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Guest Post: Why We Face Ruin

Tyler Durden's picture




 

Originally posted at The World Complex blog,

A nice compendium of UK economic data has recently appeared (h/t NESS). You are encouraged to download data sets for your own nefarious purposes.

As an example, I have decided to plot UK unemployment rate against the measure of confidence I proposed on these pages a couple of years ago. To recap, the confidence ratio is the ratio of outstanding public debt (in dollars) to the dollar value of the country's gold holdings. I chose "confidence" as presumably this ratio can only be high for a country in which investors have great confidence. For those of a different mindset, it can be viewed as a measure of a country's ruin (although it would be better to include other foreign currency reserves).
 

UK unemployment data from the site mentioned above. UK debt came from google public data. UK gold holdings came from the data sets available from the World Gold Council. To find the dollar value of gold holdings, I used averaged annual prices available at Kitco. Average conversion rate of GBP to USD available here (although I don't remember where I got it for the original posting, which was up to 2011).

That is a good-looking example of negative correlation. It tells us that the unemployment falls when the confidence ratio is high. Now, there are three ways for a government to increase that confidence ratio:

1) increase debt

 

2) sell off gold

 

3) pray for the price of gold to fall (obviously in a non-manipulative manner that doesn't direct profits to favoured entities).

The fall in confidence that we observed in the latter half of the last decade was entirely due to the rising price of gold. Look at what that did to the unemployment rate! Clearly the fault of gold-bugs and conspiracy theorists. The rising price of gold completely overrode the excellent work of the British Parliament in driving up the country's debt. As for Gordon Brown, he was a hero! His only flaw was in not going far enough. If he had sold all the UK's gold, imagine how low unemployment would be today!

This wouldn't be a post on the World Complex if we didn't do some kind of state space portrait, so here it is: unemployment rate vs. confidence ratio.

Policy decisions of British Parliament and their impact on unemployment can be followed from the above chart. Clearly the government in the 1970s laboured under the delusion that reducing debts would benefit the economy(1). They were rewarded for their imprudence by spiking unemployment in the early 1980s.

By the mid-1990s, they had discovered the golden ticket. With the rising confidence ratio, the UK was rewarded with a falling unemployment rate. Then came Gordon Brown's heroics--by aggressively selling gold he caused the confidence ratio to fall and the UK was showered with new jobs!

There was a small crisis in the latter part of the last decade. But since then--clearly back on track. If the forward evolution of the system follows a similar catenary to the period 1993-2005, then a mere quadrupling of the confidence ratio will restore the unemployment rate to about 6%. The most prudent way to achieve this would be to immediately sell off 75% of Britain's remaining gold (2).

I find this approach to finances inspiring, and am willing to give it a try. Here at The World Complex, the unemployment rate is unusually high (technically I am welcome to go to the office, but the treasury is empty). Looking at my finances, I see the problem--I have very little debt and high savings (although much lower than they were two years ago, thanks to the ongoing turmoil in the junior mining market). To rectify this oversight, I will be issuing bonds. For reasons of fiscal prudence, I will try to keep my confidence ratio below 100, and will begin an auction for $25 million in debt next Thursday (3). No cheap google ad payouts here!

Notes:

(1) the rising price of gold may have had something to do with this. But this proves my point! Rising gold price = rising unemployment, you naughty gold bugs.

(2) in my opinion it would be too difficult to drive the gold price back down to $300/oz.

(3) securities officers and other sarcastically challenged individuals take note--this is intended as sarcasm. Your participation is welcome.

 

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Tue, 10/22/2013 - 10:29 | 4079331 SheepDog-One
SheepDog-One's picture

Sure, we 'face ruin' and whatnot, but NOT TODAY! Never today...no, it's yet another day at the endless all-you-can-eat buffet!

Tue, 10/22/2013 - 10:52 | 4079343 hedgeless_horseman
hedgeless_horseman's picture

 

 

The most prudent way to achieve this would be to immediately sell off 75% of Britain's remaining gold.

 

lol 

He said, "Britain's."

It is not the gold you need to check, old lady, it is The Ledger.  Those evil men are pulling a classic con on that old woman known as The Warehouse.  It is an early version of today's biggest, most popular, con known as Fractional Reserve Banking, as well as a related con called Rehypothecation.

Tue, 10/22/2013 - 11:41 | 4079613 bank guy in Brussels
bank guy in Brussels's picture

That chap behind Queen Elizabeth II is really enjoying himself, with what could be taken as a quite evil grin ...

Is he laughing at the pleasure of deceiving his Queen, as well as the public, with a 'painted golden brick' scam?

---

Each of those alleged London 'good delivery' 400 troy ounce gold bars would weigh about 12.4 kilogrammes (that's about 27.4 'pounds' for you Yanks out there)

Each vertical column there, would thus be at least over half a metric tonne all by itself ...

Can those blue metal shelves from Ikea, really handle all that weight?

Hmmm ...

Tue, 10/22/2013 - 12:19 | 4079737 Cangaroo.TNT
Cangaroo.TNT's picture

Realistically, assuming they are manufactured from common carbon steel shapes, the answer is "yes".  Just an FYI.

Tue, 10/22/2013 - 12:59 | 4079847 fourchan
fourchan's picture
dont be fooled. 
this situation is the system called the fed reserve. 
the system is working perfectly. 
the system has taken 100 years to bring the only uncontrolled nation to its knees. 

the system is, if you haven't seen it yet. 

to enslave a free people to debt with paper created out of thin air, 
and capture all productive assets through boom and bust cycles the system creates.

Tue, 10/22/2013 - 14:00 | 4080039 akak
akak's picture

I have always wondered if Queen Elizabeth shops at thrift stores, as I don't know anywhere else where one could stil find those hip 1960s-era clothes that she so adores.  Especially those hats.  THOSE HATS!!!

Every time I see a photo of her, I subconsciously smell mothballs.

Tue, 10/22/2013 - 11:39 | 4079605 wagthetails
wagthetails's picture

free beer tomorrow

Tue, 10/22/2013 - 10:31 | 4079335 Dr. Engali
Dr. Engali's picture

I have that bottom chart hanging on my refrigerator. My daughter drew it for me. She said it was a duck...I don't see it.

Tue, 10/22/2013 - 10:33 | 4079353 Sudden Debt
Sudden Debt's picture

IT'S FUKUSHIMA DUCK!

Tue, 10/22/2013 - 13:51 | 4080013 Theosebes Goodfellow
Theosebes Goodfellow's picture

I don't know if it's a Fukushima duck or not, but having used, (long ago), my fridge for the purpose of displaying my daughter's art, let me state this truism that has stuck with me over the years.

"If children ruled the world, the Louvre would be full of refrigerators."

Cherish the moment, Dr. E.

Tue, 10/22/2013 - 10:30 | 4079338 Ralph Spoilsport
Ralph Spoilsport's picture

A hermit crab with a Sharpie shoved up its ass could make better graphs than this.

Tue, 10/22/2013 - 13:54 | 4080023 Theosebes Goodfellow
Theosebes Goodfellow's picture

+1 simply for the hermit crab with sharpie mental visual.

Tue, 10/22/2013 - 10:30 | 4079341 SheepDog-One
SheepDog-One's picture

That bottom chart....dog peeing on fire hydrant?

Tue, 10/22/2013 - 10:31 | 4079345 Sudden Debt
Sudden Debt's picture

THANK GOD THERE'S ALWAYS A PLAN B!!!

....

there is a plan B right?

Tue, 10/22/2013 - 10:33 | 4079354 SheepDog-One
SheepDog-One's picture

We're drawing it up right now...we got Prince Bandhar on the horn with Kerry right now.

Tue, 10/22/2013 - 10:38 | 4079368 prains
prains's picture

yes, they're picking who is next to get the flaming mercedes

Tue, 10/22/2013 - 10:42 | 4079385 Hulk
Hulk's picture

Yep, there is a plan "B", its called aBandon Fiat, aBandon Fiat...

Tue, 10/22/2013 - 10:32 | 4079351 SheepDog-One
SheepDog-One's picture

'I think it would be too difficult to drive gold down to $300'.....so then $350 isn't out of the question? 

Tue, 10/22/2013 - 10:40 | 4079373 Stoploss
Stoploss's picture

Any idea what the Saudi's will blow up next??

Tue, 10/22/2013 - 10:58 | 4079448 Seasmoke
Seasmoke's picture

I keep having dreams of bridges or tunnels. So I will go with that. 

Tue, 10/22/2013 - 11:52 | 4079643 Widowmaker
Widowmaker's picture

Yet Americans are too fucking stupid to connect the House of Saud Fraud to 9-11.

Dripping with royalty.

Tue, 10/22/2013 - 13:57 | 4080033 Theosebes Goodfellow
Theosebes Goodfellow's picture

The U.S. Dollar by the sound of it, or at least according to the J Post.

http://www.jpost.com/Middle-East/Saudi-spy-chief-says-Riyadh-to-shift-aw...

 

Tue, 10/22/2013 - 10:47 | 4079398 falak pema
falak pema's picture

One thing I have felt about gold bugging is what you just highlight : the higher the price of gold (rentier economy) the higher the unemployment rate (social well being economy neg correlation).

That in itself is a reason for introducing Keynesian logic since its inception post 1929 when we hit the same hubristic sand bank. The key in any social science which does not follow deterministic logic is to keep it within reasonable limits. We lost that notion of reasonable limits since 1971 when American hubris, all bent on MIC spending and great society, pulled the plug on BW system chanting : our money your problem; cos we are top dog and debt in $ is in fact an asset for us as you hold the bag.

And they pumped and they pumped and they dumped debt on everyone. NWO and Soviet collapse made that hubris spike sky hi.

Now we pay, and the rentiers say lets go back to deflation and gold!

And lets not tax my capital gains all won on sleight of hand for thirty years. So, no moral hazard acknowledgment on their part for their own acts.

Fukk, these assholes raped the social classes on the ramp up of Reaganomics age, now they want to rape them again on the ramp down.

I ain't no commie but I do know how to count! 

Tue, 10/22/2013 - 10:50 | 4079418 Antifederalist
Antifederalist's picture

Goldman:  "once the debt deal is done gold is a "slam dunk sell".   Au price: $1,275.  Date: Oct. 15, 2013.

Now,

Extension done, Au price: $1,340.  Date:  October 22, 2013.

So, if you followed the "slam dunk" sell reco you are down 5% in one week.

Nice job Goldman.  How much did your prop desk buy last week?

Criminals.  

Lloyd, if you want to know why you are not going to feel safe in your new $44mm house in the Hamptons, re-read the above.   The people of this country are pretty well fed up with this shit.

 

Tue, 10/22/2013 - 10:55 | 4079440 Seasmoke
Seasmoke's picture

< Lloyd should not/ will not feel safe. 

< Lloyd should/ will feel very safe. 

Tue, 10/22/2013 - 14:01 | 4080040 RaceToTheBottom
RaceToTheBottom's picture

Muppets can:

Purchase a gun in the US.

Purchase a car in the US.

Purchase a tank of gas in the US.

Purchase a GPS in the US.

 

Muppets are like Canadians, all nice and polite, until you screw with them one time too many.  Then Canadians go postal......

 

Muppets can go postal too.  There are not enough police in the US to stop all the Muppets.

Tue, 10/22/2013 - 11:29 | 4079563 BlackVoid
BlackVoid's picture

What an idiot.

Look at North Sea oil production instead, to understand what is going on.

Other opinions on ZH are fine, but posting something totally stupid is something else. What next? Articles from CNN Money?

Tue, 10/22/2013 - 11:52 | 4079645 Atomizer
Atomizer's picture

Wash, rinse, repeat.

Tue, 10/22/2013 - 12:20 | 4079743 mdkersey
mdkersey's picture

Gold is the least useful of metals, its worth being tied only to the fascination with gold's lustre and human greed (which is not to be underrated). During times that most large investors realize this, gold behaves like any other commodity.

"Seven Reasons To Hate Gold As An Investment" 
by Eric Dutram

http://commodityhq.com/2011/seven-reasons-to-hate-gold/?utm_source=feedb...

 

Tue, 10/22/2013 - 13:26 | 4079863 akak
akak's picture

And "you can't eat it", right?

I'll give you this, Jon Nadler: if nothing else, you are at least doggedly determined in spreading your half-truths, misrepresentation and outright lies about gold. 

However, you did forget to mention (for the 13,439th time) all those mountains of scrap gold supposedly just littering the landscape as yet another reason to be pessimistic about the price prospects of the yellow metal; I suspect that your bankster paymasters are not going to be happy about that egregious oversight on your part.

 

PS: The "inflation is low" argument in the linked article is enough by itself to dismiss this piece as just another in an exceedingly long line of (implicitily pro-fiat, pro-establishment) anti-gold propaganda.

Tue, 10/22/2013 - 12:30 | 4079776 Motorhead
Motorhead's picture

Hey, now c'mon, who cares about those gold-colored paper weights sitting on shelves?  Ben S. Bernanke said it isn't money, and that guy sure knows what he is talking about.

Tue, 10/22/2013 - 13:46 | 4079881 Jack Burton
Jack Burton's picture

The UK continues to practice mass legal and illegal immigration right in the face of mass unemployment, especially youth unemployment. One wonders, when millions can't find work, WHY the UK government and the liberal groups both demand and get an Open Borders Policy for the UK.

Does Britain need millions of immigrants? Jobs are, in most cases, given to immigrants. Employers admit this. They admit to preferring foreign workers. The fact that wages are being driven down to rock bottom plays a part. But there is more to it. The education system and social system is in free fall for the bottom 50% of British youth.

In my opinion, no 1st world nation is in more trouble than the UK. They would be dead already if not for their power to print pounds. Look at the UK, they simply print money and that is how the nation survives. This can not last.

Tue, 10/22/2013 - 15:11 | 4080366 Theosebes Goodfellow
Theosebes Goodfellow's picture

Jack, I'd love to disagree. I can't. To explain just how messed up schools are in the UK one need only look at something as simple as the naming. In England a "public school" is actually a "private education venture" and "private schools" are a government-run operation.

Their "private schools", (those run by the government), are just as bad if not worse at educating children as the American public school system. Trusting the government in the education of your children to me is insanity. If in your heart you know and in your mind you grok that the government, any government, is the least efficient, least productive and most incompetent in anything it endeavors, why for heaven's sake would you entrust them with the education of what is most precious to you? Did you really think they would return you anything other than a blithering idiot spouting government propaganda drivel?

On the "open borders" issue, you have to ask cui bono? Who benefits? Large multinational corporations who get cheap labor? The guy wanting his lawn mowed? The problem isn't the fact that most often the migrant, (arriving either legally or illegally), takes jobs "nobody wants", it's that they also compete for jobs that are wanted.

The "jobs nobody wants" claim is a false one as well. Here in the South-western U.S., this claim is used to defend illegal immigration by touting the argument that no American wants to work the agricultural fields. But then again, the agribusiness growers aren't offering $100/hr to pick lettuce. Or even $25/hr. I'm sure that there are a whole lot of Americans who would glady go work the lettuce fields for $25 and hour. Growers respond that you would have to sell lettuce at $2/head to make any money. Have you priced lettuce in January? Yup, it's $2.29 a head. Cui bono?

So you have government who doesn't want its citizens educated about their constitutional rights abetting big business in supplying cheap labor. The citizen couple with children have to both work to make ends meet, (assuming that both can find work), and the latchkey children get raised by Marxist-socialist teachers and MTV. The overall culture, (driven by big-corporate interests and big-government leftists), is a society that  teaches consumerism rather that thrift, narcissism rather than service and instant gratification rather than larger delayed rewards, (and a greater sense of accomplishment), whilst the government education factories do all they can to avoid having to teach the consequences of failure. These are the reasons we face ruin.

Tommy Jefferson: "Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gains."

Pearl S. Buck: "It may be that religion is dead, and if it is, we had better know it and set ourselves to try to discover other sources of moral strength before it is too late."

 

 

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