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Guest Post: Fred Hickey - If We Continue Down This Path, the Outlook is General Impoverishment for the Country
Submitted by Damien Hoffman of Wall St. Cheat Sheet
A few weeks ago, I asked Fred Hickey what he would do as chairman of the Federal Reserve.
In the remainder of our interview, I asked Fred whether we can avoid
recessions in a business cycle, what will happen to the US Dollar, how
our creditors are behaving, and what advice he can offer given the new
economic environment.
Damien Hoffman: Fred, can we create a perpetual business cycle where we don’t get recessions?
Fred: No. I have a quotation on my board here that says, “The final
outcome of the curve expansion is general impoverishment.” That means
if we continue down this path the outlook, unfortunately, is general
impoverishment for the country.
I hope that’s not how it’s going to play out. But I’m not
particularly optimistic with the current leadership that we have in
government today.
At some point the dollar is going to break down — really break down.
Right now there’s still a rush to safety from the worry about Europe.
But I don’t know why they’re so worried about Europe when we’re the
ones with the trillions of dollars of deficits.
Damien: It’s an ironic flight to safety. It’s almost a cosmic comedy.
Fred: It’s just a Pavlovian reaction. However, at some point that
won’t be the reaction and the dollar will get crushed. Eventually there
will be some recognition that this country is broke. No one seems to be
talking about this, but in a recent US Treasury foreign holdings report
I saw a flat line where the mainland Chinese were not buying our
treasuries anymore. Their position was holding; meaning, they were
buying just enough to offset the maturing bonds. Now we’re seeing
outright declines. This has gone on for several months and now it’s an
outright decline.
Damien: What about the Russians?
Fred: The Russians are also reducing their positions. They reduced
$10 billion in December and it’s dropped from a $140 billion almost to
$118 billion over the last few months.
The Russians have been out there saying they’re buying gold,
Canadian bonds, and diversifying their positions. Well, here they are
doing it. At some point, enough people around the world will say they
don’t want to be in dollars anymore and they will get out. It looks to
me that the Chinese and the Russians are getting out.
The smart guys are leaving the ship and it looks to me like we’re
replacing them with are our own printed money as well as hedge funds
who are borrowing money and buying treasuries. This is a very bad group
to have. Those are not long term holders. That could reverse very
quickly. If that happens you can have a dollar collapse.
Damien: So is gold the hard currency which will continue to win?
Fred: I never loose sleep with my big gold position, but I do loose
sleep when I have a big dollar position. I always see pullbacks in gold
as buying opportunities because what I’ve discussed are the big forces
really moving things. There are very few people on this planet that
understand the big macro picture behind the movement to gold. We’re now
in a 10 year bull market in gold. We ran a twenty year bear market, so
it might be a twenty year bull market. We may be only halfway through.
I’m not sweating $1100 gold as the top like so many others in this
country. They see bubbles everywhere in gold. They never saw the bubble
in real estate, never saw the bubble in stocks, never saw anything.
However, all these people in the U.S. see a bubble in gold. I don’t see
it. I sleep like a baby with my gold position.
Damien: Fred, given the situation our country faces, what type of advice do you give your children?
Fred: That’s a hard question. First, you must be willing to work
hard at anything you do. Try to find something you enjoy and you can
feel good about. It helps you work hard.
Save your money and don’t build up debts. I never get myself in any
kind of trouble because I never had any debt. So, if I’m wrong I’m
never going to get really destroyed because I don’t have leverage. Debt
is a four letter word. I’m an old fashioned guy.
Don’t ignore history. There are a lot of lessons to be learned that
many people seem to never learn. I have my kids reading what I consider
to be many of the investment classics.
Damien: That’s great advice especially keeping out of debt.
If most Americans just followed that one simple principle, we’d be in a
whole different position right now.
Fred: If most individuals and our government.
Damien: Right. Well, thank you very much for the rare interview, Fred. Our readers really appreciate you taking the time.
Fred: My pleasure. All the best.
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When the US has to hope for two former Communist states,( ya right ) , to finance it's budget , including the worlds most costly defense, .... it's over!!
The Japanese are the second largest holder of U.S. debt and they've been in a lost generation. We are borrowing from a broke nation to fuel a broke nation.
The U.K. is fourth; again not so pretty. They have their "recession is over" cheerleaders but their unemployment is high and their currency, if not for the Euro and Greece taking the spotlight, was circling the drain too.
Oil exporting nations are third...so all those complaining about muslims or terrorists and such...well they own you.
No wonder the world is going to shit the 2 top world economies are fake, and the U.K., the finance capitol of the world (I think they replaced NY recently), is in horrible shape, yet the solution is to print more money.
Funny too you are right the U.S. is borrowing just to finance their military, setting themselves up for financial terrorism by not having the funds to pay for the military. Some national defense. I guess they will start convincing the military to stop taking pay because it's the patriotic thing to do.
What do you mean the two top economies are fake? Economy is about consuming the environment. A vivid economy is one consuming heavy the environment.
Reads like two top economies fit the bill very well.
No money for the military? How would that happen?
The US has used its military hegemoney to place itself as a middle man between rich commodities countries and others.
So as long as other countries will need commodities to support their societies (in other words, as long as these countries exist), as long as rich commodities countries have still commodities to yield (could become a stronger issue), the US will never run out of money.
One of your other points is also wrong: the US does not borrow money from other countries, the US sells an access to the world commodity market.
If a country wants to access to this market, they have to pay the US to do so.
As long as there is exchange, a middle man never runs out.
They were certainly enemy states, but Communist they were not - despite them trying to convince everyone otherwise.
Let me guess: ...this means that "true" communism has never been tried on a large scale. The failure of the USSR and Mao's exterminations don't disprove the validity of communism in fact, especially given what's happening now, they help prove that true communism is the obvious and only solution.
Socialist chicks are sooo easy.
+100 ...socialist the brain dead still breathing and avoiding room temp...wanting the workers paradise soooooo baaaad..and all they ever get are gulags and murder..what is wrong with them?
+ 1000 (trying to use communist didactic). Nailed it.
Not even. Stating the facts, that's all. If you can't handle the facts because it would destroy your worldview, than I am sorry, but that's your problem.
What about your worldview? Decades of communism were a horrendous failure everywhere it was tried. If something has a 100 percent failure rate, maybe it should be left in the utopian books of 19th century vagabonds.
Well, if you look at the definition of Communisism provided by Marx and Engels, you will notice that they have nothing to do with was implemented in either the USSR or China.
That's just a simple fact.
Maybe you should be digging a bit deeper and not be relying on hearsay or what you have been told.
Trying to impliment communism is like trying to get men to live as trees. It's impossible, and can only lead to disaster. Communism has been tried hundreds of times, at all scales, and it has failed EVERY SINGLE TIME due to its inherent failure to recognize natural rights and its inevitable creation of perverse incentives. Read about the economics class that experimented with Communism--that is how it always turns out, unless you use brutal force to overcome the laziness that is the natural byproduct of the system. Then you just wind up with misery. You are forced at gunpoint to work, but you get NOTHING for it. You are nothing but a slave.
If you actually know anything about history, then arguing that Communism is a viable economic system only proves that you are insane, in the Einstienian sense.
What more perverse incentive can there be than ripping off taxpayers a la, Goldman. Capitalism is produces results which have nothing to do with hard work, saving and ethics.
A really simpler fact: People are not emotionless automatons. By its very definition Communism runs against the grain of fundamental human emotions. Therefore Communism would only work on a planet ruled by machines, for for the benefit of machines.
I'm sure you could see, if you wanted to, that the further a government fights those emotions the greater the pain, suffering and eventual collapse. People that insist otherwise dream of either control or want a Heaven on Earth that is impossible.
Do you dream of control, or Heaven on Earth?
Communism has been attempted literally hundreds of times, from the earliest small communes and kibbutzes down through the USSR and its sattelites, China, Korea, Southeast Asia, and Cuba. These attempts have always failed, never bringing about the dreamy utopia envisionsed by the theorists Marx and Engels. But somehow, you and your sweaty, dope-smoking friends are going to get it right?
BTW, your ZH avatar/symbol is that of a *socialist* state. So much for lecturing others about the difference between socialism and communism. Get a grip.
"...No true Scotsman..."
Starts off pretty coherent, but then Fred has a brain fart and says: "I’m not sweating $1100 gold as the top like so many others in this country. They see bubbles everywhere in gold. They never saw the bubble in real estate, never saw the bubble in stocks, never saw anything. However, all these people in the U.S. see a bubble in gold."
Just what fukkin' people is he talking about?
Does Fred live under a rock, or just not rub elbows with everyday real-life human beings?
Fred, this is your brain on drugs....Any questions??
My take on that was the pundits and media analysts warning of the real estate, dot com, etc. were few and far between and they were the ones shoving the sunshine lollipops up the rectums of the kool-aid drinkers.
The people that laughed at Peter Schiff for example...there were plenty of those. They are the ones now that say "bubble in gold" when they are never correct but "right" in short spurts only being able to say "market is going up" like fucking parrots (reminder to get a parrot that says "market is up").
seems to me,
his inconsistency is between
saying that gold has value and currency doesn't,
but then saying that the best approach is to avoid debt.
This is the quandary that the markets keep juggling :
are we indeed headed for hyperinflation,
in which case the best strategy would be to buy gold (oil? coal? food? bullets?) with any lever you can scrape up,
or deflation,
in which case you should hoard cash and buy US Treasuries and pay off all debts.
(in either case, ad hominem insult is probably never a good strategy)
Its not settled, by any means, but its time for people to make a decision and stick with it.
I've made my decision, and I'm sticking with it: Gold and silver, guarded by cash. The author avoisds leverage in case he's wrong, about either direction or timing. Timing isn't up to us mortals, it's up to the madmen at the Fed. The direction is fairly obvious. Could you get rich with a huge leveraged position here? Hell yes. Could you get dead? Hell Yes.
+1
+1
An ironic flight to safety? Djeeeee, I understand better why some people label the others as zombies: because they are the zombies.
An extortion game is going on. Where to look for safety but on the turf of the most efficient extortioner in the game?
The biggest extortioner is most likely to extort others big first before looking at himself. This is where safety is. On the ganglord's turf. The ganglord extorts his usual preys, live off their backs, extorts sometimes his trusty lieutnants and very seldom himself. If you want safety, invest on the ganglord's territory, this is where you are the safest.
Apparently, most people are aware of this little fact. Not the host and his guest.
Welcome to delusion land.
That's a very strong statement. Unfortunately, I disagree only in that he seems to think there is something that can be done about it - which is wrong. The US is beyond that point where it can be fixed. Unless it would change its economic system, but that is very unlikely.
Unless it would change its economic system
To what?
I think that capitalism is just a more efficient mechanism to get us to collapse. Communism is just a less effective one, but it will take us to the ledge nonetheless. You see, NOTHING out there proposes zero growth, and as such ALL will meet a point of collapse.
EURO continues to get a lot of support ...
But USD index chart continues to give bullish warnings.
Euro chart:
http://www.zerohedge.com/forum/latest-market-outlook-0
Hmm....
Going by historic precidence (Weimar, Rhodesia, Yugoslavia, France, etc.), the politically act is to rail against printing, but to print anyway. Much like the wailing and gnashing of teeth wrt the Grecian situation and the US banking situation.
Placing this in context with the ownership of governments by investors of banks (power elite), it becomes interesting to view the "show" of government as Kabuki Theatre. You know where they are going to end up (bail out, theft, war, famine, etc), but the path may be interesting or not, that depends on how you have prioritized your time.
Sad Thought: what if all the disenfranchised and agry people went on strike - ya know Atlas Shrugged style? Would anyone care? Do the D&A produce anything or have any particularly valuable skills or are they - say, just filling out forms at the local tile insurance company or driving people around in a car to see "homes"?
Look - with real unemplyment/under-employment rates in the 20% + range - corporate profits are just fine and the world continues to hum. maybe just maybe the world does'nt really need the "services" of the Disenfranchised and Angry? What services are those?
We don't have superproducers who can go on strike; there is no John Galt. Our oligarchs are financial leaches who produce nothing.
The 'working class' is even worse, most are living on some sort of government assistance. Do you expect them to protest the situation by not cashing their unemployment checks?
Sure we do, they just live in China.
All they have to do is stop accepting paper in exchange for goods, and it's all over.
It might be a little more complicated than that. Recently I saw a stat that over 50% of Chinese GDP (maybe even over 60%) was in reality the output of enterprises directly owned by US corporations. So it wasn't really Chinese GDP in any strict sense, but didn't really count as US either. Sort of "Cloud GDP," like "Cloud Computing."
Point being that who owns whom is a little murky. We may all be pwned, however.
Resource pressure mounts...
Saudis Tighten China Energy Ties to Reduce U.S. Dependence
http://www.bloomberg.com/apps/news?pid=20601087&sid=afA7qKyLK44s&pos=7
I'm amazed that there hasn't been any mention of this.
Tick tick tick...
Don't forget their moves in Venezuela.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=avGo.43exWvM
More oil wars! MIC rejoice!
the only form of resistance we have is a debt strike. unfort "responsible" loser like me who pay bill are less likley to jump in, while house flipping, hummer buying douchebags will be more then happy to default. Of course end result will be bailout for creditors, poverty for debtors. We are so f*cked.
If everyone went on strike, it folds like a cheap tent.
70% of the US economy is generated by Consumer spending.
People who stop ALL spending, closes the shop.
The reason we "seem" to be keeping on,keeping on, is because the Government is artificially keeping us up,by printing fiat currency as fast as they can.
However, even if we went back to 95% total employment, we are too far down the tracks, to do more than to P & E, just a while longer.
People are ignorant, they actually think that the reason for the 20%+ unemployment rate is private debt.
Government debt, is/has been the catalyst for the lack of any kind of economic recovery.
Our illustrious leaders have ON purpose driven a wooden stake thru the heart of America, on PURPOSE........
We do not have Communism, nor Socialism, we have FASCISM.
That is the Fundamental Transformation we were told to expect.
Well,it's here, and with just two or three more BILLS being passed, we're really done..stick a fork in it.........
People are ignorant, they actually think that the reason for the 20%+ unemployment rate is private debt.
So, the government bailouts were to government, not to the private (financial) sector?
Let's more closely define your hypothetical, for arguments sake by sticking with quantifiable terms. If the top 1% of tax payers, whose tax burden now exceeds that of the bottom 95%*, decided to withdraw from the economy, and live off their savings, then what would happen?
It is a good bet that the U.S. economy would crash and the government would fall. Currently, the tax rate needs to double just to fund the current deficit.** However, the top 1% of taxpayers are living pretty well, and I would argue have no reason to want the economy to crash. So don't be suprised when data points to the government operating at the whim of the wealthy.
There is an obvious flaw in your question, "If all the disenfranchised and agry people went on strike - ya know Atlas Shrugged style?" In Atlas Shrugged it is not the disenfranchised or angry that strike. It is people that are probably from the top 1% of taxpayers, those who have built franchises in steel, mining, railroads, banking, oil, and autos, that strike; I would classify them as sad, not angry. The characters who strike are exclusively self-made, not exclusively successful financially, and do not automatically include heads of companies that have their position handed to them by mandate, heredity, or legislation.
The looters, mostly politicians, are angry because the strikers have stopped playing the game, stopped producing, and thus under the tax system, stopped funding the majority of the government's existence.
I believe Rand would agree that the world does not need the services of the strikers, but the government damn surely does!
You may want to ask yourself what type of existence you want to support? That of a government bureaucrat seeking to legislate fairness through reallocation of wealth, or that of a business owner seeking to build something or provide a service others value and are willing to purchase? Your answer will place you fairly well on the spectrums of left-right, liberal-conservative, democrat-republican, socialist-capitalist, looter-producer, and basically have-have not. I believe it is the balancing act between the haves and have nots that is the foundation for all of politics.
* http://www.taxfoundation.org/taxdata/show/24955.html
**
http://www.taxfoundation.org/news/show/25985.html
Corollary: Why did the Banks get so big and important in the economy?
1. There are billions of new workers in the world that can run circles around the Disenfranced and Angry in the US ( D&A).
2. So we set up a system to let the D&A buy lots of crap from China and what not.
3. But - to buy stuff the D&A need money. Hmm - lets set up system so they can use their "homes" as piggy banks. Will work for a decade or so then blow up - but worth a try.
4. Of course the Banks are needed to absorb and slowly destroy the "money" spent by the D&A on chinese goods.
5. Stuff the furriners with credit products , equities and govt paper in exchange for the crap they sold the D&A.
6. Destroy credit products, then equities . Then once the game enters its end-game stage - hike rates up to destroy the value of duration. Finally impose capital controls and devalue . All so the D&A could buy christmas tree ornaments and leetle US flags made in China - for a decade or so.
7. Once the Banks have fulfilled their critical role they will not be needed - not on the same scale anyway. We are at that point.
+1
In Conclusion- In Defence of Greenspan:
1. The average American was essentially screwed once China and India entered the world economy.
2. However maybe we give Joe Six pack a chance - buy some time - maybe if we let hime survive for a decade just getting free cash from his "home" - some magic will happen.
3. Lets hope that over the decade of free cash Joe Six Pack will upgrade his skills/education and leapfrog over those billions of competiotors in Asia.
4. So sad - Joe Six pack instead developed illusions and fantasies of the good life. Lived like royalty, got fat , and more stupid. So sorry - we tried.
That's actually an intriguing line of thought....describes much of what actually happened except it wasn't the "strategy" that you seem to imply.
It would've worked if Joe Sixpack had connected the dots or knew that was the plan for him to get even with the 3rd worlders.
The Master Planners don't give a rat's ass about Joe SixPack, so they never bothered to tell Joe "Hey, Joe, this is your chance to catch up and get with it for the future."
...and Joe SixPack didn't connect the dots...that's why he's still Joe SixPack (well maybe 5 pack or 4 pack by now).
...but that Hummer H2 and 26' powerboat in the driveway of his foreclosed house sure looks great, doesn't it???
I think most of you are under a false impression that someone or thing is in control of our destiny and has successfully manipulated the economy to where it is now at.
Personally, I think that we are where we are now only because of the common denominator of greed for money and power. We are in the end stages of how most civilizations die when they have become wealthy enough to pay someone else to do their work for them. When you take the 'struggle' out of life's struggle, then you get fat and complacent masses who are willing to let others control the strings and lead them down a road to ultimate failure.
There is neither a total presense or a total absense of anything. There IS a bit of a conspiracy (Buffett noting that 'his' side is winning in the class war), and I'd state that it is about intentionally keeping people ignorant about the consequences of growth; the reason being: the elites are held aloft by growth (skimming off of what are essentially temporary excesses).
But yes, I agree that greed is a driver.
I believe that is called a Hail Mary pass
The big problem with your defense of Greenspan is immigration.
If the New Class leadership of the US was at all interested in Joe Sixpack they wouldn't have compounded the problem by gutting the remaining, non-exportable industries (like construction)... they would have protected those last high wage blue collar jobs that hadn't been lost overseas.
But they didn't. They actually accelerated the destruction by relaxing away any pretense of border security. This moves the argument from one of resigned inevitability to one of purposeful destruction.
If the New Class leadership of the US was at all interested in Joe Sixpack they wouldn't have compounded the problem by gutting the remaining, non-exportable industries (like construction)... they would have protected those last high wage blue collar jobs that hadn't been lost overseas.
You're forgetting the rest of the equation, and that's the part where there are consumers of those construction jobs. After all, it was the housing bubble (and CRE bubble) that has resulted in the average US person being upside down in their mortgages and defaulting on them.
The right thing is to get away from all these jobs, and stuff like automotive and airplane manufacturing as well, as they won't, pardon the pun, fly in the future (infrastructure is too energy intensive to maintain and use). First suburban sprawl ceases (cost of commuting), then the CRE that built up around it, and then the automotive and airline sectors (transportation that people can no longer afford due to relative energy costs- people being broke etc.).
The reality is that the majority of the population aren't seeing bubbles because they have no interest in finance/economics. The idea of some mass awakening is useless and will only come after a crash. Westerners got lazy, yet think they are entitled to good times. Car manufacturing, electronic goods... the list goes on where the greed of the west was undercut by the east and now the west wants government to save their lazy a$$ and preserve their standard of living without having to take pay cuts or smaller homes.
Pretty much right there, GFORCE. And when the collapse occurs they will only want to blame (or kill) somebody. Looking in the mirror is really painful.
Sure is a lot of talk here about defining what form of government the U. S. is heading toward. Communism, Fascism, Socialism, etc. Why don't we just define a new form of government? What we are evolving to just doesn't fit any of the old molds.
10+ !!!
If the Euro and Yen weren't similarly damaged, and the Renminbi a closed currency, then I'd fortify the bunker. True the Aussie looks Awesome, and the Loonie looks luscious, and the Real looks really good....
I guess its a one-legged race to bankruptcy then.
Much of the country is already impoverised, by the way.
Is'nt it just possible that the Leaders were not quite as cynical as you suggest? I actually happen to believe the US still enjoys the benefits of Leaders who at the end of the day are trying to help Americans - although this belief is sorely rested from time to time!
Perhaps the Leaders should have articulated this as a strategy to Joe 6P ten years ago. Then again we had GW in charge - !
Moreover articulating the entire strategy would have reveled weakness to the rest of the world and kinda given the game away. The game being that they were going to ultimately get paid exactly Zero in exchange for their goods.
Ours Leaders are generally trying to help Americans...it's just a matter of which ones they're trying to help....Joe SixPack or Joe Country Club. But who can assume the Leaders have any more discipline or intellectual curiosity/honesty than Joe SixPack??? Very few.
GWB was beyond clueless. Afterall, his VP claimed "deficits don't matter" making Dick Cheney lifetime president of the economic idiots society.
You're right, though. If we actually tell the world that we invented the liar loan MBS ATMs to buy time for our Joe SixPacks, interest rates on our deficit financing would've skyrocketed years ago.
There are no jobs but the needs are endless. Hmm. perhaps folks need to make the connection. See- jobs exist to provide goods and services that you and others around you need. I know - outrageous concept!
Need medical care - see lots of people around you that need medical care ? Hmm - maybe study to be a nurse or doctor or get your kids to do so. etc etc.
The government is not gonna provide anything - they are just a net burden.
People have plent of "wants", what they don't have is endless amounts of credit to fuel those "wants".
The system is credit, eventually the system will be unable to sustain itself due to Man using a flawed financial equation, the assumption that Man can supply and demand exponential growth.
Eventually, there will be old people dying in the streets, they will not get care not because of the lack of need or want, but because Man has limited ability to supply the equation what it demands.... ie exponential growth.
Had this conversation with my eldest daughter recently. I told her it was almost irresposible of any young person not to work in health care, or for the feds. Lifetime earnings and benefits would be a multiple of anything else.
She said "Aw, Dad, kids don't think like that."
True. As I remember most of us wanted to be firemen or Indian Chiefs, but those of us without big tits were gradually disabused of our silly fantasies.
Things were not always thus. Health care was a smelly, underpaid backwater until Medicare provided unlimited demand and made cost control a bad joke. As to the feds, I have never known gangsters to be short of cash. We can't all be parasites and blood suckers or we will all freeze and starve in the dark. This country is dying, and the lack of productive jobs is the one best leading indicater.
All hail our Dear Leader
on pain of death or worse.
There's no such thing as endless cornucopia. Just "wanting" jobs, and a "can't we all just get along" mentality isn't going to overcome the physical realities of the world- IT TAKES ACTUAL PHYSICAL RESOURCES TO DO THINGS!
All economic systems are an attempt to distribute goods (and services) in some meaningful way. The problem, however, is that they fail to take into consideration the consequences of growth; that is, they are all growth-based ("grow-or-die").
Gold bugs somehow always bring up the image of an early 20th century Austrian intellectual wagging his finger at those foolish young men in North Carolina trying to make heavier than air flying machines. i mean perhaps they should attend a good gymnasium and study some real physics !!
Then more finger wagging each time there is a plane crash. See I told you so etc.
But at the end of the day - here we are people routinely flying around in enormous metal tubes like they were riding a bus.
You can't fly forever on a single tank of fuel, even one as abundant as that provided by the free markets of yesteryear. Eventually you are going to come back to earth. This is more Promethius than Wright Bros.
They have built an entire civilization on being able to fly forever without refueling. They make the planes heavier and heavier, while the wings get shorter and shorter, as they forget what physics is. They think this is normal, because they don't remember a time when they walked upon the Earth. They don't understand why gravity has suddenly disappeared. The answer is simple--they are in free fall. There are only two parachutes available. One is old and dusty, labelled gold, and the other, moth eaten by years of industrial demand with no repairs, is silver.
Of course, some (prime)fools are madly trying to throw the metals out the back exit. Those of us with any sense are grabbing them up for practically nothing as the fools let them go.
Gold is just a cult item. Albeit a fairly large cult with centuries of gold-culture . So one cannot dismiss gold. But dreams of going back to gold backed money etc are just dreams of old men wishing for simpler times - you know when men were men and girls were girls - and one took walks in the Alps humming Beethoven tunes etc.
Charming dreams.
Gold does not make the world go around, the use of credit within a properly functioning credit system makes the world go around. Man has elected to use a flawed financial model, the end result has always been known... collapse and liquidation of the non-funded liabilities. I would call it a balloon payment from Hell.
The system ran out of gold to run the system well over a century ago. The people with gold in their pocket will be running from the tanks just like the ones with no gold in their pocket, the tanks in WWII squashed gold bearing people just as well non-bearing gold people 70 years ago.
Tanks are tools of the equation, when you don't feed the equation the equation needs to feed on something. The equation and the tanks can't be reasoned with.
I like the 'balloon payment from hell' part, but can you help me with this.....If the Govt moves all the debt to their books and they cannot run out of money or declare bankruptcy as we mortals know it what is the problem....also, lets say gold trades $4,250? What do you cash it in with to get gas or beer?
Your question is how do you redeem or exchange gold/silver for fiat dollars?
You assume that dollars will be needed for currency, and you would probably be correct. The question is what denominations will those dollars be in? See Zimbabwe for a reference point. I'm not saying we would have humongous notes like they do, but the number of zeroes would definitely be higher with gold at levels you indicate. It's just an exchange of a store of value for the circulating currency. Gold American Eagles come in 1/10, 1/4, 1/2, and 1 ounce sizes. These are issued by the U. S. Mint and are valid for use as currency. The denominations vary from $5 for the 1/10th ounce to $50 for the 1 ounce. What's wrong with "buying" an item for "$5" face value in gold? If all parties agree to the "price" then all is well. It is happening today. I didn't even hit the junk silver area as it pertains to a currency. It once was circulating and is still legal tender. Today's value of a silver Roosevelt dime: $1.3093 is the rounded silver value for the 1946-1964 silver dime on April 21, 2010. The know-nothings who wonder how they would buy a loaf of bread with an ounce of gold just don't get it. It's always been called "small change" and that's what silver is.
Your name fits.
The biggest cult in history is the cult of the almight fiat dollar, glory hallelujah. Now drink your kool-aid and trust your messiahs at the Fed.
My, aren't you a busy bee! It appears that you like to make lists as well. More power to you. I think you may have stepped in a deep pile of steaming excrement with your remarks on gold. There are several misconceptions embedded in your remarks but I'm not inclined to extricate and explain them.
Here is a notable excerpt from Ed Steer's latest post:
You should visit the site because there are some nice graphs on this topic. Central Banks are accumulating gold at the present time. This is not for no reason, certainly not because they like shiny objects like a pack rat.
Your name might be subject to change since it will draw fire. Remember ole Abe's admonition:
In general, people give way too much credit to their overlords. It's not nearly so much conspiracy as just plain incompetence, often combined with concentrated groups stealing what and when they could/can. Whether it be the overlords or 'Joe Sixpack', on average, both were not thinking very far ahead. I mean, my God, things like:
1) 'Debt doesn't matter.'
2) The solution to too much debt is more debt.
3) The solution to too much government is more government.
4) It will be a recovery because we always recover.
5) Electing someone because you feel guilty, but knowing nothing about them.
6) Importing another underclass will help the economy.
Etc., ....
It is absurd to look at what happend and is happening and call it some well executed plan.
In the same registry, solutions to democracy (here to be understood as the political regime the US set themselves as the prime example) is more democracy.
Still, I wonder why people are so reluctant to see that debt does not matter in the case of the US. Maybe it comes from people thinking this way because they have lost their capability of going into debt and have to endure the vision all around them of people still enjoying the possibility of going into debt.
It must hurt.
When is there too much debt? Lets me figure this out. When economic models tell so. With that, we can walk a long way.
Debt is a powerful tool when it comes to consumption. Making the problem misrepresented. The solution for more consumption is indeed more debt.
As debt is consumption, especially in the case of the US, the solution to debt is more debt.
We Don't Need Them
http://dissidentvoice.org/Nov05/Carpenter1102.htm
hey Tough Guy. You will find there is no ShangriLa - no place to hide with your stash of gold coins. At the end of the day everybody will be dependent on a functioning society. However if you are female and want to marry a rich Gujarati ( that would be in India) then your gold will indeed be very very helpful as dowry.
You will find your paper stash quite worthless, its value confiscated. You can burn it, but it also won't make a good dowry.
....or you can also wipe your ass with it.
Eventually that's all it will be good for.
"I asked Fred Hickey what he would do as chairman of the Federal Reserve."
Funny how no one ever responds - "get rid of the federal reserve". A few years back there was a local politician who ran on the platform to get rid of the office he was being elected for since it was redundant. I voted for him. He lost.
OK let me continue to irritate. Your dreams of a permanent source of wealth that you can store away forever and perhaps pass along to future generations ( along with your genes of course) - are just unfortunately not gonna happen.
The govt will probably not confisctate your gold coins but can tax them at increasing rates. Then when you die it will all get taxed anyway.
Meanwhile you might want to ask what it means to be wealthy in this age of abundance ( not joking here). On the cusp of massive technologic advances etc. You can hide in the hills counting gold coins and living a short and brutal life, a victim of the next virus that decides to invade your body. Or , join us imperfect humans with our awful Fiat money system and enjoy a life of high tech bliss.
Your description of gold as a store of wealth for generations is accurate. That is exactly what it has been through history. Dollars? Not so much
As for taxes, you will pay estate tax on your dollar denominated savings. On gold, probably not, just tell your heirs where your coins are.
Your high tech humans are mostly broke and unemployed, living on credit to buy their next iPad which will be obsolte in a year. Some bliss.
Can China float their currency and maintain currency controls?
If they float their currency, wouldn't the infrastructure trading their currency allow "Joe Chinese subject" to trade out of their renminbi and into something they thought would be better? You know the state of the Chinese economy with their big real estate bubble in China, Hong Kong, and Vancouver.
Wouldn't floating the renminbi mean a drop in their exchange rate? Local money getting out of China on a flight to safety precipitating a hot money run?
The EU is a failing multi-generational socialist experiment. The Greeks don't want to live within their means because their EU birthright says they don't have to. Also, the EU says vacations are a right. Who would want to invest in a market where clearly the chips are stacked against the investor. They are on a trajectory to nationalize everything. Once they realize that won't work, they will ask the market for help.
Has India changed their ways? If they are so strong, why has it taken until this point in time for everyone to see their potential. India has enough of their own problems. I don't think they take kindly to lower castes making big bucks and looking to run their country. That market ain't free.
In the US, the proper course is to whack the TBTF banks. If you are worried about securitization, open the window to credit unions. Problem solved.
At the end of the day, Joe Six Pack will build a better mousetrap and create wealth for his/her investors. That is the way the world has always worked.
The mechanism by which China maintains its peg to the dollar is by printing Yuan to buy dollars from Chinese companies which get them in exchange for goods. If they drop their peg, this means they won't be printing more money. Ceasing to print money won't cause the value of the money formerly being printed to go down. Why would money want to flee China? There is nowhere on Earth that is any better. Their economic free zones are the best places in the world for capital to go, which is why so much capital has been attracted there. Communism never built great shining cities like those you see along China's coast. Those were built by capitalism. REAL capitalism, not to corporatism we have here.
I would beg to differ on India as well, but I don't know enough about them to make such an assessment. I doubt you do either.
The proper course for the US is to cut all subsidies to zero and cut all taxes and regulation to the bone. The market will take care of the banks once they no longer have the immutable support of the government.
Awesome.
Usually, floating a currency means free exchange of currency via the forex market. Dropping the peg for another flexible peg (lower or higher) is not dropping the peg. I guess the question is would China allow it's subjects to trade in the forex market if they "float" their currency. If the subjects aren't allowed to trade in the forex market, is the currency really "floated"?
If the currency is managed and not floated, how is that going to address present market concerns?
Float the currency and expect the Chinese to diversify. Watch the hot money follow their move.
Why is there a sudden sense of doom and gloom ? Just because a couple of rival mafia gangs on Wall Street had at it and created a big mess in Sparky's Steakhouse?
I mean really - what has changed other than Lehman Brothers got taken out by the Corleone Family ?
All the old Malthusian concerns of exponential population growth running up against linear progress in food supply - well - please read Limits To growth - the whole thesis is flawed.
We live in a age of abundance, technology is accelerating - particularly medical technology. There is enough food to feed everyone. We need imagination and innovation to prosper because a lot odf smart folks in Asia have also enetered the world economic scene.
Your existance here has only been around for a week. Some of us go back to the blog days before the offshore servers, website and full URL address. ZH has been and is about unvarnished truth.
Over time, and for some it has taken time, many here have come to realize the current flawed fiat system has arrived in its final terminal phase: debt based fiat wherein there is and never can be enough "money" to repay the principal and interest from whence that "money" was borrowed into existance, yet it must continue to expand to survive.
The exponential growth curve, be it applied to food production and consumption, energy production and consumption, "money production and repayment" when interest is included and malinvestment/consumption was its use, etc., are unsustainable models. Supply is not infinite. There are limits to growth. The planet is only so big, with so many resources, ever expanding debt cannot be serviced.
Exponential growth models are one of the problems, I encourage you explore the rationality of your logic. You might start over at http://www.chrismartenson.com/ and watch the Crash Course.
Bingo! If you want a fun little exercise, next time you're having a friendly get together take out a dollar bill and put it on the table, and ask everyone there to explain to you what that dollar bill is (I don't recommend this exercise when out with polite company). Some people will come close and describe it as a unit of labor productivity, which is what it should be, but that isn't the correct answer. Chances are, no one will get the right answer: the dollars in your pockets are just units of debt. They are the debt denominations that other people have taken out in the system. Most people fail to understand that in a debt-based fractional reserve banking system, every dollar out there is a unit of someone else's debt. The only way the system can grow is if people take on more debt. Now that the American consumers have begun deleveraging, it should surprise no one that the government picked up the debt tab, and will continue to do so until (if ever) the consumer leveraging picks back up. If they hadn't, the system would have cratered. Humans can't beat the exponential growth curve, no matter how many times they try...
SPOT ON!
Sudden? Where the hell have you been? Just finding this blog isn't much of an excuse, either you haven't been paying attention or are drinking kool-aid. I've been a hardcore doomer since I had the privilege to work on some MBS stuff in 2004.
me- "Wait, we are selling a securitized pile of loans from no doc loans to 'sophisticated' investors?"
them- "Yeah, housing prices go up exponentially, just look at this linear chart that goes up forever"
me- "what about when they can't pay?"
them- "they don't have to pay! just refi b/c their house will double after the IO payments end!"
this was peddled to me by Ivy League MBA douchebags who are supposed to be masters of the universe. the group think was beyond disgusting. they literally believed houses would grow in value exponentially forever due to quants/charts. it didn't even occur to them that perhaps there might be a huge oversupply due to speculative construction since housing prices always go up!!!
my real doom moment came when a friend of mine told me his illegal immigrant shoeshine guy with 7 kids and no taxable income (cash biz) bought a 5 br, 800k house in Bergen County, NJ.
WAKE UP
Great "a-ha moment" stuff. I'm not a finance pro in any way, just a farmboy trying to get along in an world that turned out not to be anything like what I had been led to believe.
I had my "doom moment" in 2002, refinancing my house, when I realized that I would not have been able to buy my house at what my bank was willing to give me in a refinance. I spent the afternoon with an online mortgage calculator and the local Real Estate ads, and it dawned on me over the lifespan of a six-pack that nobody I knew could afford the houses they lived in, by any reasonable measure.
That's when I started buying what PM's I could afford, stashing cash when I could, and buying extra toilet paper and canned coffee at Costco. I'm no expert, nor especially well-educated, but when a thing clearly can't continue, at some point it won't. And when it's wrapped around all the economic pillars of our society, that would be bad.
swm-
common sense is way more important then being an "expert." these douches who put this stuff together or bought it (yes, yes I know the shorters got it right) were "experts." group thinking, tunnel visioned, entitled asshats whose entire life depends on having a better BMW then the idiot sitting next to them
As for being a farmboy, that is me and the wifeys 5 year plan, save up enough to get a plot and live a simple honest life instead of taking part in the materialist douchery were are surrounded by.
The whole thesis is flawed because in Malthus'times, human beings were on a unitary ratio all around the world.
Many people apparently have troubles coming to terms with the current reality: human beings needs are not standardized.
Many times, people would like to solve this overpopulation problem by kicking out non consumers. They take a look at third world countries, compute their population and come with "they need to curb their population"
Just like a guy who is on a sinking bark would tear his hair off screaming that bystanders on the shores should be killed off in order to get his boat afloat. Too many people out of the boat, that is why the boat is sinking.
The fact is that the current civilization does not a technology acceleration. But an ever increasing acceleration on its technology progress.
Whenever the acceleration is turning flat or decreasing, issues pop in.
This does mean that no technological progress is made.
During the whole nineteenth century, the US bet always Indian land to transfer to the US citizenry. Day they hit the west coast put an end to their delusion. After that, the crisis to be 1929, the funding of eugenics in Germany in order to solve an overpopulation issue was just a transition to mature.
Around these parts, when people bring up the exponential growth equation, they are not really referring to Malthus' overpopulation claim. What they usually are referring to is compound interest, and how merely having compound interest as part of your system dooms that very system from the start. Although there is only a definite number of human population that this planet could sustain, we clearly haven't reached that point. That's because of mechanized agriculture, i.e. oil. The industrial age is really the age of oil.
Peak oil is a conceptual, but very real threat. Oil is literally a part of everything you see around you. From the plastics and other oil byproducts that are everywhere and in almost everything, down to the transportation system that delivers all of these goods to us. All peak oil represents is the inability of the system to keep up with demand. When we reach the point where demand>supply(output capacity), we will have some very real problems. It doesn't mean that oil will run out, but it does mean that growth will no longer be feasible - i.e. is there enough time and output capacity left for India and China to transform themselves into what you see in this country? Nobody knows the answer to that question.
The Saudis never update their oil reserve capacity numbers. Do they really want us to believe that their wells are just as full and productive as they were 30 years ago? Peak oil will be a bitch of a surprise to many because it won't be discussed. There are some solid arguments that it is already here, if you take the time to look at the behavior of the parties involved (massive military conquest of the last remaining oil producing countries, exploration and talk of commercialization of deep sea wells, commercialization of the Canadian tar sands). If oil production was still plentiful, there would be no reason for these kinds of behaviors. Like in any good magic trick, don't watch the magician's props, watch his hands...
Very well stated.
All peak oil represents is the inability of the system to keep up with demand.
I'd state it more like this:
All peak oil represents is the inability of the system to keep up with GROWTH demand. (and seeing that the system only really functions based on growth, well, the conclusions just aren't that tough to figure out... again, figure that the overwhelming majority of our infrastructure was built to operate on $20/bbl (or less) oil)
Communism has been attempted literally hundreds of times, from the earliest small communes and kibbutzes down through the USSR and its sattelites, China, Korea, Southeast Asia, and Cuba. These attempts have always failed, never bringing about the dreamy utopia envisionsed by the theorists Marx and Engels. But somehow, you and your sweaty, dope-smoking friends are going to get it right?
BTW, your ZH avatar/symbol is that of a *socialist* state. So much for lecturing others about the difference between socialism and communism.
Jacob Dreizen:
We must remember, that for her it is obviously a religion for which no amount of evidence, or dead bodies, will suffice to prove it wrong.
19th century tomes are clearly more reliable then a century of historical experience. Because this time will be different. /s
Isnt what economics are? A religion? Noticeably, believers also have their worshipping drama: true capitalism, true socialism, true communism.
Funny...
"Religion" isn't a bad description, at all. Economics is a completely human mental construct used to define, classify, evaluate and regulate human behavior. Once conceived, it takes on a concreteness in people's minds. People start responding to situations as if Economic "Laws" had the same validity as, say, The Law Of Gravity, or the 2nd Law of Thermodynamics.
In reality, of course, if everyone says, "To Hell with Doe-Lars; let's use bottlecaps instead," then economic theory will have to change to accomodate the new bottlecap standard. Just try that approach with gravity in a situation where it matters.
But people make all kinds of sweeping judgements without considering they're basing them on what is, after all, a human mental construct that could be changed without notice.
Um, I mean the foregoing as a series of statements of my own personal opinions regarding Economics. I'm fully aware of the limitations of my experience.
And I'm not saying anything about Religion at all.
Especially not Your Religion, whatever that is, which I have always considered to be perfect and of which I have always considered myself to be unworthy.
No 'fence. Just sayin'.
don't you know that humans are completley "rational" automatons that will always react to any given situation in the same exact manner.
That's what people like Edward Bernays thought, and that's how this thinking has gotten embedded into our society (on the back of capitalism).
***** "The Russians have been out there saying they’re buying gold, Canadian bonds, and diversifying their positions. Well, here they are doing it. At some point, enough people around the world will say they don’t want to be in dollars anymore and they will get out. It looks to me that the Chinese and the Russians are getting out." *****
BRIC countries downplay currency issue Admin - Mar 26, 10 http://www.geopoliticalmonitor.com/bric-countries-downplay-currency-issue-1Mar. 25th (Money Control) - The world's four biggest emerging economic powers are unlikely to push for a new global reserve currency but will seek to boost mutual trade and investment at a summit next month, a senior Brazilian diplomat said in an interview.
Falling greenback fuels BRIC dollar reserve rethink Sebastian Tong and Peter Apps - Analysis LONDON Mon Mar 23, 2009 3:00pm EDTLONDON (Reuters) - A push by the world's leading emerging economies to dislodge the dollar as the dominant global reserve currency appears to be gaining momentum even as a weakening greenback adds further urgency to the discussion.
http://www.reuters.com/article/idUSTRE52M5UZ20090323
China, Brazil and Russia have promised to buy $70 billion worth of IMF bonds, compared with $900 billion of newly issued US Treasury bonds. Besides, the SDR is not a real currency in circulation. It is only a unit of account. When the IMF pays back the interests and debts, it has to convert the SDR into currencies in circulation such as the dollar. In fact, it is the very reason why the US is not too worried about the BRIC economies buying IMF bonds.
http://www.china.org.cn/world/nuclear_bric_summits/2009-06/18/content_19761965.htm
Uh huh. Hickey must RENT, just like his buddy Fleckenstein.