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Euro Plunges With Alarming Speed As Stop Losses Kick In, Below Year Lows
World markets are beating the victory drums that finally the idiots in America have shut down the algos and everyone else can get back to reality. The first effect: after closing north of 1.33, the euro is now in free fall mode, plunging to 1.3216, slicing through every imaginable stop like butter as the world has said "enough" to the bullshit market action out of the US, which, like a petulant child, refuses to acknowledge anything and everything negative. All the stops at 1.3250 just got taken out causing a 50 pip drop in seconds. The next level of stops at 1.315 will likely be tested as Asia opens, but these are weak and any real resistance will be found below 1.31. The all critical Euro-Yen pair is down to 123.6 from 124.4 late on Thursday when the math Ph.D.'s had the market firmly under control. The DXY continues surging. Expect world market weakness overnight, translating into a drop of ES until just before the US market opens and the fume melt up resume again as America is now decoupled from every world market.
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Huge dividend payable on the dax as well... taking the money and run thank you very much type of thing ???
Big unjustifiable squeeze last night as more dumb money piles into US stocks, and so many shorts around in Europe right now meant stops got lifted and we followed our obese friends higher.
But Racer DAX is a total return index, dividends arent subtracted. Secondly only the future trades after hours and that wouldnt have dividends taken out even if the index was standard. You may be looking at that.
I hope you bought this morning - good luck
Ahh....reality...the great equalizer.
Yes indeed, BB.
Tyler said, America is now decoupled from every world market.
Mission accomplished?
Yesterday: The USA sneezes, and the rest of the world catches a cold.
Today: The EU is diagnosed with terminal cancer, and the USA wins the lottery. (Little does the USA realize that it will be hit by a bus on the way to pick up the check.)
IT doesn't stop DXY,OIL,Gold,Silver& equities onward and upward.Decoupled yes.
Not really, the USA just had a CDS (Cancer Diagnosis Swap)
EUR/USD touched 1.3201 for the low (so far). It's been an almost no brainer Forex trade: As soon as the US market closes, Short the EUR...once the US market opens, cover and go long the EUR.
wash rinse repeat....
pitiful but consistent.
Still in the same boat: can't stand the thought of going long US stocks...can't stand the pain of going short...so I watch stocks from the sidelines while I play the Forex market.
This madness has to end someday...doesn't it?
For all values of "end" ... yes it has to "end"
But that is probably not the "end" you were alluding to.
Do not under-estimate the power of the Dark Side.... While I too pray the madness stops we'll probably be up by the end of the day tomorrow. Algo + Discount window = DOW 36,000
Let me guess. The market starts to tank in the morning, then some jackass european beaurecrat says a few comforting words, the euro surges, Greece is saved, stocks must be bought?
Personally, I think the Dow, S&P and RUT have topped out....Howver, I don't see meaningful downside until after September....I believe the final bear market lows are about two years away around SPX 525....In the meantime, certain stock names should continue strong: csco, shaw, syna, ovti, to name a few.
I see Tulipmania, Hopium to continue, there is no risk.. any losses will be paid for by the US tax slave
That sir, is change I can believe in.
You forgot the Glowworm. Nobody forgets the glowworm.
Is the Euro roping a dope in this fight ?
It may be taking painful blows to its Mediterranean plexus but that big German head is still aware and dodging those fatal blows.
Time will tell - place your bets ladies and gentlemen.
If the Germans are aware they need to be planning their exit strategy, out of the euro. I don't know if Merkel can sell bailing out most of Europe to Germany. I'm sure having to bail out Italy/Spain would be a bitter pill.
What makes the European crisis so interesting is the dynamic between the nation states and possible future friction between these and the ECB.
Both the ECB and the FED seem to have the same ultimate goal of protecting their client banks at all costs but the ECB seems to want deflation via cutting fiscal spending and thus making the once powerful nation states impotent while the FED wishes to inflate inflate inflate.
I have no idea who will come out the winner - the dollar or the Euro , the corporate or nation state (Although the US was never such a entity)
this is getting beyond interesting , I just hope they don't plug out the net - we have a ringside seat in possibly the most dramatic events since the fall of the Roman Empire
I'd just like to commend ZeroHedge
for getting back on track (ignoring minute-by-minute updates of As Goldman Turns) and serving up heaping meat and potatoes platters of sovereign default, government idiocy and imminent/current macro disasters of all stripes.
Kick Ass!
May we be reading ZH when our screens turn to black.
+1
ZeroHedge is a broken clock. They helped neophytes miss out on the biggest bull market in history. ZH is also correct to note that its the biggest BULL($#&^) market in history as well.
That's true: when the technicals are meaningless, and the fundamentals have no value whatsoever, and you aren't present in the meetings that arbitrarily picks winners and losers, then you don't have predictive capability regarding speculation.
Of course, this isn't an "investment" site, and none of us do investments these days. It's all gambling speculation. We're very proud of you for guessing correctly that the coin would come up "tails" fifty times in a row.
How about double or nothing?
That's it!
I'm seeing "Alice in Wonderland" this weekend!
The daily US equity stick-save is comical.
Skynet now owns all of SPY and trades entirely with itself just to maintain the pretense of a market.
Sector rotation occurs on an hourly basis as the algos become self-aware.
Wake me up when the manipulation ends.
WE might all be dead by then!
I got the memo that the manipulation is set to end sometime around the year 5050 when the whole world has spent it's way to prosperity.
Milton Friedmans Revenge? Can't wait for the return of the Mark!
Euro crashing and stocks are flat. Anything other than dollar goes up a few pips and stocks skyrocket. Nothing makes sense in a terminal blow off. This is the biggest bubble that any of us will ever see in our lifetimes, ever. People think in nominal terms we are nowhere near the peak, but in real terms prices are off the charts. What it comes down to is this. If you don't need the money for a really long time, like 25 plus years, then buy and hold equities. If you need the money in the near future, especially in the next 5-10 years, you need to get the phuck out, now.
I'm in my lower 30's, the wife and I have a modest chunk of change in our IRA's/401k's, after DJIA 11k, I went all cash/bonds (but mostly cash). I can't touch that money for years and that is how little I trust this. F buy and hold. Crash and buy, sure.
Watch out your cash may be worthless by the time you can get at it.
That is a decent plan, although I would recommend some physical PM's. If you really don't trust the system, that is where you should be, at least to some extent.
Oh, and believe me, I am not recommending buy and hold. I am more or less speaking to the perma bull Jim Cramer follower above. IMHO, equities will be screwed for a long, long time.
rubear- trust me, i know i might not be able to get to it. but i don't want to take the 20% tax hit right now.
I have some silver now, and my wife and i stopped contributing to afformentioned plans and now buy small amount of PM monthly.
I am pissed I missed out on gold, I told everyone I knew to buy buy buy back when it was $300. I debated buying a bunch myself, but was too focused on paying my school debt down. man did i miss the boat.
Does anyone think the phsyical PM IRA's (actual phys in a audited vault) are worth anything? Just an standar investing tool I think, b/c if TSHTF, I know I won't have access.
check your options, i borrowed 50% of my 401k @ 4%.
used some to make an orchard & buy some silver... best part? paid back over 36 Months! and no tax benefit / penalty
John Connor, Jim Cramer is a perma bull, but I am his evil soul who knows equities are worse than a casino.
only two things worth buying and holding:
canned food and shotguns brother...canned food and shotguns.
Don't forget your weekly allotment of Cougars.
Don't forget bottled water
don't forget to bring a towel
Don't forget a good supply of double ought buck to go with those scatter guns!
......oh and don't forget to kiss your arse good-bye
Don't forget stocks! HAHA! Make sure you get the certificates though, they will serve as good toilet paper later.
25, the wife and I have zero debt besides her school loans, two $2500 35mpg+ vehicles bought with cash, no mortgage, very few bills, paying $450 rent a month, we are poor but have two years of expenses minimum saved in cash and I own an ornamental steel sign company. The rest is a small position in PM's to hedge the cash and the rest tied up in survival gear/guns. We have never been happier.
Good stuff. I made the idiotic mistake of going to (ashamed to admit this) law school. the debt is crushing, pay falling every day.
I do have lots of survival gear, 35 mpg car and some lovely guns.
So, you need any help at your sign shop?
I will say one thing for the law bit, I have seen the greed and corruption up close, and it is horrifying. I have been screaming the sky is falling since 2004, but people just think I'm nuts. "This is America, we will bounce back." riiiight.
I want to just slag off my school loans so bad. Non fucking dischargeable bullshit. I honeslty want to cash out my retirment, buy a farm and tell the loan company to F itself. I just need ot learn how to farm.
I want to just slag off my school loans so bad. Non fucking dischargeable bullshit. I honeslty want to cash out my retirment, buy a farm and tell the loan company to F itself. I just need to learn how to farm.
It just might be your patriotic duty to do so (I read that here somewhere). I hate to admit it but I already did default on about 700K in debt obligations. Not a deadbeat. I was self-employed, owned 3 profitable businesses and used to gross 3M/yr w 15% EBIT and 45 employees spread over three states. Its all gone. 1.5M in cash and equity with no recovery in sight. Used to work 80 hours a week, extremely focused, disciplined and held in high regard. All gone. Virtually no ambition left. Still see further deterioration on the horizon with no ability to stop it. Paid 800K for my house now worth about 400K. Put 50% down then took 200K HELOC out when I knew I couldn't sell it.
I'm one of the most industrious entrepreneurs many people know. If I can't (or won't) reinvent myself its really bad. There is no such thing as a "deep recession". Its either a recession or a depression. Stimulus conceals this depression which makes it even worse propping up inefficient companies, distorting markets and robbing future entrepreneurs and industry of proper growth and investment. We all know this and we keep repeating the same thing every (Groundhog) day.
Virtually everyone I know who was self employed as a finance/banking/real estate professional is either bankrupt, getting divorced, in foreclosure, going through rehab, escaping rehab, in jail, abusing alcohol, or became so delusional/psychotic I had to stop communicating with them.
One lawyer (no offense) ripped me off for many thousands of dollars just to feed his kids and admitted it with no remorse.
Thinking about moving to Itacare myself www.itacare.com just to get away from this madness. If that doesn't work I'll make my way to Aruba or Cancun or some other beachfront land where I can make $300/day cash as a waiter and bartender. Talk about downsizing. But then again, I'd be living worry and stress free and could finally throw out (or donate) my IRS code book.
We spend our whole lives working and saving for a better future and all we really need to do is simply get on a plane and go. Nothing is stopping us from removing ourselves from this corrupt system and starting over - but we stay and fight it and hope conditions will improve. I learned 15 years ago that all this would happen but it seemed too distant in the future and unbelievable that it would. Thought I would be smart enough to save my investments but the wrath of the financial tsunami took me down and out (almost).
Even if I could buy 100,000 oz of silver what the hell am I going to do with it? I can't invest it and cultivate its inherit value. Preserving wealth is insufficient - then what? Nobody is trading with it as a currency.
Please hang in there
I used to watch old WW2 documentaries and wonder why the heck more Jewish people didn't clear out of Germany when it was clear that the writing was on the wall. Now I think I have a little better sense of the answer to that question.
It can be very hard to leave your life as you know it, especially if there are those you care for who won't leave or cannot go with you.
I have come to that realization myself, not just the jews but all Germans back then. Blinded by good times and propoganda. The writing on the wall was distorted until it wasn't by then it was too late.
Always remember that the only ones to confiscate gold were Hitler, Mao, Stalin and FDR.
At least we still have guns.
I dont know if you meant you owned the 3 businesses at the same time, or if youve started up and had 3 businesses fail on you in your lifetime, but if its the latter then its not exactly a cyclical problem..
Your earnings were impressive; makes me think of Dubai and Greece though - if you couldnt save in good (excellent in your case) times for a rainy day, then isnt that something you learn from?
I havent been in your shoes so i cant say i know what youre going through, but im curious as to how someone who defaulted on 700k (personal im assuming) can ever get back on their feet. I do wish you good luck with your future endeavours.
I appreciate the honesty Liquid. As a business owner myself, the government frustrates me to all ends. I am the one that works the long hours while my employees get 40 hrs a week go home in time to watch the news and sitcoms and the govt comes along and gets its 30+%. They are thrilled about the new healthcare regulations thinking they are getting something free.
Good luck to you, I hope things improve.
Listen, people talk about leaving the US like it's giving up.
There's a lot 'going on' in places outside the US, right? Jesus you only go around once. Bought a little apartment in Bali for about US$40k, a few yrs back... The 'developing world' aint what it used to be even 10 years ago, trust me... Cheap prices, no downside. Well the only downside is having to stay up half the night if I want to trade US markets.... I can live with that. Seriously I'm as connected as I am in San Diego. No 'culture'? I have expat friends from all over the world, educated, etc... US TV culture, now there's culture.
I know (and admire) lots of people like you, here: you'll be falling over yourself starting business(es) here. Cheap skilled labor, stupid cheap basic materials.
BTW who said 'retirement' has to wait until you are 60? The concept was invented to give keep slaves' noses to the grindstone...
Sheesh you can always go back, hell I tell people to have a foot here and back home, if they can... also if the USD collapses you can swap your foreign assets for somplace nice in the US at a discount, who knows? (tho I can't see going back, to a lower standard of living...)
If people knew, there'd be a mass exodus.... Itacare, where ever, this is the right side of the monopoly board.
Re: Silver, you can get cash flow from silver. If you are unemployed, just open up shop as a bullion dealer. I guarantee that you will do well as time goes on. It's nice cash flow, you keep a good stock of silver/gold on hand in case of emergency, and you get to know all the survival minded people in the community, as they are buying silver as well.
Use that to network, and set up a barter network within your community. It will help you, and those around you, to survive in the case of a true economic collapse. I am doing something similar here, but on a smaller scale (I don't have the $$ for 100K oz of silver). I've set up a gardening co-op in my neighborhood and set up a small cannery to service it, and some friendly farmers in town (with the excess from the farmers market). We can it for them, and we get half. It's better than throwing it away or giving it away for free. We preserved enough last year alone to feed my family for three years, when supplemented with some rice or bread (we have a year's supply of flour, and a three year's supply of rice on hand).
Further thoughts on the silver store--if you hedge your sales with COMEX shorts, you can win doubly. At some point, the COMEX is going to go bankrupt, at which your shorts will pay off 100%, while your physical holdings will also skyrocket in price. Prior to that, if your physical holdings become less valuable, your shorts will make up the difference. Thus, you make money off the spread in "normal" times, but once silver fraud is called out by the market, you win on both ends.
We have never been happier.
Made me smile. Thanks, and very well done. = )
The sun doesn't set on ZHers.
Not to toss faith on this whole thing but read the Bible, all this was predicted. WE as humans constantly repeat this, think Roman Empire, British Empire, French Empire, German Empire, etc. There is hope, but it's not in money or precious metals or man. I truly hope things get better for you.
Best of luck to you LiquidBrick and hang in there. This was a great post and the comments were excellent. It is indeed a sad state of affairs we find ourselves in.It will get worse, so now is the time to prepare ourselves for that.
Whether that means starting a farm or moving to a tropical island is up to us individually.But do so before peak oil becomes a media reality.
(meaning by the time the media gets the story, it will be too late. note that peak oil is starting to appear in main stream media now)
We have about two years left, provided the financial guys can keep the ponzi scheme going that long. Best of luck to all
"Euro crashing and stocks are flat"
Hey! I remember something now... Hadn't Roubini said that "when the dollar goes up, the whole world will come to an end" because of the end of "carry trade"?
Well... Where's the apocalipse?
81.99 usd
You have a point there Tyler, the US has been decoupled from the rest of the worlds markets. It seems that once the American market closes things are back to reality and once it opens then the happy thoughts Fed and media and their helpers keep things up that shouldn't be up for no reason other than to make sure no negativity makes it into the Dow and S&P. We are being slowly but surely cut out of the world economic system because of our inability to handle our own fiscal responsibilities. The sick thing is that this is being done by a conspiracy of silence essentially. They may or may not be coordinating this, but what we are doing makes it the only viable solution for the rest of the world to firewall themselves from the US.
And I have noticed the dax futures traders are piggy backing this con job
I find myself saying "WTF? " and "how's that possible" on an, almost, hourly basis when the US opens. Watching the DXY go up and the price of PM's stay relatively flat, I don't know what to think anymore.
OT: anyone else notice that Winchester ammo is INSANELY over-priced?
It will look like an appropriate investment when the hordes of zombies come a knocking in the middle of the night.
+10
Not good. You don't want a Friday melt on low volume. That's a dip buyers delight. You want a Monday melt on high volume.
Skynet will not allow a sell off.
Ever.
To stay sane throughout all of this insanity I thought I'd go back to a few books that I haven't read in a million years. Charles MacKay's "Extraordinary Popular Delusions and the Madness of Crowds" was the first pick. Sure it was written in 1841... but it reads like someone wrote it today.
"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."
Charles MacKay
I just need to keep reminding myself that 2 + 2 does indeed equal 4.
Good book. The important take away is that eventually insiders start getting out and turning their "money" into real money. Then the whole thing begins to go up in flames. The people who turned their money into gold and tried to flee the country were usually accused of some arbitrary crime. I expect no different this time around.
That book should required reading before anyone is permitted to buy their first investment instrument.
Gubbmint Cheese (or as we called it, Reagen Cheese) made the best grilled cheese sandwiches.
Futures don't seem to mind all AH excitement in currencies. Whatever happens tomorrow, buy at the close for our wonderful Mutual Fund Monday. My guess, pretty flat open, bit of a sell off throughout the morning, then gun into the close from 3:30. Same pattern as always.
What happened to the teeth H...I miss the teeth
Yeah. What's happened to you, Wanger?
You have an epiphany or something?
Yes Kinito, where are the teeth?
To hell with tea partys; we need pitchfork partys!
I think at one point, caught in jubilation, I told myself heck they might be able to pull this off for sometime. Then I snapped back to reality. Whats occurring now is total warpage of all reason, sanity, rational thought, so on, so on. At some point this has to go terribly wrong.
Ya sorry but when I learned it costs 4 billion dollars to make 3 billion dollars worth of pennies you pretty much know that nobody is even trying to make sense any more.
Is it still the cool thing among rappers and super models to be paid in euros?? ;>/
looking back, that was the top signal for euro
100 EURO PERCENT TRUE
ha ha that's right!
A fake news story claimed Giselle Bundchen wanted to be paid in Euros, but it was a fake news stories. She never asked to be paid in Euros. Total disinformation.
She was paid in Brasilisan Reals.
Smart girl.
?/
jdrose: "we are poor but have two years of expenses minimum saved in cash"
For a young guy, you're pretty on the ball. Just be aware that this cash might one day be worth much, much less than it currently is, and a hedge against inflation might be in order.. but at this moment, you're doin fine. Next year you'll need to begin paying serious attention. Just my humble $.02
ot
WASHINGTON, April 22 (Reuters) - A potentially deadly strain of fungus is spreading among animals and people in the northwestern United States and the Canadian province of British Columbia, researchers reported on Thursday.
http://www.alertnet.org/thenews/newsdesk/N22129903.htm
Source: Reuters* Fungus is unique genetic strain * Climate change may aid its spread?????
Oh no! There is a humongous fungus among-us.
Awesome tumor humor saul!
:-)
We are doomed. All you fricking SUV driving baby boomers help spawn this killer fungus by causing global warming. Bastards!
Picking up a thread I (and I'm sure a lot of other folks here at ZH) have followed with Another, FOA and of course the incomparable FOFOA, the Euro just might be throwing a head fake.
If we all believe in the ultimate re-evaluation of Gold, then surely all of the ECB gold will make it a real tiger, compared to the paper tiger that the US clearly is. Fort of hard knocks is and probably will remain a mystery for some time.
Yamashita's gold, phillipino buried hoards.... who knows.
We are way into six-sigma land and surprises do and will abound.
Timely discovery of torpedoed warships play an important backdrop.
The game is of course way bigger than stocks, dollars, yen and euros. Bigger even than Sovereign defaults.
The game and the END game have very very different dynamics. And end game variables are notoriously hard to get a handle on.
I see three choices on a personal level, involve (Gyana yoga, research everything, get multi-contextual, geo-politically, macro/micro economically, socio-historically.....on and on..... but time is so short), evolve (get beyond caring, all of this is children making sand castles in the grand scheme, detachment in the higher sense) or devolve (let it all go, simplify back to the most basic basics, save yourself the existentialist angst of this rather alarmingly screwed up eggzistance).
Leave all this talk of brass and brass delivery mechanisms. To paraphrase that rascal Gandhi, fight fire with fire and we'll all go up in flames.
No. The gold they have has been leased. Rented. We rented them our gold.
Go figure.
We can take it back when the lease is up.
Not quite true Orly. A simple bit of research of country wise gold holdings will tell you a totally different story.
See BIS/ECB etc. data for the same.
Europe owns their gold.
The US has not allowed an audit of Knox.
Clearly some surprise is in store, but again, who knows which way the winds will blow.
I have just been reading stories for years about the US/German gold swaps. Add that up with Buster Brown selling at a significant discount to current prices all the gold in the Bank of England.
Country "holdings" may be just that- holdings. Does the report clarify what is leased v. what is owned, or does it measure what is being held there?
Tungsten bars moved into the Mena airfield, stamped in San Diego and moved to Fort Knox. This is all just so convoluted. We need the truth about gold. Until then, I wouldn't touch it with a ten-meter cattle-prod.
I don't know if what we believe about the ultimate re-evaluation of gold matters. If it happens, it will not happen in the U.S. first. Interesting read..
Beardsley Ruml, Chairman of the Federal Reserve Bank of New York stated, "Taxes for revenue are obsolete."
http://www.curiousevidence.com/%28S%28kcl1rpaygwbooo45qogzf445%29%29/sam...
Nice picture MsJ, Natraj is dancing indeed.
And while I could not open the lecture itself, the thesis gave the story.
So, a grabberMint grabs taxes to the extent that a gullible public will allow them to get away with.
Hmmmmmmmmmm......... no sir prize there.
The Beardsley Ruml piece can be found here: http://www.constitution.org/tax/us-ic/cmt/ruml_obsolete.pdf
A googling of the name will produce some other interest items, too.
Who knows that Algos are shut down? Who can prove that? Certainly not the SEC . I'd like to see it on film just like when the UN observers went into Iraq to search for Weapons of Mass Destruction WMD's with a camera crew with them. Think that will happen?
When and if the Euro reverses, the move is going to be a stunner.
Short interest on that thing must be outrageous.
Where there is calamity there are the opportunities
Dont remember the exact quote, but thats the idea.
krugman from one year ago yesterday, at about 42 minutes into the video
http://www.youtube.com/watch?v=r5r17NrIMRY
Check it out at
http://www.huffingtonpost.com/warren-mosler/taxes-for-revenue-are-obs_b_542134.html
Summary of Taxes for Revenue are Obsolete.
Ruml’s conclusion was that when there is no currency convertibility and exchange rates are flexible, then the central bank has total liberty to create financial assets (money) and the federal government is totally free from any financing constraints.
This is how Ruml made his argument:
· The superior position of public government over private business is nowhere more clearly evident than in government’s power to tax business. Business gets its many rule-making powers from public government. Public government sets the limits to the exercise of these rule-making powers of business, and protects the freedom of business operations within this area of authority. Taxation is one of the limitations placed by government on the power of business to do what it pleases.
· There is nothing reprehensible about this procedure. The business that is taxed is not a creature of flesh and blood, it is not a citizen. It has no voice in how it shall be governed — nor should it. The issues in the taxation of business are not moral issues, but are questions of practical effect: What will get the best results? How should business be taxed so that business will make its greatest contribution to the common good?
· It is sometimes instructive when faced with alternatives to ask the underlying question. If we are to understand the problems involved in the taxation of business, we must first ask: “Why does the government need to tax at all?” This seems to be a simple question, but, as is the case with simple questions, the obvious answer is likely to be a superficial one. The obvious answer is, of course, that taxes provide the revenue which the government needs in order to pay its bills.
o First, you understand that taxation is a way that government imposes limits on the non-government sector. Ruml is specifically interested in the business sector but the argument generalizes to all non-government entities.
o Second, you also glean from the text that the question that needs to be asked in relation to some policy choice that imposes limitations on the non-government sector – is what “will make its greatest contribution to the common good”?
o Third, are these limitations necessary? “Why does the government need to tax at all?” The superficial answer presented is the underlying claim of mainstream (and intuitive) thinking with regard to the purpose of taxation. But like all superficial appearances they are bound to be wrong. The point is that taxes do not “provide the revenue which the government needs in order to pay its bills”.
· Ruml then continued to outline how governments could historically spend more than they received in tax revenue by borrowing. He says that borrowing “is an alternative which governments use to supplement the revenues from taxation in order to obtain the necessary means for the payment of their bills.”
· But:… if a government persisted in borrowing heavily to cover its expenditures, interest rates would get higher and higher, and greater and greater inducements would have to be offered by the government to the lenders. These governments finally found that the only way they could maintain both their sovereign independence and their solvency was to tax heavily enough to meet a substantial part of their financial needs, and to be prepared —if placed under undue pressure — to tax to meet them all.
· The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government.
o State and local governments are similar to a household in the sense they face financial constraints on their spending. They have to raise funds before they can spend. Sure enough, state and local governments have a taxing power that households do not possess. But this is a matter of degree not form.
o But a national government is unique in a fiat currency monetary system. Ruml considers two developments to that point (in the last 25 years) had “substantially altered the position of the national state with respect to the financing of its current requirements”.
· Final freedom from the domestic money market exists for every sovereign national state where there exists an institution which functions in the manner of a modern central bank, and whose currency is not convertible into gold or into some other commodity.
· The United States is a national state which has a central banking system, the Federal Reserve System, and whose currency, for domestic purposes, is not convertible into any commodity. It follows that our Federal Government has final freedom from the money market in meeting its financial requirements. Accordingly, the inevitable social and economic consequences of any and all taxes have now become the prime consideration in the imposition of taxes. In general, it may be said that since all taxes have consequences of a social and economic character, the government should look to these consequences in formulating its tax policy. All federal taxes must meet the test of public policy and practical effect. The public purpose which is served should never be obscured in a tax program under the mask of raising revenue.
Awesome, thanks.
Very in-structive.
Professor William's Mitchell's analysis
Two flies in the ointment.
- Relevance,
- Hard, oil- pegged dollar.
The central bank system allows the Treasury to borrow and service a limitless amount, right? Wrong, at some point the amount in question becomes ludicrous and the government loses credibility. It becomes a 'moron state' that has forgotten how to count. What good is a 'hundred gazillion- trillion-billion dollar deficit? Laffs?
The dollar is more or less convertible to crude oil. Howcum? Because the price in dollars cannot 'float' outside of its upper bound, which price is the point where the price itself causes economic collapse. The lower bound would ordinarily be the price level that supports crude production but this is irrelevant. The market price has consistently sought the upper bound since the 1998 oil availability peak. We haven't run out of oil. We've run out of cheap oil, the kind that our entire way of life has been built around!
Since the dollar is convertible on demand to crude - and other currencies are not, because of a manifest dollar preference - the Federal Government is not free of the money market as it seeks to meet its financial requirements. In fact, the Federal government will have to compete with other holders of dollar denominated assets for cash dollars. Taxes as the means for the government to gain cash dollars are becoming more relevant every minute.
"The Fed will simply print more money!" you say. I say the Fed can create some new currency but enough to influence the price of oil will push it to breach the upper bound, causing a crash in both demand and oil price. After a period, the price will rise again to the upper bound, re- establishing the peg. Insufficient new currency would simply be hoarded or swept into numerous liquidity traps as is the case now. Where is the $1 trillion in new currency created on the Fed's balance sheet since 2008?
"Gold will be the substitute for worthless dollars!" you say. I say gold is not a currency and doesn't trade but is hoarded. Gold's paper proxy would have liquidity constraints that would amplify dollar preference.
Would you trade your gold so you could drive in circles between nowhere and nowhere? How valuable is that gold, anyay? This is the problem, oil is becoming too valuable to waste. Oil is the new gold and the dollar is (fast becoming) convertible to it.
If you think economics are interesting now in Europe and elsewhere, just wait and see what a real hard currency and dollar preference will do! It won't be pretty.
Outstanding rebuttal, Steve.
I'm with ya.
The only reason why dollars exist is because the US government requires us to pay taxes with them. USD is a monopoly in the US, you can't pay your taxes with anything else, not even gold or oil. If the government did not require taxes be paid in USD, the dollar would simply be a piece of paper that would have no credability. But since we have to pay taxes with dollars, it has viability and will continue to do so until the government stops requiring us paying taxes in dollars.
The USD may adjust in value relative to other currencies and other products, and that is the nature of fiat currencies. I don't believe we will ever see a convertible currency again. To difficult to manage in a global economy.
As with anything the value of something is always relative, depending of credability and supply and demand. If gold was required by the government to pay taxes, it will probably be worth $100,000 a n ounze as there is not enough of it. But that is primarily why gold will never see itself as a finacial store in value. That does not mean it cannot be worth some serious money, but it cannot be used to structure global trade and finance.
The central bank system allows the Treasury to borrow and service a limitless amount, right? Wrong, at some point the amount in question becomes ludicrous and the government loses credibility. It becomes a 'moron state' that has forgotten how to count. What good is a 'hundred gazillion- trillion-billion dollar deficit? Laffs?
You sir, are a threat to society, because this is new and important, and just might be right! What if, the Arabs, Venezualans, and Nigerians are so damned stupid that they mistake a fake currency for the real thing, thereby converting it into oil/i.e. hard currency. All bets are off. Don't know where this leads, but you have my head spinning. Hail and well met. As to the secondary point of laughing at fiat currency, well, the world is getting there. May all the gods bless.
Apolgies. Prior post was to respond to msjimmied
A skydiving Euro wasnt wished by Europeans in order to boost their exports or something like that?
no worry, big short squeeze coming right up now.
just keep buying everything except DXY
Reality again no one cares keep buying equities.
The markets are jamming, the euro is stuck between 1.32 and 1.35 if Greece is falling in the the Med. or being saved by the Kaurts. Please get off the euro, it is a joke..Meanwhile you have taco salesmen CMG, moving up 17 points in a day..what ?? I am missing the bull market of century in chipotel.
My 2 cents:
Greece is like many countries--bankrupt.
Greece is different: Can't print money, was first in line for hand-out. In the long run, maybe smarter than other countries.