Who Cares ?

All this talk about the COMEX, silver, GLD (gold ETF's), manipulation, bull vs bear,  is all noise to me. Even I have been caught up in this.

Why should anyone care what is going on in any gold market, paper or physical until something happens in the US and Japanese 33 year bubble bull markets ?

I still maintain as I said 2 years ago, that the onset of freegold happens when there is selling/trouble in the BOND markets mainly in the US and Japan.

$1000 dollar gold, $2000 gold , what is the difference ? Who cares ? I have paid close to both. As long as BOND prices keep rising and the FED can do no wrong, nothing matters. As long as BONDS are the premier store of value for shrimps and giants alike, long or short term, nothing matters.

Nothing matters in GLD, nothing matters at the coin dealers, nothing matters at the bullion banks, nothing matters at King World News et al.

This is like being in late 60's and early 70's yaking about the price of gold as it bounces between $35 and $60. It didn't matter if you bought at $35 or $80 then until there was trouble in the BOND market and it doesn't matter now as it bounces between $1000 and $2000 now.

  Wake me up when the 33 year bull bubble grenades. Then we can talk gold prices.

And  they say that these bonds aren't a bubble because the great unwashed aren't piling in. I wonder what charts they are looking at..

Greece, Portugal, Spain and Ireland erase current account deficits and record surpluses.

The Euro has been in the news a lot for the past 4 or 5 years. It is the currency everyone loves to hate. * It seems like the only way to pump the dollar's tires is to bash the Euro. It doesn't matter where I look, I see everyone pumping the dollars tires. The New York times....ZeroHedge..  I love ZeroHedge but its a closet dollar bulls hotel. We wouldn't want some facts to get in the way of a good Euro bashing now would we.... ? If I had a Euro for every time I heard some jackass say "the dollar is the best horse in the glue factory"(The dollar is the best fiat currency) or some bullshit, I would own a hell of allot more gold. Remember that even before these adjustments, the Eurozone as a whole was a net creditor.


In August and July of 2012, Spain reported two consecutive current account surpluses, the first ever since joining the Euro.

 Greece's current account deficit has become a surplus

Portugal is in surplus

 Ireland is in surplus

And what about the US ? You know, the best of the worst currencies in the world.....

 So the Dollar is the best currency eh ? Considering these recent deficits turned surpluses by these countries, Peter Schiff was right again. This interview was aired in February 2010.

* Why they hate the Euro. Here is the short answer: When the US went off the international gold backing in 1971, they did this in order to raise the price of oil which, they hoped, would help them become independent of cheap OPEC oil. But they made sure that oil is always traded in US$.

Now this imposes a huge tax on their allies in Europe. These had to first export something into the US in order to acquire US$ and could then use these US$ in order to purchase oil. The US, in contrast, could just increase their own credit volume and pay for their oil with newly created US$.
On top of this, they were able to make sure that the oil producers invested the majority of their US$ surplus back into the US (real dollars) and UK (eurodollars) financial institutions, providing additional reserved for further credit expansion.

For a long time, this was a perpetual motion machine that allowed the US to get free oil and free funds to run their government (read: military) whereas the Europeans were automatically conscripted to funding this enterprise whether they liked it or not. (if all oil is sold for US$, what other option did they have?)

Do you think the Europeans liked it or did they not? This is the explanation for why the Euro exists today, why the Europeans want gold back into the international monetary system, why there will be no return to a gold standard in Europe, but why the Europeans will eventually shot the gold price to the moon, and finally for why the Euro will not break up.

It also explains why the Euro is the most serious danger to the US and UK financial systems and why US and UK fear the Euro and bash it whenever possible.

3 of the 4 Richest countries in the world have no minimum wage laws.

This post is going to be short and sweet. If you are ever debating your communist/socialist/Marxist friends then this post might come in handy. Can the free market properly price labor ?

List of countries with no minimum wages laws 

Singapore no laws or regulations
 
Qatar none
 
Norway none
 
Germany no statutory minimum wage

Italy none

Top 4 richest countries in the world per capita. (World bank)

1 Qatar 98,948 2011

2 Luxembourg 80,559 2011

3 Singapore 59,710 2011

4 Norway 53,396 2011

Other banana republic slave states with no minimum wage laws...

17 Germany 38,077 2011

29 Italy 30,464 2011

Warren Buffet and his Gold Delusions.

By now almost everyone has heard Warren Buffets speal on gold. He goes on his predictable mantra about nominal gains. The value of all that gold at today's prices, Buffett observes, would be about $10 trillion.
As for its merit as an investment, Buffett observes the following:

"That cube of gold will not pay you interest or dividends, and it won't grow earnings."

If you had $10 trillion sitting around(in what, US treasuries?), Buffett further observes, instead of buying the cube of gold, you could buy all the cropland in America ($400 billion-worth) and 16 Exxon-Mobils. And you would still have $1 trillion of "walking-around money".

Ok Wawwen, lets see how that works out for you...

Here is the fatal flaw in his thinking. In a world where there is no wealth consolidator(now), interest and  dividends and earnings growth are nominal gains which are progressively self diminishing. The more nominal gains you make, the more medium of exchange you pile up which has to be reinvested again for even more nominal gains. Not only is your new nominal gains competing with other savers nominal gains but your very own present nominal gains will be competing with your future nominal gains. This can only lead to ever higher asset prices and ever lower yields on everything until it reaches its mathematical limit and explodes. 

FOFOA explains..



"Most people are savers, not investors or traders. Yet today we are all forced to be investors chasing nominal gains because there is no such thing as a perfect inflation hedge. If there were such a thing, a large portion of the "investing public" would not be anywhere near stocks and bonds. Even the most "risk free" bonds, US Treasuries, have the greatest risk of all, currency risk. "

"Furthermore, a saver must look deeper than the CPI, or even its shadow-equivalent, for the real inflation that must be protected against. And that is the inflating VOLUME of savings with which one must compete. A perfect inflation hedge would not only keep up with the shadow-CPI but it would also rise in VALUE (as opposed to volume) relative to changes in aggregate monetary savings (nominal gains). "



Lets use a simplified version of Warrens own example.

All the farmland in the US is a cool 400 billion. Lets just count that as another Exxon mobile. Plus we will count his 1 trillion in "walk around money" as 2 more Exxons. That leaves us with 19 Exxon Mobiles with around a 390 billion in market cap each. Remember Warren Buffets claim to fame is to buy stocks with hefty dividends to make money and or store value.

Exxon's current dividend yield is  2.74%.
2.74% of 390 billion is $10,660,134,000. (Ten billion) We have 19 Exxons so we can multiply this number by 19 and that gets us $202,542,546 (Two hundred billion) in nominal gains annually.

2.74% is not Buffets thing though, he would rather have a 6% divvy. So lets go with 6%.

Exxons dividend is 6%

6% of 390 billion is $23,400,000,000 (Twenty three billion) Multiply this by 19 and we get $444,600,000,000 (Four hundered+ Billion) in nominal gains annually.

Now  what the hell do you do with the 444 billion you just made in 12 months ? Buy another Exxon ? So you have an even bigger problem next year ? What will that do to the price and the yield ? What about the other savers who want another Exxon that year too ? Prices to infinity, yield to zero.

Can you see the fatal flaw in Warren Buffets claim to fame that chasing nominal gains as a means to store wealth or investing is completely self defeating ? And his fatal flaw in declaring gold useless ? This is why nothing is cheap anymore relative to yield. Price out condos in Bangkok or farm land in Canada or industrial real estate in Australia or stocks or bonds in any stable part of the world and you will notice that nothing is cheap relative to the nominal gains it can produce. Simply because  of the inflating VOLUME of savings with which one must compete.
A perfect store of value would not only keep up with the shadow-CPI but it would also rise in VALUE (as opposed to volume) relative to changes in aggregate monetary savings. Putting that 444 billion nominal gain into physical gold WILL NOT diminish gold's ability to be a store of value. Putting it back into Exxon mobile WILL diminish Exxons ability to be a store of value or even a nominal gain generator.

FOFOA
So while most cannot understand the significance of this slow motion trend today, the explosive "rock meets hard place" encounter that is overdue at this point will be sure to wake even the sleepiest sheep. And at that point gold's best and highest function—being a physical-only wealth reserve asset—will be known by all. And the meeting of such a wide (awake) demand with a newly physical and stable supply in the absence of external (paper) influences will reveal a gold price that is multiples of any that has ever left Peter Schiff's lips.

Today gold is traded like a volatile commodity by gamblers who like to call themselves traders. Or else it is held as a small percentage of one's wealth for the expressed purpose of "insurance." Gold is actually a pretty poor inflation hedge as long as it is under external influences such as the inflatable supply of paper gold BB liabilities. So the only way it can even hope to perform as prescribed is as insurance in physical form only. Yet so many investors still hold "paper gold" as the insurance portion of their portfolio. This alone really highlights the confusion in Western "professional" investment Thought.

Got gold ?

Global warming and its connection to elitist Keynesian politics.

Jacques Rueff told the story of two different monetary conferences, two "committees of experts" that both met in Genoa, and changed the course of monetary history. The first committee gathered in October, 1445, and the second one began in April, 1922, so Rueff's lecture had ten years on this second conference. The two committees gathered under similar circumstances, to respond to monetary disorder in the aftermath of a protracted war, yet they came to opposite conclusions.
The first committee declared gold the new, sole monetary reserve, unleashing its 500-year reign as the governor of supply and demand that would act as the natural counter-balance to international trade for the next half a millennium. The second committee, under the guise of improving this system, destroyed it, laying the groundwork for the unchecked growth of global imbalance, perpetual malinvestment and the series of periodic monetary crises we have experienced for the last 90 years.

How did the second committee (the debtors, spenders, speculators, bankers) accomplish this ?

Answer: Federal Reserve Sterilisation of Gold Flows
When a country imported gold, its central bank could sterilise the effect of the gold inflow on the monetary base by selling "securities" on the open market…
Sterilisation of gold flows shifted the burden of the adjustment of international prices to other gold standard countries. When a country sterilised gold imports, it precluded the gold flow from increasing the domestic price level and from mitigating the deflationary tendency in the rest of the world. Under the international gold standard, no country had absolute control over its domestic price level in the long run; but a large country could influence whether its price level converged toward the world price level or world prices converged toward the domestic price level…

Traditionally, economists and politicians have criticised the Federal Reserve for not playing by the strict rules of the gold standard during the 1920s.

…Federal Reserve sterilisation in the early 1920s probably served the best interests of the United States.-Leland Crabbe, Washington, D.C., 1988

Board of Governors of the Federal Reserve System
The flow of gold is the flow of real capital, even if today it is obscured by an electronic matrix of imaginary capital (infertile media). Today's debt (the bond market) is imaginary capital in that it cannot perform in real terms; with "real terms" defined as economic goods and services (under current economic conditions) plus gold—and this part is important—at today's prices. It is all nominal debt, but the price of goods and services—as well as the price of gold—is what connects it to reality. And at today's prices of each, bonds are imaginary capital. It is our obsessive compulsion to centrally control the price mechanism that sterilises the vital signals that would otherwise be transmitted to billions of individual market participants keeping the monetary and physical planes connected.
What the 1922 Genoa Conference did was to institutionalise the "sterilisation" of gold for the rest of the world through the reserve structure of the international banking system. And this bit of genius was decided by a "committee of experts" from 34 different countries. They did this by introducing paper gold—or paper promises of gold—into the international banking system as reserves equal to the gold itself. This wasn't the first paper gold, but it was the first time that specific paper gold (that from New York and London) What is acceptable as international reserves is critical because trade settlement is a function of the reserves. This conference was the birth of the bastardised gold standard which lead to the bastardised paper game today.

In 1922, they officially changed the old gold standard into the new "gold exchange standard", which Rueff said was "a conception so peculiarly Anglo-Saxon that there still is no French expression for it." The stated purpose was "the stabilisation of the general price level" which you can feel free to read as code for sterilising the price mechanism and its elegant governance of an extremely delicate and complex balance. This, of course, gave birth to the arrogance of the managed economy and its attendant science, Keynesian Economics (est. 1936) and its step-daughter Monetarism (est.~1956).

And......The birth of  global warming and all the fraud that goes along with it. Mainly, the introduction of "carbon credits"

What they say-

Carbon credits and carbon markets are a component of national and international attempts to mitigate the growth in concentrations of greenhouse gases (GHGs). The concept of carbon credits came into existence as a result of increasing awareness of the need for controlling emissions.    Yeah right....
Could it be that these carbon credits are a continuation of their same old agenda ?
Which is  "the stabilisation of the general price level" which we know to be the code for sterilising the price mechanism  ?

Emission markets

For trading purposes, one allowance or CER is considered equivalent to one metric ton of CO2 emissions. These allowances can be sold privately or in the international market at the prevailing market price. These trade and settle internationally and hence allow allowances to be transferred between countries. Climate exchanges have been established to provide a spot market in allowances, as well as futures and options market to help discover a market price and maintain liquidity.

Futures, options and liquidity eh.....  Looks like a debtor, spender, speculator  bankers Keynesian wet dream.
Currently there are six exchanges trading in carbon allowances: the Chicago Climate Exchange, European Climate Exchange, NASDAQ OMX Commodities Europe, PowerNext, Commodity Exchange Bratislava and the European Energy Exchange. At least one private electronic market has been established in 2008: CantorCO2e.
Yep, that's the Fed primary dealer, Cantor Fitz
Cantor Fitzgerald L.P. is a global financial services firm specialising in bond trading.Cantor handled about one-quarter of the daily transactions in the multi-trillion dollar treasury security market before 9/11. (Cantor was one of the worst hit tenants in the WTC)

Managing emissions is one of the fastest-growing segments in financial services in the City of London with a market estimated to be worth about €30 billion in 2007. Louis Redshaw, head of environmental markets at Barclays Capital predicts that "Carbon will be the world's biggest commodity market, and it could become the world's biggest market overall." Bigger then the treasury market.

Carbon emissions trading has been steadily increasing in recent years. According to the "World Bank's Carbon Finance Unit",(laugh,cry, puke ?) 374 million metric tonnes of carbon dioxide equivalent (tCO2e) were exchanged through projects in 2005, a 240% increase relative to 2004 (110 mtCO2e)[109] which was itself a 41% increase relative to 2003 (78 mtCO2e).

Yale University economics (economics!) professor William Nordhaus argues that the price of carbon needs to be high enough to motivate the changes in behaviour and changes in economic production systems necessary to effectively limit emissions of greenhouse gases.

It gets more surreal...

Nordhaus has suggested, based on the social cost of carbon emissions, that an optimal price of carbon is around $30(US) per ton and will need to increase with inflation.

The global warming  sceptics have done a good job of exposing the science of global warming for the fraud that it is. But not a whole lot is being said about its connection to Keynesian economics. This is Keynesian arrogance and elitism at its worst and it has to be exposed.

Asian Crisis Follow-up

What I tried to establish with my last post is that we don't need money printing to have the dollar collapse by 40, 60 or 80%. (cost of living increase by 60 or 80%) What I am going to get into here is why the dollar will hyperinflate and why the Asian tiger currencies didn't. Motely Fool asked about this..

Here's a look at the balance of payments data back to 1980 (BEA data here), demonstrating graphically Don Boudreaux's statement that (under the creation that is Bretton Woods 2) "another name for a trade deficit” is a "capital-account surplus” – that is, inflows of investment funds into America or where ever that supply (directly or indirectly) financing for more of something. In the US's case, vendor financed consumption and government waste on a mass scale.

As a direct consequence of the current account deficits, the U.S. economy has been the beneficiary (only a benefit if it invested productively)of more than $8 trillion worth of capital inflows from foreigners since 1980. Because the Balance of Payment accounts are based on double-entry bookkeeping, the annual current account and capital account have to net to zero, so that any current account (trade) deficit (surplus) is offset one-to-one by a capital account surplus (deficit) and the balance of payments therefore always nets out to (equals) zero. And that's why it's called the "balance" of payments, because once we account for trade flows and capital flows, everything balances, and there are no deficits or surpluses on a net basis. 

 

Now I am going to simplify some things and make a chart of South East Asia's balance of payments from say 1985 to 2001 that will capture the Asian financial crisis and  the end result. Not all countries actually came to a full balance of payments but enough equilibrium was met to start a recovery, generally speaking.  When I said simply, I meant simplify.... Click to enlarge it.

A boom is a boom, they all take the same shape, they all look the same. More on that later... But there is a big burden that the boom in the US carries that Asia didn't. Legacy government entitlement spending. Compared to the US, in SE Asia, there is no social security, there is no medicare or medicade. There is no life insurance, there is no pension ponzi schemes. The majority of society literally lives within its means. The kids take care of their elderly parents.  When the boom burst in Asia(the capital took flight), the people effected could go back to their debt free lifestyle in the villages. The agrarian way of living was still there to fall back on.  All they had to lose was their property boom, not much else. They did actually manage to get some decent infrastructure out of the whole ordeal. 

 

But in the US, it is a diffrent story. American people have more to lose then a property boom.  They have their whole way of life to lose. The whole soceity literally lives beyhond its means because they have come to rely  on government entitlement spending. Govt spending is the thin red line.

 

So when the capital takes flight, the people that live off government spending are still there, waiting to pick up their pension checks, their insurence checks, their food stamps, their welfare, their medical care, their everything. What can the Fed or the treasury do ? Let everyone starve ?  They will be forced to print newly created dollars to cover the government liabilities. And that is the process of hyperinflation.

More on how booms look. This is the official chart of the balance of payments of Lithuania....

What happened here......


The economy of Lithuania was one of the fastest growing in the world last decade (1998–2008) as GDP growth rate was positive 9 years in a row. Since the year 2000 GDP has almost doubled with a growth rate of 77%.

One of the most important factors for substantial economic expansion was the accession to capital and trade between European  states. On the other hand, rapid economic expansion has caused some imbalances in inflation and balance of payments. The current account deficit to GDP ratio in 2006–2008 was in double digits and reached its peak at threatening 18.8% in the first quarter of 2008. This was mostly influenced by rapid loan portfolio growth as Scandinavian banks provided cheap credits in Lithuania. The loans directly related to acquisition and development of real estate constituted around half of outstanding bank loans to the private sector.(Real estate strikes again...) Consumption was affected by credit expansion as well. This led to high inflation of goods and services, as well as trade deficit.

The global credit crunch which started in 2008 affected the real estate and retail sectors. The construction sector shrank by 46.8% during the first 3 quarters of 2009 and the slump in retail trade was almost 30%. GDP plunged by 15.7% in the first nine months of 2009.

There will only be one difference with the fate of the US, a date with hyperinflation.....

The Forgotten Crisis And What Every Financial Pundit Didn't Learn From It

Imagine there was a financial crisis that involved similar circumstances to the one we are dealing with right now and we knew how it ended. There would be no inflation vs deflation debate because we would have the answer right in front of us. .........Well guess what....There was one and we know how it ended. For some reason though, every econo-financial pundit, no matter what school of thought they are from, have forgotten about it. Wether it is Gonzalo Lira, Jim Rogers,  Max Keiser, Martin Armstrong, Karl Denninger, Mish the idiot,  or the vast misinformed crew of keynesians that spew their nonsense all over the  financial world, not one of them has ever mentioned the Asian Financial crisis. If they have then please let me know.

 The causes of the Asian financial crisis are many and disputed. At the time of the mid-1990s, Thailand, Indonesia and South Korea(440 million people, excluding China and Japan) had large current account deficits.cough..cough..US.. anyway, Many economists believe that the Asian crisis was created by market psychology and policies that distorted incentives within the lender–borrower relationship.(ala China US) The resulting large quantities of credit that became available generated a highly leveraged economic climate, and pushed up asset prices, mainly real estate, to an unsustainable level. These asset prices eventually began to collapse, causing individuals and companies to default on debt obligations. The resulting panic among lenders led to a large withdrawal of credit from the crisis countries, causing a credit crunch and further bankruptcies. In addition, as foreign investors attempted to withdraw their money, the exchange market was flooded with the currencies of the crisis countries, putting depreciative pressure on their exchange rates. To prevent currency values collapsing, these countries' governments raised domestic interest rates to exceedingly high levels (to help diminish flight of capital by making lending more attractive to investors) and to intervene in the exchange market, buying up any excess domestic currency at the fixed exchange rate with foreign reserves. (Indonesia had foreign exchange reserves of more than $20 billion)
Neither of these policy responses could be sustained for long. Very high interest rates, which can be extremely damaging to an economy that is healthy, wreaked further havoc on economies in an already fragile state, while the central banks were hemorrhaging foreign reserves, of which they had finite amounts. When it became clear that the tide of capital fleeing these countries was not to be stopped, the authorities ceased defending their fixed exchange rates and allowed their currencies to float. The resulting depreciated value of those currencies meant that foreign currency-denominated liabilities grew substantially in domestic currency terms, causing more bankruptcies and further deepening the crisis.

So what happened to the currencies ? Did the "debt deflation" within the respective economies cause their currencies to rise ? Because as the deflationists say...."there will be less currency in circulation as debt defaults" Lets see.....

Thai Baht. The Baht fell swiftly and lost more than half of its value. The Baht reached its lowest point of 56 units to the US dollar in January 1998.

Indonesian Rupiah .Before the crisis, the exchange rate between the Rupiah and the dollar was roughly 2,600 rupiah to 1 USD.The rate plunged to over 11,000 rupiah to 1 USD on 9 January 1998, with spot rates over 14,000 during January 23–26. I mentioned that Indonesia had forex reserves of 20 billion dollars in 1997. At the 1997 gold price of $300 an oz, that is equal to 1890 tonnes of gold.. The USA has around 50 billion in forex reserves in 2011. At today's price that's 810 tons of gold.

South Korea. The South Korean Won weakened to more than 1,700 per dollar from around 800.

The Philippines. The peso dropped from 26 pesos per dollar at the start of the crisis to 54 pesos in early August, 2001.

Malaysia. The ringgit had lost 50% of its value, falling from above 2.50 to under 4.57 on (Jan 23, 1998) to the dollar.

Singapore. There was a gradual 20% depreciation of the Singapore dollar.

China. Unlike investments of many of the Southeast Asian nations, almost all of China's foreign investment  took the form of factories on the ground rather than securities, which insulated the country from rapid capital flight.   Funny that.....How many factories does the US dollar have to insulate it from capital flight ?

Japan. The Japanese Yen fell to 147 as mass selling began, but Japan was the world's largest holder of currency reserves at the time, so it was easily defended, and quickly bounced back. Funny that too.....How much foreign reserves does the US have to defend the dollar ? Just under 50 billion actually. About $100 per person. Just for some perspective, Switzerland today has $40,000 per person in foreign reserves. And the consensus is that the dollar is the best of the fiat currencies today hahaha. That's a topic for a whole other post though.


Comparing the United States and the dollar bloc to Zimbabwe is just plain wrong at best and stupid at worst, yet that is what everyone seems to bring up.The Asian financial crisis is the proper comparison.

Thailand, Indonesia and South Korea(440 million people) had large current account deficits.-Check
Market psychology and policies that distorted incentives within the lender–borrower relationship.-Check
a highly leveraged economic climate, and pushed up asset prices to an unsustainable level. These asset prices eventually began to collapse, causing individuals and companies to default on debt obligations. -Check

The resulting panic among lenders led to a large withdrawal of credit from the crisis countries. -Treasuries/US Debt/JGB's have rallied so no. This has not happened yet but it will. That is the essence of loss of confidence.

As foreign investors attempted to withdraw their money, the exchange market was flooded with the currencies of the crisis countries, putting depreciative pressure on their exchange rates. -This has not happened yet either but it will. It is also the essence of loss of confidence.

To prevent currency values collapsing, these countries' governments raised domestic interest rates to exceedingly high levels (to help diminish flight of capital by making lending more attractive to investors). -This ain't going to happen. As I said in my first post "Is the Euro System the next Monetary Order ?", the system is too far gone for capital to be re-attracted to government bonds as a store of value.

When it became clear that the tide of capital fleeing these countries was not to be stopped, the authorities ceased defending their fixed exchange rates and allowed their currencies to float.- Coming soon but in this case, the ultimate wealth reserve asset will be allowed to float, gold. The COMEX futures market will default and the London Bullion Market Association will implode, no different then the London Gold Pool imploded when France withdrew which ended Bretton Woods 1.

So in conclusion, who in the right mind can possibly think that there will be a sustained rally in the US dollar as their economy is implodes ?  Also, was it mentioned once that any of these Asian countries where printing currency that resulted in these huge devaluations ? No. 

As past crisis history has shown , capital flight out of US dollar denominated debt and treasuries is the the only logical conclusion to this crisis