This page has been archived and commenting is disabled.
Guest Post: The Helicopter Departs
Submitted by TimmyM
The Fed move to raise the discount rate on Feb. 18 has initiated a discussion of the timing of the removal of accommodation. Unfortunately, framing the subject as being relevant to accommodation is a mistake. The implementation of a near zero interest rate policy is just another component of emergency measures used to cure a systemic bank run. The emergency measures need to be viewed completely separate from the setting of a policy rate for economic management purposes. The potential raising of the Fed target rate from near zero to near 1% should not be called a tightening of monetary policy.
There exist many harmful side effects of an emergency rate policy.
This emergency rate policy imposes an extreme penalty on risk averse savers and retirees. It also squeezes bank margins in so far as a portion of all bank balance sheets are asset sensitive. This emergency rate policy is fomenting harmful speculative global carry trades with potentially devastating consequences. It is apparent that the continuation of an emergency rate no longer has any marginal benefit and is overall unproductive.
Recent political events such as the election of Scott Brown in Massachusetts, the rise of the Tea Party movement and the CPAC poll supporting Ron Paul are all strong indications of the growing populist anti-bank, anti-central bank and anti-bailout public sentiment.
Historically, a politicized Fed has been associated with an easy money inflationary policy. But, an argument can be made that the current populist sentiment reverses this legacy perception at least temporarily. This new populism views a near zero interest rate policy as an unproductive bank subsidy. While many observers find it difficult to believe the Fed will also end quantitative easing, the Fed can go through with this in part because of this new populist mandate. The populist movement can be viewed as providing the Fed political cover for the removal of emergency measures.
The near zero interest rate policy also distorts loan and security pricing. The well established practice of banks setting the prime rate at 3% above the Fed target rate presents a problem for banks as they attempt to protect their net interest margins. A similar problem exists in the way both outstanding and new loans and securities are priced off of other short-term indices as well. It could be that if LIBOR was to go up, the spread of loans and securities to LIBOR would contract in response to the higher nominal rate paid rather than some association to credit spread.
A difficult to quantify risk of emergency Fed policy is the risk of surprise unwinding of leveraged global carry trades. The presence of these positions destabilizes all markets, and to the extent all the risk markets are correlated by ubiquitous carry trading the financial system is diseased by lurking illiquidity events. Speculative leveraged finance should by reigned in by both regulatory reform and the removal of emergency measures.
In so far as the markets hold the impression of the Fed as having an inflationary bias, this impression could be partially corrected by the unproductive presence of these emergency measures. The Fed may be coming to believe that asset pricing and bubbles are something to be foreseen and prevented after all.The political cover of the populist movement as well as the Fed’s need to retain their regulatory authority has aligned these various interests for us to now expect the appearance of a more hawkish institution. The implications of this will be seen in the probability of a flatter curve and the risk of deflation.
»
- 8205 reads
- Printer-friendly version
- Send to friend
- advertisements -
Agreed.
People will interpret Bernanke's actions but there is a larger picture that they don't see.
Agreed as well. ZIRP kills economic activity. It is amazing that Bernanke doesn't understand that.
It is the height of arrogance to assume anything you do has any real effect on the forces of nature (of the marketplace). The marketplace is like a huge river - you can divert it but you can never control it. One mistake and you got a flood on your hands.
No!
ZIRP is a *reflection* that REAL economic activity is of ZERO profitability now.
You can see this in the dDebt/dGDP plots.
The only "profit" is in infinite speculative leverage against miniscule margins. IOW, synthetic economics like CDSs and other derivative instruments.
Good luck actually DOING anything productive to make a profit these days.
Oh, I think people see the big picture just fine, which is why there is a run on guns & ammo.
The great failure of Keynesian theory was to assume policy makers could substitute on a 1:1 basis public sector spending for private sector aggregate demand. The problem of course, which is what we are seeing with continued radical credit contraction and growing excess reserves, is the lack of 'animal spirts' that typically accompanies private sector debt expansion.
That is, when the private sector engages in credit-leveraged, asset-inflating bubbleconomics, there is a palatable mania in the air that infects all players. When individuals purchase speculative houses, everyone from loan officers to realtors to the contractors engaged in the fix-up & flip projects are caught up in the same game.
But when the party ends and government steps in to act as a collective proxy, the momentum has dissipated. The biggest impact can be seen in the velocity of money, which slows to a crawl while everyone scrambles to protect their last liquid reserves.
This forces the government to engage in a massive propaganda exercise in an attempt to rally and encourage the burnt out public. This time around it was called "green shoots", whereas in the past, it went by such quaint sobriquets as "prosperity is just around the corner".
QE was nothing more than an attempt at a short-term quick fix - a "Hail Mary" if you will. It provided a shot of liquidity for gov't stimulus programs and offered an artificial, hard interest rate ceiling on government and agency debt. But given the magnitude of credit vs actual money in the system, QE is simply insufficient to actually monetize the debt to any meaningful degree.
That is why I believe history will come to view the administration's high-water mark as 1/19/2010. To the discernible eye, all subsequent actions (including Ben's minor rate hike) have been slow, yet deliberate rear-guard actions. They are trying to keep an orderly retreat to avoid a full-scale rout, but personally, I don't see how the debt-deflation tsunami can be held in check much further.
Well said. The grudge match between the Keynesian's and the deflationary debt monster. Did Godzilla end up winning in all of those Japanese movies? He does in this one.
They don't see it because The Beard has gone black..."So subtle your friends won't even notice."
Ben's new beard, I mean bird:
http://www.army-technology.com/projects/comanche/images/comanche4.jpg
"Just try to audit this!" said the Fed Chairman.
And you thought the "S" stood for Shalom, when it really stands for Stealth.
"The presence of these positions destabilizes all markets, and to the extent all the risk markets are correlated by ubiquitous carry trading the financial system is diseased by lurking illiquidity events."
While growing up on a farm, whenever Dad used this term, I knew it was time to put one or another of the farm animals down for it's own good and for the good of the other healthy animals.
Shall we do the same to the Fed?
They shoot horses, don't they? Who can last the longest in the dance contest before they pass out? Surely not hungry, pissed off, U/E Americans for an indefinite period.
As the idiot Greenspan noted yesterday (who seems to have reverse Alzheimers since he is now starting to make some sense), this is the most imbalanced non-recovery in history--benefitting only the wealthy and the banks. Time to end the Fed and everything they stand for. Time for the era of wars to defend the interest of said bankers and moneymen to no longer exist (and I'm going back to the big wars with JPM assets at risk for starters but corporate warfare is included to present day). Time for banks to act as utilities and nothing more, and time for everyone to pull their money out of the big banks and put it into physical assets or in local highly rated Credit Unions or small non-interstate banks until you are ready to deploy into physical assets. The madness will stop...but I fear it will be at the suffering of the masses and leave a gaping hole in our country for decades to come.
" the idiot Greenspan noted yesterday (who seems to have reverse Alzheimers since he is now starting to make some sense)..."
That is just Andrea Mitchell doing her ventriloquist act... Yes the Idiot Greenspan (you really give Crazy Chester the benefit of the doubt there...) is the wooden headed dummy.
Andrea was not a bad looking broad in her day... In sort of an anorexic Ruthie Madoff sort of way...
I read your comment and thought, They shoot houses, don't they?
"As the idiot Greenspan noted yesterday (who seems to have reverse Alzheimer's since he is now starting to make some sense), this is the most imbalanced non-recovery in history--benefiting only the wealthy and the banks."
Flat out funny as hell. With your permission, this term has been added to my vocabulary. It passes the test of a new term that has an instantly recognizable definition.
You have my full permission, CD. I rather liked that one myself and it came to mind while reading his recent statement. In the late 90's when productivity was all he ever talked about I thought for sure he was just covering up the fact that he had full onset post-it note Alzheimers.
80% of the country is not only pissed off but they also have the time to think about this. The pendulum made its reversal and that is undeniable.
The Fed is arrogant. But not stupid. Their ability to frame the debate is over. The Vaseline-covered watermelon they were clutching in the ocean is held by only their fingertips.
Markets love gridlock. Yeah okay. What about upheaval? There is NO WAY to reverse it. They may mask their fear but after November the new rebels who storm the castle may not be the old rebels who stormed the castle. They may prove to be averse to bribery. And when that happens Ben may wish it was 1913 all over again.
We have no rebels storming the castle, only another bunch of lying politicians. I remember the last time how they talked of fisical responsibility then when they got in behaved like drunken sailors.
As predicted by Elliott wave and socionomics.
I've always considered the Elliot Wave the "Nastradamus" of our economic time. Not a fan.
Was Nastradamus a typo? It's Nostradamus and the Elliott Wave guys have been dead on since Oct 2007. They called the March low. They called for a rally to 10.600 +/-. You don't have to be a fan--you can be an air conditioner or a heat pump. That's all fine. Just don't discount them as a bunch of wingnuts.
i often joke that my (good) wife keeps me happy by letting me think i'm the one in control...
in my tin-foil hat, i've theorized (mostly on gold) that any market manipulator worth his salt would match some popular but esoteric TA pattern (e.g. elliot wave, fractals, etc.) with their manipulations to create the confidence required to really nail "the believers".
while i fully believe in natural market rhythms, i also believe in un-natural market management. considering the above point of skepticism, do any of the popular rhythm schemes actually take into account the various (current) manipulation schemes? is market manipulation part of the 'natural rhythm'? i suppose a fatalist would say yes. i don't know yet.
and while the elliot wavers are way above my head, a lot of human nature isn't :^)
watch the other hand.
"in my tin-foil hat, i've theorized (mostly on gold)"
Have you tried using gold tin foil like they wrap restaurant baked potatoes in?
They were so freakin' jealous at last months 9/11 Truther meeting... Some guy traded me his Alex Jones DVDs and an ammo reloader for my box of gold tin foil...
Wingnuts - your term, not mine. :) You hear all the time about "goldbugs" - the Elliot Wave seems to have its own cult following.
No they haven't.
EW is garbage.
Professional weather modelers try to model chaotic systems and cannot do so with high reliability even 5 days in advance.
But we are to assume that EWers can model market movements months, years, forward? Horseshit.
There are any number of EWers out there and none have called anything correctly. It may have some utility in hindsight, but go take a look at their charts. They've been calling tops since October, and every "count" these days is nonstop W,X,Y extension waves because the counts are not matching the market action.
Prechter has made some incredibly good predictions in the last 7 years, so your comment is ill informed.
How can it? This isn't a normal market. There is nothing happening now that could be predicted because it's not free to behave normally. Sometimes people see what they want to see. Besides, what's his excuse for his bad predictions for gold?
He put gold in the industrial commodity column instead of the currency column.
If his cycle is widen to the 300-500 years cycle of empires than he might rethink about using dollar as reference point.
Again, horseshit.
Calling for a market crash in 2003 and having to wait until 2008 does not qualify as a good prediction.
And still no social movement. Sad.
There is movement but it's too slow. By the time people figure this crap out-the banksters and politicians have run off with the linens and silverware.
And the people think they can solve this democratically-by electing dumb morons like Obama. A NON-CHOICE.
plus the "movement' is co-opted by the opposing party and dingbats like Sarah Palin-which is worse than the Democrats...
Sarah is good looking. Don't discount that "power."
Even if she's an idiot, she could move markets.
Governor ILF
Nothing personal but it shows you dont quite have a pulse on what is the under-reported American. Bringing Palin into the subject is so utterly dismissive. But that is mainstream. And I understand that is what you understand.
The US is in a coiled rage. It's a population like no other on the planet. Right to bear arms comes to mind. Why do you think the DNC has been trying to get guns out of America? They can't shovel horseshit into our mouths w/ a 9mm pointed at their heads.
Gun control is one thing. Sarah Palin being the mouthpiece for a corrective political movement is doomed to fail because 50% of the population hates her ass-and those are WOMEN. She's an insult and as dumb as a 2 by 4. She's a christian right shill. Any new movement would have to come from the far left(marxist) or a libertarian movement
Palin is an idiot. She's is a Survivor contestant in the political circus. She's willing to do anything to win the game but that in itself means she's fated to lose it.
I understand your point and I'm in agreement. But the other side of the coin is that because she's willing to do ANYTHING to get elected, I suspect she would be the perfect puppet for the puppet masters. Thus, she might get some very surprising support and backing.
AMEN!
I would vote for Jessica Simpson before I voted for Palin...She is like George Bush in heels...aggressively ignorant and dangerously stupid.
What bothers this woman most, is that she approaches governing and politics in general with all of the artifice of taking on her rival in a county beauty contest, and her zingers and talking points have an absolute JR HIGH scorn cheerleader quality to them.
Can someone tell Sarah running for national office IS NOT AN AMERICAN IDOL contest?
The right to bear arms is just a sop. They got bigger arms. They will make you eat shit, while holding a 9mm, by pointing a cannon at your head.
Im just curious..... Again... always with the 'Guns and Ammo' thing...
"They can't shovel horseshit into our mouths w/ a 9mm pointed at their heads."
... but what, you can force them to cook your burgers for you or something?
Is America the most latently violent nation to ever exist or something?
yeah yeah - 'An armed society is a polite society' - or... a scared society?
You are looking at the wrong movement(s). Forget elections and forget politics. Their goose is cooked.
Look at the "Move Your Money" campaign. Look at the "End The Fed" movement. Look at the international repudiation of the WTO and IMF. This is market and freedom-based activism and it's just getting started.
Don't bail now just because you arrived at the party early. Catch a second-wind and hang in for the big finale...
Anything on the radar gets corrupted and manipulated. There is a distributed and self organizing movement of awareness that is picking up speed and frankly, I think has reached the critical mass it needs to self-perpetuate at this point. But it is still small in percentage and many, many people will not 'come to the light' organically. They will wake up with it shining in their faces (and what's left of their 401ks) one day in the not too distant future...and they will freak the fuck out.
All you can do is prepare yourself for change and try and help the slow learners once it shows up on their doorstep.
Yes Sir. Picking up speed fast enough that forced POTUS to include "I believe in free markets" line on his teleprompter.
Yeah right Rahm. Right Axelrod. Right Jarrett. Right right right.
You can not repair a credibility loss of this magnitude before November. Use the Fibs.
The chopper was in the air already-it just needed refueling.
As I read here over the last x months the FED does not need the Treasury Dept, Congress or the Exec dept to throw money out of the chopper. The FED can make money and money supply whenever it WANTS.
They can manipulate the indirect or the direct market in bonds-with partners or offshore.
They can monetize agency debt within the FED without us knowing about it.
They can swap any useless, worthless asset class for Treasuries and flood the marekt with cash at WILL.
The only thing I can say is, the more money they create illegally the better. Then they can reflate asset prices and liquidity without corresponding debt. READ: illegal printing of money without DEBT.
That's why fiat is bullshit-and why the FEd is bullshit-and why US Bonds are Bullshit. There's always a system around transparency,rules and ethics.
Bernanke thinks he's clever, but he's an absolute idiot. He doesn't understand that he is driving people to the bottom of the inverted pyramid. Where "real" money and asset value(1-1 not derivatives) reside.
Reflating the McMoney Pyramid will last just another 10 years or so-the catastrophe will be more devastating-and people are going to go after their elected officials,bankers and the wealthy like cannibals.
I look at the potential cracks in the dam and I don't see it lasting 10 years. How can they possibly solve the unemployment problem? They can't. The people won't last much longer as unemployed even the ones receiving the endless benefits.
Long before our parents are left to eat cat food, an angry, restless, unemployed populas will call Bernanke on his arrogance and ignorance.
The system will have a robust police state to keep the civil disorder at bay. Private guards, government tax paid police and Feds, mercenary armies like Blackwater...
It can go on for years but the imploding economy will turn the country into Brazil in the cities.
That's the way the government likes it. A captured audience crushed by taxes and widening wealth gap
The rich get to hgh ground before the tsumani hits-they are protected in gold, piles of cash and political safety.
The rest of the country continues like it's OK until it ain't-but the ponzi scheme did it's job and "right"people get everything.
Look at Greece. Why is the average schmuck paying for the government's collusion with Goldman Sachs with austerity "measures." You think the "right" people will pay with austerity?
I'm sorry, did your last three paragraphs just describe TARP?
yep...I said Argentina/Brazil model a couple years ago as what I saw coming. You could read the posts on TF if Douchinger hadn't wiped that username.
That seems to be the inevitable outcome and the rich people I know are planning for it like vultures.
There are people with cash who will preserve wealth and their plans are literally to buy up all the property in liquidation and begin charging rent.
What does that sound like to you other than a freaking feudal model? This property stays "in the family" for generations. You can think about NYC and the surrounding areas, all these brownstones carved up into multiple occupancy units. Someone owns those and has free income forever.
When you see consolidation of property and rampant rentier behavior, you've got an aristocracy, period. Everyone who has now is trying to plan for more money for nothing. Those who are the havers at the present are just like those in Argentina or Brazil - they're connected in some way with the political class.
Their interests are consistently favored; in fact, just like Greece, where a couple dozen families used connections to drive the government into bankruptcy so that they could both lend to it and profit from its spendthrift. The same type of people who now get "bailed out" with public debt. When the firesale comes, who do you suppose have any money to buy those public buildings and parks that Arizona for example is selling off? The rich have used leverage and inflation and the banking system to create a surety out of the ground underneath our fking feet.
Yes, their plans ARE to force the USG into liquidation and to buy or "obtain" the national parks even and begin charging RENT on them. Whether they use their personal playground corporations to acquire gas and oil assets in Argentina or elsewhere, doesn't matter. It's the same phenomenon of feudalism and we're watching it happen.
What is your point?
Your thoughts imply that government somehow is elected and in power to guarantee employment.
Nothing could be further from the truth. Government that "creates" employment is on the verge of communism. By definition.
The elders have lived beyond their means which is why the system is broke. Now they die a poor man and woman. Perhaps not if their kids see the light and understand that there's a responsibility to care for your elders. Our society has neglected that because it is all about ME and NOW.
Bernanke.. phew. He's a bogeyman and so are the banks. The masses need to focus their anger on a person or institution to vent collectively and perhaps riot.
IF we presume that anyone or any system was at fault for the current problems then we'd have to presume that all individuals were stupid to fall for the trickery.
Nobody forced anyone to take loans and max out credit cards. Nobody forced anyone to buy a house worth 10x their income. NOBODY!
People are all greedy and stupid. Now they're running for the hills and defaulting because they can't afford to pay the bills. As justification the people shift blame from themselves to government and banks.
Stupid shit.
Who forced Americans to take out 2nd mortgages to buy an RV and a boat and go on a cruise?
It happened, it was everyone's fault and now the shit is hitting the fan because the party is over and bills can't get paid. The people have gotten used to the high life and now end up owning less or nothing and need to downsize.
Cry me a fucking river.
Stop blaming Ben Bernanke and various banks. They may have controlled the casino but all others have played and participated.
Lots of people were at fault. Let the people that fucked up pay for their mistakes. This includes the fed, the banks, and the people that borrowed and spent too much. The only people that are getting fucked right now are those that were responsible. But don't use one penny of taxpayer money to bail anyone out. I don't give a shit if the world implodes. Which it won't, they use fear to get what they want.
But it is NOT everyone's fault.
+1 brother
Well stated by you.
The problem with this is that you're over simplifying the issue. At face value you are right, it's not the governments job to employ the masses BUT underlying that is that Bernanke allowed the market to bubble resulting in the economic collapse we are entering into.
Capitalism is not the problem.
The problem was when the banks were BAILED OUT. Capitalism only works if you follow its rules. You are free to do what you want and make money at it but you also take the risk of failure.
I run my own firm. I take the good and the bad. When someone doesn't pay their bill I don't go to the government for a bailout. I look at how I put myself into a situation where I lost money and what I'm going to do next time to make sure it doesn't happen again.
Thanks to the bailouts the bankers don't have to plan for a next time. They'll just get bailed out again. This is a vicious circle that will not end until there is nothing left to bail them out with.
We're fucked.
The problem of leverage and inflation as a result didn't start with Bernanke.
Check any housing price graph for the last 20 years.
Something went awfully wrong where income levels stayed almost put but the cost of housing and cost of living in general went parabolic.
A man could afford to feed a family, buy a piece of land, built a house, own a car and have a LIFE on one job.
Social engineering by SOCIALISTS created the problem. The banks just facilited vehicles to ensure the SOCIALISTS that ALL COULD PARTICIPATE IN THE "DREAM"
I've said this before. SOCIALISM IS THE PROBLEM
The very idea that we're all EQUAL and all somehow DESERVE to have the same Cadillac in the garage as well as Cadillac treatments everywhere.
Bullshit. Not everyone can AFFORD to be treated EQUAL.
That's why PUBLIC HEALTH CARE is a joke!
Then LET THE DEBTS DEFAULT.
Don't come in and swap PUBLIC DEBT to make whole the freaking lenders! Fuck that shit.
Let the borrowers AND creditors suffer.
If YOU give a $100 loan to an effing junkie and he defaults, are YOU going to cry a river?
The banks DID and they cried it all the way to Washington and TRILLIONS in public guarantees on THEIR end of a STUPID fucking transaction.
The little person was just the tip of this iceberg. The creative "bankers" leveraged several orders of magnitude more credit in the form of derivatives atop this.
Can you yet figure out how the mortgage market is only $10T whereas the notional amount of derivatives outstanding is in the quadrillions? They NEEDED schleps to sign their name on the line only to close the loop which was several orders of magnitude more payola for them in terms of transactions and rentier fees. Yes, the little people who borrowed too much ENABLED this behavior...but to say they are solely to blame? Horseshit.
We have an entire ECONOMY run on this. It made a small group of people incredibly RICH. You think they made all that money off of the 6% mortgage??!?
Don't think it'll be ten years bro. Inflating the cost of living and doing business while personal assets deflate and credit is anemic is a triple whammy of epic proportions. Perfect storm and unsustainable. Only friends of Timmay! will prosper.
@cocoablini
Very well said, sir. Not only is Bernanke an absolute idiot, but all of these Wall Street pumpers who egg him on for short term glory are absolute idiots too. They better be investing those leveraged mega-payoffs in a private army, because when the bill for Bernanke's insanity comes due there will be no escaping the chaos.
I'm pretty sure this guy saw that chopper go over his house,
http://www.youtube.com/watch?v=zA1hyqA6UTY
Now, that's funny! That guy is nuts, he actually sees helicopters, I just hear them.
"Speculative leveraged finance should by reigned in by both regulatory reform and the removal of emergency measures." - BS.
State your case please.
Somebody posted the www.dailyjobcuts.com site here on ZH. It shows whats really happening in the REAL economy versus the stock-market driven economy.
Geez Tyler/Marla etc....so much reading, so little time. I can't keep up!!!
I wouldn't mind the low rates so much... as long as I could borrow at the same rates as the big banks do.
Banks Bet Greece Defaults on Debt They Helped Hide!
http://www.nytimes.com/2010/02/25/business/global/25swaps.html?hp
Please don't leave with out us banksters!!!
The fed is battling deflation. It is not a risk. It is here. As depicted in a contracting money supply. As depicted in contracting credit. As depicted in contracting real estate prices. As depicted in Greek / Dubai debt defaults. As depicted in State defaults (see Caleeefornia). If there is a bubble out there, it is a bubble in the number of people who think inflation is a problem and have positioned themselves as they see appropriate (got gold yet?). Inflation is not a threat and people holding physical assets as well as financial assets will soon understand what deflation means.
No...those in DEBT will soon understand what deflation means.
Just so we can be on the same page, who is the BIGGEST DEBTOR on the planet? What entity is that?
They stand to suffer the worst because they cannot meet THEIR obligations.
This play goes the same as last time...deflation threatens the sovereign and they devalue. You wanna hold paper into that, be my guest.
I told you to get to the choppa... ;)
But seriously, we are facing 2 big test periods coming up. March/April when they will have to come up with *something* new to float Greece and California, and July/August when my guess is the 'growth' (read: layoffs, belt tightening and fun with bookkeeping) will pretty much run out of steam and, again, something will need to fill the vacuum.
I am sitting, here , right now, watching a carry trade unwind...and I smile since I knew it, and positioned for it.
The Kiwi$ is getting clobbered and the US$ rising...I knew it!!!!!
Bring it on!!
Heh. You kind of read my mind. I was just looking at the trend change in the kiwi$. I don't think I'd want to sell kiwi and buy dollars at this level, I either want a retracement or a big break low.
Heads up folks, USD rising, yield curve flattening, equity futures down as the risk trade is off for now. http://tinyurl.com/yzbps6k
Sorry for the somewhat OT here, but because I have seen fofoa.blogspot.com referenced here at ZH re GOLD that I just have to paste in part of his comment of Feb. 23 regarding his summary take on gold, which I had never seen before until stumbling onto his blog:
"In brief, we are entering a phase transition which will separate the two main monetary roles, 1) medium in trade, and 2) store of value or "wealth reserve". For centuries we have been taught by bankers and governments that these two functions are permanently entangled in money. But the facts are different. FOA taught us this.
Your article starts with this statement, "In the first place, it doesn't matter at all what means of exchange you use. Paper, bits and bytes, shells, tally sticks, salt. They have all been used successfully in the past." It is correct! But notice that he only refers to the "medium of exchange" function in this statement.
Your author's main arguments revolve around gold as money, with perhaps the past 200 years as his sample. But we are not headed backward in time, we are moving forward. And what is ahead of us is the continued use of fiat money as our global medium of exchange and debt, but a separate, "demonetized" wealth reserve.
People have trouble with the idea of DEmonetized gold. But I think that understanding WHY I use this term is the key to understanding the separation of the monetary roles, and how it is literally something so new that it has not been seen since before gold was first coined by governments and bankers. This is why the "men's suit" valuation will not hold in the future. Nor will any valuation that does not refer all the way back to certainly before the Renaissance, and maybe even before Rome.
And of course our world today has so many new forms of wealth that were not even imagined in those ancient times. So there is really no possible calculation for a "fair value" of "gold the wealth reserve" that can even be made today. What is coming is truly unprecedented. Gold's relative value is about to be reset to heights unimaginable.
And the point of this blog is that the Giants of our world are well aware of this coming revaluation and transfer of wealth, but few "simpletons", as you say, have even a clue.
If you are a young gun, out to change the world, then perhaps an approach like Migchel's is worthy of your time. But if you have spent decades accumulating savings that you hope to deploy in your retirement years it might be more beneficial to figure out what changes actually ARE coming at us like an unstoppable, runaway locomotive. This is what I write about. Not what you can do to change our broken system. But what you can do right now to protect your wealth and get on the receiving end of this paradigm shift that is happening before our eyes."
*** Yo, if Chumba, Gordon_G, SWR, MsCreant, Hephasteus, or other fans of gold read this, I would very much value your comments.
It will be interesting to watch how it plays out.
DoChen San, if I may............heed FOFOA's words. Here's my take on the scam.....
The fiat currencies of the world are not a store of value. Ask any pensioner whose savings were locked into an account, earning what they were convinced was a reasonable yield. Yield is illusory as it creates more of the very thing you are trying to protect through lock down. Interest earned is inflationary, inflation being an increase in money supply. The plan starts with convincing them of the power of compounding interest. When savings are locked in and taken out of circulation, it gives those with access to cash an opportunity to buy goods at todays prices. If you can print your own, think of the advantages you get over savers! The loss of purchasing power to others isn't your concern if you have access at the spigot. While yours is locked in, those at the front of the chow line, get to spend newly created cash for goods at current prices. They use the exchange function of fiat (as granted to them) to their advantage whilst convincing you that saving your excess $ is in your best interest. You get to find out later the the other function of money that was denied to you, money as a store of value. Interest earned on savings and yield returns on investments certainly add to the notional amount of the account and give the account holder a false sense of wealth advancement. However when you look at the fundamentals of supply side values, the increase of notional amounts of cash has an inversely proportional loss in its value. That's why gold, or rare anything, holds value. Limited supply. To wit; what would be the value of the Mona Lisa, if suddenly a room full of exact and authentic copies were found, say 1000 of them. The pure inverse is 1 thousandth the original. Extrapolate that out to modern currencies. The FED, sanctioned via government decree, could use dirt in lieu of paper as a medium for exchange, however don't expect the never ending quantity to hold value.
I'm not a "fan" of gold. We tend to measure wealth in terms of production. Metal was wealth for the longest time because it was used in production of everything. If you had tools if you had metal cookware if you had metal things you could live and be productive and were surrounded by wealth.
It's really not much differnent than anything else. At one point pottery was a huge industry. Today we tend to measure ourselves in oil, and electronics. It's sort of a layering. Pottery, wood, metal= wealth. Today our dashboards are plastic but the formula just keeps adding things on. Wood, metal, plastic, glass, electronics=wealth. It's interesting that we transitioned from gold standard about the time the plastic age hit us and it seemed a step back. The term cheap plastic went first into the physical realm and then back into the financial realm. Put it on my plastic. Making things OUT of oil instead of wasting oil making them out of metal. What a strange concept.
To me it's like this. Gold is wonderful for a few properties and should be used in science and industry. But you can't get rid of it. It won't tarnish it won't alloy with anythign that you can't unalloy it quickly just by controlling melting temperatures. We can't live like we do without wood. We can't live like we do without metal and we can't live like we do without oil.
It's just logic. The financial system is rife with scammers because it draws scammers to it like a moth to flame. From the first fractional reserving of gold by the gold smiths leaving too many reciepts for too little gold. To the charging of interest in the roman empire gathering up more and more gold into fewer and fewer hands. It's just scamming. Everybody knows the tally isn't going to keep going. The books won't balance. The ledgers won't continue. Golds just a medium of wealth storage that is so durable that you can trust it a hell of alot more than you can trust if your insurance company will pay up when you have an accident.
So if this is just all evolutionary and the point of our evolution is under crisis whats going to happen? Are we going to abandon ALL old forms of wealth and make oil and plastic the only form and invalidate all previous forms into barbarism. No we will regress back through the ages. Lying manipulative "leader's" will regress back to strong arming dictatorial leaders. Plastic, credit crazed people will regress back to gold standard. As it falls apart, food and energy will most prized for a while but it will have to be balanced with durability. We won't prize crackerbox McMansions built with crap wood, nail guns and imitation plastic marble showers.
I don't care if the transition lasts only a couple weeks. I just care about getting us there. We can go straight from gold to purely worthless scrip or tallysticks as long as the world we live in is the world that everybody has a fair say in how it works and what is achievable out of it. Not this who's the best control freak and liar and manipulator crap.
I'm only a gold bug because it will be the thing that breaks and destroys this fiat rigged currency stranglehold. It's just one evolution back in our psyche and once this evolution falls apart. We're going to go there just as sure as a computer starts running the bios code when you hit the reset switch. All you gotta remember is one basic rule. Don't let anyone INTERESTED in finance or wealth make a financial system. If we can remember that the replacement operating system will work. If we can't it's scam version xx.
Houses will always have some value. They fluctuate like gold prices too. The average house never goes to zero, either.
Have you been to detroit.
We cant live like we do without iPhones.
I cant live like I do without my Jet.
Tiger cant live like he does without multiple cel phones and "club promoters", "x-porn stars", and "Friday's waitresses".
ALL these are better than gold.
Have fun. Get hit in the face with a golf club. You're welcome to have this kind of fun but you are going to have to give up say in how people decide to karmicly retribute it.
I'm sure Goldman employees are having a lot of fun. But people want to club them like baby seals or simply switch currencies form something they don't manipulate to their advantage. Until people stop trying to force acceptance for things that won't be accepted there's going to be trouble. Lying makes it acceptable but it's only a temporary force relaxation. Snap back is snap back.
Brief aside: to return to the concept of 'nobody' forcing 'anyone' to max out the credit cards, 2nd mortgage, et.al. - you're almost right, yet still -ultimately- wrong. There is a persistent problem with the leverage that 'anyone' took out in financial planning, yes, but it was made on a rational basis. If one is a consumer and can borrow at low interest, it does make sense then to borrow and invest. The vast majority (used to) see 'housing stock' as the most secure form of investment. More so than Equities. ...the precise issue in the sorts of affirmative economics generally opined for on ZH, is that the real cost of borrowing, specifically holding risk, is, perhaps historically, too high to be truly efficient for the purposes of creating new value. This is a systemic inefficiency in a economy which has, given the immense success of 'inflation-led' consumer spending/wage levels, prevented 'anyone' from returning sufficient 'principal plus interest' to the 'lenders'.
Yet, the failure to pay, and the subsequent rise in risk-weighted interest rates, dis not originate on Main st. It originated in the interbank CDO and MBS market. From there the contagion has spread like the plague over the 'real economy, slicing employment statistics, blowing a hole through sovereign ratings and destroying currency values.
To the degree to which rational consumers are affected, the government have stepped in and 'adjusted' the housing market. They have undoubtedly made international compacts in regard to currency valuations in the future and there is a strong movement to firmly partition the speculative side of Bank Holding company activity. Whether an adjusted housing market will indeed weather the storm remains thorny. Basically it requires small business activity to pick up at somewhat similar prices to today. Which is the crux, international trade means that inflation or deflation would be imported - so, like jacobs ladder, all currencies must move loosely together, following the data whilst being supremely relevant arm of the recovery: a sharp shock to the Dollar would have grave funding implications for the government at a time when it is uncomfortably certain of its own credit.
The aim of the game is to return to some magic time when the sun is shining, the grass is green, the car is parked close by and homeless people can be easily forgotten... yet this is a time when if we, the pretend consumers, don't pick a very real fight, we will be the rather charming sheep much beloved by the open-top sports-car-wielding. We need work and freedom to work...not lobby groups that bury the now sizeable highly-educated middle class under blatently peverse legislative and financial predjuice - I'm thinking specifically of the costs to tool to run an auto engine to natural gas fuel (it is not merely prohibitive, but untinkable, for a garage to effect a license to modify an engine). Directly due to Oil lobbying, why.. because Oil trade flows are systemically important transfers of wealth into the financial world. And this is it in a nutshell... it really isn't in the interests of small business to fix the system. At the moment, big money, sovereign nations, are living on ledger-entries money, extending and pretending and hoping. Well lets see.. lets see whether they govern for the people -and return us our freedom to work, or whether they govern for the Dark Lords of the Sith.
Want a real world example of 0% accomodative policy ....?
Accomodative to who ?
As a saver....I can tell you that I have not been accomodated....
I get nothing for my money....
So for what reason would I keep a dime in a bank ?
Pay bills....
All the rest....in my safe....
So my interest income is being taxed 100%....in order to pay for someone else's mistakes....
When there is a revolution....I will be there with both feet....ready and willing....
Yep, you, me and whole lot of other hard working savers
What next ? - mad max, water world ???
http://finance.yahoo.com/banking-budgeting/article/108901/death-of-ameri...
Based on Jan durables data, it looks like a lot of bankers are preparing to depart in their private aircraft.
http://www.marketwatch.com/story/durable-goods-orders-surge-3-on-airplanes-2010-02-25
"The implementation of a near zero interest rate policy is just another component of emergency measures used to cure a systemic bank run."
I would argue that ZIRP actually causes a bank run, not cures it.
Individuals have absolutely no reason to have a bank account....
1) It is not safe....and is subject to rationing whenever the govt. or bank gets in the mood....ie Argentina...
How would you like it if you were a saver....the govt. takes away 100% of your interest income....and then keeps you from accessing your own money ?
I will leave it to your imagination for what words I am not typing here....and what signs I can form with my middle finger to this current administration of economic morons....
Central Banking has one purpose, one mantra, one creed....
INFLATE OR DIE
shucks ole ben is just plain dumb,
no premeditated malevolence to see here move along please.
palin's israeli flag lapel pin is hawt!
that homeless encampment down the road is gone.
i wonder what happened to those folks?
you might think they were worthless parasites
but the organ traders see it a bit differently.
plus now we can use that land to grow us some green shoots.
Good Linux hosting option package offered by ucvhost which not only provides the best in terms of hosting packages but also believes in truly being there for the customer, 24x7. cheap vps Moreover , they offer unlimited bandwidth as well as nearly 1GB storage along with database maintenance, email facility along with storage, availability of sub domain and many other important features for a very low price. ucvhost thanks