debauch the Dollar.

Talk ... "it's already in the market" ... may or may not be true.

Markets moved and realigned ahead of this announcement in expectations of Fed "help" but have they moved too far or not enough?

Whatever they announce, it better be "good"!

How perverse is this announcement really? 

A "bad" announcement in the market is one where the Fed only trashes the Dollar a little. 

A "good" one is where they completely capitulate with a $1 Trillion+ shovel job... "the bigger the better" a thought process where people are HOPING that the Dollar gets debased. Good for over indebted idiots ( the federal government) short term ... it will "lessen the bite" of debts but now people understand what they are wishing for. This especially applies to bond buyers, do they really want the Fed to let the inflation genie out of the bottle?

How good are their 3.5% 30 year bonds going to look when inflation cranks up past 10%?

TIPS auction actually goes "negative". This means that these "inflation protected" bonds were returning LESS money than invested!  Why would anyone accept negative rates on one of these bonds, or ANY bonds for that matter? Why not just buy a lump of "golden crap"? ... doesn't pay any interest but who cares, nothing else does either.

It really doesn't make sense, everyone knows that governments are in a currency war where the winner is whoever devalues the most the fastest, so why are buyers lining up hundreds deep to lock in low interest rates with the promise of being paid back in depreciated currency? Maybe it's something in the water, who knows but this phenomenon is surely not logical.

No matter the amount of freshly printed currency (debt) is announced markets can't hold together for more than a week or two. If you were packed to the gills with Dollar denominated Treasuries wouldn't you use the Fed's "bid" to unload these? Especially if you were a foreigner (China comes to mind here) that had more Dollars than desired?

Foreigners have lost roughly 15% on their Dollar holdings over the last couple of months so why would they want to hold on longer to take a further beating? Especially while the Fed is advertising that they intend to increase the downward pressure? ... something in the water?

"The madness of crowds" ... everyone participating and  NOBODY calling this spade. This is pure fear and desperation of the Fed, the ensuing panic will be global and unlike anything ever seen. In retrospect, all we needed (other than a Gold standard) was to let the economy and markets recede back in 1996 and the 2000-2002 time frame. But NO, damn the torpedoes and full steam ahead!

Blow the bubbles, spin the reality, fake the numbers, bankrupt the Treasury and screw the people because no one will be the wiser until the next administration!

This IS the next administration and the shit has already hit the fan. The policy response? ...turn up the fan speed and start shoveling more, ...yeah, that ought to do it!

{p.s.  CFTC commissioner Bart Chilton spoke today regarding the ongoing Silver price manipulation. He appears to be a man of honor.  God bless him. May his guardian angel diligently watch his back.  The Gold and Silver mafia scam has some very powerful and dangerous entities running the show. CFTC didn't run his background cheque well enough before appointing him! Bravo Mr. Chilton! }

{p.s.s.  Sprott Asset Management Chief Investment Strategist John Embry tells Eric King of King World News that the long-awaited commercial signal failure in the gold and silver markets may be imminent. Excerpts from the interview can be found at King World News here:

Via LeMetropoleCafe !!!

Tue, 10/26/2010 - 21:47 | 679370 billhilly
billhilly's picture

Right on, David.  Very accurate comments IMHO.

Also, Bart Chilton IS the man!  Thanks finally to someone in "office" for speaking the truth.

Wed, 10/27/2010 - 01:26 | 679795 CitizenPete
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CFTC puts spotlight on silver trades

By Gregory Meyer in New York and Jack Farchy in London

Published: October 26 2010 18:41 | Last updated: October 26 2010 18:41

A senior US commodities regulator has alleged fraud in silver trading more than two years after investigators began a probe into the market.

Bart Chilton, commissioner at the Commodity Futures Trading Commission, said “members of the public” and “publicly available documents” convinced him the silver markets are tainted by violations of federal commodities law.

Tue, 10/26/2010 - 16:56 | 678675 Waterfallsparkles
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Bernankie trying to buy the Election for the Dems.  Talk about Election contributions.  How many Billion has the Fed printed to get Dems Elected.

The FED appears to be trying to manipulate the results of the Election by the printing of Dollars.

Tue, 10/26/2010 - 16:57 | 678709 svendthrift
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They assist the dominant party every cycle.

Tue, 10/26/2010 - 18:38 | 678954 Bill Lumbergh
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Let us not forget he was not exactly re-confirmed with a lot of enthusiasm...who knows what backroom deals were made...Benny might be making good on some of those right now.

Tue, 10/26/2010 - 18:43 | 678972 midtowng
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Bernanke printed more dollars, and cut interest rates far more in 2008.

Tue, 10/26/2010 - 16:55 | 678702 tmosley
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The second chart is the same as the first one.

Tue, 10/26/2010 - 18:10 | 678885 MiguelitoRaton
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Yes Tyler, we would like to see the real second chart. I guess Sprott liked the first one so much he used it twice ;-)

Tue, 10/26/2010 - 17:46 | 678708 the rookie cynic
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It's a giant geo-political game of chicken, ain't it?

Quite a drama really: oil, nukes, land wars in Asia, fading empires, rising stars, trade imbalances, strikes, riots, guess is that the PTB will empty the bag of dirty tricks to try to win this thing.

Why do I get the feeling this is not going to end well?

Tue, 10/26/2010 - 17:04 | 678729 B9K9
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Gold promoters attempt to persuade (potential) investors that Ben can act unilaterally without concern for other countervailing forces.

This in incorrect - dangerously so. In point of fact, there are significant global geo-political realities that give pause to continued advance of preferred monetary policies.

Simply ask yourself this question: does a strong dollar or weak dollar policy help the USA achieve its mission objectives with regard to control of ME oil?

If you think the (so called) WoT will benefit from a highly depreciated dollar, then gold and other risk-on investment strategies might be suitable. If not, then not so much.

Think it through fellow ZH space-monkeys.

Tue, 10/26/2010 - 17:09 | 678746 tmosley
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The king can order the tide not to come in, but it comes in all the same.

Market forces will prevail, whether they do so slowly, as a tide coming in, or suddenly, as in the collapse of a dike.

Tue, 10/26/2010 - 17:10 | 678752 Internet Tough Guy
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Oil has gone up sharply since the beginning of the war on terror.

Tue, 10/26/2010 - 22:45 | 679542 i-dog
i-dog's picture

"help the USA achieve its mission objectives with regard to control of ME oil?"

That is no longer part of their plan and this has nothing to do with the price of oil. The Feds could care less about that ... Ben can print as many dollars as he needs to buy barrels at $100, $150, $200, $500, whatever. "Control" of ME oil is also less of a concern when nobody can afford (or be permitted) to drive any more and all manufacturing has been driven offshore. Domestic US oil sources will be adequate to drive all the machinery on the cotton and soy plantations.

23 countries have so far been deemed to be recently debasing their currencies. I haven't looked any further than the headlines yet, but I would assume that all those currencies are controlled by the same central banking cartel ... and therefore with a single objective in mind that has nothing to do with "protecting a local currency against the dollar".

This is all to do with a coordinated effort to destroy credibility in the present currency mix and attempt to introduce a single centrally controlled global currency as a "solution to the crisis of confidence" ... which will more than likely be an electronic currency backed by some fictitious manipulated entity like an SDR. If it is an electronic currency, then an international ID system will ensure that all slaves worldwide (at least in the developed countries, initially) will be "branded" with some form of ID that will enable tracing and taxing every single transaction. It would also mean that they can instantly withdraw the means of spending this so-called "money" anywhere and anytime they like!

Wed, 10/27/2010 - 00:02 | 679683 thermroc
thermroc's picture

Does anyone really still believe they're in control of this shit can?

The wheels are off, the axles sparking and bare arses are dangerously close to the tarmac.

Do you really think they give a fat rat's about their mission objectives in ME? Smell the wind dude, it's going down.

Man I'll bet there were guys in Moscow, Christmas '89, saying "does a strong rouble or weak rouble policy help the USSR achieve its mission objectives with regard to control of ME oil?"

Get a fucking clue dude. Go buy some gold.

Tue, 10/26/2010 - 17:06 | 678737 pitz
pitz's picture

Yup.  Lots of juniors, however, are in bubbles compared to the seniors. 

Tue, 10/26/2010 - 17:30 | 678798 Brutlstrudl
Brutlstrudl's picture

Yeah, they went up with the rest of the market. I'm betting they will come down into a buying op. keep some powder dry. and keep your physical in a deep hole. Gold and Silver, Bitchez

Tue, 10/26/2010 - 17:36 | 678805 cowdiddly
cowdiddly's picture

Gold Stocks? Nah I think Ill just buy the real deal.

Tue, 10/26/2010 - 23:17 | 679612 traderjoe
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Yes. Owning gold stocks means you are still reliant on the FRN-based system. Buying gold means you can transact outside of it (if need be). 

Wed, 10/27/2010 - 07:32 | 679979 anvILL
anvILL's picture

I'm with you. Buying gold stocks is more likely to be profitable from here, and I do own some. But it doesn't cast a vote against the current system while buying physical does.

Tue, 10/26/2010 - 17:45 | 678825 MeTarzanUjane
MeTarzanUjane's picture

Ok, before I read this I'm going to clear my mind. I have a feeling it's going to be utter nonsense but I will try to make my way through it without punching my LCD monitor because they are getting expensive and time consuming to replace.

Here goes.

Tue, 10/26/2010 - 22:50 | 679560 i-dog
i-dog's picture

You really should be using Twitter to tell all your imaginary friends what you are doing next. We couldn't give a fuck!

Stop wasting space and bandwidth on this blog with your twitterish comments, you twit!

Tue, 10/26/2010 - 17:45 | 678828 ihedgemyhedges
ihedgemyhedges's picture

Yet the same applies to "companies with operating earnings from abroad", correct?  A weak dollar is "good" for them, right?  So why isn't a weak dollar "good" for gold and gold stocks?  And to the rest of you, no, you can't eat gold.  No, you can't eat gold stox.  No, you can't eat shares of AAPL.  No, you can't eat shares of IBM, even the repurchased ones........You can't even eat wheat futures, unless you take physical delivery and then grind it up to make bread...............

Tue, 10/26/2010 - 17:47 | 678831 THE DORK OF CORK
THE DORK OF CORK's picture

Its easy for Sprott to look Olympus like down on goverments devaluation attempts - but there is huge disequilibrium between the holders of debt and Labour - debt has squeezed out all Labour and has stifled capital development in areas where there is still residual excess demand.

This has created the absurd globalism we see today of shipping vast amounts of commodities and capital and its accompanying labour. 

My only problem is that they are making the mistake of devaluing against each other rather then money - this is happening by default rather then design.

This so called capitalism is really a creature of the CBs attempt to keep down the price of fiat against Gold and really nothing else - this creates internal  vacuums that are filled by debt money that exploit Labour and resources without paying for economic externalities

Wed, 10/27/2010 - 00:08 | 679691 thermroc
thermroc's picture

I think you're right, and I think Shanghai Cooperation Organization think you're right.

Expect Russia and China to implement massive devaluation against gold, blowing up West in the process. Revenge is sweet.

Tue, 10/26/2010 - 17:55 | 678853 Gloomy
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I own mining stocks-but I fret alot. When crap really hits the fan and prices go through the roof, these babies will be nationalized by bankrupt governments. I hope to get out in time. But I sure am worried. For that concern, I have some physical.

Tue, 10/26/2010 - 18:20 | 678913 MiguelitoRaton
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I've thought about this as well. There are many factors like location (Canada probably won't screw the US), what the US does (if we nationalize others will follow), long-term repercussions (South American miners/countries may not nationalize for fear of an aircraft carrier showing up on their coast or merely be starved of capital and having the foreign companies pull-out and trade dwindle). I don't think such an action will be taken lightly. It would require a real shitstorm to cause rampant nationalization (outside of a few like Venezuela). In Mexico, you might worry about narco terrorists taking over mines, but the government would not want to lose all of the capital investment for future mines that is required and the jobs that they would also lose in the process. But yes, if it gets REALLY ugly like $10K/oz. then all bets are off on nationalization. Now that said, the governments could start imposing resource taxes (windfall profits taxes) of say 50% of gross, which is tantamount to nationalization. As we start approaching that point, it would be wise to start converting from mining shares to physical, or even productive land...

Tue, 10/26/2010 - 18:58 | 679018 Gloomy
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Nice analysis. Thanks.

Tue, 10/26/2010 - 18:09 | 678883 MeTarzanUjane
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I knew a real goldbug once and I asked him if he'd fuck his own mother if it moved the price of gold up $10/oz. He said he was going to buy a 500 count bottle of Viagra.

Tue, 10/26/2010 - 20:39 | 679219 RockyRacoon
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Apparently going back and reading the article didn't clarify anything for you.

Tue, 10/26/2010 - 18:22 | 678918 MiningJunkie
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Who has made more money over the past ten years other than Eric the Great?

As for the S&P versus gold, the Manipulators have been managing the S&P consistently (to the upside) while failing to manage gold (to the downside). Take out the manipulation and you have a 700 SPX against a $5,000 gold price.

Long live Eric the Great!

Tue, 10/26/2010 - 18:25 | 678923 Gloomy
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When is he gonna get his silver etf started?

Tue, 10/26/2010 - 18:24 | 678924 Geoff-UK
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Gold is up, PHYS not so much.

I like Eric Sprott, but don't trust him to deliver my AU on demand as much as I trust myself to already have it in my floor safe.

Tue, 10/26/2010 - 18:45 | 678979 midtowng
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I finally sold my PHYS. I didn't like its movements compared to gold.

I'm sticking with CEF.

Tue, 10/26/2010 - 23:20 | 679617 traderjoe
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I've read some of the online criticisms of PHYS. Doesn't seem that shareholder friendly to me. Don't know why people would pay a premium for it...

Thu, 11/04/2010 - 17:18 | 701075 Geoff-UK
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Good luck getting your gold from anyone "holding it for you' when price does a moonshot.

Tue, 10/26/2010 - 18:37 | 678952 Gordon Freeman
Gordon Freeman's picture

While I like gold as much as anyone, it is this kind of lazy, made-up, bullshit "analysis" that gives the naysayers their ammo.  WTF is this "production cost" happy horseshit?? Let's see, let's plug in $500, and a $300 fudge factor, and presto! instaprofits!  When gold was at $600, they would plug in $250, etc.  It's all complete bullshit, in a very crooked industry, run by criminals.

The only reason needed to buy gold and the miners is that fiat currency is doomed, and miners stocks will be dragged along for the ride (although they will do their damnest to try to fuck it all up)

Tue, 10/26/2010 - 18:43 | 678971 Snidley Whipsnae
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The estimated shortage of physical gold in unassigned accounts at bullion banks is ~20,000 tons. The shortage may be more or it may be less but that there is a large shortage of physical gold is beyond question, proven by CFTC testimony and some more recent revelations.

If a mere 10% of those with unallocated accounts at bullion banks were to suddenly demand physical delivery the LBMA and CFTC would collapse and the price of physical would go ballistic.

Has anyone other than me noticed that the SCO (Shanghai Cooperative Organization) is almost never mentioned in any press releases, and seldom mentioned on the internet? Back when the SCO was formed the US asked to be invited as a 'non participating' observer and was denied.

Perhaps this is why;

"As well as these problems there is growing evidence of disruptive intent behind the gold policy of the ex-communist nations. I recently covered this in an article that tied in the relationships of the Shanghai Cooperation Council. In that article I pointed out that the substantial majority of today’s gold-buying nations are members of, or are associated with this organisation. As if to confirm these fears, in the last few days Iran, which is an associate member of the SCO, announced it is now buying gold. Furthermore, China is restricting the export of rare earth metals, which with the energy policies emanating out of the SCO membership, has the appearance of a coordinated attack on the Western economic system. If such a conspiracy exists, gold is central to it."


Tue, 10/26/2010 - 20:47 | 679238 DosZap
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"If a mere 10% of those with unallocated accounts at bullion banks were to suddenly demand physical delivery the LBMA and CFTC would collapse and the price of physical would go ballistic."

Unless I am incorrect an Unallocated account has no standing in recieving PHYSICAl.

You can cash out,but not demand physical.

Have to be allocated for that.

Tue, 10/26/2010 - 21:30 | 679338 Snidley Whipsnae
Snidley Whipsnae's picture

Right, my bad. I meant to say allocated accounts, and some with allocated accounts have been moving their physical gold recently.

OTOH, how much unallocated gold has been 'leased out' at low interest, sold by bullion banks, and is now gone missing? How would the bullion banks come up with, oh, 20,000 tons of gold in today's markets to replace the unallocated gold that they have 'leased' or sold?

Tue, 10/26/2010 - 19:16 | 679053 lawrence1
lawrence1's picture

You might want to read fofoa´s latest post about oil and gold in which he describes in detail how the House of Saud have been replacing their oil with gold for decades and now the bullion and central banks have leased their gold probably many times over. Maybe more than just the LMBA and Comex are in deep shit.  And dont they deserve it.

Tue, 10/26/2010 - 21:05 | 679251 DosZap
DosZap's picture

Might wanna read what the HEAD Sheik said about PEAK OIL also.

He said no way Jose'.

One well, largest in world has had 70 Billion Bbls taken out, he stated it had another 80 Billion plus left.

ONE well.

So, he said, forget peak oil, as we have way more than needed.

Tue, 10/26/2010 - 21:24 | 679323 Snidley Whipsnae
Snidley Whipsnae's picture

Thanks, I have been following FOFA for some years and am aware of 'Another's' comments regarding oil and gold never flowing in the same direction.

The Saudis suddenly 'discovered' a few months ago that they had more than twice as much gold in their possesion than they previously announced. Surley a simple oversight. :)

I would not be at all surprised to hear that the Saudis have more gold than all the central banks in the world combined.

I do believe that the arrangement worked out between the Saudis and the US consisted of some US military protection, some Saudi acceptance of fiat dollars for oil, and some gold for oil. I believe that is pretty close to FOFA'S conclusion and I find it credible.

Tue, 10/26/2010 - 21:25 | 679326 working class dog
working class dog's picture

The long only ETF's , GLD, SGG, USO all are examples of investment institutions who are speculators not BONAFIDE HEDGERS, are forcing the purchase of the underlying commodities, and thereby forcing the price up. Self fullfilling prophecy, how do you say tulip bubble in Gold. By the way the Fed has REDUCED ITS BALANCE SHEET, in case anybody is interested. Too much talk of Printing money, only tells me the crowd is wrong in the short term and we are due for a reaction exactly opposite to what the money printing crowd is saying. Just an observation.

Tue, 10/26/2010 - 21:45 | 679367 Snidley Whipsnae
Snidley Whipsnae's picture

Do you think the Fed is going to try to strengthen the dollar against other fiat currencies?

Do you think that the Fed is going to stop purchasing treasury issues, increase overnight interest rates, and let interest on treasuries rise in general?

BTW, the Fed reducing it's balance sheet when the velocity of money is very low has little effect on the economy. The Keynesians have found that out in spades. Excess reserves have found their way into other economies, causing inflation abroad. 

If the Fed raises interest rates what do you predict for the housing industry?

This Hussman article might be of interest to you:

"In either case, the hallmark of a liquidity trap is that holdings of money become "infinitely elastic." As the monetary base is increased, banks, corporations and individuals simply choose to hold onto those additional money balances, with no effect on the real economy. The typical Econ 101 chart of this is drawn in terms of "liquidity preference," that is, desired cash holdings, plotted against interest rates. When interest rates are high, people choose to hold less cash because cash doesn't earn interest. As interest rates decline toward zero (and especially if the Fed chooses to pay banks interest on cash reserves, which is presently the case), there is no effective difference between holding riskless debt securities (say, Treasury bills) and riskless cash balances, so additional cash balances are simply kept idle."

In addition:


A related way to think about a liquidity trap is in terms of monetary velocity: nominal GDP divided by the monetary base. (The identity, which is true by definition, is M * V = P * Y. The monetary base times velocity is equal to the price level times real output).

Velocity is just the dollar value of GDP that the economy produces per dollar of monetary base. You can also think of velocity as the number of times that one dollar "turns over" each year to purchase goods and services in the economy. Rising velocity implies that money is "turning over" more rapidly, so that nominal GDP is increasing faster than the stock of money. If velocity rises, holding the quantity of money constant, you'll observe either growth in real output or inflation. Falling velocity implies that a given stock of money is being hoarded, so that nominal GDP is growing slower than the stock of money. If velocity falls, holding the quantity of money constant, you'll observe either a decline in real GDP or deflation.

The belief that an increase in the money supply will result in an increase in GDP relies on the assumption that velocity will not decline in proportion to the increase in money. Unfortunately for the proponents of "quantitative easing," this assumption fails spectacularly in the data - both in the U.S. and internationally - particularly at zero interest rates.

Tue, 10/26/2010 - 21:38 | 679355 working class dog
working class dog's picture

Another  thought from an amateur economist and private investor (myself)

The fiat currency system is here to stay, there may be adjustments to it here or there, but it is here to stay. The gold standard doesn't work, it causes wars, and reduces incentives to develop economies. Granted if allowed to run out of control or be co-opted by wealthy special interests, the majority of the people get hurt with a fiat system. People get hurt in the  gold system as well. The USA expanded it's economy due to expansion of real value credit. We increased our standard of living to the highest in any recorded history due to real value credit expansion. We don't need a Black George Bush in the white house. We don't need media hyped idiots like Sarah Palin, what we need is a man like Davey Crockett or Ella Grasso (past Governor of Ct.), or a women like Eleanor Roosevelt as president.  To get there we need $10.00 per gallon gas, and no jobs. Than we will pull the real leaders from the depths of our 250 million. This is what it will take. Look around the world the ecomonies are coming back. It takes time, and I think zero hedge should investigate the Fed Balance Sheet is shrinking not rising , because the Fed is also selling other assets and allowing certain liquidity programs to expire.

Tue, 10/26/2010 - 22:04 | 679408 Snidley Whipsnae
Snidley Whipsnae's picture

"real value credit" = demand pulled forward at the cost of interest on the borrowed funds for the demand. At some point, and we are nearing it, the interest paid on demand pulled forward becomes a huge drag on the economy. We are there!

The fiat debt based money system is a total catastrophy and will not continue.

"We increased our standard of living to the highest in any recorded history due to real value credit expansion"

Our standard of living rose because we were borrowing money from the future. Money that we had not earned, both in the public and private sectors. Now we are too deeply indebted to ever repay what we owe in constant dollars. So, we will inflate the dollars away to near nothingness or will outright default on our obligations.

Shrinking or rising Fed balance sheet is meaningless when at ZIRP and the velocity of money is stagnant. See Hussman post in my other comments.

I do not understand your comments about politicians. Pols have little to say except what they are told to say by bankers.

"We are coming back" Coming back to more of the same that got us here?

The dollar has been mismanaged almost out of existance. Gold is not rising in purchasing power, the dollar is falling. To stop the rise of gold against the dollar means the Fed/treasury have to raise interest rates to strengthen the dollar. To raise interest rates is to crash the US economy and the banking system. We will soon see if they have the nads to go for higher interest rates.


Tue, 10/26/2010 - 22:58 | 679575 A_MacLaren
A_MacLaren's picture

Eric may not be considering that investors actually foresee something much worse on the horizon.

A situation wherein digital claims on ownership are discounted to physical holdings.

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