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Things That Make You Go Hmmm - Such As Pavlovian Markets
From Grant Williams, author of Things that Make You Go Hmmm
The list of governments that are, essentially, bankrupt is a veritable who’s who and yet, in a conditioned world where people flee to traditional safe havens on instinct alone, they are able to borrow money at ridiculously low rates - seemingly in spite of their policies.
Mark my words; like Japanese real estate in the 1980s, technology stocks in the 1990s, and US housing in the 2000s—hell, like tulips in the 1630s and every bubble in-between—this one will burst, only when it DOES, it will be unlike any bubble we have ever seen before because it will simultaneously remove all the backstops to the world financial system upon whose largesse the recent ‘recovery’ has been built. When that happens, where are the herd going to run to?
There is, of course, one monetary asset which cannot be printed at will by feckless governments and which has performed its role as a ‘safe’ store of wealth in troubled times throughout the centuries stoically and without fanfareand that, of course, is gold. But currently, as Pavlovian conditioning trumps intellectual reasoning and investors stampede into the burning building of government debt, gold has become somewhat unloved—a ‘trading vehicle’ tossed around by an investment community looking for an anchor in today’s stormy seas. Consequently, gold has been a victim of the Pavlovian rush and has acted rather strangely on ‘panic’ days.
At some point—and I suspect that point will arrive sooner rather than later—intellectual reasoning will overcome Pavlovian conditioning and the same people who poured trillions into the debt of bankrupt and irresponsible governments will realise the folly of their instincts and they will go looking for a real safehaven asset. When they do, they will find that, unlike government debt which, like a gas, can expand to meet any demand, trying to hide trillions of dollars in a real asset such as gold (or farmland) will prove to be singularly difficult.
Those overcoming their Pavlovian conditioning and allowing intellectual reasoning to win out first, will find themselves at a tremendous advantage once reality is forced upon the masses.
That day is rapidly approaching.
Full report:
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Bond vigilantes = margin calls & bank runs = credit collapse = massive deflation
It would probably mean a bank holiday and a new currency to try and get confidence back in the system.
Or Lots and Lots of Money printing. The Gov't isn't going to hard default on its debt obligations. Its just going to print, as it has since 2008. Remember the Primary Dealer carry trade: Borrow from the Fed to buy short term US Gov't bonds.
*Since 1913.
Don't forget the Vice President of the United States of America Joe Biden warned that we *almost* had a "bank holiday" shortly after Obama was elected.
That was the plan 4 years ago. It is likely that the plan hasn't changed.
This is money-losing nonsense as can
be spotted in this single line:
-> Fear -> Equities -> Sell
It must read "Buy", surely!
OR continuing on...
-> deflation -> massive money printing -> ? ? ?
Europe isn't fully on board the Bernank's idea of printing at will to try and tight rope walk between inflation / hyper-inflation on one side and deflation / massive deflation on the other. But they may change their minds as they teeter on the edge of the cliff and see the Bernank seemingly to have found a way out, or at least to have found a better alternative than a financial system default NOW.
But I don't think they (US & Japan etc.) can keep it up forever. The winds are picking up, the rope is fraying and the stress of not making a misstep is building even as the canyon is getting deeper and deeper.
and there really is no "other side" / safe exit. The game stretches to infinity. The only exit is a reset triggered by a fall.
If only this were a video game where you could just push a button to start your next life, or put in another quarter.
> "If only this were a video game where you could just push a button to start your next life, or put in another quarter."
It's really just a matter of choice and effort. You can start your 'next life' anytime you want.
No... seriously. People all over this country are doing it right now. You can too.
"It's just a ride."
- Hicks
Not to thread jack or anything, but could one of you bond folks answer a question for me that has been bugging me a while (basic principals) ...
I understand that the "price" of a bond goes down when yeilds go up. I can get my head around that (i.e. price is a function of the total of principal plus yield).
Is the "loss" refered to in the TTMYGH "price"? I am being kind of literal and seeing the principal not given back at all, which I think is not the case.
Just looking for a confirmation ...
Thanks!
Cooter
I'm not a "bond guy" and am not 100% sure I know what you mean when you say "Is the "loss" refered to in the TTMYGH "price"?", but I think I do & will therefore take a stab at it. Please disregard if I misunderstood you.
If someone holds a bond to maturity, and the issuer doesn't default, there is no literal loss to the principal or interest. It's a lot like real estate or stock prices going up and down. If you don't sell, it's a "paper losss" or "paper profit". It's the current market value of the asset, theoretically what you could get for it if you sold it at that particular point in time.
If interest rates shot up into double digits and someone had a bond paying 3% that didn't mature for 30 years they would have a very large paper loss, and a very large opportunity cost by being locked into that bond for that long. If they had to sell it they would take a literal, "real" loss as well.
I would caution that even if they held it for 30 years and they collected all of their principal and interest, their "profit", though it might be taxable, could still be a loss in real terms. If they had salted away enough for their future grand children to buy a home, if inflation had reared its ugly head they might find that their principal and interest would no longer be able to buy a similar home to what it could have purchased 30 years ago. In a severe case, it might not even buy a meal at McDonalds, despite owing income tax on their "profits".
Yup, that nailed it. I suspected this, but I often found the language used on this subject sort of subjective and/or contradictory so I was never sure and wanted to ask.
Thanks!
Cooter
It's just a ride, and some are undoubtedly safer &/or more fun than others, but they're all still in the same amusement park.
Unfortunately, I think we may be in the Halloween House of Horrors season, and some rides that appear appealing now may not be as much fun as we thought after we get into the new ride for awhile.
I think the park has also been struggling financially and has put off the necessary safety maintenance, and has been bribing inspectors to look the other way for years. Some of the rides may not be as safe as we thought either.
And it's run by criminals and their cohorts.
Credit collapse = deflation because of the extreme size of the current global credit bubble and the rapidity with which it can collapse.
If the size of a particular credit bubble is small or moderate, and gradual, then its collapse can be matched (neutral) or outpaced (inflation) by CB printing.
But the size of the current global credit bubble is in the hundreds of trillions of USD. That is many orders of magnitude past anything the The Fed/UST can print. These days a a one or two trillion USD print is a big deal, and the Fed/UST can't get much over that before the power of the bond market (via UST yeilds) will put the brakes on. If it ignored bond market pressure, the the treasury would be absolutely bankrupt through USD devaluation long before it could print anything close to enough to match a global credit collapse.
Not only does the size of the global ponzi dwarf the power of the fed many, many times over, it has the potential to collapse within a very short time, even days or even hours, as was demonstrated by after the Lehman collapse. The Fed/UST might be able to come up with a trillion or two in a few hours, but not - even if could and wanted to - 10, 20, 50, or 100 trillion in a few hours.
The size and rapidity of a global credit would far outpace printing, and therefore the current global money supply, of which the USD is still the reserve (and which includes trillions of ponzi credit bubble hypothecated and rehypothecated derivative and other layers of empty leveraged promises with no real-world value or collateral, not to mention real-estate bubbles, and consumer driven bubbles of all kinds) will collapse. A collapse in the money supply is the root definition of deflation.
When the house of trillion and trillions of empty bubble money collapses, only the (much, much smaller) pool of actual money remains. That is deflation. With a much smaller pool of money available, and no credit available to borrow or "grow" more, each unit of money, USD, in this case is worth much much more.
(And with each unit of money being worth more, and much less money going around, nominal prices for almost everything do decrease as a consequence. But lower nominal prices do not indicated affordability. To the 99.99%, these lower nominal prices will be much much more expensive).
"But the size of the current global credit bubble is in the hundreds of trillions of USD. That is many orders of magnitude past anything the The Fed/UST can print."
I disagree. The Fed is just getting warmed up with money printing. The Fed can print trillions in a second with electronic transactions. physical money does take a lot longer. but the Fed already has a few trillion in printed FRNs sitting in vaults. And is fairly easy to create new FRN with much much higher denominations.
The US gov't (and many states and local gov'ts) are insolvant. There are one two choices: Hard default or Print. A hard default would cause the US currency to become worthless in a few weeks or a few months time. A soft default (debt monertization), can stretch a default over years. I am betting on a soft default since politicans very much perfer to kick the can down the road and avoid any really hard decisions that would get them booted out of office (if they are lucky, prision or guiltine if they are unlucky -aka reign of terror)
" With a much smaller pool of money available, and no credit available to borrow or "grow" more, each unit of money, USD, in this case is worth much much more."
Only if the currency is backed by something. In a deflationary cycle, gov't revenues tumble. The gov't would quickly be unable to pay its debt obligations and meets its payroll. First to go will be local gov'ts, followed by state gov'ts, then the federal gov't. The whole gov't will collapse in short order and the dollar will be come worthless. FRNs are backed only by the faith in Fed. Gov't. See what happened to the Russia Ruble during the collapse of the Soviet Union. A Couple of months before the collapse, 2000 Rubles bought a weeks vacation at a fancy resort. After the collapse, 2000 Rubles couldn't buy a loaf of bread.
The only think that the US has going for it now, is that focus on financial issues is overseas. The EU is headed for a collapse, probably followed by a crisis in Asia, than the collapse will come to North America. These are extremely dangerous times. The last era that faced a global finance crisis, set off a couple of world wars, and this time it will not be different.
Supposedly the $100 bill is the largest denomination they've printed in quite awhile.
Large Denominations US Currency
I could see them changing that in a hig to hyper-inflationary environment, but they might see it as their opportunity to be phasing out physical currency.
Mark of the Beast and all. ;)
U.S. CURRENCY MICROCHIP: THE REAL REASON
The government's form or even it's survival is not the bottom line driver of financial policy. The root driver is the profit/power motive of the financial elite. Their wealth/power is stored and operations are run via a global reserve currency, which is - still - the USD. Global credit/indebtedness is - still - denominated in USD, so the global elite (loan sharks) are owed trillions and trillions of USD. Commerce is - still - lubricated by USD. As long as it is to the to the advantage of greed and power to keep the USD a reserve currency, it will not be allowed to be devalued significantly by printing.
Also, as mentioned in my post, as long as the USD is the reserve currency, any printing above a certain level will incur bond market counter-pressure. IE: if the USD value descended significantly, UST yields would rise beyond the Fed's control, and that would bankrupt the US government in no time. So massive USD printing - in the 10's or trillions, not the .5 or 1 trillion done these days - would, rather than prolonging US go government survival, result in it's rapid collapse, which - at least in it's money printing function - will not be permitted.
And I agree that in a deflationary collapse, government revenues fall, and - if status quo thinking persists - many, many governement services and obligations will be abandoned, except tax collection, policing/military, and the UST/Fed. Like in the great depression in the us, people were just left on their own to make it or not.
Your example of 2000 rubles buying barely a loaf of bread after the collapse is an example of a devaluation of the ruble. That is s part of a hyperinflationary (a la weimar or zimbabwe) collapse. In a deflationary collapse, each unit of any currency that holds value, will see its value increase tremendously. So, to use the your example, the vacation would now cost 500 (a smaller nominal figure) but no one (but the .001%) will be able to afford the 500 (ie, nominal figure lower, real value higher). The 500 after collapse will seem like 5000 did before the collapse.
The key concept is currency collapse.
The Fed & other CB's can print but then currency can collapse before the required / desired amount is hit. If the intended result is currency collapse this is "fine". If the intended result is not then the printing stops early & devaluation causes market spikes (bubble) in combination with failure to pay required debts (default).
The problem is:
When credit collapses, yes, the dollar is worth more.
But this time, the DOLLAR IS THE CREDIT THAT WILL BE COLLAPSING.
That is the difference between the Great Depression and similar events, and sovereign debt collapse. A dollar is a claim on wealth, and when the country backing that claim is in collapse, it doesn't take long for faith in that country's currency to collapse as well. Its just that we are so accustomed to the USD as the reserve currency. We think that it will be the ultimate safe haven, but it is possible for the USD to be rejected.
The end of the USD as reserve currency can also happen in a short amount of time. Printing is not necessarily required, since the printing has already taken place. It is simply a rejection of the ALREADY PRINTED dollars by the rest of the world (and/or U.S. citizens) which triggers the collapse.
We would still be in a deflationary environment, but the dollar would not be money. The dollar would be in an inflationary spiral as people offload fiat in exchange for REAL hard assets and REAL money. This means that we would, as you say, be in a deflation. But the dollar will not be your lifeline. Real money will be. I see the "tsunami" effect that many describe, where deflation occurs quickly and only momentarily, like the tide pulling way way out just before a tsunami hits. When everyone is walking out to see the receding tide is when you should be going the other way. Likewise, when everyone is running into the dollar will be the point where the smart will be getting out of it. Personally, I don't trust myself to time it, so I prefer to buy the real assets now, rather than hope I can buy them at the bottom in the midst of collapse. Standing there with your dollars when there's nothing left on the shelf to buy doesn't help a person much.
This FOFOA post had a good many "sides" to the inflation/hyperinflation/deflation debate that I think go beyond the basic "printing or not printing" argument.
It gave me a lot to think about, I think its worth the read (its a little long, but is worth it, IMO):
http://fofoa.blogspot.com/2012/05/inflation-or-hyperinflation.html
It seems to me that the Japanese have demonstrated that so long as no one panics (maintain confidence of the majority), it is possible to to drag this out for a long time by roughly matching the pace of asset deflation by money printing. Twenty years and counting...
What is different now is the end of cheap oil. Stagnant oil production means no growth, which makes compound interest unpayable in aggregate. It also means that the pension and SS promises that were based on an assumption of GDP growth cannot be paid as promised. It seems to me that money creation is going to have to be kept well ahead of deflation to pay off those promises (at least in nominal terms) and prevent social disorder. The Benank has made it his life mission is to do that. In his famous "Making sure 'it' doesn't happen" speech, he pointed out that the Fed's charter allows it to purchase pretty much anything as collateral; I think we should take him at his word.
Good insights and an excellent post, AustriAnnie.
We will probably see a worldwide market rally Monday on this Spanish hopium. More bailouts to follow with Italy coming soon with their hand out. A year ago Spain was touted as too big to ever be bailed out. Here they are being bailed out and markets will rocket up tomorrow. More to follow as this printing can continue for much longer than anyone believes. It's all Bullshit!
But this is just the first estimate of what it will take to bailout Spanish banks, not Spain itself.
The estimate is probably also based on much hopium and mark-to-whatever-you-can-get-away-with accounting, and they still barely have enough dry powder to pull it off.
This isn't the end of the story by a long shot. They're going to have to choose between printing and default and Germany hasn't signed off on the money printing yet. In fact, there are some indications they might be preparing for the Exit strategy themselves, and letting their former euro partners choose among their available options themselves.
I agree. I think that, after a possible first-hour rally, there will be a sell-on-the-news reaction.
You nailed it Roger.
Yes of course, that's why futures are down.
Europe's problems are now solved. They are determined to print, print and print more. Buy July spx 1500 calls. Back up the truck and plan your European vacation and pick up your new Ferrari in Italy.
I cant help looking the similiarities between inflation and greed
I cant help looking the similiarities between inflation and greed
*************
Exactly-and did people run out and borrow to the gills and buy gold or did they go crazy blow a housing bubble-
Sorry that Gold collumn is total BS.
It should read
Inflation - buy on margin
Deflation - you should have sold yesterday cause you will loose your shirt
High Growth - slight positive
Slow growth - who the hell knows - speculators will drive it up and down
Fear - of inflation buy, of deflation sell
Greed - sell. People want stocks.
Just going around insisting gold is the best investment ever and can never go down doesnt make it so. In fact most people would say that once an esoteric investment has gonr mainstream and common people (non-professional investors) claim it is a no loose investment. .. YOU HAVE BOUGHT INTO A BUBBLE!!!
It should read
Inflation - buy on margin
***************
You would have lost your ass with that strategy-
With your logic you must believe we were in deflation from 1980 to 2001-
http://bit.ly/JQHO7d
Not correct. Buy gold in deflation. In deflation, governments print and keep interest rates low. That is pure gold fertilizer. When inflation actually begins, goverments reverse the easy money and rasie interest rates and money supplies shrink. That is pure gold poisen. Deflation is good for gold. Inflation is bad for gold.
Does this look like a bubble to you!
http://www.q1publishing.com/public/images/uploads/Gold%20Percent%20of%20Assets.jpg
http://www.q1publishing.com/dispatch/737/Investing-in-Gold%3A-Why-You-Need-to-Weight-Out-the-Gold-Bull
I love gold as much as the next guy, just be aware that the govt does, too. They won't confiscate your gold this time around, they'll just pass a law to tax all sales at 50%. Game, set, match.
that would be nice. then there will be no such "sales." no "sales" no government.
that would be very nice indeed.
gov is in Catch-22.
they will power grab next.
prepare for distractions.
Exactly. We'll have a barter system gold for whatever.
+10 for the moniker.
You're alter ego thinks something like a flying, flaming boiler was magicly launched/ belched, out of the towers and into #7 bringing her down in her footprint.
Jim Rickards says the tax could be as high as 90 percent.
In whch case, the government has taxed itself into irrelevency.
In which case, let the Black Market commence!
Speed boat to the Bahamas. They'll push the Gold right out of the country. Intead of drugs coming in, it will be gold being smuggled out.
And the Administration knows it is all of us nutjobs with a closet full of AKs and ARs who are holding the gold. They know we'll move to barter and not sell our gold but instead use it to buy. I think they'll go for outright confiscation again. After George the 43rd and his ass grab and now Obama and the continued power grabbing, we seem way too close to next year being 1984.
Re. They'll push the Gold right out of the country.
100 tons went into China in April. It's coming from somewhere.
That's a typical comment from somebody who doesn't own any PMs...
it's not game-set-match.
Government tries to tax or ban tons of things & those taxes are still unpaid & goods are still traded unreported.
Plus people just flat out LEAVE bad nations. It's time to leave the USA behind forever as a failed state.
Bubble???
Gold?
I'm drooling already!
This is already happening in Europe. Greece was the first to see their yields explode. Spain is only a temporary fix, watch their bond yields explode, followed by Italy. We are already in a sovereign debt crisis.
Monday morning looks to be green, unless buy the rumor sell the news happens. Greek Elections are coming up which should bring volatility back. Spain's 0 austerity bail out pretty much guarantees the anti bail out party win in Greece.
Gold would be amazing if its price track the ES. if you expect a dip in equities over the summer it might be smart to hold off gold purchases until November.
Gold is a commodity so it is a sell in deflation.
Gold is a commodity so it is a sell in deflation.
*****************
Cash is a commodity as well-
Do you dump cash for deflation too?
The last deflation-gold was a buy-or is it going to be different this time?
In the last deflation the price of gold was pegged to the dollar so you are comparing apples to oranges.. But you are correct, dollars will go up in value in a deflation but gold will not. IMHO, the bull market in gold is over. It has had a run of over 600% since it started in 2001. It topped last summer. Gold is in a bear market.
In the last deflation the price of gold was pegged to the dollar so you are comparing apples to oranges.. But you are correct, dollars will go up in value in a deflation but gold will not.
*************
I love you people who call multi-year bull market tops-just like all the bond bears who've been getting their asses cooked shorting them-
Yes gold was locked in the last deflation-but it went up in value-measured in buying power-which is the only way to measure money-including dollars and gold miners were the best asset class to be in-bar none-
http://bit.ly/uiylsn
http://bit.ly/uHcvnt
It appears there is a group that will never 'get it' when it comes to gold.
Deflation crowd is full of these idiots. Mish and Ackerman being two exceptions on that.
It appears there is a group that will never 'get it' when it comes to gold.
Deflation crowd is full of these idiots
**************
Would you happen to be talking about me Bay?
Of course not.
just fu--ken with you Bay-good to see you still kicking asses-
If gold is in a bear market then that's a bear market with 20% rises every year and that will continue far past 2020.
That's some bear market.
Dollars are not real money.
Inside of 10 years US dollars won't be legal currency anymore.
The value of cash rises in a deflation, that is what deflation means.
In inflation (or hyperinflation, a la Zimbabwe) the value of cash deteriorates.
Look around at the 99.99%. Do you see people with ever-growing wheelbarrows of cash that can't even buy a turnip, or is cash getting harder and harder to come by? When the stock market collapsed in 1929, where did people run as fast as they could? and what was in very short supply?
As ZH's been noting many times, what are the super-wealthy, via the largest coorporations, hording now more than they have in 50+ years?
"What have the super wealthy, via the largest coorporations, been hording now more than in 50+ years?"
Tangible Assets, not cash. The Wealthy get their wealth from owning or investing in mega corporations, The bulk of there net worth is not in currency, but in stocks and businesses. The problem is that in deflation it become much harder to retain wealth in Business and Stocks. Its very likely that the Weathly will demand gov't bailouts and subsidsies to prop up their assets, which leads to money printing.
Consider that in nations that experience hyper or high inflation, the 99% of their populations were also poor. In the US during the 1970s we had stagflation, where the cost of everyone went higher, and employment declined. This was because the gov't continued to bailout the Wealthy and kept interest rates below inflation. Today we also have Stagflation since consumer prices have been rising or holding steady, while unemployment continues to increase and wages are flat to declining. By the end of the 1970's stagflation morphed into high inflation and the US was on the path to hyper-inflation. Fortunately, Volcker became head of the Fed and jacked up interest rates bringing the end to inflation. At the time, US debt to revenue wasn't very bad so that was an option. Today the gov't needs to borrow 1/3 of its revenue to keep its doors open, so a Volcker interest rate fix is off the table.
The problem with Deflation is that the gov't is already broke. If the Fed stopped printing money and permitted deflation, the tax revenues would collapse and the Fed, States, and Local gov't would default, unable to service there debt. There simply won't be enough cash available to support gov't borrowing in a deflationary cycle. Very quickly the US dollar would become worthless. So the only option on the table is to continue to print and kick the can down the road as far as they can. Sooner or later hyper-inflation will happen in the USA. Its no longer a matter of if, just when.
"If the Fed stopped printing money and permitted deflation, the tax revenues would collapse and the Fed, States, and Local gov't would default, unable to service there debt."
True, leaving many, many people to suffer and die. Most services which aren't abandoned outright would be privatized or go into a black market/barter economy. And where most institutions default and go bankrupt, a few entities rise in power and wealth. This always tends to happen in a collapse, weather hyperinflationary or deflationary.
The difference in a deflationary collapse with the USD still the reserve, is that "not enough cash" means each USD still around becomes that much more valuable. And each entity with cash becomes that much richer/more powerful. This is why deflation can be a desireable choice from the point of view of greed.
If you suspend for a moment seeing the government as trying to "rescue" the country and most of the people in it from a horrible life, and start seeing the situation through the logic of greed for concentrated money and power, you see that this is a permissible (even desirable?) direction. A direction which will tend to enrich.empower a very few while impoverishing/debt-enslaving many.
Horrifying, yes, but needs to be seen clearly so that we can better choose/create the positive.
Read this: http://theautomaticearth.com/Lifeboat/40-ways-to-lose-your-future.html
and then this: http://theautomaticearth.com/Lifeboat/how-to-build-a-lifeboat.html
"f you suspend for a moment seeing the government as trying to "rescue" the country and most of the people in it from a horrible life, and start seeing the situation through the logic of greed for concentrated money and power, you see that this is a permissible (even desirable?) direction. "
Won't Happen, here's why:
1. Since The Wealthy have most of there wealth in Businesses and other tangable assets, their wealth would fall because no one would be buying their goods and services. The wealthy will press politicians to print.
2. Elected politicans that press for austery don't get elected. The politicans that promise handouts, entitlements, etc are the ones that get elected. Politicians that vote for deflationary policies will quickly get voted out and replaced with politicans that do the opposite.
My responses to
Your #1: Yes, most/many businesses that deal in non-essentials, and many many other businesses, financial institutions, and now-wealthy individuals will go bankrupt in a deflationary depression. Some business dealing in necessities will have a stranglehold on the market and get much wealthier. And some super-wealthy entities that have positioned themselves ahead of time (as detailed above) will grow many times wealthier and more "powerful". Analogous to the crash of 1929, a few people/entities will get much richer, and most everybody else will lose everything. It happened within an matter of days/hours then, and could not be stopped, regardless of mighty intervention attemps. It can happen within hours or even minutes or even seconds now.
Your #2: A deflationary credit collapse on the the scale we seem to be facing will be way beyond the ability of any government or central bank to handle/stop/control in any way: printing, voting, or whatever. I detailed in previous comments how CB printing can't get anywhere near being able to stop the epic global ponzi bubble collapse. I've made my case for why I think the financial super-elite may actual allow/prefer/choose a deflationary collapse.
*** I do really, really recommend you check out the two links I posted in the comment above - they are in bullet point-style, so easy and quick to read. Please let me know what you think after reading those. I've appreciated the chance to hear your views. ***
Hopefully you won't mind others jumping in a bit here.
I can go along with the possibility that your conjecture that "the financial super-elite may actual allow/prefer/choose a deflationary collapse", but don't think you've adequately made your case that it is irrelevant which politicians are elected or booted because they can't possibly stop a credit collapse anyway.
I think Bernanke is on record as saying that he could always print enough to bring about some inflation. He phrased it differently, but even if he wasn't on record, I think he could certainly do so, if he had the political backing.
I think he could ramp up inflation right now if he wanted to, and that would take a lot of pressure off of creditors. I think his main concern is not letting it get out of control and throwing us into a hyper-inflationary episode. I imagine their hope right now is that they can keep inflation in the 5% or 6% range and convince people it's around 2% to 3%, and that will gradually move some homes up from underwater status. Ditto for commercial real estate, and would make things easier for those paying off other existing loans.
It's not like they have to print the equivalent of every debt out there, just enough to keep defaults below some tipping point. Rex Nutting at Marketwatch even had an article the other day claiming U.S. debt load falling at fastest pace since 1950s
As to your first link (Is that your blog?), the speculation is interesting, and it may end up being as accurate or more accurate than those of many other prognosticators, but they are speculation, nonetheless.
I'm a little skeptical of some of the assertions, such as:
5. Debt will become a millstone around people's necks and bankruptcy will no longer be possible at some point
6. In the future the consequences of unpayable debt could include indentured servitude, debtor's prison or being drummed into the military
Not to say that it won't happen, but it seems to be going out on a limb to be predicting it.
I'm also not quite on board claiming that many/most business ventures which have been granted credit are Ponzi schemes that will necessarily and inevitably crash the system. Of course, I don't know enough about the businesses they're talking about, so I won't counter claim that it is impossible.
I personally think there is a systemic problem with our debt based monetary system that has mathematical issues that will always be problematical. I think it causes similar issues to a Ponzi scheme and is a better explanation for some of our problems.
The first half of this video does a pretty good job of showing how a fractional reserve, debt based monetary system requires continual growth, much like a Ponzi scheme, or it will start to contract/collapse.
Money as Debt
"Analogous to the crash of 1929, a few people/entities will get much richer, and most everybody else will lose everything. It happened within an matter of days/hours then, and could not be stopped, regardless of mighty intervention attemps. It can happen within hours or even minutes or even seconds now."
Unlikely, It would just cause anarchy and chaos. In the 1930's 2/3 of the American Population lived on rural farms and were self-reliant. Today, less than 10% live on rural farms, and probably on 1% are self-reliant. Should deflation get a foothold, the US would quickly fall into anarchy as mob riots assume control of major cities (unable to provide for themselves and being forced to take action to survive).
"I detailed in previous comments how CB printing can't get anywhere near being able to stop the epic global ponzi bubble collapse. "
Who said that. I was talking about was the US. The US gov't will not bailout the entire world. It will play the game as long as it can keep it going with string and duct tape, When that fails (perhaps in the next year or so), then it will stop trying to support the global ponzi scheme.
"I've made my case for why I think the financial super-elite may actual allow/prefer/choose a deflationary collapse."
Not going to happen. And they don't perfer a deflationary collapse because it increases the likehood of revolution and uncertainly. They could very well lose everything if the Dollar become worthless. The Super-rich want continunity so they can keep all of their wealth and toys. The politcians will also be quickly cast of of office should they try to implement austery in the USA.
The last deflation we were on a gold trade standard until Nixon in 1971.
Gold was confiscated in 1933 and illegal for citizens, with the government buying gold from miners at $20 and then $35 while their costs fell:
http://en.wikipedia.org/wiki/Executive_Order_6102
Dome and Homestake were up sixfold and paid dividends worth more than the entire original company while the Dow plunged and did not catch up in real terms for two score/generations:
http://www.gold-eagle.com/gold_digest_08/taylor102508.html
Might explain why miners with costs now rising at 10% are flat to down.
Get rid of derivative naked shorts and credit swaps to watch bullion and maybe miners soar again.
Right now palladium and copper the only PMs Insiders are long:
http://www.cftc.gov/dea/options/other_lof.htm
Since the 0MFG Comex defaults and thefts, physical began to separate from futures.
Just look at rising American Eagle stats:
http://www.coinnews.net/2012/06/04/american-eagle-gold-silver-coin-sales-rebound-in-may-2012/
Vote before it is too late:
http://silversenator2012.blogspot.com/
its only a sell if the repo man is idling in your driveway. why would you ever light your own hair on fire, if you could sit tight and ride?
I don't think gold is primarily a commodity, and it's price movements have diverged from commodities many times.
Here's a Seeking Alpha article by Cullen Roche, not one of my favorite commenators, but he has some interesting data to share:
How Will Gold Perform During Deflation?Gold topped last summer along with the CRB. It hasn't fallen as much as some other commodities but it is following the trend down just as it did in 2008. Personally, I would buy more gold under $1000 as a hedge against a currency crisis.
I think EVERYBODY (almost) would buy gold under $1,000, but I don't think that'll ever happen sans the government outlawing & confiscating it.
The values are relative. It's a little like a couple of boats anchored in the ocean. If you see the other boat moving, you might want to consider whether your own anchor has come loose and it's your boat that is drifting.
Some of that "drop" in gold is probably a bump up in the demand for dollars as a "safe haven" Pavlovian response as mentioned in this article. But it's an illusion.
It is the dollar that is unanchored and is drifiting. I think the anchor chain broke and it's at extreme risk of moving rapidly whereever the tides and wind decide to take it.
I'm not jealous of it's moves and am not tempted to jump ship to the dollar as a better opportunity.
I bought some gold when it was around $350. At the time it was dificult to find a dealer and I didn't tell anybody about it for fear they would think I was a nut. That is when you buy ... when everyone else thinks you are crazy for doing it. That psychology has now changed. Gold is seen as a mainstream investment. I think everyone should own some and I am not saying sell what you have. Speculation is usually a bad idea. But I am saying that gold topped so I wouldn't buy more until people are shunning it again, IMHO.
It's mainstream in certain circles, and I think central banks are starting to hop on board, but I don't think it's mainstream for your average family by a longshot. At least not in the U.S.
And just how many people own gold, if it isn't some jewelry bauble blingbling thing.
I can't tell you how many people I've let caress one of my old gold coins. Many of them say they have never held such a coin before, didn't even know they exist. You then give them a little one ounce bar, and they don't have the same feeling. But they have never seen one of those in real life before either.
We're talking 2% of the public in all reality. Sure there are a couple of places offering to sell gold, but I keep seeing the places wanting to buy in the advertisements. When that flips, then I'll be using my gold to buy the farmland...
Gold is a mainstream investment!? That's a nice one!
I still argue with those few who have heard that there are people who have friends who invest in gold that it's not a completely insane idea and that maybe, just maybe, they might want to own few ounces of it. Some of them work in finance and so far they've bought nothing. That's how "mainstream" it is.
And another one: I've been telling a family member for years to buy some (any quantity, few grams, whatever). No joy! Last year I finally persuaded him to convert some of his savings into CHF (at that point it was already too late as the SNB pegged it to EUR). I'm still working to get him to buy any quantity of PMs.
Tell the family member to buy some old CHF, prferably of the 20 CHF style...those are some pretty gold coins there.
Agreed...and here's some more anecdotal evidence: I recently offered four 1921 Morgan dollars to anyone willing to pay my $100 buyin for a poker league - not one taker...not one bite. Ebay average is about $30/Morgan.
As an aside, someone should tell ebayers they're paying well above spot! ;) Darn physical buyers willing to pay a 30% premium over paper price! /sarc
My experience is different. Most of my friends and acquintences think gold is a good idea. That wasn't the case 10 years ago. All you have to do to know that gold is in a bear market is look at the charts. NEM and GG are over 25% down from a year ago. Physical is down over 15%. Silver is down even more. I'm just offering another point of view. I could be wrong but I'm going with the evidence.
Your experience isn't just different - it's unique. No one looks at charts, no one knows what the dollar index is, no one can calculate P/E ratios, no one can self-manage a Forex or commodities account by themselves...at least no one in the "real world." I volunteer services as a financial counselor to military families and not once - ONCE - in years of doing this have I had anyone react with anything other than astonishment and puzzlement that 1) Gold and silver are a form of money 2) They can be purchased in non-jewelry form for investment 3) They have attributes that make them different from pork bellies and 4) That they act (and how) as a hedge against rising costs (I try not to scare people with words like inflation.)
In short, this is totally off the radar for everyone from able seamen to admirals and their entire extended families. I can't think of a better cross section of the US population. Race, class, education, religious affilitation - doesn't matter, no one is investing in gold or even knows they can.
I am probably not a target demographic (twentysomething) but to almost everyone I know outside of my family gold is a JOKE. Like an unattainable, archaic luxury.
like maybe 1 item of gold jewelry but that is IT.
People are shunning gold now. You're shunning it.
Gold hasn't become a popular holding much less come up in conversation. Most people don't even know you can buy gold to hold in your hand except as over-priced useless rings, ear-rings and necklaces
"Personally, I would buy more gold under $1000"
You and every other person on the planet.
Don't you see? Even you, a gold bear who has called the top would buy gold at $1000. (Oh, never at $1001, that's too high.) There are plenty of others who won't buy gold until it drops to $1100, $1200, $1300, $1400, or $1500. Get the picture? It's a bull market when people are waiting for a pullback to get in.
I know a guy who's been waiting for a pullback in gold for over a decade now - from about $400 to its present price. The fool could have bought at any time in the past and be sitting pretty but, like you, he's waiting for a pullback. It just hasn't pulled back enough for him. And so he waits.
Paralysis by analysis.
Some of us bought real money silver dollars at $1 and are still holding them. We are the remnant that will replenish the scorched earth...
http://silversenator2012.blogspot.com/
And if gold DID drop to $1000, many people now saying they would buy at that point would rationailze and say "Oh, no. Look at the drop it just had. Those aren't solid investing fundamentals. This isn't the right time to buy. I'll wait until the price stabilizes." By then, myself and every other sane person would have lost our purchase (any any excess supply) at the bottom of a murky lake.
What a generous genius!
He'd buy it at cost folks, and do gold miners and all other unhappy holders a favor!
Gold makes new tops every year. Last year 1900 is no different. Only I can do that much top-calling.
http://flic.kr/p/bqr5ZG
Holy crap, you really have no idea that gold is money. Too funny.
if a bank falls on the weekend, does anyone hear it?
I had an interesting experience last Friday. Every six weeks we save enough to get a gold coin and make our pilgrimage to the PM store on the coast. This is a major big deal to us because we have put our lives on hold to do this. We work, sleep,exercise, pay our monthly bills and buy gold. As I gazed at my coin in my hand I asked nonchalantly how's business. He said " very good, I sold $600,000 worth of gold bars yesterday". I was speechless and kept staring at the coin and feeling like such a fucking fool, like an idiot minnow thinking it can swim with the whales. That guy got where I was going and pulled a platinum coin out of his pocket. " I bought this today. I buy gold, silver, platinum and palladium regularly as I can afford it. Don't be discouraged. What I just wanted you to know is the the wealthy are buying and they are buying big and they do not give a damn if they profit or not. They know what they are doing."
That interaction obliterated the last lingering doubts I had about what we are doing and I slept better that night than I had in months.
Miffed:-)
Miffed,
Gold and silver were the people's money, once upon a time. In these strange times, the return OF your money is more important than chasing some dubious return ON your money in a rigged market where computers trade most; insolvent banks and governments bail out each other; counterparty risk is extreme (see MF Global scam and J.Corzine, for example).
Conservative investment advice used to be that the base 10% of an investment pyramid ought to be physical gold, raised to 30% in times of turmoil.
An old saying: the wise man does the right thing first, and the fool does it in the end.
Good luck. 'Follow the yellow brick road...there's no place like home.' (The Wizard of Oz, a dynamic political allegory, poignant again in our times).
@Miffed, From a survival preparedness point of view, consider diversifying some of your holdings into cash (in your possession). If you're looking to the rich for tips on what to do with your money these days, notice that they aren't just hording gold, the .001%/the largest corporations/banks are hording cash (USD, the still-current world reserve) more than they have in 50+ years, as has been noted in ZH many times.
And of course, having supplies of necessities, a local economy, and friends/family/community mutually supportive relationships will be helpful many times over in hard times....
Thanks newengland and blandjoe for your kind words and advice
I'm truly fortunate to live in a small close community of like minded rugged and heavily armed individualists. We have gone through so much together! In 2003 the Cedar fire (Largest fire in California's history) started about 6 miles from my home. No fire trucks would come to help us ( they did help the people in the housing tracts near us though) so we helped each other get to safety. Some brave people stayed and kept the houses from burning from hot spots after the firestorm passed. My house would have burned down if not for my neighbor. 2 years ago I got my truck badly stuck in the mud during a massive downpour. Neighbors were there to help with tractors and chains to pull me out. After 11 years living with these people I've finally gotten out of the mindset when there's problems you just pick up the phone. I've definitely toughened up. Funny thing is I'm a lot less fearful. Perhaps it's like gaining muscle, you must lift challenging weights.
Right now we barely have 5% of our assets in PM. We're hoping to have at least 15%-20%. we are considering cashing out the equivalent in the 401k taking the 40% hit as well. That was the emergency contingency as long as we don't wait too long and lose out. Your point about cash is well taken. After reading about what happened in 2001 to Argentina, cash is critical. At times I feel overwhelmed trying to prepare for such an unknowable future.
Miffed:-)
great post :)
RobotTrader version here...
~~~
http://jbtfd.blogspot.com/2012/06/blog-post.html
Awesome...except that it seems to be exactly what most market participants are doing. Some of us are cranky old contrarians!
I think there's this last row missing:
700+ TN Unwind SELL SELL SELL SELL
No wonder Obama said private sector growth was strong on Friday, he didn't want those evil gold speculators taking over his Kingdom; with their slippery hands and ghoulish grins, the evil gold speculators want to destroy the universe; this is why gold is bad, it's baad!
Yeah...I also noticed the evil oil speculators have been driving down the price two aisles over! They should probably ban short selling ASAP to remedy that problem.
"You must unlearn what you have learned"- Yoda.
Charts?, we've got charts........ bitchez
Strong growth then sell gold does not work in Asia. With strong growth and strong incomes, Asians buy a lot more gold. Indians have been major buyers in the last decade when growth rates were 8% and higher in India.
Gold buyers in India have made out like bandits with gold rising and the rupee falling.
You're going to confuse the flat earthers here with those kinds of facts. LOL.
The new wrinkle is the Robot algo traders.
The robots move in and out of stocks and sectors faster than humans can think about it.
Watch day-to-day the strange moves in sectors. Equities down with Gold up. Equities up with Gold down. Both up or down at the same time. Financials up with Gold down. Gold up with financials down. Utilities up with tech down, or vice-versa, etc., etc.
Anyone other than the robots is a dog chasing it's tail.
These are not markets; lather, rinse, repeat.
The failure of HFT's is that they can't really move markets, they can only fleece human-traders in "death of a thousand cuts". HFT's look no further than a few milliseconds. They don't care where the stock can or will / won't be in 5 minutes much less 5 years. They are compensated for numerically exceeding x trades per second & optimized to attempt to minimize loss on each trade while actually able to incur a small loss on the trade before compensation, then receive compensation for liquidity from exchanges.
If you measure out the volatility of the trading machines so that your stops & entry bids are profitable (or likely) then HFT's may trigger in your favor or not at all for your orders.
If you have targets for movement exceeding a few days the HFT's won't touch it. They CAN'T see it. They're designed for high-speed only, small time horizon only.
If you hedge shares movement up/down using options the HFT's often don't play in that arena. The recombination of theta, delta and longer-term human perceptions of price expectations defeats the HFT's entirely.
How can that be so? Because it's PERCEPTUAL. Humans compete for accurate predictions in options and of the share price underlying. Humans compete for price movement with machines in upredictable ways and the outcome of those unpredictable events in total at each moment in time determines the potential bid/ask of an option, but doesn't FORCE an agent to buy/sell that option!
In other words, the arena has too many dimensions on too long a time-frame for the HFT's to handle.
So they just DON'T. It's not profitable to do that. It's profitable to exceed x trades per second to get a liquidity bonus & to aim by various algorithms to avoid losses on those trades which cancel out the liquidity compensation paid by the Exchanges.
It's really very basic when you think about it.
This is a good article, I completely agree with it.
The single worst asset out there is government bonds, by far. It's not even close.
That's why the FED is the only real buyer. Everyone else is day trading that guarantee. I can't imagine any real investors plan to hold them 10 years.
Rally Warning from last week:
'Daily chart now gives bullish warning and significant
SPX rally & USDX retracement should commence in a week or so'
http://www.zerohedge.com/news/2012-12-24/market-analysis
Can I just send that chart to my broker so he knows what to do with my money?
If you know what to do with your money you don't need a broker.