On the contrary, his theory has nothing to do with conspiracy and everything to do with what the FED's intent might have been all along. If he is correct he is in essence congratulating Bernanke on his success. One should really try to open the mind to ideas that don't always go along with those one holds so dear.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I do find it interesting the amount of power bestowed upon Bernanke by those who revile him the most.
I think its a good article, and the theory sounds completely plausible. In fact, it appears to agree with your position and strategies more than not.
Bernanke said from the get-go that he would drop as much liquidity into the system, via helicopters if necessary in order to prevent another Great Depression, the main feature of which was a consuming deflation. You have to remember to whom Bernanke was speaking. He was addressing Congress and the banking cabal, not you or me.
My contention all along is that Bernanke promised inflation over deflation at any cost. What I didn't consider for a long time was that building up bank reserves to monumental levels was in order to avoid a loss of confidence when the stock market bubble bursts. All along, I simply thought that QE was banker welfare (which it is), and that banks were being given free taxpayer money so that they could maintain their Hamptons lifestyles and bonuses (which they did).
Little did I realize that it was all to protect the system against a run by depositors. Their system. The big banks' monopoly over money and money creation. I still see nothing other than a scam against working people who try to save and to pay off their debts so that they can live (and retire) with one less thing hanging over their heads. The big banks should have been driven out of business and out of the system and their execs should never have been allowed into any responsible position with fiduciary responsibilities ever again.
It's the same game, nothing has changed. If we do have a market collapse and a massive run on banks, it will look like the bankers are stand-up guys because they will be able to build confidence readily (all done, of course with taxpayer money from more and more debt creation). It won't prevent people from losing their retirement monies in a market crash, but those good ol' boys will look really solid because people will be able to say that the banks performed.
If all that happens, how does it affect gold? Just remember that gold has now been decreed by the IMF to be an unencumbered "Tier One" asset.
Q: Are You Printing Money? Bernanke: Not Literally
Hummmm, Idonno. At what point does money become worth anything? In thinking about the fed income, why do they get the money when it is acquired? If money is simply digits in an account then it really has not fulfilled any function or use and no benefit has been gained by the maker/owner through simply having digits. When the money is exchanged for something, then it has value to the owner. Seems best to get the national income when it is exchanged rather than when it was acquired. Saturday musings...
Pro-drachma party Plan B launches in Greece Knew it was coming, only wondered why it hasn't happened sooner. Of course it is only the formation of a party - who knows how successful they will be. The day is coming though. Greece will return to the Drachma some day.
It seems to me that the last ten years of creating money out of thin air, via electronic payments, has been a reveling process. Why not pass a law in congress that says the government may upon approval of the people, i.e. congress, create a certain amount of money each year to support those less fortunate in our country. If you are going to have a socialist government why not just create the money out of thin air and give it away? Why have debt in the equation?
What we are now experiencing in our society is inflation in the bottom rung of products and services. The prices of gas, utilities, food, and common goods continue to see inflationary pressures, but the higher end goods do not. So there are only to many dollars chasing to few goods in the lower priced products and services, not in the high end.
Obviously the American public wants checks in the mail, or in this case debit cards, for those they feel that are underprivileged. So why not just print the money and give it to them?
The economy has not crashed, nor have we had hyperinflation, due to all of these electronic money infusions over the last several years so I see not reason to sell debt to give away money.
We all know our currency is backed by nothing, and our debt can never be repaid. We Americans believe in our currency simply because the government says we must and they have tanks to back up their demand.
<< <i>If you are going to have a socialist government why not just create the money out of thin air and give it away? Why have debt in the equation? >>
I thought only the Fed reserve creates dollars and then lends them to the government. So the government cannot technically create dollars. Remember, the federal reserve is not federal, it is private.
<< <i>What we are now experiencing in our society is inflation in the bottom rung of products and services. The prices of gas, utilities, food, and common goods continue to see inflationary pressures, but the higher end goods do not. So there are only to many dollars chasing to few goods in the lower priced products and services, not in the high end. >>
I would disagree. Ultra rare coins have been selling at record prices (although prices at lower levels have not moved significantly), I believe the art market is doing well, as are collectible autos. The rich are definitely converting their paper dollars into hard assets like farm land and real estate (in most markets). Prices of these assets have not declined as you would have intuitively expected in a recession/depression as the world has been experiencing, so I feel that the price gains are more remarkable than they appear.
“I thought only the Fed reserve creates dollars and then lends them to the government. So the government cannot technically create dollars. Remember, the federal reserve is not federal, it is private.”
But why have a Fed? You do not need a fed to sell bonds if you give the money away. The U.S. treasury is already doing the giving. They are the ones that dispense the money, and they do not even print money it is all done with debit cards.
“I would disagree. Ultra rare coins have been selling at record prices (although prices at lower levels have not moved significantly), I believe the art market is doing well, as are collectible autos.”
My opinion is that these markets are driven by two things, first the fear of inflation that may never come if all the “NEW MONEY” is distributed to the lower classes. Second just plane old supply and demand. The worlds population is now our 7 billion and the Asian have a huge percent of new wealth. What cars from China will they collect? What coins from China will they collect?
Before the Fed, the US Treasury did issue notes, and when Nixon took the US off the Gold Standard completely in 1971, they replaced all US Notes with Fed Notes. Until then, both types of notes circulated concurrently. You tell me why the Fed is a necessary middleman. I see no reason for it's existence except banker welfare.
I also see no reason why, in order to bail out the banks, QE could not have been issued straight across the board to every US citizen. The poorer people would have spent the money and the middle class & rich folks would have banked it or invested with it. Multiple objectives could have been addressed in one fell swoop.
Since that didn't happen, I must conclude that QE was never intended as an economic stimulant, but just another wealth redistribution scheme specifically designed to enrich bankers.
Q: Are You Printing Money? Bernanke: Not Literally
original intent of FED was to take monetary policy from the hands of politicians and to also supervise the nation's banks.
I'm a firm believer that QE was designed, following the 2008 crisis, to provide future liquidity to the banks without having to dip directly into the taxpayers' pockets again. Somebody somewhere thinks this liquidity is going to be necessary. Since its inception the designers of QE have taken the opportunity to find additional uses for it. I wouldn't be surprised to see the next round result in the FED purchasing student loans. Look for the FED to become the garbage disposal where all bad debt eventually disappears. QE allows for the proxy defaulting on debt by satisfying it with funny money that will not hold the value of the money originally borrowed.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
would disagree. Ultra rare coins have been selling at record prices (although prices at lower levels have not moved significantly), I believe the art market is doing well, as are collectible autos. The rich are definitely converting their paper dollars into hard assets like farm land and real estate (in most markets). Prices of these assets have not declined as you would have intuitively expected in a recession/depression as the world has been experiencing, so I feel that the price gains are more remarkable than they appear.
We saw this same effect in really good coins during the March 1975 - March 1977 period following the Nov 1973 - March 1975 recession. But the price of average coins really didn't respond until the 1979-1980 mania kicked in. And while great coins were initially picking up strength in 1975-1976, gold was floundering in that inflationary-asset driven period. The same thing appears to be going on today. When the stock market turned over in January 1977 coins, gold, and oil kept on going up. It might seen counter-intuitive at first. But we saw this play out the same way from 1973-1980 (ie our 2007-2014). Though I think we're going to stretch beyond 2014 because QE has extended this cycle. There was no QE, otc derivatives, or other massive games being played in the 1970's. When stocks stop going up, the commodities will take over again as they did in the later 1970's.
<< <i>We saw this same effect in really good coins during the March 1975 - March 1977 period following the Nov 1973 - March 1975 recession. But the price of average coins really didn't respond until the 1979-1980 mania kicked in. And while great coins were initially picking up strength in 1975-1976, gold was floundering in that inflationary-asset driven period. The same thing appears to be going on today. When the stock market turned over in January 1977 coins, gold, and oil kept on going up. It might seen counter-intuitive at first. But we saw this play out the same way from 1973-1980 (ie our 2007-2014). Though I think we're going to stretch beyond 2014 because QE has extended this cycle. There was no QE, otc derivatives, or other massive games being played in the 1970's. When stocks stop going up, the commodities will take over again as they did in the later 1970's. >>
I think you're right. I also think the current stock market rally has about 2 months left in it and then we will see the capitulation where stocks start a slide down - possibly as much as 40-50% on the whole - and commodities start a nice rally. So the good news (conjecture) here is that gold's going to bottom within the near future.
<< <i>I'm a firm believer that QE was designed, following the 2008 crisis, to provide future liquidity to the banks without having to dip directly into the taxpayers' pockets again. Somebody somewhere thinks this liquidity is going to be necessary. Since its inception the designers of QE have taken the opportunity to find additional uses for it. I wouldn't be surprised to see the next round result in the FED purchasing student loans. Look for the FED to become the garbage disposal where all bad debt eventually disappears. QE allows for the proxy defaulting on debt by satisfying it with funny money that will not hold the value of the money originally borrowed. >>
There's never going to be another bailout of the TBTF (too big to fail) banks like what happened last time again. And the crisis is going to come as a result of the derivatives bubble finally collapsing. However, The next bailout will come in the form a la Cyprus which was just a test-run. In fact, Canada has made provisions to do the same kind of bailout in it's next budget: Canada Bank Account Confiscation
<< <i>I'm a firm believer that QE was designed, following the 2008 crisis, to provide future liquidity to the banks without having to dip directly into the taxpayers' pockets again. Somebody somewhere thinks this liquidity is going to be necessary. Since its inception the designers of QE have taken the opportunity to find additional uses for it. I wouldn't be surprised to see the next round result in the FED purchasing student loans. Look for the FED to become the garbage disposal where all bad debt eventually disappears. QE allows for the proxy defaulting on debt by satisfying it with funny money that will not hold the value of the money originally borrowed. >>
There's never going to be another bailout of the TBTF (too big to fail) banks like what happened last time again. And the crisis is going to come as a result of the derivatives bubble finally collapsing. However, The next bailout will come in the form a la Cyprus which was just a test-run. In fact, Canada has made provisions to do the same kind of bailout in it's next budget: Canada Bank Account Confiscation >>
Like I said, taxpayer bailout will not be needed next time around - the QE money that that the banks now have on deposit with the FED will provide them with the liquidity they will need when the time comes. The FED has purposely ensured it stays on deposit by paying a better return than Main Street loans would pay. This is also how the FED has avoided serious inflation - keeping the money off of Main Street.
The next threat to our economy is the ongoing movement away from the dollar's role as world reserve currency and the resulting currency crisis. Those that fail to see this threat need to at least understand the concept of normalcy bias.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Derryb, the banks don't have enough money to protect them from the blow-up in the derivatives market that will come someday. They will be coming for your deposits and other paper assets.
<< <i>Derryb, the banks don't have enough money to protect them from the blow-up in the derivatives market that will come someday. They will be coming for your deposits and other paper assets. >>
Derivatives are based on contracts between the two "betting" parties. A blow up in derivatives will result in a failure (default) to honor the contract - it will become meaningless. Derivatives are unregulated and are pretty much unenforceable except in a civil lawsuit between the two parties. Bank deposits won't even cover the lawyer fees of a blowup and are not directly threatened. The possible bank failures in a derivative blowup will however threaten the stability of bank deposits. The single largest threat to the stability of financial derivatives is rising interest rates.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I saw a stat the other day that somewhere between 50 and 60% of all home sales in the Phoenix area are all-cash deals. So the buyers are not homeowners, they are investors. The investor demand can be turned off like a light switch should the economy or government do something.
<< <i>I saw a stat the other day that somewhere between 50 and 60% of all home sales in the Phoenix area are all-cash deals. So the buyers are not homeowners, they are investors. The investor demand can be turned off like a light switch should the economy or government do something. >>
special deals are being given to wholesale investors who purchase a large quantity of foreclosures in one lot. It is designed to keep them individually off the market where they will drive down overall prices.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I continue to get emails from my hard core survival buddies telling me the banks will all fail this year, the dollar will be worthless, and gold is going to $5,000.
Here is my latest replies to one email.
Lets say the dollar loses all of its purchasing power. Then who will buy oil from the Arabs? Who will buy products from Korea, China, Japan? What will all the worthless dollars in foreign aid buy? What will Americans use to buy all the foreign cars on the road? What will happen to the trillions in investments owned by foreigners as well as U.S. citizens? What will happen to the retirement plans of millions of Americans? In order for the dollar to be worth nil the entire world will have to go into depression, and then who will be able to buy gold at $5,000 per Oz.?
As long as Americans believe in the illusion of paper dollars the government can continue printing the money. Most of us were horrified ten years ago when we had ten trillion in face value debt. We thought that a crash was imminent. Now the debt is 17 trillion and 4 trillion at the fed, so 21 trillion.
There is no possible way the world can go on a gold and silver standard, the coins would be so expensive no one could use them to buy STUFF.
The gold price is to cheap. The average production cost for gold miners around the world is around $1,200 so we could see $1,900 again, but that may be it.
One additional thing my friend,
The financial position of the United States as of Q4 2012 included household and not-for-profit net worth of $66.07 trillion, non-financial corporate business net worth of $17.59 trillion, and non-financial non-corporate business net worth of $8.06 trillion, for a total of $91.72 trillion.
As of 2009, there was $50.7 trillion of debt owed by US households, businesses, and governments I am sure that number is over 60 trillion by now, and this DOES not include unfunded liabilities of the U.S. government.
The point to all of this is that all of this debt is due in U.S. dollars.All the mortgage debt, all the credit card debt, all the government debt, all the notes, bonds and stocks are all due and payable in dollars. No dollars, no payment. If the value of the dollar is reduced to the point that it will pay for nothing then the entire 60 trillion will never be paid.
Even if that happens no one will have any money to pay $5,000 an oz. for gold.
<< <i>I continue to get emails from my hard core survival buddies telling me the banks will all fail this year, the dollar will be worthless, and gold is going to $5,000.
Here is my latest replies to one email.
Lets say the dollar loses all of its purchasing power. Then who will buy oil from the Arabs? Who will buy products from Korea, China, Japan? What will all the worthless dollars in foreign aid buy? What will Americans use to buy all the foreign cars on the road? What will happen to the trillions in investments owned by foreigners as well as U.S. citizens? What will happen to the retirement plans of millions of Americans? In order for the dollar to be worth nil the entire world will have to go into depression, and then who will be able to buy gold at $5,000 per Oz.?
As long as Americans believe in the illusion of paper dollars the government can continue printing the money. Most of us were horrified ten years ago when we had ten trillion in face value debt. We thought that a crash was imminent. Now the debt is 17 trillion and 4 trillion at the fed, so 21 trillion.
There is no possible way the world can go on a gold and silver standard, the coins would be so expensive no one could use them to buy STUFF.
The gold price is to cheap. The average production cost for gold miners around the world is around $1,200 so we could see $1,900 again, but that may be it.
One additional thing my friend,
The financial position of the United States as of Q4 2012 included household and not-for-profit net worth of $66.07 trillion, non-financial corporate business net worth of $17.59 trillion, and non-financial non-corporate business net worth of $8.06 trillion, for a total of $91.72 trillion.
As of 2009, there was $50.7 trillion of debt owed by US households, businesses, and governments I am sure that number is over 60 trillion by now, and this DOES not include unfunded liabilities of the U.S. government.
The point to all of this is that all of this debt is due in U.S. dollars.All the mortgage debt, all the credit card debt, all the government debt, all the notes, bonds and stocks are all due and payable in dollars. No dollars, no payment. If the value of the dollar is reduced to the point that it will pay for nothing then the entire 60 trillion will never be paid.
Even if that happens no one will have any money to pay $5,000 an oz. for gold. >>
Not that I agree with your survival buddies but: If the dollar looses enough purchasing power it will most likely no longer be the world reserve currency. In that case the oil producers will just not accept dollars or they will require a whole lot more of them. Americans will just have to spend a lot more of them for the same products.
Dollars will likely never be worthless, only worth less. This is why gold goes up over time and why things cost more. For those that don't believe this just think back to 30 cent gasoline and 19 cent hamburgers. Debt is a result of a declining dollar: borrow and buy (or invest) now before prices go up. There is a lot of debt out there that will never get repaid. Debt is nothing more than a promise - promises are easily broken.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>There is no possible way the world can go on a gold and silver standard, the coins would be so expensive no one could use them to buy STUFF. >>
I bet they said that in Zimbabwe, Weimar, etc... I think it is just that we can conceptualize a penny being worth anything, but consider that a penny used to buy what you can get with $1 today. I think it could be done, but it would be quite impossible to figure out how to transition from where we are to such a system in an orderly manner. Of course, it probably won't be an orderly transition.
"There is no possible way the world can go on a gold and silver standard, the coins would be so expensive no one could use them to buy STUFF."
Ahhhhhhh...but we could put a silver or gold thread in the bills and have plenty of gold to embellish our currency and make it uncounterfeitable at the same time. Silver for $1's and $5's, gold for $20 and up. Kind of like fractional banking or fractional gold shares except bills with real metal embedded. Sure, the $20 might not have $20 worth of gold thread in it but it certainly could have $2 worth or $5. Metal dollars would still be currency, they would still be dollars to pay all the debt and keep the velocity up but imagine...money that is actually worth something. And imagine, people hoarding cash because it is actually worth something all over the world, and what about actually saving money WHOA!. And there is always the possibility that value of the dollar would float a little on international markets, kind of like it does now. Dollar w/metal V.S. Marks on promissory paper, pick one. Next...
That $91.72 TRILL in US debt is second in line behind the $300 TRILL in derivatives our bankers have at risk. Once they are paid off on those bets, then everyone else can fight over what's left. And anything out there subject to a loan or being used as collateral is fair game in payment towards those derivatives, that's most of the real estate in the US.
If one thinks back to the real days of the workable gold standard (1894-1913) there were things called real bills that allowed for most 90 day gold payments to be handled by paper IOU's. Those were closely held and adjusted by the creditworthiness of the merchant. The vast majority of all business and labor was handled via real bills. They didn't need a pile of gold for a shoemaker to go out and buy raw goods and pay his help to make the the finished product. Same for the baker and candlestick maker. Real bills covered all that. There's a continued mindset out there that gold is needed for every transaction in a gold standard. Not true by any stretch of the imagination. Once the finished product made it to market the real bill was retired via gold specie. The so-called "gold standard" that was put back in place after WW1 was devoid of a real bills standard.
RR, I've been thinking about what you just said for a while, and I'm trying to wrap my head around this. Maybe you or someone can explain... The $300T in derivatives are at risk, but isn't it balanced? For every instrument, isn't there someone on the opposite side of the transaction? One winner, one loser? I know that it might wipe out the loser or that the winner may not get paid, but is it really as big of a (potential) problem as it is sometimes discussed to be?
A blow up in derivatives will result in a failure (default) to honor the contract - it will become meaningless.
Maybe you or someone can explain... The $300T in derivatives are at risk, but isn't it balanced? For every instrument, isn't there someone on the opposite side of the transaction? One winner, one loser? I know that it might wipe out the loser or that the winner may not get paid, but is it really as big of a (potential) problem as it is sometimes discussed to be?
The precedents have already taken place and there's every indication that we will see much, much more of the same. What am I referring to? The winners take their money and run to the best locations that they can find on earth - the finest places that money can buy, entry price a $Billion or so.
The losers use their political clout to get bailed out as TBTF entities that "would otherwise cause hardship of many thousands or tens of thousands, or hundreds of thousands of people" if they should per chance fail. AND, the profits are privatized while the losses are socialized. That's always the excuse.
This results in a harder time for anyone who isn't a TBTF officer or an elite member of the permanent political class. Harder, in the sense that the national debt load makes investment harder, makes debt more burdensome to pay off, makes it harder to generate new capital - because the money is gone and productive efforts are being used to pay the interest on the debt instead of being used to create wealth and jobs.
You can invest wisely and buy a hedge. You can avoid being wrecked when these things snowball. However, you can't bail out every friend or family member or close associate who isn't smart enough to do what you have done to protect yourself. So, the impact will hit you, no matter how well you do. It's a dog eat dog world, more so now than ever. Or so it seems.
As in Atlas Shrugged, the best solution is wealth creation through hard work and innovation, not wealth redistribution (which destroys the incentives as it destroys wealth in the process).
How soon we forget.
Q: Are You Printing Money? Bernanke: Not Literally
dollars are just paper. they can be burned (devalued) if need be.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
“Ahhhhhhh...but we could put a silver or gold thread in the bills and have plenty of gold to embellish our currency and make it uncounterfeitable at the same time.”
<< <i>dollars are just paper. they can be burned (devalued) if need be. >>
What does that have to do with a supposed derivative problem? >>
Maybe the FED is turning dollars into derivatives
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Derivatives are just paper. They can be burned if need be. >>
That option was lost when they burned Lehman to the ground. For one, the $10T to $20T that was pumped into the system to pay off all those losing bets in 2008-2009 cannot be effectively removed. The second thing is that the winning banks will not allow a canceling or burning of the derivatives. They would tank the financial system before they allowed that to happen. I'm sure they have their gold lined fire exits already identified.
For that matter, most everything in our financial system is just paper....that is except tangible commodities and physical assets. Even many physical assets have a mountain of derivatives written against them.
<< <i>There is no possible way the world can go on a gold and silver standard, the coins would be so expensive no one could use them to buy STUFF. >>
I bet they said that in Zimbabwe, Weimar, etc... I think it is just that we can conceptualize a penny being worth anything, but consider that a penny used to buy what you can get with $1 today. I think it could be done, but it would be quite impossible to figure out how to transition from where we are to such a system in an orderly manner. Of course, it probably won't be an orderly transition. >>
Nothing is impossible, there could be a scenario but first consider how their currency got there in the first place. These conditions not even probable for USD, IMO.
The USD is still the #1 and will probably get even stronger with Europe falling apart. No loss of confidence in the currency means to me no hyperinflation.
I have strong feelings for a high inflationary trend, we will, but not a hyper scenario. And don't ask me to put a time frame on it...I dunno
$85 Billion a month figures out to $314 per month per person, or maybe about $1,000 per month per family unit.
So, even though I may not be getting a freebie of $314/month, somebody is. I figure that it's going to bankers and the unemployed, both deserving and undeserving. It's not going to anyone who happens to be working for a living.
$16.7 trillion / 270 million = $61,800 per person of debt. Or figure about $185,000 worth of debt per family unit. Times what? Say 2%? That's $308/month per person, per month.
So, at the current rate of QE, the new money is almost sufficient to float the entire national debt on a personal basis at 2% interest rates.
Redistribution of wealth is taking place across the entire economy. If interest rates rise at all, the money float won't be enough and taxes will have to rise or payments will have to decline.
The redistribution takes place across all parts of the financial spectrum, and it's not a clear-cut equation, but it is pervasive and it's occurring pretty much continuously.
If you live on the edge as our government has been doing for 40 years, you have to depend on the real economy to be productive enough to be able to supply sufficient goods & services. In a real economy, price acts as the incentive to increase production just as it provides an incentive to be employed - which in turn helps to increase production when prices have risen.
Price is a natural throttle for determining what needs to be done, in an efficient system. Unfortunately - as Ron Paul would be the first to point out, our economy is laced with mal-investment as a result of pervasive government interference, from top to bottom. QE interferes directly with the pricing of interest rates, and interest rates affect all other prices. QE is almost the equivalent of throwing a wrench into the works of a running engine.
With QE, a total lack of management skills in the administration, more and more regulation from massive legislation that hasn't even been implemented yet, and more taxation on the near horizon - the engine of growth has a pretty good chance of getting bogged down permanently.
Q: Are You Printing Money? Bernanke: Not Literally
"..the engine of growth has a pretty good chance of getting bogged down permanently."
Nice piece but there's more...These are interesting times. We have this massive QE-i that is preventing our economy from experiencing the real effects of Capitalism, in a Darwinian kind of way. We have the laser like focus on growing the middle class with a core philosophy of "A rising tide lifts all boats". Middle class, the way it is used in speeches and media, has seemingly become code for historically underserved or code for very heavily subsidized by the taxpayers until they can achieve middle class. Regardless, the middle class is not growing, tide not lifting, the historic middle class is decimated and the growing middle class is either invisible or nonexistent.
Methinks the middle class is still out there, the guys and gals that had pensions or 401's, upward mobility, dependable transportation. People that were familiar with living in a safe area with plenty of access to goods and services, including recreation. Depending on who you read, our economy improved by between 1.2 and 1.7% this year while disbursements for disability payments (paid to never work again) have skyrocketed. This is not progress for us worker bees, we got squat from all this QE-I, we lost our Bush tax break, our property taxes are going up, we're paying 10% for consumer credit from the banks that get the money for free while we watch our incomes remain stagnant (a 2% raise isn't really a raise) and yet we sit...with a laser like focus on growing the middle class. This begs the question: "Growing the middle class into what?". You just have to do better than middle class, what ever that is, or be satisfied with being grown into something.
<< <i>The USD is still the #1 and will probably get even stronger with Europe falling apart. No loss of confidence in the currency means to me no hyperinflation. >>
True, but how long will the world or this country have confidence in a currency backed by nothing with exponentially growing debt and interest rates that can do nothing but increase? Don't know about you, but I don't see any scenario where the US debt starts to shrink back to any manageable size (or even just maintain). What about when interest payments on the debt total 50% or more of the US budget? Eventually the debt spiral will get out of control. I don't know when this will happen, but it seems like a certainty to me. Would like to hear the scenarios under which people here think the US can bring the growing debt problem under control. there's a limit to how much strength a nation can have - even if it is relative - when the debt becomes a crushing burden.
"Rather than do want is necessary to solve the ongoing 2008 credit crisis, those in power stoop to public relations tricks and propaganda."
"High debt servicing levels and production outsourcing act as a break on U.S. economic growth. The ever increasing debt economic model is now exhausted. Deleveraging will have to occur. The longer the deleveraging is put off, the worse the eventual economic collapse could be."
"For the U.S. to extricate herself from the ongoing 2008 credit crisis, it is recommended that politicians: 1) allow insolvent banks to go bankrupt; 2) prosecute fraudulent behavior; 3) permit interest rates to rise, by doing away with the Fed’s ZIRP, thereby increasing consumer demand; and 4) eliminate austerity for the people, by sharing productivity gains with workers. This will help restore income equality and further grow final demand, which will direct businesses on where to make profitable investments."
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Derivatives are just paper. They can be burned if need be.
You should know that's not how it works. Let's review what happened when AIG was on the hook for losses that would have impacted Goldman Sachs directly if their insurance contracts (derivatives) wouldn't have been made whole by the taxpayers. Did AIG have to declare bankruptcy and did Goldman lose out on their $35 billion or so? Did Goldman burn their contracts with AIG? Did I somehow miss that news bulletin?
The answer is, no they did not. The money was made available through taxpayer bailout money, which adds directly into the national debt. Losing bets simply don't get "burned if need be".
The answer is - it depends on who you are, and who you own. GM bondholders apparently didn't know the right people. Solyndra's people did. So did GE Capital's (now Ally Bank) people. So do Warren Buffet's people.
Apparently, I don't know the right people because nobody has offered to burn up my mortgage papers? How does THAT work?
Q: Are You Printing Money? Bernanke: Not Literally
Keep in mind that we (the taxpayers) made a significant profit on the AIG bailout.
You really need to ask yourself, "is that relevant?" I say that it's not.
The gov has no business bailing out failed businesses whose management walked off with hundreds of millions in bonuses, and whose bailout saved Goldman from a loss on a bet that they made with their eyes wide open.
Having the gov pick winners and losers in the business arena is corruption, plain & simple. If laws don't matter, let's just all agree that laws don't matter.
Let's get some perspective. That substantial profit you cite was about 1 week's worth of QE. In the whole scheme of things, do the laws that supposedly form the foundation of business and of society matter less than a week's worth of QE?
It's a choice that we all are making.
Q: Are You Printing Money? Bernanke: Not Literally
<< <i>Keep in mind that we (the taxpayers) made a significant profit on the AIG bailout. >>
the much more signifcant taxpayer losses elswhere are many, many times greater. Do not trust Washington when it comes to investing taxpayer money. They do not do it for potential profit, they have ulterior motives.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Keep in mind that we (the taxpayers) made a significant profit on the AIG bailout. >>
But due to AIG and Lehman, there was also $10 TRILL to $20 TRILL paid out by the FED and USgovt to big banks and their friends around the world. Whatever we "made" on AIG, GE, and other failed corporations was a pittance compared to the much larger socialized losses that are never talked about. The next big failure will require similar greasing....or the system goes down in a heap.
<< <i>Derivatives are just paper. They can be burned if need be.
You should know that's not how it works. Let's review what happened when AIG was on the hook for losses that would have impacted Goldman Sachs directly if their insurance contracts (derivatives) wouldn't have been made whole by the taxpayers. Did AIG have to declare bankruptcy and did Goldman lose out on their $35 billion or so? Did Goldman burn their contracts with AIG? Did I somehow miss that news bulletin?
The answer is, no they did not. The money was made available through taxpayer bailout money, which adds directly into the national debt. Losing bets simply don't get "burned if need be".
The answer is - it depends on who you are, and who you own. GM bondholders apparently didn't know the right people. Solyndra's people did. So did GE Capital's (now Ally Bank) people. So do Warren Buffet's people.
Apparently, I don't know the right people because nobody has offered to burn up my mortgage papers? How does THAT work? >>
Yes, that is exactly how it works. AIG and GM were bailed out because they could be. And now due to substantial strengthening of the banks another AIG/GM scenerio could be contained probably without Govt intervention.
But what is consistently bantered is the multiple hundreds of trillions that will be the problem. I say they wont be because it is too large. Rather than all the banks and central Govts destroying each other, all will consent to a mulligan. These derivatives will be torn up.
<< <i>But what is consistently bantered is the multiple hundreds of trillions that will be the problem. I say they wont be because it is too large. Rather than all the banks and central Govts destroying each other, all will consent to a mulligan. These derivatives will be torn up. >>
The biggest threat of the last crisis was that the banks no longer trusted each other. Only with taxpayer provided liquidity did that trust get somewhat reinstated. That trust remains quite fragile. Just as with the last crisis the coming derivative crisis will result in the banks throwing each other to the wolves.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Comments
I stated several months ago that the conspiracy rhetoric was about to switch into high gear. This blog proves my comment.
I do find it interesting the amount of power bestowed upon Bernanke by those who revile him the most.
Knowledge is the enemy of fear
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I think its a good article, and the theory sounds completely plausible. In fact, it appears to agree with your position and strategies more than not.
Bernanke said from the get-go that he would drop as much liquidity into the system, via helicopters if necessary in order to prevent another Great Depression, the main feature of which was a consuming deflation. You have to remember to whom Bernanke was speaking. He was addressing Congress and the banking cabal, not you or me.
My contention all along is that Bernanke promised inflation over deflation at any cost. What I didn't consider for a long time was that building up bank reserves to monumental levels was in order to avoid a loss of confidence when the stock market bubble bursts. All along, I simply thought that QE was banker welfare (which it is), and that banks were being given free taxpayer money so that they could maintain their Hamptons lifestyles and bonuses (which they did).
Little did I realize that it was all to protect the system against a run by depositors. Their system. The big banks' monopoly over money and money creation. I still see nothing other than a scam against working people who try to save and to pay off their debts so that they can live (and retire) with one less thing hanging over their heads. The big banks should have been driven out of business and out of the system and their execs should never have been allowed into any responsible position with fiduciary responsibilities ever again.
It's the same game, nothing has changed. If we do have a market collapse and a massive run on banks, it will look like the bankers are stand-up guys because they will be able to build confidence readily (all done, of course with taxpayer money from more and more debt creation). It won't prevent people from losing their retirement monies in a market crash, but those good ol' boys will look really solid because people will be able to say that the banks performed.
If all that happens, how does it affect gold? Just remember that gold has now been decreed by the IMF to be an unencumbered "Tier One" asset.
I knew it would happen.
Knew it was coming, only wondered why it hasn't happened sooner. Of course it is only the formation of a party - who knows how successful they will be. The day is coming though. Greece will return to the Drachma some day.
Why not pass a law in congress that says the government may upon approval of the people, i.e. congress, create a certain amount of money each year to support those less fortunate in our country. If you are going to have a socialist government why not just create the money out of thin air and give it away? Why have debt in the equation?
What we are now experiencing in our society is inflation in the bottom rung of products and services. The prices of gas, utilities, food, and common goods continue to see inflationary pressures, but the higher end goods do not. So there are only to many dollars chasing to few goods in the lower priced products and services, not in the high end.
Obviously the American public wants checks in the mail, or in this case debit cards, for those they feel that are underprivileged. So why not just print the money and give it to them?
The economy has not crashed, nor have we had hyperinflation, due to all of these electronic money infusions over the last several years so I see not reason to sell debt to give away money.
We all know our currency is backed by nothing, and our debt can never be repaid. We Americans believe in our currency simply because the government says we must and they have tanks to back up their demand.
<< <i>If you are going to have a socialist government why not just create the money out of thin air and give it away? Why have debt in the equation? >>
I thought only the Fed reserve creates dollars and then lends them to the government. So the government cannot technically create dollars. Remember, the federal reserve is not federal, it is private.
<< <i>What we are now experiencing in our society is inflation in the bottom rung of products and services. The prices of gas, utilities, food, and common goods continue to see inflationary pressures, but the higher end goods do not. So there are only to many dollars chasing to few goods in the lower priced products and services, not in the high end. >>
I would disagree. Ultra rare coins have been selling at record prices (although prices at lower levels have not moved significantly), I believe the art market is doing well, as are collectible autos. The rich are definitely converting their paper dollars into hard assets like farm land and real estate (in most markets). Prices of these assets have not declined as you would have intuitively expected in a recession/depression as the world has been experiencing, so I feel that the price gains are more remarkable than they appear.
But why have a Fed? You do not need a fed to sell bonds if you give the money away. The U.S. treasury is already doing the giving. They are the ones that dispense the money, and they do not even print money it is all done with debit cards.
“I would disagree. Ultra rare coins have been selling at record prices (although prices at lower levels have not moved significantly), I believe the art market is doing well, as are collectible autos.”
My opinion is that these markets are driven by two things, first the fear of inflation that may never come if all the “NEW MONEY” is distributed to the lower classes. Second just plane old supply and demand. The worlds population is now our 7 billion and the Asian have a huge percent of new wealth. What cars from China will they collect? What coins from China will they collect?
<< <i>There was genius there. >>
There still is but, unfortunately, you are correct on all the other points of you post, 57loaded.
I also see no reason why, in order to bail out the banks, QE could not have been issued straight across the board to every US citizen. The poorer people would have spent the money and the middle class & rich folks would have banked it or invested with it. Multiple objectives could have been addressed in one fell swoop.
Since that didn't happen, I must conclude that QE was never intended as an economic stimulant, but just another wealth redistribution scheme specifically designed to enrich bankers.
I knew it would happen.
I'm a firm believer that QE was designed, following the 2008 crisis, to provide future liquidity to the banks without having to dip directly into the taxpayers' pockets again. Somebody somewhere thinks this liquidity is going to be necessary. Since its inception the designers of QE have taken the opportunity to find additional uses for it. I wouldn't be surprised to see the next round result in the FED purchasing student loans. Look for the FED to become the garbage disposal where all bad debt eventually disappears. QE allows for the proxy defaulting on debt by satisfying it with funny money that will not hold the value of the money originally borrowed.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
We saw this same effect in really good coins during the March 1975 - March 1977 period following the Nov 1973 - March 1975 recession. But the price of average coins really didn't respond until the 1979-1980 mania kicked in. And while great coins were initially picking up strength in 1975-1976, gold was floundering in that inflationary-asset driven period. The same thing appears to be going on today. When the stock market turned over in January 1977 coins, gold, and oil kept on going up. It might seen counter-intuitive at first. But we saw this play out the same way from 1973-1980 (ie our 2007-2014). Though I think we're going to stretch beyond 2014 because QE has extended this cycle. There was no QE, otc derivatives, or other massive games being played in the 1970's. When stocks stop going up, the commodities will take over again as they did in the later 1970's.
<< <i>We saw this same effect in really good coins during the March 1975 - March 1977 period following the Nov 1973 - March 1975 recession. But the price of average coins really didn't respond until the 1979-1980 mania kicked in. And while great coins were initially picking up strength in 1975-1976, gold was floundering in that inflationary-asset driven period. The same thing appears to be going on today. When the stock market turned over in January 1977 coins, gold, and oil kept on going up. It might seen counter-intuitive at first. But we saw this play out the same way from 1973-1980 (ie our 2007-2014). Though I think we're going to stretch beyond 2014 because QE has extended this cycle. There was no QE, otc derivatives, or other massive games being played in the 1970's. When stocks stop going up, the commodities will take over again as they did in the later 1970's. >>
I think you're right. I also think the current stock market rally has about 2 months left in it and then we will see the capitulation where stocks start a slide down - possibly as much as 40-50% on the whole - and commodities start a nice rally. So the good news (conjecture) here is that gold's going to bottom within the near future.
<< <i>I'm a firm believer that QE was designed, following the 2008 crisis, to provide future liquidity to the banks without having to dip directly into the taxpayers' pockets again. Somebody somewhere thinks this liquidity is going to be necessary. Since its inception the designers of QE have taken the opportunity to find additional uses for it. I wouldn't be surprised to see the next round result in the FED purchasing student loans. Look for the FED to become the garbage disposal where all bad debt eventually disappears. QE allows for the proxy defaulting on debt by satisfying it with funny money that will not hold the value of the money originally borrowed. >>
There's never going to be another bailout of the TBTF (too big to fail) banks like what happened last time again. And the crisis is going to come as a result of the derivatives bubble finally collapsing. However, The next bailout will come in the form a la Cyprus which was just a test-run. In fact, Canada has made provisions to do the same kind of bailout in it's next budget:
Canada Bank Account Confiscation
<< <i>
<< <i>I'm a firm believer that QE was designed, following the 2008 crisis, to provide future liquidity to the banks without having to dip directly into the taxpayers' pockets again. Somebody somewhere thinks this liquidity is going to be necessary. Since its inception the designers of QE have taken the opportunity to find additional uses for it. I wouldn't be surprised to see the next round result in the FED purchasing student loans. Look for the FED to become the garbage disposal where all bad debt eventually disappears. QE allows for the proxy defaulting on debt by satisfying it with funny money that will not hold the value of the money originally borrowed. >>
There's never going to be another bailout of the TBTF (too big to fail) banks like what happened last time again. And the crisis is going to come as a result of the derivatives bubble finally collapsing. However, The next bailout will come in the form a la Cyprus which was just a test-run. In fact, Canada has made provisions to do the same kind of bailout in it's next budget:
Canada Bank Account Confiscation >>
Like I said, taxpayer bailout will not be needed next time around - the QE money that that the banks now have on deposit with the FED will provide them with the liquidity they will need when the time comes. The FED has purposely ensured it stays on deposit by paying a better return than Main Street loans would pay. This is also how the FED has avoided serious inflation - keeping the money off of Main Street.
The next threat to our economy is the ongoing movement away from the dollar's role as world reserve currency and the resulting currency crisis. Those that fail to see this threat need to at least understand the concept of normalcy bias.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Derryb, the banks don't have enough money to protect them from the blow-up in the derivatives market that will come someday. They will be coming for your deposits and other paper assets. >>
Derivatives are based on contracts between the two "betting" parties. A blow up in derivatives will result in a failure (default) to honor the contract - it will become meaningless. Derivatives are unregulated and are pretty much unenforceable except in a civil lawsuit between the two parties. Bank deposits won't even cover the lawyer fees of a blowup and are not directly threatened. The possible bank failures in a derivative blowup will however threaten the stability of bank deposits. The single largest threat to the stability of financial derivatives is rising interest rates.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Got Gold?
<< <i>I saw a stat the other day that somewhere between 50 and 60% of all home sales in the Phoenix area are all-cash deals. So the buyers are not homeowners, they are investors. The investor demand can be turned off like a light switch should the economy or government do something. >>
special deals are being given to wholesale investors who purchase a large quantity of foreclosures in one lot. It is designed to keep them individually off the market where they will drive down overall prices.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Martin Armstrong (again)
Some interesting stuff.....a lot of semi-stuff
Interesting blogs (to me) on July 19th "Major or Minor" and "ECM 8/7/2013 Turning Point"ECM Turning Point 8/7/2013
major-v-minor-what-is-the-difference
Here is my latest replies to one email.
Lets say the dollar loses all of its purchasing power. Then who will buy oil from the Arabs? Who will buy products from Korea, China, Japan?
What will all the worthless dollars in foreign aid buy? What will Americans use to buy all the foreign cars on the road? What will happen to the trillions in investments owned by foreigners as well as U.S. citizens? What will happen to the retirement plans of millions of Americans?
In order for the dollar to be worth nil the entire world will have to go into depression, and then who will be able to buy gold at $5,000 per Oz.?
As long as Americans believe in the illusion of paper dollars the government can continue printing the money. Most of us were horrified ten years ago when we had ten trillion in face value debt. We thought that a crash was imminent. Now the debt is 17 trillion and 4 trillion at the fed, so 21 trillion.
There is no possible way the world can go on a gold and silver standard, the coins would be so expensive no one could use them to buy STUFF.
The gold price is to cheap. The average production cost for gold miners around the world is around $1,200 so we could see $1,900 again, but that may be it.
One additional thing my friend,
The financial position of the United States as of Q4 2012 included household and not-for-profit net worth of $66.07 trillion, non-financial corporate business net worth of $17.59 trillion, and non-financial non-corporate business net worth of $8.06 trillion, for a total of $91.72 trillion.
As of 2009, there was $50.7 trillion of debt owed by US households, businesses, and governments I am sure that number is over 60 trillion by now, and this DOES not include unfunded liabilities of the U.S. government.
The point to all of this is that all of this debt is due in U.S. dollars.All the mortgage debt, all the credit card debt, all the government debt, all the notes, bonds and stocks are all due and payable in dollars. No dollars, no payment. If the value of the dollar is reduced to the point that it will pay for nothing then the entire 60 trillion will never be paid.
Even if that happens no one will have any money to pay $5,000 an oz. for gold.
<< <i>I continue to get emails from my hard core survival buddies telling me the banks will all fail this year, the dollar will be worthless, and gold is going to $5,000.
Here is my latest replies to one email.
Lets say the dollar loses all of its purchasing power. Then who will buy oil from the Arabs? Who will buy products from Korea, China, Japan?
What will all the worthless dollars in foreign aid buy? What will Americans use to buy all the foreign cars on the road? What will happen to the trillions in investments owned by foreigners as well as U.S. citizens? What will happen to the retirement plans of millions of Americans?
In order for the dollar to be worth nil the entire world will have to go into depression, and then who will be able to buy gold at $5,000 per Oz.?
As long as Americans believe in the illusion of paper dollars the government can continue printing the money. Most of us were horrified ten years ago when we had ten trillion in face value debt. We thought that a crash was imminent. Now the debt is 17 trillion and 4 trillion at the fed, so 21 trillion.
There is no possible way the world can go on a gold and silver standard, the coins would be so expensive no one could use them to buy STUFF.
The gold price is to cheap. The average production cost for gold miners around the world is around $1,200 so we could see $1,900 again, but that may be it.
One additional thing my friend,
The financial position of the United States as of Q4 2012 included household and not-for-profit net worth of $66.07 trillion, non-financial corporate business net worth of $17.59 trillion, and non-financial non-corporate business net worth of $8.06 trillion, for a total of $91.72 trillion.
As of 2009, there was $50.7 trillion of debt owed by US households, businesses, and governments I am sure that number is over 60 trillion by now, and this DOES not include unfunded liabilities of the U.S. government.
The point to all of this is that all of this debt is due in U.S. dollars.All the mortgage debt, all the credit card debt, all the government debt, all the notes, bonds and stocks are all due and payable in dollars. No dollars, no payment. If the value of the dollar is reduced to the point that it will pay for nothing then the entire 60 trillion will never be paid.
Even if that happens no one will have any money to pay $5,000 an oz. for gold. >>
Not that I agree with your survival buddies but:
If the dollar looses enough purchasing power it will most likely no longer be the world reserve currency. In that case the oil producers will just not accept dollars or they will require a whole lot more of them. Americans will just have to spend a lot more of them for the same products.
Dollars will likely never be worthless, only worth less. This is why gold goes up over time and why things cost more. For those that don't believe this just think back to 30 cent gasoline and 19 cent hamburgers. Debt is a result of a declining dollar: borrow and buy (or invest) now before prices go up. There is a lot of debt out there that will never get repaid. Debt is nothing more than a promise - promises are easily broken.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>There is no possible way the world can go on a gold and silver standard, the coins would be so expensive no one could use them to buy STUFF. >>
I bet they said that in Zimbabwe, Weimar, etc...
I think it is just that we can conceptualize a penny being worth anything, but consider that a penny used to buy what you can get with $1 today. I think it could be done, but it would be quite impossible to figure out how to transition from where we are to such a system in an orderly manner. Of course, it probably won't be an orderly transition.
Ahhhhhhh...but we could put a silver or gold thread in the bills and have plenty of gold to embellish our currency and make it uncounterfeitable at the same time. Silver for $1's and $5's, gold for $20 and up. Kind of like fractional banking or fractional gold shares except bills with real metal embedded. Sure, the $20 might not have $20 worth of gold thread in it but it certainly could have $2 worth or $5. Metal dollars would still be currency, they would still be dollars to pay all the debt and keep the velocity up but imagine...money that is actually worth something. And imagine, people hoarding cash because it is actually worth something all over the world, and what about actually saving money WHOA!. And there is always the possibility that value of the dollar would float a little on international markets, kind of like it does now. Dollar w/metal V.S. Marks on promissory paper, pick one. Next...
Hey Buddy, can you spare and ASE?
what's left. And anything out there subject to a loan or being used as collateral is fair game in payment towards those derivatives, that's most of the real estate in the US.
If one thinks back to the real days of the workable gold standard (1894-1913) there were things called real bills that allowed for most 90 day gold payments to be handled by paper
IOU's. Those were closely held and adjusted by the creditworthiness of the merchant. The vast majority of all business and labor was handled via real bills. They didn't need a pile
of gold for a shoemaker to go out and buy raw goods and pay his help to make the the finished product. Same for the baker and candlestick maker. Real bills covered all that. There's
a continued mindset out there that gold is needed for every transaction in a gold standard. Not true by any stretch of the imagination. Once the finished product made it to market the
real bill was retired via gold specie. The so-called "gold standard" that was put back in place after WW1 was devoid of a real bills standard.
Maybe you or someone can explain... The $300T in derivatives are at risk, but isn't it balanced? For every instrument, isn't there someone on the opposite side of the transaction? One winner, one loser? I know that it might wipe out the loser or that the winner may not get paid, but is it really as big of a (potential) problem as it is sometimes discussed to be?
The precedents have already taken place and there's every indication that we will see much, much more of the same. What am I referring to? The winners take their money and run to the best locations that they can find on earth - the finest places that money can buy, entry price a $Billion or so.
The losers use their political clout to get bailed out as TBTF entities that "would otherwise cause hardship of many thousands or tens of thousands, or hundreds of thousands of people" if they should per chance fail. AND, the profits are privatized while the losses are socialized. That's always the excuse.
This results in a harder time for anyone who isn't a TBTF officer or an elite member of the permanent political class. Harder, in the sense that the national debt load makes investment harder, makes debt more burdensome to pay off, makes it harder to generate new capital - because the money is gone and productive efforts are being used to pay the interest on the debt instead of being used to create wealth and jobs.
You can invest wisely and buy a hedge. You can avoid being wrecked when these things snowball. However, you can't bail out every friend or family member or close associate who isn't smart enough to do what you have done to protect yourself. So, the impact will hit you, no matter how well you do. It's a dog eat dog world, more so now than ever. Or so it seems.
As in Atlas Shrugged, the best solution is wealth creation through hard work and innovation, not wealth redistribution (which destroys the incentives as it destroys wealth in the process).
How soon we forget.
I knew it would happen.
Knowledge is the enemy of fear
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Now this is a very good solution!
“Ahhhhhhh...but we could put a silver or gold thread in the bills and have plenty of gold to embellish our currency and make it uncounterfeitable at the same time.”
<< <i>dollars are just paper. they can be burned (devalued) if need be. >>
What does that have to do with a supposed derivative problem?
Knowledge is the enemy of fear
<< <i>
<< <i>dollars are just paper. they can be burned (devalued) if need be. >>
What does that have to do with a supposed derivative problem? >>
Maybe the FED is turning dollars into derivatives
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Derivatives are just paper. They can be burned if need be. >>
That option was lost when they burned Lehman to the ground. For one, the $10T to $20T that was pumped into the system to pay off all those losing bets in 2008-2009 cannot
be effectively removed. The second thing is that the winning banks will not allow a canceling or burning of the derivatives. They would tank the financial system before they
allowed that to happen. I'm sure they have their gold lined fire exits already identified.
For that matter, most everything in our financial system is just paper....that is except tangible commodities and physical assets. Even many physical assets have a mountain of derivatives written against them.
<< <i>
<< <i>There is no possible way the world can go on a gold and silver standard, the coins would be so expensive no one could use them to buy STUFF. >>
I bet they said that in Zimbabwe, Weimar, etc...
I think it is just that we can conceptualize a penny being worth anything, but consider that a penny used to buy what you can get with $1 today. I think it could be done, but it would be quite impossible to figure out how to transition from where we are to such a system in an orderly manner. Of course, it probably won't be an orderly transition. >>
Nothing is impossible, there could be a scenario but first consider how their currency got there in the first place. These conditions not even probable for USD, IMO.
The USD is still the #1 and will probably get even stronger with Europe falling apart. No loss of confidence in the currency means to me no hyperinflation.
I have strong feelings for a high inflationary trend, we will, but not a hyper scenario. And don't ask me to put a time frame on it...I dunno
$85 Billion a month figures out to $314 per month per person, or maybe about $1,000 per month per family unit.
So, even though I may not be getting a freebie of $314/month, somebody is. I figure that it's going to bankers and the unemployed, both deserving and undeserving. It's not going to anyone who happens to be working for a living.
$16.7 trillion / 270 million = $61,800 per person of debt. Or figure about $185,000 worth of debt per family unit. Times what? Say 2%? That's $308/month per person, per month.
So, at the current rate of QE, the new money is almost sufficient to float the entire national debt on a personal basis at 2% interest rates.
Redistribution of wealth is taking place across the entire economy. If interest rates rise at all, the money float won't be enough and taxes will have to rise or payments will have to decline.
The redistribution takes place across all parts of the financial spectrum, and it's not a clear-cut equation, but it is pervasive and it's occurring pretty much continuously.
If you live on the edge as our government has been doing for 40 years, you have to depend on the real economy to be productive enough to be able to supply sufficient goods & services. In a real economy, price acts as the incentive to increase production just as it provides an incentive to be employed - which in turn helps to increase production when prices have risen.
Price is a natural throttle for determining what needs to be done, in an efficient system. Unfortunately - as Ron Paul would be the first to point out, our economy is laced with mal-investment as a result of pervasive government interference, from top to bottom. QE interferes directly with the pricing of interest rates, and interest rates affect all other prices. QE is almost the equivalent of throwing a wrench into the works of a running engine.
With QE, a total lack of management skills in the administration, more and more regulation from massive legislation that hasn't even been implemented yet, and more taxation on the near horizon - the engine of growth has a pretty good chance of getting bogged down permanently.
I knew it would happen.
Nice piece but there's more...These are interesting times. We have this massive QE-i that is preventing our economy from experiencing the real effects of Capitalism, in a Darwinian kind of way. We have the laser like focus on growing the middle class with a core philosophy of "A rising tide lifts all boats". Middle class, the way it is used in speeches and media, has seemingly become code for historically underserved or code for very heavily subsidized by the taxpayers until they can achieve middle class. Regardless, the middle class is not growing, tide not lifting, the historic middle class is decimated and the growing middle class is either invisible or nonexistent.
Methinks the middle class is still out there, the guys and gals that had pensions or 401's, upward mobility, dependable transportation. People that were familiar with living in a safe area with plenty of access to goods and services, including recreation. Depending on who you read, our economy improved by between 1.2 and 1.7% this year while disbursements for disability payments (paid to never work again) have skyrocketed. This is not progress for us worker bees, we got squat from all this QE-I, we lost our Bush tax break, our property taxes are going up, we're paying 10% for consumer credit from the banks that get the money for free while we watch our incomes remain stagnant (a 2% raise isn't really a raise) and yet we sit...with a laser like focus on growing the middle class. This begs the question: "Growing the middle class into what?". You just have to do better than middle class, what ever that is, or be satisfied with being grown into something.
Got METAL?
<< <i>The USD is still the #1 and will probably get even stronger with Europe falling apart. No loss of confidence in the currency means to me no hyperinflation. >>
True, but how long will the world or this country have confidence in a currency backed by nothing with exponentially growing debt and interest rates that can do nothing but increase? Don't know about you, but I don't see any scenario where the US debt starts to shrink back to any manageable size (or even just maintain). What about when interest payments on the debt total 50% or more of the US budget? Eventually the debt spiral will get out of control. I don't know when this will happen, but it seems like a certainty to me. Would like to hear the scenarios under which people here think the US can bring the growing debt problem under control. there's a limit to how much strength a nation can have - even if it is relative - when the debt becomes a crushing burden.
"Rather than do want is necessary to solve the ongoing 2008 credit crisis, those in power stoop to public relations tricks and propaganda."
"High debt servicing levels and production outsourcing act as a break on U.S. economic growth. The ever increasing debt economic model is now exhausted. Deleveraging will have to occur. The longer the deleveraging is put off, the worse the eventual economic collapse could be."
"For the U.S. to extricate herself from the ongoing 2008 credit crisis, it is recommended that politicians: 1) allow insolvent banks to go bankrupt; 2) prosecute fraudulent behavior; 3) permit interest rates to rise, by doing away with the Fed’s ZIRP, thereby increasing consumer demand; and 4) eliminate austerity for the people, by sharing productivity gains with workers. This will help restore income equality and further grow final demand, which will direct businesses on where to make profitable investments."
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Deflationary.
getting bogged down permanently
Not permanently, just another 15 years. Once the snake has passed its meal it will shed its skin and grow bigger and stronger.
Knowledge is the enemy of fear
You should know that's not how it works. Let's review what happened when AIG was on the hook for losses that would have impacted Goldman Sachs directly if their insurance contracts (derivatives) wouldn't have been made whole by the taxpayers. Did AIG have to declare bankruptcy and did Goldman lose out on their $35 billion or so? Did Goldman burn their contracts with AIG? Did I somehow miss that news bulletin?
The answer is, no they did not. The money was made available through taxpayer bailout money, which adds directly into the national debt. Losing bets simply don't get "burned if need be".
The answer is - it depends on who you are, and who you own. GM bondholders apparently didn't know the right people. Solyndra's people did. So did GE Capital's (now Ally Bank) people. So do Warren Buffet's people.
Apparently, I don't know the right people because nobody has offered to burn up my mortgage papers? How does THAT work?
I knew it would happen.
You really need to ask yourself, "is that relevant?" I say that it's not.
The gov has no business bailing out failed businesses whose management walked off with hundreds of millions in bonuses, and whose bailout saved Goldman from a loss on a bet that they made with their eyes wide open.
Having the gov pick winners and losers in the business arena is corruption, plain & simple. If laws don't matter, let's just all agree that laws don't matter.
Let's get some perspective. That substantial profit you cite was about 1 week's worth of QE. In the whole scheme of things, do the laws that supposedly form the foundation of business and of society matter less than a week's worth of QE?
It's a choice that we all are making.
I knew it would happen.
<< <i>Keep in mind that we (the taxpayers) made a significant profit on the AIG bailout. >>
the much more signifcant taxpayer losses elswhere are many, many times greater. Do not trust Washington when it comes to investing taxpayer money. They do not do it for potential profit, they have ulterior motives.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Keep in mind that we (the taxpayers) made a significant profit on the AIG bailout. >>
But due to AIG and Lehman, there was also $10 TRILL to $20 TRILL paid out by the FED and USgovt to big banks and their friends around the world.
Whatever we "made" on AIG, GE, and other failed corporations was a pittance compared to the much larger socialized losses that are never talked about.
The next big failure will require similar greasing....or the system goes down in a heap.
<< <i>Derivatives are just paper. They can be burned if need be.
You should know that's not how it works. Let's review what happened when AIG was on the hook for losses that would have impacted Goldman Sachs directly if their insurance contracts (derivatives) wouldn't have been made whole by the taxpayers. Did AIG have to declare bankruptcy and did Goldman lose out on their $35 billion or so? Did Goldman burn their contracts with AIG? Did I somehow miss that news bulletin?
The answer is, no they did not. The money was made available through taxpayer bailout money, which adds directly into the national debt. Losing bets simply don't get "burned if need be".
The answer is - it depends on who you are, and who you own. GM bondholders apparently didn't know the right people. Solyndra's people did. So did GE Capital's (now Ally Bank) people. So do Warren Buffet's people.
Apparently, I don't know the right people because nobody has offered to burn up my mortgage papers? How does THAT work? >>
Yes, that is exactly how it works. AIG and GM were bailed out because they could be. And now due to substantial strengthening of the banks another AIG/GM scenerio could be contained probably without Govt intervention.
But what is consistently bantered is the multiple hundreds of trillions that will be the problem. I say they wont be because it is too large. Rather than all the banks and central Govts destroying each other, all will consent to a mulligan. These derivatives will be torn up.
Knowledge is the enemy of fear
<< <i>But what is consistently bantered is the multiple hundreds of trillions that will be the problem. I say they wont be because it is too large. Rather than all the banks and central Govts destroying each other, all will consent to a mulligan. These derivatives will be torn up. >>
The biggest threat of the last crisis was that the banks no longer trusted each other. Only with taxpayer provided liquidity did that trust get somewhat reinstated. That trust remains quite fragile. Just as with the last crisis the coming derivative crisis will result in the banks throwing each other to the wolves.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey