ZeroHedge compares the Asian Financial crisis to the US dollar bloc.

My second post on this blog went over the Asian Financial crisis in detail and how it compared to the US dollar bloc over the last few decades. I still think this particular crisis does not get nearly enough coverage in these times.  But props to Tyler and ZeroHedge for mentioning it in a recent post.

Although I don't agree with the premise that Thailand is imploding now (its a creditor now and political crisis has been priced in for 30 years), they have it right about the 1997 crisis and the comparison. Here is the post.

http://www.zerohedge.com/news/2013-12-27/1997-asian-crisis-redux-thailand-imploding

The Asian financial crisis was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion.

The crisis started in Thailand with the financial collapse of the Thai baht after the Thai government was forced to float the baht due to lack of foreign currency to support its fixed exchange rate, cutting its peg to the US$, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt.

Indonesia, South Korea and Thailand were the countries most affected by the crisis.

...

The causes of the debacle are many and disputed. Thailand's economy developed into an economic bubble fueled by hot money. More and more was required as the size of the bubble grew. The same type of situation happened in Malaysia, and Indonesia, which had the added complication of what was called "crony capitalism". The short-term capital flow was expensive and often highly conditioned for quick profit. Development money went in a largely uncontrolled manner to certain people only, not particularly the best suited or most efficient, but those closest to the centers of power.

At the time of the mid-1990s, Thailand, Indonesia and South Korea had large private current account deficits and the maintenance of fixed exchange rates encouraged external borrowing and led to excessive exposure to foreign exchange risk in both the financial and corporate sectors.

In the mid-1990s, a series of external shocks began to change the economic environment – the devaluation of the Chinese renminbi and the Japanese yen, raising of US interest rates which led to a strong U.S. dollar, the sharp decline in semiconductor prices; adversely affected their growth.

...

Many economists believe that the Asian crisis was created not by market psychology or technology, but by policies that distorted incentives within the lender–borrower relationship. The resulting large quantities of credit that became available generated a highly leveraged economic climate, and pushed up asset prices to an unsustainable level

 Just like the US dollar bloc. And it bares repeating that the AFC currencies lost 50% of their value with no QE and no money printing at all. 


This was my post on the subject: http://freegoldobserver.blogspot.ca/2011/10/forgotten-crisis-and-what-every.html 

Comparing publicized Yen intervention to unpublicized gold intervention.

From 2011

(Reuters) - Japan sold the yen for the second time in less than three months after it hit another record high against the dollar Monday, saying it intervened to counter excessive speculation that was hurting the world's No. 3 economy. (Sounds like Nixon in 1971)

The intervention vaulted the dollar more than 4 percent higher (Yen 4% lower) , which would mark its biggest one-day gain (Yen loss) in three years, and Finance Minister Jun Azumi said Tokyo would continue to step into the market until it was satisfied with the results.
"We started currency intervention this morning in order to take every measure against speculative and disorderly moves and to prevent risks to the Japanese economy from materializing," Prime Minister Yoshihiko Noda told parliament.

Ok, so what does this look like on the chart, when finance ministers intervene in the markets  ?

Here it is :

Looks awfully similar to this gold chart no ? But this is all conspiracy right.....

So there you have it. The G20 is smashing down the gold market to support government bond prices. As physical gold holders, we have no idea what the real price of gold is. But the propaganda machine can paint whatever price they want to make us look wrong. All we can do is keep soldiering on until they lose control. When that happens, nobody knows. Its a tough time.

Fast forward to 5:41 of this clip. And when they start talking about silver, FF to  9:48. Nobody can lay out as clearly as Chris Powell. 

Why no banana republic price inflation yet ? Its all about the store of value functions and medium of exchange functions.

 I'd like to share an exchange I've been having with Jim Willie (rumor anyway)  who's been posting as Grumps Labastard of the FOFOA blog. Jim Willie does not seem to think that the store of value (SOV) and medium of exchange (MOE) functions of money can be separated. This will also shed some light on the confusion as to why banana republics have such high price inflation with menial actual printing.

His words

A common assumption I find in the gold community is that there is a somewhat constant store of value that must be available. What this blog has done for me is that the flaws in FreeGold have allowed me to see that value cannot be trapped and isolated for a long period of time. The SoV and MoE functions cannot be separate. The concepts delineated on this blog are zero order, linear. I think the truth may lie in Fekete's Theory of Interest. It's the tension between saver, investor, and producer, the first and second order derivative relationships that make it impossible for the SoV not to be intertwined with the MoE. 

My answer

It is already happening all over the world, all the time. Do you think millionaires and billionaires in banana republics store their purchasing power in their local currency ? No they don't. That's why inflation shows up so fast in these countries. Because the producers are not saving their excess in local currency. They save elsewhere. Thus, the local central bank has no purchasing power to steal via printing (savings are not denominated in the medium that the central bank has the ability to print). The printing just floods the transactional side and you get instant price inflation.

Why hasn't the US experienced banana  republic style price inflation yet ? Simple. Too much savings to to draw from via printing to have enough effect on the transactional side. Too many fools are saving in the medium that the US central bank has the ability to print.

When the producers around the world start saving in a medium other then US dollars (gold maybe ?)
there will be a corresponding amount of price inflation in the US. So it goes back to the same thing. When the bond bubble bursts (savings exit the medium that the Fed can print) the US will join the banana republic club.

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 ?