CSC I can see you are pretty new here so I will tell you I am NOT a Gold bug. I do own some of the yellow metal but a very small amount. My main concern here is the rest of the article, as well as Avalde’s post and the article about IBM selling to the Chinese.
Gentleman, it has been bad enough that we have had to sell much of America to the Germans, the Japanese,and the Arabs, but now I suppose the Americans working for IBM PC will be working for the RED Chinese.
There wasn't enough profit in desktop hardware for IBM to be interested in the business any longer. With the low cost PC's with their parts already made in Japan, Korea, and China expect to see other big companies get out of the hardware business. Servers is were the big bucks are and thier maintaince.
China and Japan brought 400 billion worth of T-bills and one way to get rid of the good old US paper is buy companies and hard assests. Expect to see more, they have a lot of $$$$ to burn. The Arab's are now down for 75% US dollars to 61%, they are divesting also and putting the money in the EURO. It's a double whammy with them we've froze their assets before.
If I were some of you on this board buying coins at retail from a dealer you can forget about selling them unless gold goes way up. They've been like buying a car you put your money down and if your forced to sell your out a least 30% from buy/sell margins a dealer charges. And some are laughing at the hard asset people
Gentleman, it has been bad enough that we have had to sell much of America to the Germans, the Japanese,and the Arabs, but now I suppose the Americans working for IBM PC will be working for the RED Chinese. >>
Do you really think there's much of a difference between the US government and the Chinese government? If you do, please enlighten me as to the major differences and I put the emphasis on major.
We have been gleaning facts "brick by brick" in order to write this story on the housing market and what it all means for Wall Street and the economy. The story is simple: While the Federal Reserve is slowly raising interest rates, it is our observation that the housing price bubble is already bursting of its own accord.
Let me begin with the sale of a property located a short distance away from our modest casa in Palm Beach, where the big houses have names. Casa Apava, an estate with ocean and lakefront land totaling 18 acres, is under contract for about $70 Million by its current owner, Ronald Perelman. This same property sold for $14.25 Million in 1987. If the sale goes through, it will be the largest residential real estate sale in United States' history. (In 2004, the property was assessed for $33.4 Million and taxes were a modest $664,000 a year, or $55,333 a month). Needless to say, the buyer is reported to be the chairman of NVR, Inc., the nation's eighth largest home builder. Clearly, selling homes at inflated prices to average Americans, who bought them using other people's money, has paid off handsomely for this buyer.
The size of the housing bubble should not be underestimated. In middle America, housing prices are up 44 percent over the past 5 years while in the momentum markets, such as Las Vegas and Southern California, annual "price pops" of 20 to 40 percent have commonly been recorded until just recently. Housing is big business. In 2004, about 8 million new and used homes will sell with a total transaction value of $1.9 to $2 Trillion. Mortgage debt will rise about $800 billion to $7.5 Trillion by the end of this year. The increase in mortgage debt represents the spending that the Bush Administration needed to keep a $12 Trillion economy moving forward.
The good news is that home ownership rose 2 percent to an all time record of 67.2; the bad news is what had to be done to get it there while the labor force participation rate has dropped 2 percent! In other words, easy credit and record low interest rates have boosted home sales. In previous economic cycles, the boost to home sales came from rising incomes and more jobs!
Easy mortgage credit has been fostered by new mortgage products. New types of mortgages have been introduced over the past couple of years that transfer interest rate risk from the financial institution (mortgage owner), to the borrower, while allowing the borrower to take out the largest possible mortgage. Long gone are the days when a borrower borrowed what was considered a safe, prudent amount that they could actually pay back. Today, the borrower takes every penny that lenders will lend. In turn, lenders have "gone crazy" because at the end of the day, the lender is not lending "his" money. The loans go to a GSE security, or into a rated mortgage security, which in turn is bought by a bank or Hedge Fund that is invested just for a short term in the "Cash and Carry Trade".
Today, the new mortgage lenders are offering various types of mortgages to keep mortgage volume and quick origination profits up. These mortgages include Adjustable Rate, Interest Only, 40-Year, and Piggy Back. A Piggy Back mortgage is a senior mortgage combined with a junior mortgage that can leave the borrower owing more than 110% of the cost of the house. Moreover, these lending tactics leave the borrower more than a bit stretched and short liquidity, so it is no surprise that new mortgages that allow the borrower to skip payments and add the interest to principal are becoming popular. What will lenders who don't lend their own money think of next?
If these new types of mortgages aren't good enough to stretch a consumer's buying capacity, a few years ago special charities sprang up to give a home buyer his 5% down payment. (Since a home builder was giving the charity their funds anyway, he could easily "give back" 5% of his 30% profit to charity. Clearly, charity starts at home!
On top of that, President Bush signed the "American Dream Down Payment Act of 2003". This legislation authorized $200 Million per year in down payment assistance to at least 40,000 low-income families. His goal was to increase the number of minority homeowners by at least 5.5 million before the end of the decade.
Under Federal Law, if you are a first time home buyer and your income is 20 percent less than the local medium income, your neighbor - the US taxpayer - will give you the greater of $10,000, or 6% of the cost of the home to buy it! Thus, sub-prime borrowers have influenced home ownership rates considerably.
However, there are some sobering facts about sub-prime borrowers. They are twice as likely to pick an ARM mortgage. (ARM mortgages are already 30% of new home loans and, as the Federal Reserve raises interest rates to normal levels, the monthly payment on an ARM will go up over 25 percent).
Moreover, sub-prime borrowers frequently refinance. Borrowers who refinance for cash-out are twice as likely to default as those who don't take cash out. Currently, 70 to 80 percent of sub-prime mortgages are debt consolidation loans which add credit card and other debt onto the house!
These sub-prime mortgages have a terrible record. At least 16 percent are delinquent or in foreclosure, and 4.6 percent are actually in foreclosure. The "funny money" down payment mortgages are worse, with defaults running close to 20 percent. The Federal Housing Administration, FHA, which insures these loans, says national FHA mortgage defaults are 11 percent, while in cities like Baltimore, Maryland and Queens, New York, the default rates for FHA loans are 21 percent and 25 percent. Perhaps more lenders could do what FNMA does with loans heading to default: Re-write half of them and call them "good". Remember, "A rolling loan gathers no loss."
Also, with the Fed making money free, and the government trying to give money to sub-prime borrowers regardless of their willingness or ability to pay, the private sector is trying to get back in the lead of "the easy money free for all". The FBI has reported that in the first 9 months of 2004, 12,100 complaints of suspicious activity in the mortgage market have been reported. Fraud hot spots include the usual suspect states such as Florida, California, and Nevada with honorable mention to Michigan, Illinois and Missouri. (At least this restores my pride in the Midwest). Moreover, the reported fraud would be higher except that i) most of the FBI are out looking for terrorists, and ii) fraud big enough to interest the FBI only includes something like the house or buyer not even existing.
Most mortgages written today have a bit of a fudge factor in the total honesty of income and net worth. Much information is excluded from debt and payment histories, and "appraisals are either wish or myth." Even the Mortgage Bankers Association recognizes that the home appraisal process is totally broken. In reality, with easy money allowing home prices to rise, fraud has become a way of life in the mortgage market because every participant makes a commission or fee if the mortgage closes. The higher the house price, the bigger the mortgage!
Looking back at the facts, it is easy to see that the foundation for housing prices is rotting fast. Buyers have stretched the truth, in every possible way, in order to buy the most expensive house for the lowest possible monthly payment. Given the fraudulent loan underwriting and emphasis on Adjustable Rate mortgages and sub-prime loans, it is clear that any rise in mortgage rates will bury housing.
At the high end of the housing market, there are reports of "Yuppie Fatigue". Super-sizing homes also super-sizes the heating and utility bills, insurance and maintenance costs. Those vaulted ceilings sure look nice, but watch out for the heating bill! Million dollar home foreclosures are picking up.
In the general housing market, 5 to 6 percent of homes already have more debt than home value, and homeowners are loading up with home equity loans and lines of credit. These home equity loans and lines will be up to $400 billion in 2004. Home equity can be spent, but as home prices stop going up, more and more homes will have "no equity left".
Currently, wages and salaries have not kept up with inflation despite "economic recovery"; bankruptcies will hit another all time record of over 1.6 million in 2004. Forty five percent of workers have total net assets of less than $25,000 (including the value of their house) and less than 4 of 10 workers save anything.
All of these facts were in place well before oil and natural gas prices headed north for the economic winter. Reasonable estimates show the average household bill for gas for the car and energy for the home will be $9,000 in 2005, up from $6,000 last year. Other costs of running a household would put people in the poorhouse, but it's too expensive to check in. This Christmas, Santa might skip homes that are draining their home equity.
Does housing always go up forever? In the United Kingdom where housing prices have soared like in America, prices fell last month. Real estate agents can't be found to talk about it, as it is bad for business. In San Diego, housing prices have been flat the last couple of months while the supply of homes for sale has jumped from a 2-month to an 8-month supply.
In Las Vegas there is an unfolding house price debacle. The national public has heard that the large developer, Pulte Homes, has cut new home prices by 8 to 25 percent, and 25 percent of new homes on order have just been cancelled. However, the public hasn't heard that i) 20 to 40 percent of sales in new planned unit developments were to speculators; ii) For-Rent signs in the complexes are everywhere. (To make some easy money on the flip, buyers of second and third homes planned to rent them out first); and, iii) Homes that sold for $750,000 just three months ago are across the street from homes that the same developer is selling today at a nice profit for $550,000. "The Las Vegas housing market has crapped out!"
In the United States, the supply of new homes has risen steadily to a 275 day supply. Six of the 14 largest home builders have debt-to-equity ratios of 95 percent, and home builders know exactly what the car companies know: "If you want to move inventory, cut the price!"
If home lenders would only read history they would know that from 1975 to 1995, on average home prices rose only 0.4% and with prices sagging now, they should ask for a larger down payment, and fast, or they will be facing big losses. In a market where housing prices are flat, it takes a 15 to 20 percent down payment to protect a lender against loss. The sales commission is 6% and REPO, carry, and marketing costs can run another 10% or more.
What would a rational down payment mean for housing prices? Today, a buyer who can scrape up $20,000 for a 5 percent down payment can afford a home priced at $400,000. If you ask him for a 10 percent down payment, he can suddenly only afford a home costing $200,000! Rational down payments will force housing prices down. Whatever you do, please do not share this observation with existing homeowners; they might want to sell before I have had a chance to follow up with Ron Perelman's example.
Richard Benson President Specialty Finance Group LLC Member NASD/SIPC
It is Highly unlikely IBM workers will have any job with the Chinese takeing over why would they be needed at all !! and why would the chinese want to pay IBM's over priced workers the jobs are just gone and i have to wonder how the usa edge in tech knowelege will stand after this sale and what will happen in a few years down the line when chinese takes back taiwan which they will and have stated at every chance they get i have to think were on a even playing or killing field other then the fact we don't have any tooling left to bulid any [or needed] weapons and they have 10 time the population and little reguard for life
“Mortgage debt will rise about $800 billion to $7.5 Trillion by the end of this year.”
So in a country where the entire net worth of everything in the U.S.A. is 45 Trillion dollars the mortgage debt alone is 7.5 Trillion or nearly 17% ? WOW
“Today, the new mortgage lenders are offering various types of mortgages to keep mortgage volume and quick origination profits up. These mortgages include Adjustable Rate, Interest Only, 40-Year, and Piggy Back. A Piggy Back mortgage is a senior mortgage combined with a junior mortgage that can leave the borrower owing more than 110% of the cost of the house. Moreover, these lending tactics leave the borrower more than a bit stretched and short liquidity, so it is no surprise that new mortgages that allow the borrower to skip payments and add the interest to principal are becoming popular. What will lenders who don't lend their own money think of next?”
One thing that has definitely happened over the last decade is that the mortgage guys who use to be as conservative as bankers are now more like used car salesmen. How many Americans will lose their homes in all these slick deals?
“ (ARM mortgages are already 30% of new home loans and, as the Federal Reserve raises interest rates to normal levels, the monthly payment on an ARM will go up over 25 percent).”
Tom, the research I read was that over 50% of all homes were ARM’s what a shock many will have when they see their house cost going through the roof ( no pun intended).
Currently, wages and salaries have not kept up with inflation despite "economic recovery"; bankruptcies will hit another all time record of over 1.6 million in 2004. Forty five percent of workers have total net assets of less than $25,000 (including the value of their house) and less than 4 of 10 workers save anything.
And 77% have less than $37,000 including the investment in their home.
This whole market is another one of those catch 22’s that can really be a disaster for our financial system. The Fed must raise the interest rates or no one will buy the trade,and entitlement debt, but if they do Americans with these mortgages and their current load of credit card debt will go broke by the multi-millions.
If I were some of you on this board buying coins at retail from a dealer you can forget about selling them unless gold goes way up. They've been like buying a car you put your money down and if your forced to sell your out a least 30% from buy/sell margins a dealer charges. And some are laughing at the hard asset people >>
And so what are you doing here? Are you a refugee from a yahoo message board with nothing else to do?
Forgive my ignorance in advance, please, and assist in explaining to me some points made, that I have been reading since this started. First, is it not a good thing that the $ is "falling" on the world market, if in excess of 60% of our "debt " is controlled by other countries. Are we not in effect, buying back our "debt" @ 80%? Gold, by its' nature is a product of world trade,this I understand, but is it not also realized that gold is simply a measuring tool without any backup? The average person doesn't own any gold and certainly doesn't expect a paycheck in gold. Please explain again why increases in property values are a bad thing, whille explaining at the same time why housing in my area-Frederick Md., can't be built fast enough, and is sold out before completion. Yes, I understand the basics of inflation, but I also understand the basics of "need". I donot see this slowdown in the economy, in this area. As an example, between Loudoun Cty, Va. and Harford Cty., Md., counting 7 counties only, in these 2 states, 47 new schools (not replacement schools) have been built or are under construction since last year, and are predicted to be filled to capacity, if not already so. Is this not an indicator of growth? My next question ,concerning the lack of goods manufactured in the U.S., I am very mystified by this. I have seen hundreds upon hundreds of factories in the last few years, in my limited travels to Ohio, Pa., Fla., Va., Ga., N.J., and N.Y. People are working there, the roads are bursting with interstate transportation of goods, interest rates are reasonable, and it seems to me in my limited knowledge , could go up a couple of percentage points, and we would still be better off than 5 yearsago. I understand the "big picture" theory, but in a practical, easy to understand way, explain what is so terrible, and explain without invoking the words " gold, overseas, asia, democrats, or republicans or oil," all of which it seems to me complicate the explanation, and not explain anything. Thanking all in advance that can simplify issues.
"First, is it not a good thing that the $ is "falling" on the world market, if in excess of 60% of our "debt " is controlled by other countries. Are we not in effect, buying back our "debt" @ 80%?"
Charlie
Well, maybe I'm not seeing it right. Try this, I loan you $10 US for 10 Euros worth of goods and you put the money in your bank for a little bit (when $10US=10 Euros). Then the $US becomes weaker and then the $10US you have in your bank is now only worth 7 Euros worth of goods. What would you think of that...particularly if I now owed you the equivilent of 7 Euros as opposed to the 10 Euros I owed you before...hummmmmmmmm. Looks like if I'm US then I just reduced my debt by the equivilent in goods of 30%.
Maybe, like I said, I don't have it right but that is how I've been seeing it. That's why all the Euro folks are having so much heartburn and crying about US money being weak...they just lost 30% and it may not be over just yet. Tell me if I'm wrong because this is certainly interesting.
My uncle was a US Marine soldier who fought Japan during WWII in Okinawa and received the Purple Heart.
After WWII he was assigned to guard the Great Wall of China in late 1945 and 1946. He was captured by Mao's guerilla forces led by General Tusu (sic) and was in their prison camp even though the US and the Red Chinese were actually still on friendly terms since the US was still pissed at the National Chinese Government for not giving their full effort in fighting the war against the Japanese. In fact, Mao was still hoping and even thought the US might side with him instead of Generalissimo Chaing Kai-Shek in the civil war. . Only through the personal intervention of Admiral Kincaid, of all people, was my uncle who was slated to be executed by Mao 's General Tusu (sic) released to the US Army.
There is much more to this story but my uncle has long studied the Chinese Communists since then, and in his opinion, they are nothing like the US Government. World domination is their goal and they will do what it takes it achieve it. It is not going to be an effort as a beneovelent government. They even make the former Stalin Soviets appear as kind folks as they have learned the art of deceit very well.
It is easy to look at Americans lack of savings, and what appears to be an excessive lifestyle by many Americans, but is that the truth of the matter? Most of us including myself have always thought that Americans were a very wasteful people; certainly most of the rest of the World thinks that. There is little doubt that Americans have not built big savings accounts during the last generation, but is this for lack of trying, or are there other things to be considered?
In doing a little research this morning I came across some interesting data I thought you might like.
“In 2004, Americans will work 65 days to afford their federal taxes and 36 more days to afford state and local taxes, which does not include real property tax if you happen to own your home. Other categories of spending that require many days of labor to afford are housing and household operation (66 days), health and medical care (51 days), food (31 days), transportation (31 days), recreation (22 days), clothing and accessories (14 days), all other expenses (44 days), and saving (5 days) ”
“Washington, D.C., April 7, 2004 — According to Tax Foundation calculations using the latest government data on income and taxes, Tax Freedom Day® in 2004 will be celebrated on April 11th, the earliest Tax Freedom Day for 37 years. April 11th is three days earlier than 2003’s Tax Freedom Day of April 14 and an amazing 21 days earlier than in 2000, when the boom and bubble pushed tax burdens to a record high, and Tax Freedom Day was postponed until May 2. Please note this date is for income taxes only and includes State and Federal taxes.”
Do Americans live better than most others in highly developed countries, yes, but it has been our hard work and creative ability that has provided these benefits. Homes, cars, gasoline, food, clothing, and many other items of life are cheaper in America than in most all other developed countries.
What seems evident from the above statistics is that Americas lack of savings has much more to do with how we are taxed, and not that we are a glutinous group. How can hard working Americans be expected to build up their savings when we are allotted only 5 days per year to do so?
mhammerman, oreville and goldsaint,thanks for reply. mhammerman, all I have read is european happiness that u.s. goods can be had so cheaply, up to 50% cheaper than in Europe-quoting wsj-they are flying to n.y. and loading up for christmas. Maybe you and I both don't get it. Oreville, I certainly understand that there are many areas of the country not doing well, but All of my questions are still on the table-why, and what backs up gold, and is the perception real or manufactured. Goldsaint, I have admired your research tremendously, but I remain ignorant: my questions/observations are still on the table and beg for simplicity. Mhammerman, your example is understood, and I would ask: what backs up the euro that allows it to swing like a pendulum from -70 to +130? Gold? If gold, I want no part of it - as I have asked ,...WHAT BACKS UP GOLD?P.S -I too find this very interesting. Regards, and thank you.
Gold doesn't require anything to back it - it has inherent value. Whether this value is the result of industrial demand, demand for jewelry or as a currency, gold has always maintained value on some level. This has been true for thousands of years, and will most likely remain true.
Interestingly, all Fiat Moneys (like the Dollar) have eventually become worthless - there has yet to be an exception to this rule. Keep in mind that the dollar is worth about 5% of what it was worth at the beginning of the 20th Century.
While I find it doubtful that the dollar will become worthless in our lifetimes, it is a possibility. That would not appear to be the case with gold.
What is now proved was once only imagined. - William Blake
Thank you for reply, but question still stands. Diamonds have inherent value, coins have inherent value, art has inherent value, 64 2+2 mustangs have inherent value-if all fiat money has failed, what good is gold-as I said, I just don't get it : are there not many ,many 1oz. or less silver/copper /bronze coins that are worth MUCH MORE than an oz. of gold? Will they collapse?
Gold backs up gold! It, like regulated and others have said, has ingerent value. It is in demand because people want to have it. It is traded by all nations at some par value in exchange for goods and services...it's value is found in it's demand in international trade. Gold will always be worth people are willing to exchange for it in some balance for all goods and services. If it is for a lady's hand or a kings crown or the tip to an electrical relay or even just because you have it and Joe Downtheblock doesn't. Gold backs up gold.
Gold has "value" since there is a limited supply of the metal whether above ground or below ground. Like diamonds, gold has always caught the fancy of man since the times of the Egyptians since gold was an item that the Pharoes, and Emporers desired more than anything else.
It was money even before money was invented. It is still considered the haven of last resort. Impervious to heat, floods, corrosion,
Gold is truly the basis of money before governments managed to "convince" the man in the street that money is something that is "backed by gold or silver."
While that is no longer completely true most citizens think our money is still backed by gold and silver.
Silver is also "money" but to a lesser degree in that it is the poor man's gold.
Thank you for the replies. It appears it comes down to one thing-at its' very core simple explanation, gold value is simply perception, nothing more. It is no more an important commodity than a gallon of milk, if half the cows in the world suddenly died. So, it would seem all the dire predictions I have read are a matter of perception of value and what constitutes value at any given time. It would further seem that economic predictions can't stand up to a single cause OR effect, and that perhaps things are not so bad after all, and we will continue to build schools, and office buildings and have students to fill the schools and new/expanding businesses to fill the office buildings, and the ripple effect will allow me to have a job, and continue to buy coins.......... I am very optimistic about the future, because the original questions I asked don't seem to have answers with dire consequences.Regards, and thank you for all of your commentary and observations and patience in attempting to explain.
Your point that the value of gold is a matter of perception is one that can be applied to anything that has value - as a consequence, it isn't really a valid argument against gold's historic position as a currency of last resort.
What is now proved was once only imagined. - William Blake
Regulated, thank you for your reply-you seem to think I am "arguing"- that is not what I am doing, nor do I have any desire to-I was after simple explanations that could help me understand the dire predictions I was reading on this subject. Gold was a very small part of the questions I asked, the majority of which have not been answered. It is, however very interesting to me that the majority of replies to my questions concerned only gold. Regards, and thank you.
Oreville, the highest income tax rate in China is 48% gross. Then there are deductions. It's pitched to the people in China as a necessary thing for building roads, bridges, hospitals, etc etc blah blah and for the Freedom of the country. There are no state and local taxes.
And the people by and large pay as they have been by and large reduced to sheep thinking the government is right and that they now have more freedom.
And you say there are no similarities.
I could go on chapter and verse ad infinitum
I can go into a great deal of detail of the similarities of government in communist Vietnam and the federal government here. I lived there 2000-2002 full time.
Charley: Yes, it is mostly a matter of perception. But backing up the perception is the fact that gold is the only metal known to man that does not significantly tarnish, tone, can be easily melted and shaped into different forms even without melting and has been known to have a finite quantity. It is also the mostly easily stored form of "money" for its size before paper money was born. Yet with self imposed limitations on the size of the US paper money ($100) gold once again becomes a most competitive form of compact transporting money.
Also gold survived over 100 years of being lost in oceans. Paper money could never survive 100 years of such storage. Gold is unquestioned in being able to verify authenthicity. Credit and debit cards are prone to failures in that cards can be de-magnetized, accidentally slit, suffer from "expiration dates" and subject to silly rules like "pin numbers" and "three digit codes" on the back, etc.
Gold and silver are not infallible.
But the key aspect to gold in coin form is that governments have not yet found a way to regulate it for long and it remains a privacy haven for many, especially in 3rd world countries.
Once you lived in a country that suffered debilitating inflation that ruined their currency, then gold and silver takes on a much more sacred symbol of refuge from a troubled world. Many of the South American and African countries, Israel, Mexico, Russia/Soviet Union, etc. have seen awful inflation since the 1970's.
mrearlygold: Oh I do not disagree with you as to China's pursuing an incredibly diffused form of Communism in that the Communists remain in power yet China plunges into a Capitalist system blended with the socialist system of taxation for the peopl'e own good. I was speaking of the international view, the Chinese hold of the world which is very different than ours.
China's leaders are actually very forward thinking for the long term. An incredible change from 20 years ago. Our leaders are stuck in the short term thinking spectrum which much of our economy suffers from.
China is at least trying to build up their infrastrusture. We are living off our old infrastructure that is now decaying because we are not reinvesting new money into it. Requires long term planning which is not what is going to get our leaders elected and re-elected. This lack of long term planning will someday be our undoing just as it was for Rome after the 2nd century AD.
This is where I was emphasizing the differences between the countries.
Again, gold was a very small part of my enquiry. Does nothing else deserve explanation? Re.-real estate values question, factories/u.s. goods, value of dollar, schoolpop.growth, etc.
IMO the real estate market is currently a function of low interest rates (cheap money). If you have a mortgage at a very low interest rate, you can afford to buy a considerably more expensive home. If, however, you have an adjustable rate mortgage and interest rates go up to 10%, you may not be able to afford all of the home that you bought at 4.5%. Right now, a staggering number of Americans (who, in years past might not have been approved for mortgages) have adjustable rate mortgages. Many of these people would not be able to afford the homes they live in if interest rates were to increase several points. If this were to happen, many would be forced to sell at the same time. What would this do to the housing market?
What is now proved was once only imagined. - William Blake
China sees gold-buying surge to hedge against declining dollar - report Wednesday, December 15, 2004 2:16:28 AM http://www.afxpress.com
BEIJING (AFX) - China is seeing a gold-buying surge as a hedge against the weakening dollar and negative real interest rates, the South China Morning Post reported, citing figures from the China Gold Society and analysts
The Hong Kong-based newspaper said the gold buying has prompted a booming trade not only in bars, coins and jewellery but also "paper gold", in which the investor does not take possession of the metal, but trades it like other financial instruments
Trading on the Shanghai Gold Exchange in the first 10 months of the year reached 515,447.1 kg, a rise of 45.35 pct over the same period last year, the paper said
In addition, Shanghai buyers snapped up all commemorative gold coins to mark the year of the rooster as soon as they came on the market last month
The price of gold reached more than 450 usd per ounce this month, its highest level in 16 years and up from 254 usd in 2001
"The weakness of the US dollar is the main reason for the rise in gold," Xu Ming, a gold specialist with the Bank of China, was quoted as saying
"A weak dollar is the long-term policy choice of the US government and governments are in the process of reducing their dollar assets. The European Central Bank will not intervene in the market. All this is putting pressure on the dollar." The paper said gold is one of a limited number of investment options for Chinese, who hold more than one trln yuan in simple bank deposits
This year thousands have reduced or closed their US dollar savings accounts in favour of yuan-denominated accounts because they expect a revaluation of their currency
The trading of paper gold is officially available only to residents of Shanghai with a current account with the Bank of China, which started offering the service in November last year
(1 usd = 8.3 yuan) amj/tr For more information and to contact AFX: www.afxnews.com and www.afxpress.com
O.K. Charley, Here is what I can offer you on your questions. In large part you are exactly right it is only our perceptions that makes one thing more valuable than another, but everything in this material Universe is only perception anyway. If you ask a quantum physicists or a Mystic to explain to you what anything in the Universe is made of, they will tell you everything is an illusion, and every single thing in the Universe is made simply of light and sound particles. Any good Mystic would have a good laugh at how we are ruled by our perceptions of value spending huge amounts of time and energy chasing after these consolidated pieces of little particles of light and sound that we perceive to be rare. Unfortunately we are controlled by the perceptions of the mind and senses, and therefore when given extra time and energy that is not consumed in our efforts to survive we spend our time chasing those things that others of us may not have. Humans have always sought to acquire those things that other humans did not own, and as long as the perception of rarity exists, most of us will spend large amounts of our time and energy in pursuit of those rare items. The categories of these items are not limited. Big houses are rarer than small ones, bigger faster cars are rarer, diamonds are rarer than quartz, old coins are rarer than new ones etc. Most everyone on the planet is chasing after items where the quantity of those items are perceived to be rarer. Obliviously Gold and Silver are rarer than paper, but any hard asset you can take personal possession of is rarer than paper. Not many of us want to live in a cave surrounded by bails of paper money.
If you boil down the basic problem with all personal and governmental financial systems it really comes down to credit or debt. All religions try to explain this to their followers, “never a borrower or a lender be”. Using credit and debt to buy today what you may not be able to afford to pay for tomorrow is the ruin of all individuals and governments. For thousands of years mankind lived basically within their means. Sure there was some credit extended to individuals and governments in times of desperation or for very large purchases that could not be paid for immediately, but the ability to repay the debt was a largest consideration, and this is not the case today.
For whatever reason, and at some point in the Worlds recent past, we decided as individuals and as governments that we wanted to own those perceived rare items of life today, and credit was the way to get them. In the case of governments they quickly decide that they could not print enough paper to give people all the things they demanded as long as the paper had to be backed by some hard asset, so they relieved themselves of this burden by printing paper backed by nothing, and all of this paper is only a PROMISE to pay. As long as we perceive this paper to be of value we will keep acquiring it, but once we figure out that so much has been printed that the promises can never be met i.e. the amount of paper promises greatly exceeds all the hard assets, we will not want it any longer and instead will want direct possession of the assets.
This is our situation today in America, as well as in other countries around the World, many of us realize that the governments promise to pay with these little pieces of paper can never be met. The largest example of this is the American entitlement programs. The U.S. government has promised to give us 74 Trillion dollars in the coming decades but the entire value of all of the assets in America is only 45 Trillion!
Everything is perception so it is critical to "correctly" percieve things. Certainly the scientist has little more understanding of things than the mystic however, this understanding has more basis in reality and much more of a predictive value. A mystic is unlikely to be able to tell you when an eclipse is about to occur for instance. This understanding also has some practical val- ue in it's ability to produce the magic tricks we refer to as technology. While no one may truly understand how our machines work there is little doubt that they've created great wealth and large numbers of people to enjoy it.
Money, perhaps mpore than anything is perception. Whether the money is gold, cowry shells or a few little electrons in a computer system makes absolutely no difference. Gold standards can be eroded and a populations attention can be turned to the location and assembly of cowry necklaces. Where money is simply electronic or paper it is much more easily created to destroy the value of existing money. But it's all money so long as we think it's money.
Do what you will with your money and value it as you please, but it's value is determined by the average perception of people which is largely driven by the cost of the items they need and the effort required to obtain it.
Some interesting events - the Fed raised interest rates which caused a small rally in the dollar, which caused gold to fall in USD.
The Fed's actions will be predictable, as they always raise or lower interest rates in long term trends, clearly they have many periodic rate increases planned.
Interest rate increases always create more demand for our currency, strengthening the dollar against other currencies.
The USD is close to historic lows against the Euro and other currencies.
Gold prices increases have only tracked the falling USD in the past three years, in other words there has not been a true gold rally, but only a falling USD.
As the Fed continues to increase interest rates, will the USD buck historic trends and continue to plummet beyond normal trading ranges? Or will the dollar begin to strengthen, causing gold to fall in USD?
The direction of the USD will determine future gold prices in USD.
Bill
Robert Scot: Engraving Liberty - biography of US Mint's first chief engraver
I think I would have to add that the USD will only be one factor determining the price of gold, silver, etc.
One has to take into account the growing industrialization of both China and India and the need for precious metals not only for production of technology, but also the desire to own it by billions of people who haven't before had that option as those countries move into a first world status.
If a billion Chinese and Indian people were to decide they each wanted to own a few ounces of gold and now they can actually achieve that possibilty...........well, I think you get the picture. Gold is still a fairly finite element and production will not be able to meet demand as those demands rise.
"Lenin is certainly right. There is no subtler or more severe means of overturning the existing basis of society(destroy capitalism) than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose." John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
<< <i>I think I would have to add that the USD will only be one factor determining the price of gold, silver, etc.
One has to take into account the growing industrialization of both China and India and the need for precious metals not only for production of technology, but also the desire to own it by billions of people who haven't before had that option as those countries move into a first world status.
If a billion Chinese and Indian people were to decide they each wanted to own a few ounces of gold and now they can actually achieve that possibilty...........well, I think you get the picture. Gold is still a fairly finite element and production will not be able to meet demand as those demands rise. >>
Right on point 1. Far as ownership,the Chinese have watched what happens in Vietnam where cost for real estate at least as far as Saigon is concerned in valued at higher levels than NYC, or even Tokyo for that matter and is traded by and large using paper ( for the governmenyt records and taxes) and the real price is paid on the side in gold. MOST of the governments desired theft goes unpaid because of this practice. The Chinese have in part "legalized" gold and real estate ownership" as the Chinese have also taken lessons from the US IRS practices and are hoping to illuminate assets so as to tax them.
It will never work the way they are hoping it will. Er, maybe in a few generations from now. Why disclose your assets if you don't have to?
The dollar is rapidly becoming a useless piece of paper in mainstream Asia with very few regular merchants even willing to accept dollars as payment from the simple things like restarant bills to souviniers. They will accept euro's and I never saw or had any trouble using rmb to pay for things anywhere, and when it comes to big stuff, from autos, to real estate ,gold is the most desired medium of exchange.
Gold prices increases have only tracked the falling USD in the past three years, in other words there has not been a true gold rally, but only a falling USD.
As the Fed continues to increase interest rates, will the USD buck historic trends and continue to plummet beyond normal trading ranges? Or will the dollar begin to strengthen, causing gold to fall in USD?
Nysoto
I think you are correct that a great deal of the price increase in Gold has been due to the falling value of the dollar. If we assume that in 1932 a $20 gold coin with about an ounce of gold was worth $20 and we use that as a benchmark, then adjusted for inflation what cost $20 in 1932 would cost $242.87 at the end 2004. So inflation adjusted Gold is currently over priced and may fall as the dollar strengthens due to higher interest rates. On the other hand as Charley pointed out perception is everything, and as Deadhorse and Mrearlygold just pointed out several things can happen to trigger a no confidence vote on the Worlds paper money. We have already discussed how worldwide the paper printing presses are running at full tilt.
Here is something I learned yesterday that is truly amazing. I don’t know if this is how things work in other countries, but this is how U.S. trade deficits are handled in China, and it is creating more and more inflation there.
Lets say a Chinese manufacturer sells 50 million dollars worth of products to Wal-Mart to sell in the U.S.
Wal-Mart natural gets paid in U.S. dollars, and it pays its suppliers in U.S.dollars. The money is wired direct to the Chinese businessman’s account.
The Chinese businessman needs Yuan’s, or some other Chinese currency, to pay his suppliers and workers in China, so he goes to China’s central bank. The Chinese central bank PRINTS up 50 million dollars worth of Yuan’s and gives to the Chinese businessman the Yuan’s and keeps the 50 Million U.S. dollars which it uses to buy U.S. treasuries, or loans to other Chinese companies to buy IBM’s PC company or Canadian mining companies, or oil, or what ever it needs.
Naturally what has happened is that there are now 50 million dollars worth of Yuan’s back in circulation in China, but there s also the 50 Million U.S. dollars in circulation, so the 50 million has now turned into 100 million all done via the paper printing press.
With this kind of manipulation going on with worldwide currencies how long can these ships keep floating?
<< <i>If a billion Chinese and Indian people were to decide they each wanted to own a few ounces of gold and now they can actually achieve that possibilty...........well, I think you get the picture. Gold is still a fairly finite element and production will not be able to meet demand as those demands rise. >>
I just read somewhere that out of the 2400 tons of gold mined per year, India alone consumes 1000 tons per yer. The remaining 1400 tons is for the rest of the world. I believe since the Chinese are now buying this supply will now be restricted to somewhere around 800 tons.
I predict interest rates will rise and the dollar will follow suit. We will get the budget deficit under control and we will all live happily ever after. The end.
I watched Jack Welch on CNBC this morning and he has been amazed at the loss of faith in the dollar and can't quite figure out why. He gave a few comparisons of the US economy to Germany"s and Japans economy.
Budget Deficits: United States.....4-4.5% of GDP Germany............5% of GDP Japan.................6-7%
Unemployment Rates; United States...5-5.5% Germany..........10%
Economic Growth: United States....3-5% Germany............1%
The comparison was not just Germany. Germany was an example of the EU Countries as a whole. The Euro is much stronger than the dollar and it should be just the opposite given the economic conditions of the EU Nations. They are in much worse shape than we are.
Comparing our fudged stats for GDP growth and unemployment to other countries is like apples to oranges. I seriously doubt Germany puts in the effort that the BLS does to downplay the CPI. The CPI plays a strong role in bolstering the GDP growth figures. Our GDP numbers are also bolstered by the fact that we do not include the outflow of payments to other nations as a loss. That used to be called GNP and was canned in favor of the more "friendly" GDP #.
I'd say that once you take out the fudge our GDP growth numbers are closer to 1-2% than 3%. The unemployment number should probably be closer to 10% than 5% if you count the people who are capable of working but are not working.
<< <i>Comparing our fudged stats for GDP growth and unemployment to other countries is like apples to oranges. >>
That's right!! There is no comparison. The EU Countries are stagnating and Socialism is choking them off. If you are trying to say that the Europeans are better off than we are, then you're in denial of the facts.
<< <i> The unemployment number should probably be closer to 10% than 5% if you count the people who are capable of working but are not working. >>
What???? Now you're just making stuff up. Where in the world do you get a statistic like that? If we had an unemployment rate of 10% this country would be in a serious economic crisis. I've lived in Fla. during many of the economic booms and the employment rate would never get any lower than 4-4.5%. Even when jobs were plentiful, the rate never wants to break this barrier. You have a certain number of people who will not work, period, and then you have the people in between jobs. A 4-5% unemployment rate is considered by some to be full employment. Or as full as you will ever get. Oh, Maybe Germany is fudging their numbers also and their actual unemployment rate is closer to 15%???? Who knows?? My point was, we are much better off in this country than the rest of the worlds population and I get tired of the doom and gloomers saying we are the verge of an economic collapse. I'll tell you something else!! If this country goes down financially, then we will be taking the rest of the world with us. The gold bugs can amass all the gold they want. But you can't eat gold. One other thing about the dollar. Believe me when it is in the interests of the rest of the world to stop the fall of the dollar they'll start buying dollars to prop it up. It is definitely not in their interest to have a weak dollar. We are nearing that point now. The Europeans are now starting to buy more US goods because of the weak dollar. Talk to someone in NY City. People are flying in there to load up on US goods. On the flip side, American tourists are buying virtually nothing when traveling overseas because there products are to expensive. China will start buying dollars, because the products they manufacture will start to become to expensive. A weak dollar is great for our exporters. The ones we have left, that is. Sorry if I'm rambling....I'm tired.
True, you may not be able to eat Gold. But remember that when Hitler rose to power, you couldn't buy a loaf of bread with a wheelbarrow full of German Marks either. The Saudis can't eat sand or oil. Food production is one thing we do and do very well.
I'll take my chances with precious metals over paper if push comes to shove. I'm not saying only own metals but one should certanly consider it as a real solid part of thier portfolio.
Particilarly given all the possible economic and political upheaval that can and most certainly will occur to a larger or lesser degree in the future.
Many people have laid out those scenarios in this thread and the truth is, we are smarter than the average ducks out there in their nine to five, paycheck to paycheck lives.
RR, you are also right on the money regarding the fudging of the books and I suspect you are closer to the truth on the unemployment rates than most are aware of. As an example, McDonalds here in Houston has to pay people in the $9 and $10 per hour starting range just to get anyone to take the job. There are alot of people, particilarly younger ones who simply have decided not to work.
I have to hire 10 to 15 guys to get one that will actually show up and work in our warehouse operation, and we have to pay well for unskilled labor, in the $12 per hour range for highschool dropouts. It's amazing how lackadasical this generation, what are we up to now, the "Z" generaton is.
"Lenin is certainly right. There is no subtler or more severe means of overturning the existing basis of society(destroy capitalism) than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose." John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
But food does not store indefinitely and water cannot be transported over long distances inexpensively in exchange for food and vice-versa.
This is why gold and silver became an ideal substitute for food, water and rare spices as a medium of exchange.
Has always been and will always be.
The Romans tried to deceive their citizens and populace with silvered coinsin the 2nd century AD. Didn't work after 30 or 40 years. The populace finally caught on. We are only hitting the 40 year point ourselves. Bad money drives out the good money. It will be not too long before the public will insist on more accountability in our currency after seeing pictures of Fort Knox.
Indeed, the US dollar will eventually strengthen as the Feds raise the discount rate. In fact, they have just raised the discount rate to 2.25% from 2% a few days ago. This is an increase of 1.25% from the low rate of 1.0% a year ago, a rate not seen since 1959. I expect rates to rise to 3% by next summer with a resulting prime rate of 6%. This will somewhat help to stabilize the US dollar at current levels. But the Fed may not be aboe to stop there and may need to raise rates further.
I believe that higher rates will definitely cool off the housing market and the coin market as well by next summer. Not a big blow off but a definite soft market similar to what we saw in 1969-1970 when the Feds raised rates and created the credit crunch we saw in 1969-1970. That was also the beginning of the aftermath of the Vietnam War in which we had spent on guns and butter. The same thing is happening now and we will see history repeat itself.
The world will not end next year. But I foresee the US again raising full SS eligibility to age 70 for the post baby boomer generation with a sliding scale between 66 and 70 for those born between 1955 and thereafter. I also see the US pushing back the full eligibilty of medicare from age 65 to age 70 as well with a sliding scale of partial eligibilty in between in which seniors will have to pay even more to have medigap insurance. This will be very unpopular but I think it will eventually pass.
Until then, this is going to be a very interesting ride!
I do think Elwood has made some good points in that this fiat paper World we live in is not an American problem but a World problem. If we cannot assume an isolationist policy then the very least we can do is begin to is to concentrate on rebuilding our manufacturing base and lowering our entitlement programs to a self-sustaining level. It may be that one of the very things we need is what is being done with the devaluation of the dollar. It is obvious that this makes our goods cheaper in other countries and theirs more expensive here. The Europeans hate this and that is a very good sign.
It does appear that the president and the congress may go to work on some of these issues next year, and many will not like the outcome of what will be proposed, but lets hope the reason prevails. These problems must be worked on as soon as possible. I also thought it was interesting yesterday that the Italian leader agreed with the President, and commented that his country had the same problems with the promises they had made to their baby boom group.
One other area that must be worked on eventually is the illegal alien problem. In another thread several weeks ago someone here ask who will work for $7.50 per hour if we get rid of the illegals? The answer is that it appears that many of the boomers with little or no savings will need these jobs, so we need a firm immigration policy. In a recent discussion with a friend in China it appears to him that the Chinese will NOT be detecting the Yuan from the dollar, or least they do not want to. He said the Chinese see their fate tied to the American consumer. He also said that many people there are very worried about their countries ability to keep up the growth pace as well as the inflation in their money. “As many people that can afford to are trying to buy some Gold, Silver, land, or other hard assets.”
Here are some additional facts on China,
“Official US policy repeatedly urges the need for a substantial REVALUATION of the Chinese Yuan in order to reduce ballooning Chinese exports to the US market. Some recommend a Yuan up-move of as much as 40%. Many US domestic manufacturing industries have been gutted by Chinese competition. Chinese 'Barbie Dolls' as an example sell for less than 15% of the cost of an American 'original'. How can the US compete?”
“Secondly, the Chinese are reading their economic history books. The first PLAZA Accord, in 1985, ruined Japan and drove her into a 14-year deflationary recession. China needs similar treatment like a hole in the head. She still has 200m unemployed. They are being absorbed into the economy at a rate of 14m a year. She desperately needs a further decade of growth.”
We can assume they want that growth provided mainly by US!
This is what the Chinese really want, what do you think?
Central bank Deputy Governor Li Rougo described the extent of the wage disparity as follows: "The appreciation of the Yuan will not solve the problems of unemployment in the US because the cost of labour in China is only 3% that of US labour. They should give up textiles, shoe-making and even agriculture…. They should concentrate on sectors like aerospace ….sell those things to us …we would spend billions…. We could easily balance the trade."
Chinese Premier Wen bluntly told US Treasury Secretary John Snow that the dollar crisis is America' s problem, not China's. He could have added that America needs to start living within her means before trying to pass the buck and blame trading partners like China. Wen well knows that a sharp appreciation of the Yuan will drive China back into deflation.
The US is the dominate world power because of a century of innovative technology combined with entrepreneurial freedom and leadership, education, and military power. Innovation will always attract and create capital and the prosperity that goes with it. Exchange rates, interest rates, and gold prices will continue to ebb and flow in their cycles. My only concern with the US economy is losing the freedom and ability to create new cutting edge industries through innovation. Stockpiling a commodity with limited commercial and industrial use will not have an effect on this.
Robert Scot: Engraving Liberty - biography of US Mint's first chief engraver
One guys take on one state although much of this story is right on for the whole country obvoiusly.
Tom
West Virginia, Environmentalism, and Secession From the 'Great Wish Machine' by Eric Englund by Eric Englund
Much has been written about various bubbles and manias. History is replete with them: Holland’s tulip bulb mania, the South Sea Company, the dot.com and telecom bubbles, the current real estate bubble, etc. Taking the real estate bubble as an example, many Americans now have the expectation that it is possible to get "wealthy" by simply borrowing money to buy a house, make the monthly payments, and then breathlessly watch home equity grow to the moon – wealth creation without effort. Ah, but there is a greater mania in the United States. It is the belief in big government as the "great wish machine." The larger the government grows, it is believed, the stronger the wish machine becomes. Both Democrats and Republicans proclaim to be the most skillful at operating this machine and promise to make it better than ever – so please vote accordingly and watch your entitlements and benefits grow without bound.
In 2000, something unexpected occurred. When Al Gore promised to paint the great wish machine green, West Virginians rejected environmentalism and unwittingly put the neocons at the helm – another unintended consequence of environmentalism. Unfortunately, the Bush administration’s borrowing and spending habits have reached such nutty proportions that there is no sense of fiscal sanity left in Washington, D.C. In fact, the neocons have so accelerated the growth of the American welfare-warfare state, that it may reach the breaking point, as did that other welfare-warfare state named the Soviet Union. The laws of economics, after all, cannot be defied. Hence, when it is realized that the great wish machine is a fraud, Americans may outright withdraw their support of the federal Leviathan. Could this mean secession and a break up of the United States?
Most Americans find the prospect of secession to be extremely unlikely in light of the Civil War. Then again, do not lose sight of the fact that the Democratic Party found it highly unlikely that West Virginia’s electoral votes would go to a Republican presidential candidate. Frankly, Democrats never expected their own party’s environmentalism to be its own Achilles heel. Nonetheless, in the 2000 election, a majority of West Virginia’s voters displayed uncommonly clear thinking and rejected the premise that governmental/federal central planning (albeit "green" central planning) paved the road to prosperity. Al Gore was seen as a threat to West Virginia, and rightly so. Ironically, the very neocons the West Virginians help thrust into power may eventually be deemed a threat to all states. After all, this is perhaps the most belligerent, reckless, and profligate administration the United States has ever seen. Consequently, George W. Bush’s "guns and butter" approach to governance may very well break the bank. Should this occur, the central government may be identified as nothing but a redistributionist and bankrupt parasite unworthy of further support – for the folly of social democracy will have been finally exposed. At this point, secession from the union would become a logical choice.
WEST VIRGINIANS VOTING AGAINST ENVIRONMENTALISM GAVE BUSH THE PRESIDENCY
To support the assertion that voting against environmentalism put George W. Bush into the White House, let’s look at West Virginia’s Electoral College history since the Great Depression:
Year WV Electoral Vote Winner Party Comment 1932 Franklin Roosevelt Democrat Won election 1936 Franklin Roosevelt Democrat Won election 1940 Franklin Roosevelt Democrat Won election 1944 Franklin Roosevelt Democrat Won election 1948 Harry Truman Democrat Won election 1952 Adlai Stevenson Democrat Eisenhower won election 1956 Dwight Eisenhower Republican Won election 1960 John F. Kennedy Democrat Won election 1964 Lyndon Johnson Democrat Won election 1968 Hubert Humphrey Democrat Nixon won election 1972 Richard Nixon Republican Won election 1976 Jimmy Carter Democrat Won election 1980 Jimmy Carter Democrat Reagan won election 1984 Ronald Reagan Republican Won election 1988 Michael Dukakis Democrat George H.W. Bush won 1992 Bill Clinton Democrat Won election 1996 Bill Clinton Democrat Won election 2000 George W. Bush Republican Won election 2004 George W. Bush Republican Won election
In looking over this table, it is obvious that West Virginia’s citizens are quite loyal to the Democratic Party. It is notable that when Republicans Eisenhower, Nixon, Reagan, and George H. W. Bush won their first-term presidential elections, West Virginia’s electoral votes went to the losing Democrat. In turn, what is highly noteworthy is that George W. Bush is the first Republican (since the Great Depression) to win West Virginia’s electoral votes en route to becoming a first-term president.
Had West Virginians stuck to their historic voting pattern (since the Great Depression), Al Gore would have won West Virginia’s 5 electoral votes and would have won the presidency with 271 electoral votes to George W. Bush’s 266 electoral votes (of course, the reverse happened with Bush receiving 271 electoral votes to Gore’s 266). Consequently, the 2000 presidential election did not swing to Bush because of Florida, as Al Gore would have won the presidency – regardless of what happened in Florida – had he carried the traditionally Democratic state of West Virginia. As Michael Kilian, a national correspondent for the Chicago Tribune, stated in his October 20, 2004 article (W. Virginia Delivers Notice to Bush, Kerry) key issues to West Virginians in the 2000 presidential election "…were gun control, anathema to West Virginians, and Al Gore’s high profile as an environmentalist, sparking fears he would put the state out of the coal business." With 40,000 West Virginians directly employed by the coal industry (27,000 of which are coal miners), it is no wonder why environmentalism cost Al Gore West Virginia’s 5 electoral votes and, therefore, the presidency.
To put an exclamation point as to why West Virginians rejected Al Gore, the following goofy excerpt comes directly from the 2000 Democratic Party Platform:
Eight of the ten hottest years ever recorded have occurred during the past ten years. Scientists predict a daunting range of likely effects from global warming. Much of Florida and Louisiana submerged underwater. More record floods, droughts, heat waves, and wildfires. Diseases and pests spreading to new areas. Crop failures and famines. Melting glaciers, stronger storms, and rising seas. These are not Biblical plagues. They are the predicted result of human actions. They can be prevented only with a new set of human actions - big choices and new thinking.
Of course, West Virginians understood that some of the "big choices" would include ways to regulate and legislate coal mining out of existence. Coal-fire power plants, years ago, were blamed for causing acid rain (another environmentalist scare) and West Virginians have not forgotten this either. With so much at stake, it is not surprising that George W. Bush won this heavily-Democratic state and, correspondingly, the presidency. It was the West Virginians, in the end, who made the big choice by withdrawing support from the Democratic Party. Plain and simple, this unlikely event came to pass (i.e. West Virginia voting Republican and swinging the election to Bush) because a state’s tangible economic interests were put ahead of the Democratic Party’s ideology.
THE GREAT WISH MACHINE
Today, it does not matter if one is a Democrat or a Republican, big government is demanded by constituents of both parties. So what is demanded of our Santa Claus government? Well, just about everything – just look at the list:
A steady income during one’s retirement years – Social Security Subsidized medical care for the poor and elderly Prescription drug benefits for the elderly Public education available to all children for grades 1–12 Homeland security to keep us safe from terrorists Government sponsored enterprises (i.e. Fannie Mae and Freddie Mac) to help poor and middle class Americans buy a home Protection from drug dealers and drug cartels – with the help of the Drug Enforcement Agency FDIC "insurance" for bank deposits up to $100,000 Pension Benefit Guaranty Corporation (PBGC) "insurance" for private pensions participating in this program Unfortunately, this list goes on and on. Americans, quite disturbingly, have come to believe the great fiction (to paraphrase Frédéric Bastiat) that, via government, everyone can live safely and securely at the expense of everyone else. Republicans and Democrats alike look to big government to take care of them, in one manner or another, from cradle to grave. It is as if somehow government can magically overcome scarcity and provide a trough from which all can feed. This is pure fantasy. It certainly seems that the bull-market mania in big government borders on mass mental disorder. Why not have this federal wish machine promise each American 10,000 ounces of gold, a personal security detail (like the President’s), and perfect health for life? If you revisit the list above, you’ll see that government is already in the fantasy "business." And yet, people continue to want more benefits and entitlements. In reality, Americans are living in a state of delusion – redistribution via taxation and inflation be damned – regardless if they live in "red" or "blue" states.
A CHINK IN THE GREAT WISH MACHINE’S ARMOR
Viewed properly, environmentalism is a nihilistic movement bent upon rolling back the industrial revolution and dismantling capitalism – thereby making every state a "green" one populated by noble savages. The most effective method for achieving these aims involves attacking the very energy sources needed to fuel the machinery of capitalism (i.e. coal, oil, and natural gas). Accordingly, environmentalists use scare tactics by conjuring up such frightening nonsense as acid rain, global warming, and even global cooling (back in the 1970s). Environmentalism, ultimately, is a socialist movement seeking the political power necessary to destroy private property rights in order to bring about their utopian vision of a "green" Garden of Eden. Without a doubt, environmentalists/green socialists believe government is a wish machine that will somehow provide health and prosperity for all in spite of dismantling the only system – capitalism – capable of bringing ample food, shelter, clothing, and medicine to the masses. Environmentalism is a delusional movement to be feared and rejected.
As a matter of fact, in 2000, West Virginians did just that – they rejected the lunacy of "green" central planning. Evidently, West Virginians understood that having an honest, hard-working job provided the keys to self-reliance, providing for a family, and saving for retirement. If the state’s coal mines were eventually to be shut down, then what would become of all the displaced workers and families? West Virginians didn’t see any solutions coming from the great wish machine in Washington, D.C. – especially considering that Al Gore and his ilk put spotted owls, snail darters, and old-growth forests ahead of human beings. West Virginians properly concluded that the federal wish machine wasn’t capable of providing replacement jobs and that the best course of action was to vote for Bush in order to protect the local coal industry and its related jobs. Essentially, West Virginia "seceded" from the national Democratic Party over local jobs.
CENTRAL PLANNING LEADS TO INSTABILITY
Under George W. Bush, the federal government has grown to proportions that would even make FDR and LBJ blush. No bill, spending or otherwise, has ever been vetoed by this president. So it is no wonder that the national debt has grown by about $1.8 trillion since Bush-43 took office (as of 12/15/04 the national debt stood at over $7.5 trillion). There has never been a more profligate administration in U.S. history. The neocon wish machine seems to have unlimited money and credit. In turn, this administration is operating under the hallucination that America can have its guns and butter.
This is where Alan Greenspan, and the Federal Reserve, enter the picture. It is the Federal Reserve that helps create the illusion that our Santa Claus government has unlimited resources and that it can make good on any promise or entitlement. This wish machine is fueled by the Federal Reserve’s printing press that electronically creates money "out of thin air." Such a scam can last for decades. Yet, there are limits to how much fiat money and credit can magically be created before Santa Claus comes crashing back to earth.
The U.S. Government may be reaching this limit. When combining the aforementioned national debt with other unfunded liabilities, the GAO estimates that the federal government has $53 trillion of unfunded liabilities. To say that our monetary and governmental central planners have overreached is a gross understatement. It is all too obvious that the federal government’s redistributionist schemes will be exposed as frauds thereby resulting in the breaking of "promises" to tens of millions of Americans who have come to rely upon the income and services "provided" by Uncle Sam (aka: Santa Claus or the great wish machine). The mass delusion that government can provide for all, from cradle to grave, certainly paves the road to perdition. On this matter, here is what the eminent Austrian economist – Dr. Hans Sennholz – has to say:
The ultimate destination of the present road of political fiat is hyperinflation with all its ominous economic, social and political consequences. On this road, no federal plan, program, incomes policy, control, nationalization, threat, fine, or prison can prevent the continuous erosion and ultimate destruction of the dollar. (Source: Reaping the Whirlwind by Jim Cook)
What happened during Weimar Germany’s incredibly destabilizing hyperinflation is instructive. Otto Friedrich described the ramifications of Germany’s hyperinflation in his most excellent book Before the Deluge:
The fundamental quality of the disaster was a complete loss of faith in the functioning of society. Money is important not just as a medium of economic exchange, after all, but as a standard by which society judges our work, and thus our selves. If all money becomes worthless, then so does all government, and all society, and all standards. In the madness of 1923, a workman’s work was worthless, a widow’s savings were worthless, everything was worthless. "The collapse of the currency not only meant the end of trade, bankrupt businesses, food shortages in the big cities and unemployment," according to one historian, Alan Bullock. "It had the effect, which is the unique quality of economic catastrophe, of reaching down to and touching every single member of the community in a way which no political event can. The savings of the middle classes and the working classes were wiped out in a single blow with a ruthlessness which no revolution could ever equal…The result of the inflation was to undermine the foundations of German society in a way which neither the war, nor the revolution of November 1918, nor the Treaty of Versailles had ever done. The real revolution in Germany was the inflation."
The irony here is that the social democracy the neocons want to force upon the globe, will end up collapsing all around them at home. The great wish machine will be broken, the neocons will be discredited, and the bull-market mania in government will transform into a growling bear. Yet, where will this lead?
IS THE NEXT "BIG CHOICE" SECESSION?
A political consequence, that may emerge from hyperinflation, is secession from the union. On this matter, let’s refer to Hans-Hermann Hoppe’s masterful book Democracy: The God That Failed:
Initially, secession is nothing more than a shifting of control over the nationalized wealth from a larger, central government to a smaller, regional one. Whether this leads to more or less economic integration and prosperity depends largely on the new regional government’s policies. However, the act of secession in itself has a positive impact on production, for one of the most important reasons for secession is typically the belief that they and their territory are being exploited by others.
Dr. Hoppe further states:
Just as political centralization ultimately tends to promote economic disintegration, so secession tends to advance integration and economic development.
Having political centralization lead to economic disintegration – at the state level – is exactly what West Virginians feared. Green central planning, beyond a shadow of a doubt, would have put the fate of West Virginia’s coal mines in the hands of politicians in Washington, D.C. For example, had Al Gore won the presidency and had the attack against coal mining begun in earnest, the economic disintegration Dr. Hoppe wrote about would have become quite real for West Virginians – once again, we must not lose sight of the fact that this is exactly what West Virginians feared. It stands to reason that avoiding (or mitigating) economic devastation provides more than sufficient grounds for seceding from the union let alone "seceding" from a political party.
On a more general level, as described above, the federal government has become a wealth-redistribution parasite funding its welfare-warfare schemes by borrowing, printing, and spending money with reckless abandon (do not lose sight of the fact that inflation is a form of wealth redistribution). With the federal government having $53 trillion in unfunded liabilities, it would seem that Dr. Sennholz’s prediction of imminent hyperinflation is nearly a foregone conclusion. Should political and economic instability emerge due to hyperinflation, then Americans most certainly will feel exploited by the plutocrats in Washington, D.C. For why should Americans continue to support the draconian redistributionist schemes of the exploitative welfare-warfare state? The folly that, via government, everyone can live at the expense of everyone else will have been exposed as the deceitful racket social democracy really is. Quite conceivably, states, counties, cities, etc. will outright reject the federal government, secede from it, and work toward regaining economic prosperity. Maybe the independent-minded folks of West Virginia will lead the way.
December 16, 2004
Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website http://www.hyperinflation.net/
The Musical chairs of trading PAPER is a game out of control!
Former Prime Minister of Great Britain, Benjamin Disraeli, described confidence in money as suspicion asleep. In the world of irredeemable paper money, which has existed for over thirty years, the confidence issue is gradually coming to the forefront, especially with the US dollar, the world's reserve currency. The implications for Americans are profound.
In a $40 trillion world economy, the global irredeemable paper money system has mushroomed into a foreign exchange market where the turnover of currencies exceeds $1.5 trillion daily, according to the Bank of International Settlements. In other words, almost $550 trillion in foreign exchange transactions occur annually, compared with $7.5 trillion of annual turnover on the NYSE.
The foreign exchange market, which dwarfs all the worlds' financial markets, is an inter-bank or inter-dealer market based on a network of hundreds of major banks across the globe. Major foreign exchange centers are London (50% of the market), New York, Tokyo, Zurich, Frankfort, Hong Kong, Singapore, Paris, and Sydney. Trades above $1 million constitute the institutional side of the market, while those below $1 million represent the retail side.
Players are typically governments and central banks, commercial and investment banks, hedge funds, businesses, consumers, investors, and speculators. Of all transactions, 85% involve the seven major currencies: US dollar, Japanese yen, Swiss franc, British pound, euro, Canadian dollar, and Australian dollar.
Because the US dollar has been the world's dominant reserve currency for over 60 years, the American mindset seems to be that the reserve currency status is secure and permanent, regardless of the America's irresponsible economic policies and resulting economic imbalances. It seems to have been forgotten that over the past couple thousand years, dominant international currencies have come and gone.
Without drawing much attention from American mainstream economists and politicians, the US dollar's position as a reserve currency has diminished from 80% thirty years ago to only about 65% currently. After all, the euro area represents a large economy, not much smaller than the US, and is the world's biggest exporter. It has financial markets deeper and actually more liquid than the US, and the euro area is a net creditor while the US is a net debtor nation with a history of using currency devaluation to reduce external deficits.
Through mid-2004 those central banks holding the most dollars were financing 3/5 of the US deficit. In fact the global foreign exchange reserves in dollars (65%) have risen $1 trillion over the past 18 months, not because the US economic prospects are so good but because US dollar purchasers are attempting to hold down their own currencies for competitive trade purposes. The US today has net foreign liabilities, which by year end should reach $3.3 trillion or 28% of GDP.
Foreign exchange traders in Japan and China are especially becoming unnerved by the dollar these days. Japan's US dollar holdings have reached $817 billion (90% of foreign currency reserves) and China's exposure at $600 billion (35% of foreign currency reserves)
Consumer spending represents two-thirds of the $11 trillion American economy. That spending contribution has propelled the economy for years. Personal savings sit at a near record low of 0.2% of after-tax income. The average American household now spends 13% of its after-tax income to pay off debts, the highest in almost twenty years. American households are scrambling to pay mortgages and car loans, and are carrying more than $8,700 in credit card debt. So it comes as no surprise that an American declares bankruptcy about every 15 seconds, five times the rate of 25 years ago.
So here is the real question, what will it mean to Americans if the Dollar is no longer the Worlds reserve currency? How would this change the average Americans life?
So here is the real question, what will it mean to Americans if the Dollar is no longer the Worlds reserve currency? How would this change the average Americans life? >>
The chickens started coming home to roost a couple years ago. This is one of the greatest reasons that the dollar is falling and will continue to fall. Still, every drop in the dollar makes it more stable rather than less stable. So long as people believe money has value it will. A drop to sustainable levels tends to increase the belief that it has value (albeit less than before).
Whether currency is based on gold, or paper it has always been susceptible to panics. A greatly overvalued money is far more susceptible.
The biggest danger to the dollar really is inflation because with the mountains of debt the fed will not have the option of greatly increasing interest rates to help shore up the dollar. We will have inflation but it's very difficult to predict how much.
My question here is a serious one. I have no idea what it would mean to us in the U.S. if we dropped to second, so how important is it for the Dollar to be the Worlds reserve currency?
So here is the real question, what will it mean to Americans if the Dollar is no longer the Worlds reserve currency? How would this change the average Americans life?
Well, we will certainly survive. But we will become a country similar to England in which (except for the Railroad system) our infracture just keeps aging and aging some more. New roads, bridges, airports, etc. will be a thing we will only dream about. We will see an aging New York City, Chicago, LA, and other cities skylines, while other cities eventually surpass us.
London was once the world's most magnificent city. Its roads were once "paved with gold." Even before WWII, London was surpassed by New York City.
New York City will soon be surpassed. We will be paying so much much interest on our debt such as the South Americans that we simply will look like the following:
The former rich who still owns the aging mansion, laid off nearly all of their staff, keeps the heat at 62 degrees, cannot keep up the maintenance on the home, no longer has the lavish parties, etc. The children no longer want anything to do with the mansion and will sell it almost for a song once the parents pass away. The children will live much poorer than their parents, in cramped apartments, etc.
Take a look at the most recent example of abuse of currency and foreign exchange debt; Argentina. This former proud nation is literally in shambles, economically in the past 5 years. Its once strong legal system is in trouble, kidnappings once unhead of is now commonplace. The people have been truly suffering there. It is a scary picture for us.
Collectors such as ourselves may see a sea-change in collecting habits as well. but at least we seem to be prolific savers, certainly much more than the general population.
The Europeans are now starting to buy more US goods because of the weak dollar.
While true on the surface, everyone is assuming that our manufacturing capacity to export goods is unchanged over the past 4 years. And that is likely NOT the case. You have to have thriving businesses and many more new ones to export and take advantage of our lower dollar. This is what is supposed to happen in a true economic recovery if the capital was spent on infrastructure which in our case it wasn't. The money loaned to us and printed by the Treasury during the past 3-4 years has gone to inflate our housing bubble and to a lesser extent the stock market. In past recoveries the money went to rebuild the economy, not inflate bubbles further. This is a thorn to our recovery and probably whey we have already seen the best.
The models presented to us by Japan and Europe are just harbingers of where we may be headed. Being the owner of the world's reserve currency is the only reason we aren't already there. Along with Oreville's comments on rasing the age limits on benefit programs, we will also be seeing significant increases in our payroll and income taxes over the next 3-10 years. Proof that gold is considered currency by the world is the fact that it has been trading lock step with the US dollar for several years.
Comments
Gentleman, it has been bad enough that we have had to sell much of America to the Germans, the Japanese,and the Arabs, but now I suppose the Americans working for IBM PC will be working for the RED Chinese.
China and Japan brought 400 billion worth of T-bills and one way to get rid of the good old US paper is buy companies and hard assests. Expect to see more, they have a lot of $$$$ to burn. The Arab's are now down for 75% US dollars to 61%, they are divesting also and putting the money in the EURO. It's a double whammy with them we've froze their assets before.
If I were some of you on this board buying coins at retail from a dealer you can forget about selling them unless gold goes way up. They've been like buying a car you put your money down and if your forced to sell your out a least 30% from buy/sell margins a dealer charges. And some are laughing at the hard asset people
Do you really think there's much of a difference between the US government and the Chinese government? If you do, please enlighten me as to the major differences and I put the emphasis on major.
Tom
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
Comments?
Tom
Home Values Built on Rotten Foundations
By Richard Benson
November 4, 2004
http://www.sfgroup.org
We have been gleaning facts "brick by brick" in order to write this story on the housing market and what it all means for Wall Street and the economy. The story is simple: While the Federal Reserve is slowly raising interest rates, it is our observation that the housing price bubble is already bursting of its own accord.
Let me begin with the sale of a property located a short distance away from our modest casa in Palm Beach, where the big houses have names. Casa Apava, an estate with ocean and lakefront land totaling 18 acres, is under contract for about $70 Million by its current owner, Ronald Perelman. This same property sold for $14.25 Million in 1987. If the sale goes through, it will be the largest residential real estate sale in United States' history. (In 2004, the property was assessed for $33.4 Million and taxes were a modest $664,000 a year, or $55,333 a month). Needless to say, the buyer is reported to be the chairman of NVR, Inc., the nation's eighth largest home builder. Clearly, selling homes at inflated prices to average Americans, who bought them using other people's money, has paid off handsomely for this buyer.
The size of the housing bubble should not be underestimated. In middle America, housing prices are up 44 percent over the past 5 years while in the momentum markets, such as Las Vegas and Southern California, annual "price pops" of 20 to 40 percent have commonly been recorded until just recently. Housing is big business. In 2004, about 8 million new and used homes will sell with a total transaction value of $1.9 to $2 Trillion. Mortgage debt will rise about $800 billion to $7.5 Trillion by the end of this year. The increase in mortgage debt represents the spending that the Bush Administration needed to keep a $12 Trillion economy moving forward.
The good news is that home ownership rose 2 percent to an all time record of 67.2; the bad news is what had to be done to get it there while the labor force participation rate has dropped 2 percent! In other words, easy credit and record low interest rates have boosted home sales. In previous economic cycles, the boost to home sales came from rising incomes and more jobs!
Easy mortgage credit has been fostered by new mortgage products. New types of mortgages have been introduced over the past couple of years that transfer interest rate risk from the financial institution (mortgage owner), to the borrower, while allowing the borrower to take out the largest possible mortgage. Long gone are the days when a borrower borrowed what was considered a safe, prudent amount that they could actually pay back. Today, the borrower takes every penny that lenders will lend. In turn, lenders have "gone crazy" because at the end of the day, the lender is not lending "his" money. The loans go to a GSE security, or into a rated mortgage security, which in turn is bought by a bank or Hedge Fund that is invested just for a short term in the "Cash and Carry Trade".
Today, the new mortgage lenders are offering various types of mortgages to keep mortgage volume and quick origination profits up. These mortgages include Adjustable Rate, Interest Only, 40-Year, and Piggy Back. A Piggy Back mortgage is a senior mortgage combined with a junior mortgage that can leave the borrower owing more than 110% of the cost of the house. Moreover, these lending tactics leave the borrower more than a bit stretched and short liquidity, so it is no surprise that new mortgages that allow the borrower to skip payments and add the interest to principal are becoming popular. What will lenders who don't lend their own money think of next?
If these new types of mortgages aren't good enough to stretch a consumer's buying capacity, a few years ago special charities sprang up to give a home buyer his 5% down payment. (Since a home builder was giving the charity their funds anyway, he could easily "give back" 5% of his 30% profit to charity. Clearly, charity starts at home!
On top of that, President Bush signed the "American Dream Down Payment Act of 2003". This legislation authorized $200 Million per year in down payment assistance to at least 40,000 low-income families. His goal was to increase the number of minority homeowners by at least 5.5 million before the end of the decade.
Under Federal Law, if you are a first time home buyer and your income is 20 percent less than the local medium income, your neighbor - the US taxpayer - will give you the greater of $10,000, or 6% of the cost of the home to buy it! Thus, sub-prime borrowers have influenced home ownership rates considerably.
However, there are some sobering facts about sub-prime borrowers. They are twice as likely to pick an ARM mortgage. (ARM mortgages are already 30% of new home loans and, as the Federal Reserve raises interest rates to normal levels, the monthly payment on an ARM will go up over 25 percent).
Moreover, sub-prime borrowers frequently refinance. Borrowers who refinance for cash-out are twice as likely to default as those who don't take cash out. Currently, 70 to 80 percent of sub-prime mortgages are debt consolidation loans which add credit card and other debt onto the house!
These sub-prime mortgages have a terrible record. At least 16 percent are delinquent or in foreclosure, and 4.6 percent are actually in foreclosure. The "funny money" down payment mortgages are worse, with defaults running close to 20 percent. The Federal Housing Administration, FHA, which insures these loans, says national FHA mortgage defaults are 11 percent, while in cities like Baltimore, Maryland and Queens, New York, the default rates for FHA loans are 21 percent and 25 percent. Perhaps more lenders could do what FNMA does with loans heading to default: Re-write half of them and call them "good". Remember, "A rolling loan gathers no loss."
Also, with the Fed making money free, and the government trying to give money to sub-prime borrowers regardless of their willingness or ability to pay, the private sector is trying to get back in the lead of "the easy money free for all". The FBI has reported that in the first 9 months of 2004, 12,100 complaints of suspicious activity in the mortgage market have been reported. Fraud hot spots include the usual suspect states such as Florida, California, and Nevada with honorable mention to Michigan, Illinois and Missouri. (At least this restores my pride in the Midwest). Moreover, the reported fraud would be higher except that i) most of the FBI are out looking for terrorists, and ii) fraud big enough to interest the FBI only includes something like the house or buyer not even existing.
Most mortgages written today have a bit of a fudge factor in the total honesty of income and net worth. Much information is excluded from debt and payment histories, and "appraisals are either wish or myth." Even the Mortgage Bankers Association recognizes that the home appraisal process is totally broken. In reality, with easy money allowing home prices to rise, fraud has become a way of life in the mortgage market because every participant makes a commission or fee if the mortgage closes. The higher the house price, the bigger the mortgage!
Looking back at the facts, it is easy to see that the foundation for housing prices is rotting fast. Buyers have stretched the truth, in every possible way, in order to buy the most expensive house for the lowest possible monthly payment. Given the fraudulent loan underwriting and emphasis on Adjustable Rate mortgages and sub-prime loans, it is clear that any rise in mortgage rates will bury housing.
At the high end of the housing market, there are reports of "Yuppie Fatigue". Super-sizing homes also super-sizes the heating and utility bills, insurance and maintenance costs. Those vaulted ceilings sure look nice, but watch out for the heating bill! Million dollar home foreclosures are picking up.
In the general housing market, 5 to 6 percent of homes already have more debt than home value, and homeowners are loading up with home equity loans and lines of credit. These home equity loans and lines will be up to $400 billion in 2004. Home equity can be spent, but as home prices stop going up, more and more homes will have "no equity left".
Currently, wages and salaries have not kept up with inflation despite "economic recovery"; bankruptcies will hit another all time record of over 1.6 million in 2004. Forty five percent of workers have total net assets of less than $25,000 (including the value of their house) and less than 4 of 10 workers save anything.
All of these facts were in place well before oil and natural gas prices headed north for the economic winter. Reasonable estimates show the average household bill for gas for the car and energy for the home will be $9,000 in 2005, up from $6,000 last year. Other costs of running a household would put people in the poorhouse, but it's too expensive to check in. This Christmas, Santa might skip homes that are draining their home equity.
Does housing always go up forever? In the United Kingdom where housing prices have soared like in America, prices fell last month. Real estate agents can't be found to talk about it, as it is bad for business. In San Diego, housing prices have been flat the last couple of months while the supply of homes for sale has jumped from a 2-month to an 8-month supply.
In Las Vegas there is an unfolding house price debacle. The national public has heard that the large developer, Pulte Homes, has cut new home prices by 8 to 25 percent, and 25 percent of new homes on order have just been cancelled. However, the public hasn't heard that i) 20 to 40 percent of sales in new planned unit developments were to speculators; ii) For-Rent signs in the complexes are everywhere. (To make some easy money on the flip, buyers of second and third homes planned to rent them out first); and, iii) Homes that sold for $750,000 just three months ago are across the street from homes that the same developer is selling today at a nice profit for $550,000. "The Las Vegas housing market has crapped out!"
In the United States, the supply of new homes has risen steadily to a 275 day supply. Six of the 14 largest home builders have debt-to-equity ratios of 95 percent, and home builders know exactly what the car companies know: "If you want to move inventory, cut the price!"
If home lenders would only read history they would know that from 1975 to 1995, on average home prices rose only 0.4% and with prices sagging now, they should ask for a larger down payment, and fast, or they will be facing big losses. In a market where housing prices are flat, it takes a 15 to 20 percent down payment to protect a lender against loss. The sales commission is 6% and REPO, carry, and marketing costs can run another 10% or more.
What would a rational down payment mean for housing prices? Today, a buyer who can scrape up $20,000 for a 5 percent down payment can afford a home priced at $400,000. If you ask him for a 10 percent down payment, he can suddenly only afford a home costing $200,000! Rational down payments will force housing prices down. Whatever you do, please do not share this observation with existing homeowners; they might want to sell before I have had a chance to follow up with Ron Perelman's example.
Richard Benson
President
Specialty Finance Group LLC
Member NASD/SIPC
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
why would they be needed at all !! and why would the chinese want to pay IBM's over priced workers
the jobs are just gone and i have to wonder how the usa edge in tech knowelege will stand after this sale
and what will happen in a few years down the line when chinese takes back taiwan
which they will and have stated at every chance they get
i have to think were on a even playing or killing field other then the fact we don't have any tooling left to bulid any [or needed] weapons and they have 10 time the population and little reguard for life
“Mortgage debt will rise about $800 billion to $7.5 Trillion by the end of this year.”
So in a country where the entire net worth of everything in the U.S.A. is 45 Trillion dollars the mortgage debt alone is 7.5 Trillion or nearly 17% ? WOW
“Today, the new mortgage lenders are offering various types of mortgages to keep mortgage volume and quick origination profits up. These mortgages include Adjustable Rate, Interest Only, 40-Year, and Piggy Back. A Piggy Back mortgage is a senior mortgage combined with a junior mortgage that can leave the borrower owing more than 110% of the cost of the house. Moreover, these lending tactics leave the borrower more than a bit stretched and short liquidity, so it is no surprise that new mortgages that allow the borrower to skip payments and add the interest to principal are becoming popular. What will lenders who don't lend their own money think of next?”
One thing that has definitely happened over the last decade is that the mortgage guys who use to be as conservative as bankers are now more like used car salesmen. How many Americans will lose their homes in all these slick deals?
“ (ARM mortgages are already 30% of new home loans and, as the Federal Reserve raises interest rates to normal levels, the monthly payment on an ARM will go up over 25 percent).”
Tom, the research I read was that over 50% of all homes were ARM’s what a shock many will have when they see their house cost going through the roof ( no pun intended).
Currently, wages and salaries have not kept up with inflation despite "economic recovery"; bankruptcies will hit another all time record of over 1.6 million in 2004. Forty five percent of workers have total net assets of less than $25,000 (including the value of their house) and less than 4 of 10 workers save anything.
And 77% have less than $37,000 including the investment in their home.
This whole market is another one of those catch 22’s that can really be a disaster for our financial system. The Fed must raise the interest rates or no one will buy the trade,and entitlement debt, but if they do Americans with these mortgages and their current load of credit card debt will go broke by the multi-millions.
And so what are you doing here? Are you a refugee from a yahoo message board with nothing else to do?
Tom
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
Charlie
Well, maybe I'm not seeing it right. Try this, I loan you $10 US for 10 Euros worth of goods and you put the money in your bank for a little bit (when $10US=10 Euros). Then the $US becomes weaker and then the $10US you have in your bank is now only worth 7 Euros worth of goods. What would you think of that...particularly if I now owed you the equivilent of 7 Euros as opposed to the 10 Euros I owed you before...hummmmmmmmm. Looks like if I'm US then I just reduced my debt by the equivilent in goods of 30%.
Maybe, like I said, I don't have it right but that is how I've been seeing it. That's why all the Euro folks are having so much heartburn and crying about US money being weak...they just lost 30% and it may not be over just yet. Tell me if I'm wrong because this is certainly interesting.
Upstate New York is not doing well at all
mrearlygold:
My uncle was a US Marine soldier who fought Japan during WWII in Okinawa and received the Purple Heart.
After WWII he was assigned to guard the Great Wall of China in late 1945 and 1946. He was captured by Mao's guerilla forces led by General Tusu (sic) and was in their prison camp even though the US and the Red Chinese were actually still on friendly terms since the US was still pissed at the National Chinese Government for not giving their full effort in fighting the war against the Japanese. In fact, Mao was still hoping and even thought the US might side with him instead of Generalissimo Chaing Kai-Shek in the civil war. . Only through the personal intervention of Admiral Kincaid, of all people, was my uncle who was slated to be executed by Mao 's General Tusu (sic) released to the US Army.
There is much more to this story but my uncle has long studied the Chinese Communists since then, and in his opinion, they are nothing like the US Government. World domination is their goal and they will do what it takes it achieve it. It is not going to be an effort as a beneovelent government. They even make the former Stalin Soviets appear as kind folks as they have learned the art of deceit very well.
Most of us including myself have always thought that Americans were a very wasteful people; certainly most of the rest of the World thinks that. There is little doubt that Americans have not built big savings accounts during the last generation, but is this for lack of trying, or are there other things to be considered?
In doing a little research this morning I came across some interesting data I thought you might like.
“In 2004, Americans will work 65 days to afford their federal taxes and 36 more days to afford state and local taxes, which does not include real property tax if you happen to own your home. Other categories of spending that require many days of labor to afford are housing and household operation (66 days), health and medical care (51 days), food (31 days), transportation (31 days), recreation (22 days), clothing and accessories (14 days), all other expenses (44 days), and saving (5 days) ”
“Washington, D.C., April 7, 2004 — According to Tax Foundation calculations using the latest government data on income and taxes, Tax Freedom Day® in 2004 will be celebrated on April 11th, the earliest Tax Freedom Day for 37 years.
April 11th is three days earlier than 2003’s Tax Freedom Day of April 14 and an amazing 21 days earlier than in 2000, when the boom and bubble pushed tax burdens to a record high, and Tax Freedom Day was postponed until May 2. Please note this date is for income taxes only and includes State and Federal taxes.”
Do Americans live better than most others in highly developed countries, yes, but it has been our hard work and creative ability that has provided these benefits. Homes, cars, gasoline, food, clothing, and many other items of life are cheaper in America than in most all other developed countries.
What seems evident from the above statistics is that Americas lack of savings has much more to do with how we are taxed, and not that we are a glutinous group. How can hard working Americans be expected to build up their savings when we are allotted only 5 days per year to do so?
Interestingly, all Fiat Moneys (like the Dollar) have eventually become worthless - there has yet to be an exception to this rule. Keep in mind that the dollar is worth about 5% of what it was worth at the beginning of the 20th Century.
While I find it doubtful that the dollar will become worthless in our lifetimes, it is a possibility. That would not appear to be the case with gold.
What is now proved was once only imagined. - William Blake
Gold backs up gold! It, like regulated and others have said, has ingerent value. It is in demand because people want to have it. It is traded by all nations at some par value in exchange for goods and services...it's value is found in it's demand in international trade. Gold will always be worth people are willing to exchange for it in some balance for all goods and services. If it is for a lady's hand or a kings crown or the tip to an electrical relay or even just because you have it and Joe Downtheblock doesn't. Gold backs up gold.
It was money even before money was invented. It is still considered the haven of last resort. Impervious to heat, floods, corrosion,
Gold is truly the basis of money before governments managed to "convince" the man in the street that money is something that is "backed by gold or silver."
While that is no longer completely true most citizens think our money is still backed by gold and silver.
Silver is also "money" but to a lesser degree in that it is the poor man's gold.
What is now proved was once only imagined. - William Blake
And the people by and large pay as they have been by and large reduced to sheep thinking the government is right and that they now have more freedom.
And you say there are no similarities.
I could go on chapter and verse ad infinitum
I can go into a great deal of detail of the similarities of government in communist Vietnam and the federal government here. I lived there 2000-2002 full time.
But I won't because it doesn't matter.
Tom
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
Also gold survived over 100 years of being lost in oceans. Paper money could never survive 100 years of such storage. Gold is unquestioned in being able to verify authenthicity. Credit and debit cards are prone to failures in that cards can be de-magnetized, accidentally slit, suffer from "expiration dates" and subject to silly rules like "pin numbers" and "three digit codes" on the back, etc.
Gold and silver are not infallible.
But the key aspect to gold in coin form is that governments have not yet found a way to regulate it for long and it remains a privacy haven for many, especially in 3rd world countries.
Once you lived in a country that suffered debilitating inflation that ruined their currency, then gold and silver takes on a much more sacred symbol of refuge from a troubled world.
Many of the South American and African countries, Israel, Mexico, Russia/Soviet Union, etc. have seen awful inflation since the 1970's.
China's leaders are actually very forward thinking for the long term. An incredible change from 20 years ago. Our leaders are stuck in the short term thinking spectrum which much of our economy suffers from.
China is at least trying to build up their infrastrusture. We are living off our old infrastructure that is now decaying because we are not reinvesting new money into it. Requires long term planning which is not what is going to get our leaders elected and re-elected. This lack of long term planning will someday be our undoing just as it was for Rome after the 2nd century AD.
This is where I was emphasizing the differences between the countries.
IMO the real estate market is currently a function of low interest rates (cheap money). If you have a mortgage at a very low interest rate, you can afford to buy a considerably more expensive home. If, however, you have an adjustable rate mortgage and interest rates go up to 10%, you may not be able to afford all of the home that you bought at 4.5%. Right now, a staggering number of Americans (who, in years past might not have been approved for mortgages) have adjustable rate mortgages. Many of these people would not be able to afford the homes they live in if interest rates were to increase several points. If this were to happen, many would be forced to sell at the same time. What would this do to the housing market?
What is now proved was once only imagined. - William Blake
Wednesday, December 15, 2004 2:16:28 AM
http://www.afxpress.com
BEIJING (AFX) - China is seeing a gold-buying surge as a hedge against the weakening dollar and negative real interest rates, the South China Morning Post reported, citing figures from the China Gold Society and analysts
The Hong Kong-based newspaper said the gold buying has prompted a booming trade not only in bars, coins and jewellery but also "paper gold", in which the investor does not take possession of the metal, but trades it like other financial instruments
Trading on the Shanghai Gold Exchange in the first 10 months of the year reached 515,447.1 kg, a rise of 45.35 pct over the same period last year, the paper said
In addition, Shanghai buyers snapped up all commemorative gold coins to mark the year of the rooster as soon as they came on the market last month
The price of gold reached more than 450 usd per ounce this month, its highest level in 16 years and up from 254 usd in 2001
"The weakness of the US dollar is the main reason for the rise in gold," Xu Ming, a gold specialist with the Bank of China, was quoted as saying
"A weak dollar is the long-term policy choice of the US government and governments are in the process of reducing their dollar assets. The European Central Bank will not intervene in the market. All this is putting pressure on the dollar." The paper said gold is one of a limited number of investment options for Chinese, who hold more than one trln yuan in simple bank deposits
This year thousands have reduced or closed their US dollar savings accounts in favour of yuan-denominated accounts because they expect a revaluation of their currency
The trading of paper gold is officially available only to residents of Shanghai with a current account with the Bank of China, which started offering the service in November last year
(1 usd = 8.3 yuan)
amj/tr For more information and to contact AFX: www.afxnews.com and www.afxpress.com
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
Here is what I can offer you on your questions. In large part you are exactly right it is only our perceptions that makes one thing more valuable than another, but everything in this material Universe is only perception anyway. If you ask a quantum physicists or a Mystic to explain to you what anything in the Universe is made of, they will tell you everything is an illusion, and every single thing in the Universe is made simply of light and sound particles. Any good Mystic would have a good laugh at how we are ruled by our perceptions of value spending huge amounts of time and energy chasing after these consolidated pieces of little particles of light and sound that we perceive to be rare.
Unfortunately we are controlled by the perceptions of the mind and senses, and therefore when given extra time and energy that is not consumed in our efforts to survive we spend our time chasing those things that others of us may not have. Humans have always sought to acquire those things that other humans did not own, and as long as the perception of rarity exists, most of us will spend large amounts of our time and energy in pursuit of those rare items. The categories of these items are not limited. Big houses are rarer than small ones, bigger faster cars are rarer, diamonds are rarer than quartz, old coins are rarer than new ones etc. Most everyone on the planet is chasing after items where the quantity of those items are perceived to be rarer. Obliviously Gold and Silver are rarer than paper, but any hard asset you can take personal possession of is rarer than paper. Not many of us want to live in a cave surrounded by bails of paper money.
If you boil down the basic problem with all personal and governmental financial systems it really comes down to credit or debt. All religions try to explain this to their followers, “never a borrower or a lender be”. Using credit and debt to buy today what you may not be able to afford to pay for tomorrow is the ruin of all individuals and governments. For thousands of years mankind lived basically within their means. Sure there was some credit extended to individuals and governments in times of desperation or for very large purchases that could not be paid for immediately, but the ability to repay the debt was a largest consideration, and this is not the case today.
For whatever reason, and at some point in the Worlds recent past, we decided as individuals and as governments that we wanted to own those perceived rare items of life today, and credit was the way to get them. In the case of governments they quickly decide that they could not print enough paper to give people all the things they demanded as long as the paper had to be backed by some hard asset, so they relieved themselves of this burden by printing paper backed by nothing, and all of this paper is only a PROMISE to pay. As long as we perceive this paper to be of value we will keep acquiring it, but once we figure out that so much has been printed that the promises can never be met i.e. the amount of paper promises greatly exceeds all the hard assets, we will not want it any longer and instead will want direct possession of the assets.
This is our situation today in America, as well as in other countries around the World,
many of us realize that the governments promise to pay with these little pieces of paper can never be met. The largest example of this is the American entitlement programs. The U.S. government has promised to give us 74 Trillion dollars in the coming decades but the entire value of all of the assets in America is only 45 Trillion!
has little more understanding of things than the mystic however, this understanding has more
basis in reality and much more of a predictive value. A mystic is unlikely to be able to tell you
when an eclipse is about to occur for instance. This understanding also has some practical val-
ue in it's ability to produce the magic tricks we refer to as technology. While no one may truly
understand how our machines work there is little doubt that they've created great wealth and
large numbers of people to enjoy it.
Money, perhaps mpore than anything is perception. Whether the money is gold, cowry shells
or a few little electrons in a computer system makes absolutely no difference. Gold standards
can be eroded and a populations attention can be turned to the location and assembly of cowry
necklaces. Where money is simply electronic or paper it is much more easily created to destroy
the value of existing money. But it's all money so long as we think it's money.
Do what you will with your money and value it as you please, but it's value is determined by
the average perception of people which is largely driven by the cost of the items they need and
the effort required to obtain it.
The Fed's actions will be predictable, as they always raise or lower interest rates in long term trends, clearly they have many periodic rate increases planned.
Interest rate increases always create more demand for our currency, strengthening the dollar against other currencies.
The USD is close to historic lows against the Euro and other currencies.
Gold prices increases have only tracked the falling USD in the past three years, in other words there has not been a true gold rally, but only a falling USD.
As the Fed continues to increase interest rates, will the USD buck historic trends and continue to plummet beyond normal trading ranges? Or will the dollar begin to strengthen, causing gold to fall in USD?
The direction of the USD will determine future gold prices in USD.
Bill
One has to take into account the growing industrialization of both China and India and the need for precious metals not only for production of technology, but also the desire to own it by billions of people who haven't before had that option as those countries move into a first world status.
If a billion Chinese and Indian people were to decide they each wanted to own a few ounces of gold and now they can actually achieve that possibilty...........well, I think you get the picture. Gold is still a fairly finite element and production will not be able to meet demand as those demands rise.
John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
<< <i>I think I would have to add that the USD will only be one factor determining the price of gold, silver, etc.
One has to take into account the growing industrialization of both China and India and the need for precious metals not only for production of technology, but also the desire to own it by billions of people who haven't before had that option as those countries move into a first world status.
If a billion Chinese and Indian people were to decide they each wanted to own a few ounces of gold and now they can actually achieve that possibilty...........well, I think you get the picture. Gold is still a fairly finite element and production will not be able to meet demand as those demands rise. >>
Right on point 1. Far as ownership,the Chinese have watched what happens in Vietnam where cost for real estate at least as far as Saigon is concerned in valued at higher levels than NYC, or even Tokyo for that matter and is traded by and large using paper ( for the governmenyt records and taxes) and the real price is paid on the side in gold. MOST of the governments desired theft goes unpaid because of this practice. The Chinese have in part "legalized" gold and real estate ownership" as the Chinese have also taken lessons from the US IRS practices and are hoping to illuminate assets so as to tax them.
It will never work the way they are hoping it will. Er, maybe in a few generations from now. Why disclose your assets if you don't have to?
The dollar is rapidly becoming a useless piece of paper in mainstream Asia with very few regular merchants even willing to accept dollars as payment from the simple things like restarant bills to souviniers. They will accept euro's and I never saw or had any trouble using rmb to pay for things anywhere, and when it comes to big stuff, from autos, to real estate ,gold is the most desired medium of exchange.
Tom
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
As the Fed continues to increase interest rates, will the USD buck historic trends and continue to plummet beyond normal trading ranges? Or will the dollar begin to strengthen, causing gold to fall in USD?
Nysoto
I think you are correct that a great deal of the price increase in Gold has been due to the falling value of the dollar. If we assume that in 1932 a $20 gold coin with about an ounce of gold was worth $20 and we use that as a benchmark, then adjusted for inflation what cost $20 in 1932 would cost $242.87 at the end 2004. So inflation adjusted Gold is currently over priced and may fall as the dollar strengthens due to higher interest rates. On the other hand as Charley pointed out perception is everything, and as Deadhorse and Mrearlygold just pointed out several things can happen to trigger a no confidence vote on the Worlds paper money. We have already discussed how worldwide the paper printing presses are running at full tilt.
Here is something I learned yesterday that is truly amazing. I don’t know if this is how things work in other countries, but this is how U.S. trade deficits are handled in China, and it is creating more and more inflation there.
Lets say a Chinese manufacturer sells 50 million dollars worth of products to Wal-Mart to sell in the U.S.
Wal-Mart natural gets paid in U.S. dollars, and it pays its suppliers in U.S.dollars. The money is wired direct to the Chinese businessman’s account.
The Chinese businessman needs Yuan’s, or some other Chinese currency, to pay his suppliers and workers in China, so he goes to China’s central bank. The Chinese central bank PRINTS up 50 million dollars worth of Yuan’s and gives to the Chinese businessman the Yuan’s and keeps the 50 Million U.S. dollars which it uses to buy U.S. treasuries, or loans to other Chinese companies to buy IBM’s PC company or Canadian mining companies, or oil, or what ever it needs.
Naturally what has happened is that there are now 50 million dollars worth of Yuan’s back in circulation in China, but there s also the 50 Million U.S. dollars in circulation, so the 50 million has now turned into 100 million all done via the paper printing press.
With this kind of manipulation going on with worldwide currencies how long can these ships keep floating?
<< <i>If a billion Chinese and Indian people were to decide they each wanted to own a few ounces of gold and now they can actually achieve that possibilty...........well, I think you get the picture. Gold is still a fairly finite element and production will not be able to meet demand as those demands rise. >>
I just read somewhere that out of the 2400 tons of gold mined per year, India alone consumes 1000 tons per yer. The remaining 1400 tons is for the rest of the world. I believe since the Chinese are now buying this supply will now be restricted to somewhere around 800 tons.
I watched Jack Welch on CNBC this morning and he has been amazed at the loss of faith in the dollar and can't quite figure out why. He gave a few comparisons of the US economy to Germany"s and Japans economy.
Budget Deficits:
United States.....4-4.5% of GDP
Germany............5% of GDP
Japan.................6-7%
Unemployment Rates;
United States...5-5.5%
Germany..........10%
Economic Growth:
United States....3-5%
Germany............1%
Comparisons with germany? Now ask why there are such discrepencies and what "direction" the US has been headed and continues to head in.
Tom
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
The dollar is falling against every major currency not just the Euro and Germany is just a part of the Euro economy.
<< <i>Comparisons with germany? >>
The comparison was not just Germany. Germany was an example of the EU Countries as a whole. The Euro is much stronger than the dollar and it should be just the opposite given the economic conditions of the EU Nations. They are in much worse shape than we are.
I'd say that once you take out the fudge our GDP growth numbers are closer to 1-2% than 3%. The unemployment number should probably be closer to 10% than 5% if you count the people who are capable of working but are not working.
roadrunner
<< <i>Comparing our fudged stats for GDP growth and unemployment to other countries is like apples to oranges. >>
That's right!! There is no comparison. The EU Countries are stagnating and Socialism is choking them off. If you are trying to say that the Europeans are better off than we are, then you're in denial of the facts.
<< <i> The unemployment number should probably be closer to 10% than 5% if you count the people who are capable of working but are not working. >>
What???? Now you're just making stuff up. Where in the world do you get a statistic like that? If we had an unemployment rate of 10% this country would be in a serious economic crisis. I've lived in Fla. during many of the economic booms and the employment rate would never get any lower than 4-4.5%. Even when jobs were plentiful, the rate never wants to break this barrier. You have a certain number of people who will not work, period, and then you have the people in between jobs. A 4-5% unemployment rate is considered by some to be full employment. Or as full as you will ever get.
Oh, Maybe Germany is fudging their numbers also and their actual unemployment rate is closer to 15%???? Who knows??
My point was, we are much better off in this country than the rest of the worlds population and I get tired of the doom and gloomers saying we are the verge of an economic collapse. I'll tell you something else!! If this country goes down financially, then we will be taking the rest of the world with us. The gold bugs can amass all the gold they want. But you can't eat gold.
One other thing about the dollar. Believe me when it is in the interests of the rest of the world to stop the fall of the dollar they'll start buying dollars to prop it up. It is definitely not in their interest to have a weak dollar. We are nearing that point now. The Europeans are now starting to buy more US goods because of the weak dollar. Talk to someone in NY City. People are flying in there to load up on US goods. On the flip side, American tourists are buying virtually nothing when traveling overseas because there products are to expensive.
China will start buying dollars, because the products they manufacture will start to become to expensive. A weak dollar is great for our exporters. The ones we have left, that is.
Sorry if I'm rambling....I'm tired.
I'll take my chances with precious metals over paper if push comes to shove. I'm not saying only own metals but one should certanly consider it as a real solid part of thier portfolio.
Particilarly given all the possible economic and political upheaval that can and most certainly will occur to a larger or lesser degree in the future.
Many people have laid out those scenarios in this thread and the truth is, we are smarter than the average ducks out there in their nine to five, paycheck to paycheck lives.
RR, you are also right on the money regarding the fudging of the books and I suspect you are closer to the truth on the unemployment rates than most are aware of. As an example, McDonalds here in Houston has to pay people in the $9 and $10 per hour starting range just to get anyone to take the job. There are alot of people, particilarly younger ones who simply have decided not to work.
I have to hire 10 to 15 guys to get one that will actually show up and work in our warehouse operation, and we have to pay well for unskilled labor, in the $12 per hour range for highschool dropouts. It's amazing how lackadasical this generation, what are we up to now, the "Z" generaton is.
John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
But food does not store indefinitely and water cannot be transported over long distances inexpensively in exchange for food and vice-versa.
This is why gold and silver became an ideal substitute for food, water and rare spices as a medium of exchange.
Has always been and will always be.
The Romans tried to deceive their citizens and populace with silvered coinsin the 2nd century AD. Didn't work after 30 or 40 years. The populace finally caught on. We are only hitting the 40 year point ourselves. Bad money drives out the good money. It will be not too long before the public will insist on more accountability in our currency after seeing pictures of Fort Knox.
Indeed, the US dollar will eventually strengthen as the Feds raise the discount rate. In fact, they have just raised the discount rate to 2.25% from 2% a few days ago. This is an increase of 1.25% from the low rate of 1.0% a year ago, a rate not seen since 1959. I expect rates to rise to 3% by next summer with a resulting prime rate of 6%. This will somewhat help to stabilize the US dollar at current levels. But the Fed may not be aboe to stop there and may need to raise rates further.
I believe that higher rates will definitely cool off the housing market and the coin market as well by next summer. Not a big blow off but a definite soft market similar to what we saw in 1969-1970 when the Feds raised rates and created the credit crunch we saw in 1969-1970. That was also the beginning of the aftermath of the Vietnam War in which we had spent on guns and butter. The same thing is happening now and we will see history repeat itself.
The world will not end next year. But I foresee the US again raising full SS eligibility to age 70 for the post baby boomer generation with a sliding scale between 66 and 70 for those born between 1955 and thereafter. I also see the US pushing back the full eligibilty of medicare from age 65 to age 70 as well with a sliding scale of partial eligibilty in between in which seniors will have to pay even more to have medigap insurance. This will be very unpopular but I think it will eventually pass.
Until then, this is going to be a very interesting ride!
It may be that one of the very things we need is what is being done with the devaluation of the dollar. It is obvious that this makes our goods cheaper in other countries and theirs more expensive here. The Europeans hate this and that is a very good sign.
It does appear that the president and the congress may go to work on some of these issues next year, and many will not like the outcome of what will be proposed, but lets hope the reason prevails. These problems must be worked on as soon as possible. I also thought it was interesting yesterday that the Italian leader agreed with the President, and commented that his country had the same problems with the promises they had made to their baby boom group.
One other area that must be worked on eventually is the illegal alien problem. In another thread several weeks ago someone here ask who will work for $7.50 per hour if we get rid of the illegals? The answer is that it appears that many of the boomers with little or no savings will need these jobs, so we need a firm immigration policy. In a recent discussion with a friend in China it appears to him that the Chinese will NOT be detecting the Yuan from the dollar, or least they do not want to. He said the Chinese see their fate tied to the American consumer.
He also said that many people there are very worried about their countries ability to keep up the growth pace as well as the inflation in their money. “As many people that can afford to are trying to buy some Gold, Silver, land, or other hard assets.”
Here are some additional facts on China,
“Official US policy repeatedly urges the need for a substantial REVALUATION of the Chinese Yuan in order to reduce ballooning Chinese exports to the US market. Some recommend a Yuan up-move of as much as 40%. Many US domestic manufacturing industries have been gutted by Chinese competition. Chinese 'Barbie Dolls' as an example sell for less than 15% of the cost of an American 'original'. How can the US compete?”
“Secondly, the Chinese are reading their economic history books. The first PLAZA Accord, in 1985, ruined Japan and drove her into a 14-year deflationary recession. China needs similar treatment like a hole in the head. She still has 200m unemployed. They are being absorbed into the economy at a rate of 14m a year. She desperately needs a further decade of growth.”
We can assume they want that growth provided mainly by US!
This is what the Chinese really want, what do you think?
Central bank Deputy Governor Li Rougo described the extent of the wage disparity as follows:
"The appreciation of the Yuan will not solve the problems of unemployment in the US because the cost of labour in China is only 3% that of US labour. They should give up textiles, shoe-making and even agriculture…. They should concentrate on sectors like aerospace ….sell those things to us …we would spend billions…. We could easily balance the trade."
Chinese Premier Wen bluntly told US Treasury Secretary John Snow that the dollar crisis is America' s problem, not China's. He could have added that America needs to start living within her means before trying to pass the buck and blame trading partners like China. Wen well knows that a sharp appreciation of the Yuan will drive China back into deflation.
Tom
West Virginia, Environmentalism, and Secession From the 'Great Wish Machine'
by Eric Englund
by Eric Englund
Much has been written about various bubbles and manias. History is replete with them: Holland’s tulip bulb mania, the South Sea Company, the dot.com and telecom bubbles, the current real estate bubble, etc. Taking the real estate bubble as an example, many Americans now have the expectation that it is possible to get "wealthy" by simply borrowing money to buy a house, make the monthly payments, and then breathlessly watch home equity grow to the moon – wealth creation without effort. Ah, but there is a greater mania in the United States. It is the belief in big government as the "great wish machine." The larger the government grows, it is believed, the stronger the wish machine becomes. Both Democrats and Republicans proclaim to be the most skillful at operating this machine and promise to make it better than ever – so please vote accordingly and watch your entitlements and benefits grow without bound.
In 2000, something unexpected occurred. When Al Gore promised to paint the great wish machine green, West Virginians rejected environmentalism and unwittingly put the neocons at the helm – another unintended consequence of environmentalism. Unfortunately, the Bush administration’s borrowing and spending habits have reached such nutty proportions that there is no sense of fiscal sanity left in Washington, D.C. In fact, the neocons have so accelerated the growth of the American welfare-warfare state, that it may reach the breaking point, as did that other welfare-warfare state named the Soviet Union. The laws of economics, after all, cannot be defied. Hence, when it is realized that the great wish machine is a fraud, Americans may outright withdraw their support of the federal Leviathan. Could this mean secession and a break up of the United States?
Most Americans find the prospect of secession to be extremely unlikely in light of the Civil War. Then again, do not lose sight of the fact that the Democratic Party found it highly unlikely that West Virginia’s electoral votes would go to a Republican presidential candidate. Frankly, Democrats never expected their own party’s environmentalism to be its own Achilles heel. Nonetheless, in the 2000 election, a majority of West Virginia’s voters displayed uncommonly clear thinking and rejected the premise that governmental/federal central planning (albeit "green" central planning) paved the road to prosperity. Al Gore was seen as a threat to West Virginia, and rightly so. Ironically, the very neocons the West Virginians help thrust into power may eventually be deemed a threat to all states. After all, this is perhaps the most belligerent, reckless, and profligate administration the United States has ever seen. Consequently, George W. Bush’s "guns and butter" approach to governance may very well break the bank. Should this occur, the central government may be identified as nothing but a redistributionist and bankrupt parasite unworthy of further support – for the folly of social democracy will have been finally exposed. At this point, secession from the union would become a logical choice.
WEST VIRGINIANS VOTING AGAINST ENVIRONMENTALISM GAVE BUSH THE PRESIDENCY
To support the assertion that voting against environmentalism put George W. Bush into the White House, let’s look at West Virginia’s Electoral College history since the Great Depression:
Year WV Electoral Vote Winner Party Comment
1932 Franklin Roosevelt Democrat Won election
1936 Franklin Roosevelt Democrat Won election
1940 Franklin Roosevelt Democrat Won election
1944 Franklin Roosevelt Democrat Won election
1948 Harry Truman Democrat Won election
1952 Adlai Stevenson Democrat Eisenhower won election
1956 Dwight Eisenhower Republican Won election
1960 John F. Kennedy Democrat Won election
1964 Lyndon Johnson Democrat Won election
1968 Hubert Humphrey Democrat Nixon won election
1972 Richard Nixon Republican Won election
1976 Jimmy Carter Democrat Won election
1980 Jimmy Carter Democrat Reagan won election
1984 Ronald Reagan Republican Won election
1988 Michael Dukakis Democrat George H.W. Bush won
1992 Bill Clinton Democrat Won election
1996 Bill Clinton Democrat Won election
2000 George W. Bush Republican Won election
2004 George W. Bush Republican Won election
In looking over this table, it is obvious that West Virginia’s citizens are quite loyal to the Democratic Party. It is notable that when Republicans Eisenhower, Nixon, Reagan, and George H. W. Bush won their first-term presidential elections, West Virginia’s electoral votes went to the losing Democrat. In turn, what is highly noteworthy is that George W. Bush is the first Republican (since the Great Depression) to win West Virginia’s electoral votes en route to becoming a first-term president.
Had West Virginians stuck to their historic voting pattern (since the Great Depression), Al Gore would have won West Virginia’s 5 electoral votes and would have won the presidency with 271 electoral votes to George W. Bush’s 266 electoral votes (of course, the reverse happened with Bush receiving 271 electoral votes to Gore’s 266). Consequently, the 2000 presidential election did not swing to Bush because of Florida, as Al Gore would have won the presidency – regardless of what happened in Florida – had he carried the traditionally Democratic state of West Virginia. As Michael Kilian, a national correspondent for the Chicago Tribune, stated in his October 20, 2004 article (W. Virginia Delivers Notice to Bush, Kerry) key issues to West Virginians in the 2000 presidential election "…were gun control, anathema to West Virginians, and Al Gore’s high profile as an environmentalist, sparking fears he would put the state out of the coal business." With 40,000 West Virginians directly employed by the coal industry (27,000 of which are coal miners), it is no wonder why environmentalism cost Al Gore West Virginia’s 5 electoral votes and, therefore, the presidency.
To put an exclamation point as to why West Virginians rejected Al Gore, the following goofy excerpt comes directly from the 2000 Democratic Party Platform:
Eight of the ten hottest years ever recorded have occurred during the past ten years. Scientists predict a daunting range of likely effects from global warming. Much of Florida and Louisiana submerged underwater. More record floods, droughts, heat waves, and wildfires. Diseases and pests spreading to new areas. Crop failures and famines. Melting glaciers, stronger storms, and rising seas. These are not Biblical plagues. They are the predicted result of human actions. They can be prevented only with a new set of human actions - big choices and new thinking.
Of course, West Virginians understood that some of the "big choices" would include ways to regulate and legislate coal mining out of existence. Coal-fire power plants, years ago, were blamed for causing acid rain (another environmentalist scare) and West Virginians have not forgotten this either. With so much at stake, it is not surprising that George W. Bush won this heavily-Democratic state and, correspondingly, the presidency. It was the West Virginians, in the end, who made the big choice by withdrawing support from the Democratic Party. Plain and simple, this unlikely event came to pass (i.e. West Virginia voting Republican and swinging the election to Bush) because a state’s tangible economic interests were put ahead of the Democratic Party’s ideology.
THE GREAT WISH MACHINE
Today, it does not matter if one is a Democrat or a Republican, big government is demanded by constituents of both parties. So what is demanded of our Santa Claus government? Well, just about everything – just look at the list:
A steady income during one’s retirement years – Social Security
Subsidized medical care for the poor and elderly
Prescription drug benefits for the elderly
Public education available to all children for grades 1–12
Homeland security to keep us safe from terrorists
Government sponsored enterprises (i.e. Fannie Mae and Freddie Mac) to help poor and middle class Americans buy a home
Protection from drug dealers and drug cartels – with the help of the Drug Enforcement Agency
FDIC "insurance" for bank deposits up to $100,000
Pension Benefit Guaranty Corporation (PBGC) "insurance" for private pensions participating in this program
Unfortunately, this list goes on and on. Americans, quite disturbingly, have come to believe the great fiction (to paraphrase Frédéric Bastiat) that, via government, everyone can live safely and securely at the expense of everyone else. Republicans and Democrats alike look to big government to take care of them, in one manner or another, from cradle to grave. It is as if somehow government can magically overcome scarcity and provide a trough from which all can feed. This is pure fantasy. It certainly seems that the bull-market mania in big government borders on mass mental disorder. Why not have this federal wish machine promise each American 10,000 ounces of gold, a personal security detail (like the President’s), and perfect health for life? If you revisit the list above, you’ll see that government is already in the fantasy "business." And yet, people continue to want more benefits and entitlements. In reality, Americans are living in a state of delusion – redistribution via taxation and inflation be damned – regardless if they live in "red" or "blue" states.
A CHINK IN THE GREAT WISH MACHINE’S ARMOR
Viewed properly, environmentalism is a nihilistic movement bent upon rolling back the industrial revolution and dismantling capitalism – thereby making every state a "green" one populated by noble savages. The most effective method for achieving these aims involves attacking the very energy sources needed to fuel the machinery of capitalism (i.e. coal, oil, and natural gas). Accordingly, environmentalists use scare tactics by conjuring up such frightening nonsense as acid rain, global warming, and even global cooling (back in the 1970s). Environmentalism, ultimately, is a socialist movement seeking the political power necessary to destroy private property rights in order to bring about their utopian vision of a "green" Garden of Eden. Without a doubt, environmentalists/green socialists believe government is a wish machine that will somehow provide health and prosperity for all in spite of dismantling the only system – capitalism – capable of bringing ample food, shelter, clothing, and medicine to the masses. Environmentalism is a delusional movement to be feared and rejected.
As a matter of fact, in 2000, West Virginians did just that – they rejected the lunacy of "green" central planning. Evidently, West Virginians understood that having an honest, hard-working job provided the keys to self-reliance, providing for a family, and saving for retirement. If the state’s coal mines were eventually to be shut down, then what would become of all the displaced workers and families? West Virginians didn’t see any solutions coming from the great wish machine in Washington, D.C. – especially considering that Al Gore and his ilk put spotted owls, snail darters, and old-growth forests ahead of human beings. West Virginians properly concluded that the federal wish machine wasn’t capable of providing replacement jobs and that the best course of action was to vote for Bush in order to protect the local coal industry and its related jobs. Essentially, West Virginia "seceded" from the national Democratic Party over local jobs.
CENTRAL PLANNING LEADS TO INSTABILITY
Under George W. Bush, the federal government has grown to proportions that would even make FDR and LBJ blush. No bill, spending or otherwise, has ever been vetoed by this president. So it is no wonder that the national debt has grown by about $1.8 trillion since Bush-43 took office (as of 12/15/04 the national debt stood at over $7.5 trillion). There has never been a more profligate administration in U.S. history. The neocon wish machine seems to have unlimited money and credit. In turn, this administration is operating under the hallucination that America can have its guns and butter.
This is where Alan Greenspan, and the Federal Reserve, enter the picture. It is the Federal Reserve that helps create the illusion that our Santa Claus government has unlimited resources and that it can make good on any promise or entitlement. This wish machine is fueled by the Federal Reserve’s printing press that electronically creates money "out of thin air." Such a scam can last for decades. Yet, there are limits to how much fiat money and credit can magically be created before Santa Claus comes crashing back to earth.
The U.S. Government may be reaching this limit. When combining the aforementioned national debt with other unfunded liabilities, the GAO estimates that the federal government has $53 trillion of unfunded liabilities. To say that our monetary and governmental central planners have overreached is a gross understatement. It is all too obvious that the federal government’s redistributionist schemes will be exposed as frauds thereby resulting in the breaking of "promises" to tens of millions of Americans who have come to rely upon the income and services "provided" by Uncle Sam (aka: Santa Claus or the great wish machine). The mass delusion that government can provide for all, from cradle to grave, certainly paves the road to perdition. On this matter, here is what the eminent Austrian economist – Dr. Hans Sennholz – has to say:
The ultimate destination of the present road of political fiat is hyperinflation with all its ominous economic, social and political consequences. On this road, no federal plan, program, incomes policy, control, nationalization, threat, fine, or prison can prevent the continuous erosion and ultimate destruction of the dollar. (Source: Reaping the Whirlwind by Jim Cook)
What happened during Weimar Germany’s incredibly destabilizing hyperinflation is instructive. Otto Friedrich described the ramifications of Germany’s hyperinflation in his most excellent book Before the Deluge:
The fundamental quality of the disaster was a complete loss of faith in the functioning of society. Money is important not just as a medium of economic exchange, after all, but as a standard by which society judges our work, and thus our selves. If all money becomes worthless, then so does all government, and all society, and all standards. In the madness of 1923, a workman’s work was worthless, a widow’s savings were worthless, everything was worthless. "The collapse of the currency not only meant the end of trade, bankrupt businesses, food shortages in the big cities and unemployment," according to one historian, Alan Bullock. "It had the effect, which is the unique quality of economic catastrophe, of reaching down to and touching every single member of the community in a way which no political event can. The savings of the middle classes and the working classes were wiped out in a single blow with a ruthlessness which no revolution could ever equal…The result of the inflation was to undermine the foundations of German society in a way which neither the war, nor the revolution of November 1918, nor the Treaty of Versailles had ever done. The real revolution in Germany was the inflation."
The irony here is that the social democracy the neocons want to force upon the globe, will end up collapsing all around them at home. The great wish machine will be broken, the neocons will be discredited, and the bull-market mania in government will transform into a growling bear. Yet, where will this lead?
IS THE NEXT "BIG CHOICE" SECESSION?
A political consequence, that may emerge from hyperinflation, is secession from the union. On this matter, let’s refer to Hans-Hermann Hoppe’s masterful book Democracy: The God That Failed:
Initially, secession is nothing more than a shifting of control over the nationalized wealth from a larger, central government to a smaller, regional one. Whether this leads to more or less economic integration and prosperity depends largely on the new regional government’s policies. However, the act of secession in itself has a positive impact on production, for one of the most important reasons for secession is typically the belief that they and their territory are being exploited by others.
Dr. Hoppe further states:
Just as political centralization ultimately tends to promote economic disintegration, so secession tends to advance integration and economic development.
Having political centralization lead to economic disintegration – at the state level – is exactly what West Virginians feared. Green central planning, beyond a shadow of a doubt, would have put the fate of West Virginia’s coal mines in the hands of politicians in Washington, D.C. For example, had Al Gore won the presidency and had the attack against coal mining begun in earnest, the economic disintegration Dr. Hoppe wrote about would have become quite real for West Virginians – once again, we must not lose sight of the fact that this is exactly what West Virginians feared. It stands to reason that avoiding (or mitigating) economic devastation provides more than sufficient grounds for seceding from the union let alone "seceding" from a political party.
On a more general level, as described above, the federal government has become a wealth-redistribution parasite funding its welfare-warfare schemes by borrowing, printing, and spending money with reckless abandon (do not lose sight of the fact that inflation is a form of wealth redistribution). With the federal government having $53 trillion in unfunded liabilities, it would seem that Dr. Sennholz’s prediction of imminent hyperinflation is nearly a foregone conclusion. Should political and economic instability emerge due to hyperinflation, then Americans most certainly will feel exploited by the plutocrats in Washington, D.C. For why should Americans continue to support the draconian redistributionist schemes of the exploitative welfare-warfare state? The folly that, via government, everyone can live at the expense of everyone else will have been exposed as the deceitful racket social democracy really is. Quite conceivably, states, counties, cities, etc. will outright reject the federal government, secede from it, and work toward regaining economic prosperity. Maybe the independent-minded folks of West Virginia will lead the way.
December 16, 2004
Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. You are invited to visit his website http://www.hyperinflation.net/
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
Former Prime Minister of Great Britain, Benjamin Disraeli, described confidence in money as suspicion asleep. In the world of irredeemable paper money, which has existed for over thirty years, the confidence issue is gradually coming to the forefront, especially with the US dollar, the world's reserve currency. The implications for Americans are profound.
In a $40 trillion world economy, the global irredeemable paper money system has mushroomed into a foreign exchange market where the turnover of currencies exceeds $1.5 trillion daily, according to the Bank of International Settlements. In other words, almost $550 trillion in foreign exchange transactions occur annually, compared with $7.5 trillion of annual turnover on the NYSE.
The foreign exchange market, which dwarfs all the worlds' financial markets, is an inter-bank or inter-dealer market based on a network of hundreds of major banks across the globe. Major foreign exchange centers are London (50% of the market), New York, Tokyo, Zurich, Frankfort, Hong Kong, Singapore, Paris, and Sydney. Trades above $1 million constitute the institutional side of the market, while those below $1 million represent the retail side.
Players are typically governments and central banks, commercial and investment banks, hedge funds, businesses, consumers, investors, and speculators. Of all transactions, 85% involve the seven major currencies: US dollar, Japanese yen, Swiss franc, British pound, euro, Canadian dollar, and Australian dollar.
Because the US dollar has been the world's dominant reserve currency for over 60 years, the American mindset seems to be that the reserve currency status is secure and permanent, regardless of the America's irresponsible economic policies and resulting economic imbalances. It seems to have been forgotten that over the past couple thousand years, dominant international currencies have come and gone.
Without drawing much attention from American mainstream economists and politicians, the US dollar's position as a reserve currency has diminished from 80% thirty years ago to only about 65% currently. After all, the euro area represents a large economy, not much smaller than the US, and is the world's biggest exporter. It has financial markets deeper and actually more liquid than the US, and the euro area is a net creditor while the US is a net debtor nation with a history of using currency devaluation to reduce external deficits.
Through mid-2004 those central banks holding the most dollars were financing 3/5 of the US deficit. In fact the global foreign exchange reserves in dollars (65%) have risen $1 trillion over the past 18 months, not because the US economic prospects are so good but because US dollar purchasers are attempting to hold down their own currencies for competitive trade purposes.
The US today has net foreign liabilities, which by year end should reach $3.3 trillion or 28% of GDP.
Foreign exchange traders in Japan and China are especially becoming unnerved by the dollar these days. Japan's US dollar holdings have reached $817 billion (90% of foreign currency reserves) and China's exposure at $600 billion (35% of foreign currency reserves)
Consumer spending represents two-thirds of the $11 trillion American economy. That spending contribution has propelled the economy for years. Personal savings sit at a near record low of 0.2% of after-tax income. The average American household now spends 13% of its after-tax income to pay off debts, the highest in almost twenty years. American households are scrambling to pay mortgages and car loans, and are carrying more than $8,700 in credit card debt. So it comes as no surprise that an American declares bankruptcy about every 15 seconds, five times the rate of 25 years ago.
So here is the real question, what will it mean to Americans if the Dollar is no longer the Worlds reserve currency? How would this change the average Americans life?
<< <i>
So here is the real question, what will it mean to Americans if the Dollar is no longer the Worlds reserve currency? How would this change the average Americans life? >>
The chickens started coming home to roost a couple years ago. This is one of the
greatest reasons that the dollar is falling and will continue to fall. Still, every drop
in the dollar makes it more stable rather than less stable. So long as people believe
money has value it will. A drop to sustainable levels tends to increase the belief
that it has value (albeit less than before).
Whether currency is based on gold, or paper it has always been susceptible to panics.
A greatly overvalued money is far more susceptible.
The biggest danger to the dollar really is inflation because with the mountains of debt
the fed will not have the option of greatly increasing interest rates to help shore up the
dollar. We will have inflation but it's very difficult to predict how much.
Well, we will certainly survive. But we will become a country similar to England in which (except for the Railroad system) our infracture just keeps aging and aging some more. New roads, bridges, airports, etc. will be a thing we will only dream about. We will see an aging New York City, Chicago, LA, and other cities skylines, while other cities eventually surpass us.
London was once the world's most magnificent city. Its roads were once "paved with gold." Even before WWII, London was surpassed by New York City.
New York City will soon be surpassed. We will be paying so much much interest on our debt such as the South Americans that we simply will look like the following:
The former rich who still owns the aging mansion, laid off nearly all of their staff, keeps the heat at 62 degrees, cannot keep up the maintenance on the home, no longer has the lavish parties, etc. The children no longer want anything to do with the mansion and will sell it almost for a song once the parents pass away. The children will live much poorer than their parents, in cramped apartments, etc.
Take a look at the most recent example of abuse of currency and foreign exchange debt; Argentina. This former proud nation is literally in shambles, economically in the past 5 years. Its once strong legal system is in trouble, kidnappings once unhead of is now commonplace. The people have been truly suffering there. It is a scary picture for us.
Collectors such as ourselves may see a sea-change in collecting habits as well. but at least we seem to be prolific savers, certainly much more than the general population.
While true on the surface, everyone is assuming that our manufacturing capacity to export goods is unchanged over the past 4 years. And that is likely NOT the case. You have to have thriving businesses and many more new ones to export and take advantage of our lower dollar. This is what is supposed to happen in a true economic recovery if the capital was spent on infrastructure which in our case it wasn't. The money loaned to us and printed by the Treasury during the past 3-4 years has gone to inflate our housing bubble and to a lesser extent the stock market. In past recoveries the money went to rebuild the economy, not inflate bubbles further.
This is a thorn to our recovery and probably whey we have already seen the best.
The models presented to us by Japan and Europe are just harbingers of where we may be headed. Being the owner of the world's reserve currency is the only reason we aren't already there. Along with Oreville's comments on rasing the age limits on benefit programs, we will also be seeing significant increases in our payroll and income taxes over the next 3-10 years. Proof that gold is considered currency by the world is the fact that it has been trading lock step with the US dollar for several years.
roadrunner
<< <i>The Europeans are now starting to buy more US goods because of the weak dollar.
And what goods are they exactly ? And why would anyone import much of anything from us when there's China, Vietnam, etc?
Tom
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870