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Gold, The Debt Ceiling, And The Fed
Submitted by Alasdair Macleod via GoldMoney.com,
We are now into a second week of a partial Federal Government shut-down, which is causing considerable concern, centred on the Government’s ability to finance its debt and pay interest without a budget agreed for the new fiscal year. Should this continue into next week and beyond, the Fed will have to enter damage-limitation mode if the Treasury cannot issue any more bonds because of the separate problem of the debt ceiling.
Most likely, QE will have to be switched from financing the government to buying Treasuries already owned by the private sector. Any attempt to reduce the monthly addition of raw money will simply result in bond yields and then interest rates rising. And indeed, already this week we have seen yields on short-term T-bills rise in anticipation of a possible default. The market is naturally beginning to discount the possibility that the Fed may not be able to control the situation.
The T-bill issue is very serious, because they are the most liquid collateral for the $70 trillion shadow banking system. And without the liquidity they provide securities and derivative markets, we can say that Round Two of the banking crisis could make Lehman look like a picnic in the park.
This is the sort of event deflationists have long been expecting. According to their analysis there comes a point where debt liquidation is triggered and there is a dash for cash as assets collapse. But they reckon without allowing for the fact that deposits can only be encashed at the margin; otherwise they are merely transferred, and only destroyed when banks go under. This is the risk the Fed anticipates, and we can be certain it will move heaven and earth to avoid bank insolvencies.
Furthermore the deflationists do not have a satisfactory argument for the effect on currency exchange rates. Iceland went through a similar deflationary event to that risked in the US today when its banking system collapsed and the currency halved overnight. Today a dollar collapse on the back of a banking crisis would also disrupt all other fiat currencies, forcing central banks to coordinate intervention to conceal the currency effect. This leaves gold as the only true reflector of loss of confidence in the dollar and therefore all other fiat currencies.
Those worrying about deflation ignore the fact that it is the fiat currency that takes it on the chin while gold rises – every time without exception. This was even the experience of the 1930s, when Roosevelt suspended convertibility, increased the price of gold by 40% to $35 per ounce, and the banking crisis was contained.
Of course there is likely to be some short-term uncertainty; but against the Fiat Money Quantity (FMQ) gold is down 30% compared with the price pre-Lehman crisis. This is shown in the chart below.
With gold at an extreme low in valuation terms, current events, whichever way they go, seem unlikely to drive it much lower. A wise man perhaps should copy the Asians, who know a thing or two about paper currencies, and are buying gold in ever-increasing quantities.
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A wise man perhaps should copy the Asians, who know a thing or two about paper currencies, and are buying gold in ever-increasing quantities.
got that, round eye?
That's fine advice, but people also need to be prepared to wait with Asian-level patience for the value to increase. The fiat masters will play the gold suppression game to the bitter end, which hopefully is sooner rather than later, but I've been impressed by how much they've deferred gold's gains in the past five years.
One picture: All you need to know about where gold is now, and where it's going:
http://1.bp.blogspot.com/-kduO1y2M_hU/UlTt1rwVtTI/AAAAAAAAXkA/1uSfZg_A7n8/s1600/debt+vs+gold.png
maybe we'll repeat late 08 - early 09
@ Seek:
Someone recently asked me my thoughts on things, and my reply was in essence, that I've given up trying to assign a date to D-Day, because I'm consistently amazed at TPTB's ability to keep pulling rabbits out of the hat.
Looking at the last 5 years, one of the more disturbing trends I've noticed, is that "BIG events" are happening with much greater frequency.
They can keep drowning the world in Fiat...and deal with the consequences.
The term Vehicle 'Accident' infers that there is no blame, that's why 'Collision' is now used. Likewise, your choice of terms, "pulling rabbits out of the hat" does not link-in to any future consequence brought about from putting off the inevitable, worse yet, making it more severe. Although I'm sure you're well aware of this fact.
I'd prefer the sentence to read: "I'm consistently amazed at TPTB's capacity to increase future devastation with every delay, and the selfish destruction of future opportunity to heal in a more timely manner".
Let's face it, that's what they're doing, isn't it?! They are condemning existing and future generations to more and more severe conditions so that they maintain their status quo today.
This is the mind of the BIS-Greenspan (expand that Greenback).
TSP
http://twoshortplanksunplugged.blogspot.com.au/2013/05/gold-nwo-elitesthe-gamethe-ambush.html
SNAP card glitch, no debt/budget talks...
Buy gold & more ammo. Have 3 months of CA$H at home.
Fishez!
I'd add "3 months of booze" to your list, but I'd have to take out a second mortgage to buy that much at once.
Those fiat notes can get you large quantities of good booze at Costco these days. There's very decent tequila, vodka, rum and wiskey bottled under the Kirkland label to be had for those green pieces of paper - go get you some!
The first few glasses should be good, the rest can be lower end.
They'll find the cash to crash gold before the open each day even if the devil himself is prancing through DC (I mean the real one, not his minions that inhabit the place already) and the Four Horsemen are coming around turn four.
We're so lucky gold has majickal properties.
It's more magical than fiat
Don't you worry, they've got a cash infusion coming!
http://www.wnd.com/2013/10/543709/?cat_orig=money
McAfee: Hackers will empty enrollees' bank accounts
Of course the hackers will be ``anonymous`` and the money will enter federal coffers...
http://www.foxnews.com/us/2013/10/11/south-dakota-ranchers-reel-after-ca...
South Dakota ranchers reel after 'catastrophic' storm leaves up to 100,000 cattle deadThe place must stink.
Drudge had a story today about how the bankers are warning about the end of the world if .gov doesn't raise the free shit for bankers ceiling. I was encouraged by the comments. There were the predictable shills blaming the respective teams, but the large majority were calling out the bankers as the problem. Makes me think maybe people are starting to get it.
I'd say people have never been more aware of the real crooks, than probably at any time in history. I'm actually quite hopeful about the whole thing. I mean, things may get really rough, but at some point maybe we won't just keep putting these same people in charge anymore.
It aint easy,
Do you really think that 'we' are putting 'these people' in charge? I beg to differ!
I agree with Eddbie. Change will not come voluntarily. It will arrive with chaos and uncertainty and later violence. We have never been smart enough to avoid conflict.
If people are truly becoming aware, then prepare for WWIII and a new holocaust. They will burn the entire planet and all of its resources before they give up control. Believe it.
Although the weak hands have probably mostly sold off, I can't help wondering what bargains there will be when the true dash-for-cash period begins.
"Gold is an insurance" - Antal Fakete.
Very good insurance. Almost as good as having some extra bearings around...
Want to hear a true story? In 1974 civil war Broke out in Mozambique (Africa). People lost their deposits and cash, luckily my parents and some other people crossed the South African border with gold bullion. Guess how liquid gold became back then?if only any of you had this experience in person. Now, have a good evening.
Very believable story, we all have read about European refugees crossing borders easier with some gold.
If I were crossing a border, I would try to have my gold in two places though... And bribe the Border Guards with the smaller stash.
Guys, I had to share this video (Antal Fakete). Listen to this man's words of wisdom :)
http://www.youtube.com/watch?v=b7S0zPNxRzE
He is from the Austrian School of Economic thought :)
Enjoy, 30 minutes of bliss.
Thanks - good interview, although the people interviewing him had some fairly clueless questions (i.e. about the Romains INCREASING the gold content of their coins - which he quickly said they got backwards).
That part was funny.
The problem with gold right now is if the government shutdown continues and a default is triggered, that is very deflationary. Paradoxically, the best investment for that would be to grab as much 30-year debt as possible.
That assumes the goodwill value of the dollar remains constant. *cough* Amero *cough*
That's been my view most of the year. Fed crushed me mid season tho. I wanna call this debt thing total insanity but quite honestly I think if the important folks didn't see this coming then that's because they've been eating out too much. If that dollar tanks the value of the Utica shale will simply soar beyond belief. Will Texas become an independent State? Will the Pacific Northwest start building a private NASA? Will Chicago be menaced by a "Detroit"? I was in DC one time "when something happened." It was quite exciting actually...but that was bush league compared to this. This thing is the Super Bowl of politics...all sides have made their presence known...everybody is all in. I think anyone who says they know how this will play out isn't paying attention. SoS Kerry did a spectacular job in Afghanistan this week btw. Two thumbs up yet again for the best military top to bottom in US history. This war will never end...but we do what we do until everyone is home. I hate to say "they know the drill" because no one "drills" for this...but what is the saying about "the absence of something" proving that the "something" exists? And no I'm not talking intelligence. Then again maybe I am...
The best investment to protect yourself against debt default is to purchase more debt?
You're as insane as one can be. When the real deflation comes I will be holding money. I hope for your own sake you're not holding toilet paper in any of its flavours (T-Bill, FRN...).
Probably, but only if you are planning to sell it (comparatively) shortly after that and not holding it to maturity.
So basically, you are looking for the next (rebound) short living bubble, and surely good luck with that.
But if you are panning to preserve (your) wealth for the next 10-20 years, the least place to look will be in debt paper issued by a place with history of, 40 years, debt accumulation and monetary base inflation.
Hard assets, not baring much cost or even bringing some stable income will be your best choice. But again, it seems, that lately such assets are getting in a short supply, and this is definitely not a coincidence.
crap and i just bought a dozen of them @ 50c on the dollar
The value of the amt of above ground gold is near an extreme level compared to the US monetary base (MB).
https://imageshack.us/a/img580/4883/03xx.png
Red lines are the MB (BASE and AMBSL they cover different time periods).
Gold line is the approx dollar value of above ground gold; the gold supply is assumed to increase at 1.7% per year.
Green line is M2, so you can see the price of gold is not cheap relative to M2. However, I think the valid comparison of gold is to the MB.
The MB and M2 were shifted so that they have the same ending point as the gold value, as of 10-11-2013 (yesterday).
In the late 60's to early 70's, and in 2001, right before gold took off to the upside, gold was a little cheaper vs the MB, but not by much.
Does the Fed actually HAVE the power to "move heaven and earth"?? HAARP is a lot more powerful than I had previously imagined.
Conversely, raw mathematics, as expressed by actual objects of power like neutron stars and solar flares, most certainly does have the upper hand when discussing Who can move celestial bodies. And the Fed cannot run from the laws of mathematics forever.
Ron Paul About Banking Lobby, Liberty And School of Revolution.
Is there any Liberty in America left at all? Judging by the Top Brass politicians' moronic talk we have no hope left, listening to Ron Paul there is some light out there.http://sufiy.blogspot.co.uk/2013/10/ron-paul-about-banking-lobby-liberty.html#
Peter Schiff: Gold - Out with the Debt Ceiling, in with the Debt Target!
"This circus is getting more hilarious by the day if it was not so tragic. Chinese are not lost in translation this time and whatever President Obama dreams about Debt and how it is not increasing with the increasing Debt Ceiling, they are just buying Gold."
Back Into The Future. ZeroHedge: Ron Paul Redux: "The End Of Dollar Hegemony" - The Roadmap.
"General Bernanke was fighting US Dollar debasing it for long seven years and now is more ammunition to come with Janet Yellen in charge at the FED. Ron Paul's speech from 2006 is the true classics now. He effortlessly connects all the dots with FED, US Dollar, Gold, FIAT currencies, Oil and War. Now we have the luxury to see and appreciate his knowledge and wisdom through the prism of time and latest events in the markets and geopolitics.Spend some time and educate yourself - you will get the best sense of the future by knowing the past."
Let this thing burn.................it's way past due.
Isn't it funny how a few weeks ago there was so much chatter about MaGuire and his "evidence" and how he would definitely come out and say "something" once the CFTC dropped the ball on Ag manipulation. Funny how Von Greyerz claimed Sept would be a great month for PMs and Faber said in May how the market would crash this summer. And how many times has Santa said that gold's going to 3500 only to have it get smashed again within days.
Funny how no one know what the hell is going on.
What's not so funny is that you can't even trust the people who agree with you at this point. And that's probably how the evil bastards (CFTC, Fed, IMF, BIS, Bullion Banksters) planned it.
Through the IRS, gold price supression and other means the Obama administrtion has the liberty movent, tea party, etc and any potential sympathizers on their back with both his hands around their neck. This is politics chicago style and whitey you better get on board. If you think these guys are going to let you escape with your gold hoard unscathed then things are going to get far, far worse for you.
' This is the risk the Fed anticipates, and we can be certain it will move heaven and earth to avoid bank insolvencies.'
I'm not so sure about that. Maybe the fed wants these 'suckers to go down'. Like the big fish eating the little ones. And anyway, they will figure out a way to use this and any other crisis to their advantage, they may even be the culprit for this one.
It was and is the war in Afgan-land that literally broke the back of the budget of the United States.How can you win a war against a plant?You can't,and the locals know that you'll go broke being there.That's if they can find a way to keep you there.The longer the better because they all know that they can win a long economic war against an enemy.Just ask the Russians,Brits,Greeks,Persians,Romans.Nobody ever won their war there.They all lost.Every one of them.Their plants won against all the armies.
We can only hope this game of chicken ends with a default. We should be so lucky. Gold holders will wake up and laugh their socks off.
The US is broke. Now let's make it official.
The powers of financial capitalism had [a] far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations.
quigley tradgedy and hope
What evidence do you have for stating that Gold is at extreme low valuations? In terms of what? Every asset class is due for a major correction. And Gold is no exception. However, in terms of value against all other values, gold will be one of the best to hold and probably the safest bet, but it won’t be the best. I am not getting rid of all my dollars. Keep in mind that both inflation and deflation are always at work. With all this unprecedented money printing, the real rate of inflation is still far too low for me to think that inflation is winning. It is not. And gold is telling us so. Ask yourself what the difference is between what is going on now and what happened to the Weimer Republic, Argentina Peru and the Chinese for that matter.
618
No...gold is different and it will be the thing all other assets are devalued against. It will be the very best thing to hold. What is different is a 400 year suppression of physical gold by a variety of derivatives (including gold backed currencies) is ending. We will see gold at prices you will not believe.
del
The 'price of gold' is determined by a complex mix of action in the Forex, derivatives and futures markets. The actual sale of physical gold has almost zero affect on the 'price of gold'. A failure in one of these markets will mean a return to a true physical only market. This will allow us to see the true price of gold in an already hyperinflated currency and it's true value.