<< <i>What if the US were to lose the exclusive right to the world's reserve currency?
It would be a blessing. >>
Like it was to Great Britain.
The lengths the US goes to to protect it should give you a clue. >>
Please tell me how Great Britain has suffered? Please explain these "lengths". >>
Surely even you know the answers to these questions.
"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
One of the most powerful and enviable positions you can be in as a country is to have the power to export paper (fiat) in exchange for physical goods without restriction.
The US got that job in 1944. The UK went from a world power to an also ran - they rank behind France in GDP.
That really doesnt mean anything. Sweden ranks way below both in GDP yet I think its citizens are doing quite well.
It's not going to be so easy to sell otc interest rate swaps to foreign govts (ie Greece, Italy, etc.
And thats bad how? Isnt that what "we" want to see?
Will that inflation coming back to US shores be a blessing? I don't know, but having to bring back a large % of the USD's and Treasuries being held overseas doesn't seem like a blessing.
Why do you assume any of this would happen? And if it did, why wouldnt that be good?
<< <i>Interesting that you conclude technology is not oil, when the opposite is true. >>
Actually you understand exactly what I am saying. Technology is the fuel for economic growth and lubricant for productivity. >>
That's a great quote, I'd use it for a sig line, but I already have one that's also tried and true...
although to read some of the things people write, Liberty is dead in America, there is no Science or Technology because it's all fake numbers, there is no more Productivity or Industry in America because it has all been exported to Them or taken over by the other Them, or is being stolen by the other them, or is destroyed by the fanatical other other Them.
<< <i>you musta forgot the booming cannabis industry...
bringin America back from ruin... >>
Peyton Manning has said that since Colorado legalized recreational weed that the pizza delivery businesses he bought when he moved to Denver have exploded to the upside with business!
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Matt Taibbi with another piece. This one almost too hard to fathom. Seems the major banks have been beating the tar out of whistle blowers and then getting out of these jams with a fine. The guy was awarded a multi-$MILL settlement which was later overturned. At that point BoA came after him. They placed a lien on his home and he ended up having to pay them $98,000 in court costs. When he argued that it was ridiculous to put this burden on an unemployed/unemployable whistle blower a California Superior Court judge denied his argument — on the grounds that Winston failed to prove a disparity in resources between himself and Bank of America! The irony of it all is that the whistle blower has paid a bigger penalty that nearly everyone associated with the 2008 financial crisis. You can't make this stuff up. One common thread in these stories is that the new US Attorney General nominee has "prosecuted" at least 2 of these big banks into sweetheart deals. Exactly what's need to continue what AG Eric Holder started.
The empires of the past 600 years were built on sound currencies...and passed on when those currencies became unsound. There's no real blueprint for how long the world's financial systems can survive on pure fiat currencies. We've only had 44 years of experience so far. What if the US were to lose the exclusive right to the world's reserve currency? Let's say in the next 5-10 yrs the G20/IMF vote for a new world currency that's based on IMF SDR's. And those SDR's are based on a basket of currencies/commodities? Instead of being 100% of the world's reserve monetary unit, the dollar is changed to 30-40% of the weighting? Wouldn't that have major consequences for Treasuries, US economic and financial markets, US trade, standards of living?
How will taking away the U.S dollar as the world's reserve currency effect the U.S.'s ability to police the world?
Would NATO play a more prominent role as the policeman of the world and its members would have to increase there defense budgets accordingly since the U.S. would not be able to.
Our defense expenditures have greatly contributed to our current debt levels which was possible in part because of the dollar being the world's reserve currency.
The empires of the past 600 years were built on sound currencies...and passed on when those currencies became unsound.
The premise is all wrong. Currencies dont cause civilizations to collapse. Civilizations cause currencies to collapse. If you think the US civilization is going to collapse then bet against the dollar, I would.
And dont "we" all want the US to stop policing the world? Having a reserve currency doesnt allow us to build more airplanes, or ships or missiles.
<< <i> Having a reserve currency doesnt allow us to build more airplanes, or ships or missiles. >>
Of course it does. The debt that pays for all that military is absorbed by countries needing dollars to conduct international trade. No demand for dollars would equate to no demand for US debt.
Could be the reason why Spain nor Britain nor France nor Portugal no longer control the world's oceans.
"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
Could be the reason why Spain nor Britain nor France nor Portugal no longer control the world's oceans
Could be, but isnt. Spain was superpower 500 years ago, maybe in 500 years the USA will be a has been also, but it aint gonna be tomorrow, or next year, or the next generation.
<< <i>Could be the reason why Spain nor Britain nor France nor Portugal no longer control the world's oceans
Could be, but isnt. Spain was superpower 500 years ago, maybe in 500 years the USA will be a has been also, but it aint gonna be tomorrow, or next year, or the next generation. >>
At least you now appear to understand the relationship between reserve currency and "superpower."
"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
Recent western super power status has lasted roughly 80-120 years....about the length of time the currencies have lasted....and rot out the governments. Portugal, Spain, Dutch, France, Great Britain, USA.
<< <i>Recent western super power status has lasted roughly lasted 80-120 years....about the length of time the currencies have lasted....and rot out the governments. Portugal, Spain, Dutch, France, Great Britain, USA. >>
Hey, coincidentally, that's about how long a human being lasts, too!
<< <i>What if the US were to lose the exclusive right to the world's reserve currency?
It would be a blessing. >>
It would result in a dollar selloff; oil would spike and gold would spike. Hyperinflation would be within reach. Far from a blessing.
"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
<< What if the US were to lose the exclusive right to the world's reserve currency?
It would be a blessing. >>
It would result in a dollar selloff; oil would spike and gold would spike. Hyperinflation would be within reach. Far from a blessing.
I wouldn't call it a blessing unless I knew exactly what the impacts were really going to be. I don't think anyone really knows what's coming next. We seem to be in the midst of a reformation of a new set of monetary standards, but your guess is as good as mine about what the final product is going to look like.
What I observe is various governments and central bankers hopping from one crisis to another and reacting in ways that only serve to keep themselves in positions of power and influence, respectively.
We mortals are so far below the relevant pay grades that we have no way of knowing what types of deals are being negotiated and how they might affect us.
A dollar selloff implies that the proceeds from the dollars being sold can find a safe place to land. I wouldn't sell dollars in order to buy rubles or pesetas. Would you? A dollar selloff seems to imply that more domestic bubbles will appear in various places. Where's the next bubble if the dollars all get sold and come back home?
Maybe that's why QE has been suspended, there's an ample supply of dollars coming back home now.
Q: Are You Printing Money? Bernanke: Not Literally
<< <i>Could be the reason why Spain nor Britain nor France nor Portugal no longer control the world's oceans
Could be, but isnt. Spain was superpower 500 years ago, maybe in 500 years the USA will be a has been also, but it aint gonna be tomorrow, or next year, or the next generation. >>
At least you now appear to understand the relationship between reserve currency and "superpower." >>
How the heck do you derive that from my comment? No wonder you such a conspiracy advocate.
<< <i>What if the US were to lose the exclusive right to the world's reserve currency?
It would be a blessing. >>
It would result in a dollar selloff; oil would spike and gold would spike. Hyperinflation would be within reach. Far from a blessing. >>
LMFAO. It is clear you have absolutely no knowledge of intermarket relationships, economics or monetary policies.
A country is not defined by its currency, never has been, never will be. But, a currency is defined by its country. Someday, hopefully, you will see the difference.
<< <i>What if the US were to lose the exclusive right to the world's reserve currency?
It would be a blessing. >>
It would result in a dollar selloff; oil would spike and gold would spike. Hyperinflation would be within reach. Far from a blessing. >>
LMFAO. It is clear you have absolutely no knowledge of intermarket relationships, economics or monetary policies.
A country is not defined by its currency, never has been, never will be. But, a currency is defined by its country. Someday, hopefully, you will see the difference. >>
You should run for political office.
"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
Exactly! Hey, think what actors and musicians and entertainers earn is outrageous? well, go ahead and and look and sing and dance like that, and you can make it too!
Think what athletes are paid is exhorbitant? Well, go ahead and throw and catch and run with a ball like that, or try to stop those who can do those things, and you can, too!
Think that pensions for 30 year verterans of police and firefighters are unfair? well, put in your time and go get yourself some of that easy money gravy train!
Jealous of bankers and CEOs and hedge fund managers? Well, go ahead and become one, and then you too can be a THEM!
<< <i>When was the last time you took out a bet with $1,600,000 to $2,500 odds? We can reasonably assume that most of the contracts are much closer to the middle of the bell curve
Th
BTW---In the example I gave, that $2500 IBM position is now worth $15,000. >>
That position was worth over $36,000 at Fridays close. But now it ceases to exist as it was a option (derivative) with a finite life. No I didnt trade it. And no there wasnt "someone" on the other side who lost $1,600,000 (notional value as the derivative doom and gloomers like to use).
Derivatives are not evil, are not "weapons of mass destruction", and will not bring down the financial "house of cards". High frequency trading?....now thats another subject (but also will not bring down the house").
And no there wasnt "someone" on the other side who lost $1,600,000 (notional value as the derivative doom and gloomers like to use).
Nobody said someone lost $1,600,000. Let's be straight about that. But the odds were definitely used to establish the rate being paid by the losing side of that trade for the duration of the contract. Stop the sensationalism. Prove your point with the actual numbers. Thanks!!
And doesn't the specific contract establish who loses what for the notional value being "created"?
Let's talk about these "notional values". Aren't we just talking about leverage? How many times has leverage caused problems in the financial world? Leverage was the issue in the Great Depression, just the same as it was the problem in 2007 for mortgage flippers and in 2008 for the tbtf banks. Is this not exactly correct?
The issue at hand is why one class of market participant can play with leverage without consequences while the rest of the market participants (and even market non-participants) are forced to bear the brunt of the tbtf class' bad bets on derivatives contracts.
cohodk, unless you're really tight with Jaime Dimon you'll be thrown overboard without a moment's reflection if you get yourself into a bind, and maybe even if you ARE tight with him.
Just sayin.
Q: Are You Printing Money? Bernanke: Not Literally
<< <i>And no there wasnt "someone" on the other side who lost $1,600,000 (notional value as the derivative doom and gloomers like to use).
Nobody said someone lost $1,600,000. Let's be straight about that. But the odds were definitely used to establish the rate being paid by the losing side of that trade for the duration of the contract. Stop the sensationalism. Prove your point with the actual numbers. Thanks!!
And doesn't the specific contract establish who loses what for the notional value being "created"?
Let's talk about these "notional values". Aren't we just talking about leverage? How many times has leverage caused problems in the financial world? Leverage was the issue in the Great Depression, just the same as it was the problem in 2007 for mortgage flippers and in 2008 for the tbtf banks. Is this not exactly correct?
The issue at hand is why one class of market participant can play with leverage without consequences while the rest of the market participants (and even market non-participants) are forced to bear the brunt of the tbtf class' bad bets on derivatives contracts.
cohodk, unless you're really tight with Jaime Dimon you'll be thrown overboard without a moment's reflection if you get yourself into a bind, and maybe even if you ARE tight with him.
Just sayin. >>
Why arent you getting this? Im am not be anymore sensational than those who discuss Deutsch Bank being on the hook for $62 Trillion in derivatives. Deutsch Bank does not have a $62 Trillion position any more than I would have with a $1.6 million position in IBM. The doom and gloomer uses these ridiculous numbers to scare you. So I tried to put things into perspective with a trade than anyone with a $400,000 portfolio could do. You keep talking about odds and betting, get those terms out of your mindset and this will all become much clearer. Talking about $quadrillions is NOT using actual numbers.
Just like no one was going to lose $1.6 million on my trade, Deutsch Bank is not going to lose $62 trillion, or even $1 trillion. And this has been my point of contention. The doom and gloomers are only frightening themselves with numbers that are not only unrealistic, but false.
Jamie Dimon does not control my future anymore than I control yours. I am not afraid of Jamie Dimon, and neither should you.
Why arent you getting this? Im am not be anymore sensational than those who discuss Deutsch Bank being on the hook for $62 Trillion in derivatives. Deutsch Bank does not have a $62 Trillion position any more than I would have with a $1.6 million position in IBM.
I know that Deutsch Bank has been in the news lately, but I don't know what their balance sheet looks like, and I doubt that anyone else does either. I do know that the Fed bailed out Deutsch Bank in 2008, and there's no way of knowing what transpired. We don't get to know.
Does it matter if the bank is on the hook for $1 million, or $1 billion when they are both insolvent and illiquid? It wouldn't take much of a downdraft in a position containing $62 trillion (even if hedged), for the portfolio to get hit for $1 billion. Would that be enough to push Deutsch Bank into insolvency?
If someone mismanages and loses $1 billion in assets and took disproportionate risks, and if this places the bank into insolvency, the bank shouldn't be bailed out. The bank should be liquidated, the management should be fired and investigated for having insufficient internal controls.
If they have $62 trillion in outstanding derivatives contracts, there's no excuse. Why would you take out that much in leveraged contracts? What could they possibly be trying to hedge? How perfectly would that portfolio need to be balanced, both in absolute terms and in temporal terms? It's nuts.
Q: Are You Printing Money? Bernanke: Not Literally
The facts ARE that the biggest dozen or two banks in the world carry $40-$80 TRILL each in otc derivatives, 80% of them interest rate related, typically swaps. This is indisputable per the OCC, BIS, and other watch dogs. The average overall leverage on those trades is 30-40 to 1. This means that those $1.1 Quad in total derivs has a supposed cash out/market value of approx $30 TRILL.
When Lehman cased out from their bankruptcy they suffered a 90% loss on their derivatives. This was was a situation of a failed counter-party with no bailouts and no available netting. This was real world reality. When LTCM went down in 1998 their net loss after a bailout was in the 50% range. So even a 10% failure on $1 Quad is a big loss to swallow. Obviously, the system can't handle another Lehman with a failed counter-party and no bailouts.
What Cohodk fails to mention with his options contracts is the fact that it is part of a fully regulated, fully standardized, fully transparent, fairly liquid, and marked to market asset that is traded on major exchanges. They are traded during every hour of the trading day where their values can be readily determined. This is not the case for otc derivatives. Those are fully opaque, unregulated, non-standardized, illiquid, marked to model, that are rarely if ever traded on any exchange. The deals on those are made and then they are put in the closest. Both counter-parties value them any way they please. On the failure of either counter-party the entire notional contract becomes payable. That doesn't happen with IBM options. There's nothing at all in common with standard US stock market options of S&P 500 companies vs. non-standardized derivatives other than they are technically both derivatives.
The similarity ends with the dictionary definition of "derivative." One gets it value determined by something real and trackable, the other gets its value from a computer algo programmed by the owner. A good comparison would be like having a professional coin dealer appraise a $1,000,000 coin collection. And then take a guy off the street with no coin experience whatsoever, give them a 2008 Red Book, and ask them to value the collection. I'm not afraid of Jamie Dimon. But, have a concern with the $70 TRILL or so in otc derivs that JPM carries. They don't even have enough liquid assets to cover the approx. 3% "cash out" of those derivs. Cohodk could not legally lose $1.6 MILL on his options trade due to the way they are set up and regulated. That is not the case with the DB $62 TRILL notional. If their counter parties fail, they are on the hook for the whole $62 TRILL. That's the big difference between regulated SM options and unregulated otc derivs. IBM options are valued per standard FASB accounting rules.....otc derivatives are not. There are no accounting standards for otc derivatives. What other parts of the US financial or monetary systems have no approved accounting standards whatsover?
The fact that Lehman lost 90% of full notional value on their otc derivatives clearly is an "inconvenient truth" that shows the losses can be catastrophic. How come their risk management didn't net out all those contracts to come out about even? Why didn't LTCM, Enron, Amaranth, AIG, Bear Stearns, MF Global, or JPM's London whale also net themselves out to about break even? Why? Because the guys were greedy, they made mistakes, and their algo assumptions didn't work in the actual market place. Go figure.
Another difference between Cohodk's IBM options trade is that he probably can't rely on more than a 60-70% success rate on his trades from year to year. Temper that against the past 10-12 years of JPM where they essentially NEVER have a losing quarter. Derivative's and being a conduit of the USTreasury/ESF/PPT certainly helps too.
Lacy Hunt on the past 4 major US indebtedness periods and the next "bang point":
He discusses the heavy debt/over-capacity periods of 1820's-1860's, 1873-1894, 1920's-1930's, and past 15 years. Nowhere do you hear that gold or the monetary standard in play was a cause of any of these problems. What I hear is excessive govt incentives, malinvestments, over-consumption, taking on excessive debt, etc. Apparently you can do all these "bad" things on or off a gold standard. Effective debt levels are 2X as severe as existed in 1928. According to this guy, "deficits do matter." At about the 14 min point he discusses how the FED's money injection does raise particular asset prices. Austerity doesn't get politicians re-elected nor does it raise your standard of living in the short term....hence the population and those in power don't prefer this method any more. Derryb was right. If any of us "chicken little" or "tin foil conspiracy theorists" say any of this stuff we are dismissed as fools. Hunt sees a consumption based tax coming. If we don't have the political will to fix these things.....then we meander along to the "bang point" (ie when people/corporations/govts no longer lend to other govts). I'd like to know what this guy thinks of the US bank's $300 TRILL in otc derivatives is of any concern. Because it is essentially another layer of debt/debt-money.
Part 2 - did he say we could approach conditions seen in Greece? An unsustainable and negative path? Economic opportunities are disappearing? US standard of living has peaked? Short term gain for long term pain? Sure seems like a doom and gloomer to me. In short Hunt says we're on the totally wrong path. He also invests in gold and silver coin.....perish the thought! Boomers are the only age group "booming" employment as they can no longer retire early and/or coming back into the work force after retirement. Hunt: low interest rates are reflective of a weak/unproductive economy ..... no increase in the standard of living since 1997....once extreme over-indebtedness or over-trading occurs (like today), the choice of monetary or fiscal response almost doesn't matter....
His solutions? Increase taxes, preferably by keeping marginal tax rates steady or lowered but also closing loop holes, consumption tax to generate revenue, reform SS-Medicare and other entitlements....basically austerity. Videos are easy to find on U-tube (Lacy Hunt Road Blocks to Recovery).
It wouldn't take much of a downdraft in a position containing $62 trillion (even if hedged), for the portfolio to get hit for $1 billion. Would that be enough to push Deutsch Bank into insolvency?
This is my point....THERE IS NO $62 TRILLION on the hook. Just like there is no $300 quadrillion that Roadrunner likes to use, or there is no 10x the annual supply of silver on the hook.
In my example there was no $1.6 million on the hook. Just a $2500 investment. Can you see it now?
The PM bulls were wrong about QE pushing gold to $5000. The PM bulls were wrong about Greece/Spain/Italy pushing gold to $5000. The PM bulls were wrong about Ukraine pushing gold to $5000. The PM bulls were wrong about India and China pushing gold to $5000. The PM bulls were wrong about inflation pushing gold to $5000. The PM bulls were wrong about interest rates rising. The PM bulls will be wrong about derivatives. The PM bulls will be wrong about the US dollar collapsing.
All assets classes have their day in the sun based on investor psychology. Now surely PM got a lot of attention and went higher than present prices, but the problem with this asset class is that very few "trade" them. Investors in this class typically just buy and hold and die.
Think about this---many on this board love manipulation and conspiracy theory, right? So why dont those see people see how they were manipulated and conspired against to buy silver at lofty levels. Silver is, for all intents purpose, at the same price as when the first round of QE was announced. All the silver bulls were lied to. They were told to be scared. What has that gotten them? Jaded opinion? Poor investment return? Anger? Irrational discouragement?
Eventually gold will hit $5000 and the PM bulls will say, "I told you so", and they still will never realize how wrong they were, if they are even still alive.
Roadrunner, of course a single bank or even a handful could lose. The real issue is that the entire system will not lose. Its ok for a bank or 2 to be wiped out. Thats business, but an entire industry wont be wiped out.
And there are no banks on the hook for $40-8- trillion dollars. No bank would ever lose that amount. So why scare people into thinking that JPM will lose more than the GDP of the entire planet? Its not only foolhardy, but irresponsible.
Roadrunner, I believe I have seen or read almost every interview Hunt has given and have read almost all of his investment/economic articles. I am quite confident that I understand his positions with greater clarity than you, no offense, but this is my wheelhouse.
I could breakdown you comments, but will just highlight a few...
Effective debt levels is not the same as actual debt levels. Huge difference.
no increase in the standard of living since 1997..you dont have more "stuff" than 18 years ago? Really? How does one quantify "standard of living"?
US standard of living has peaked? Really? Again, quantify. These are all nice soundbites that play well on peoples fears, but where exactly are you trying to tell people?
Nowhere do you hear that gold or the monetary standard in play was a cause of any of these problems--Why would you need too? PM bulls want a return tot he gold standard. History has shown that a gold standard has not curtailed excessive debt nor prevented extreme economic conditions.
If any of us "chicken little" or "tin foil conspiracy theorists" say any of this stuff we are dismissed as fools.---You are dismissed as fools because you use rhetoric, hyperbole and stupid cartoons to attempt to persuade rather than logic, reason and common sense. If Hitler wore a clown outfit instead of a uniform or suit, do you think he would have been so persuasive?
Increase taxes, preferably by keeping marginal tax rates steady or lowered but also closing loop holes, consumption tax to generate revenue, reform SS-Medicare and other entitlements.---I agree. But is the most dominant demographic going to let this happen? No friggen way!!! Thats why we will continue in this relative economic malaise until that demographic has less influence. Isnt that what I have been saying for years?
<< <i>In my example there was no $1.6 million on the hook. Just a $2500 investment. Can you see it now? >>
That's how options work, but that's not how futures and other derivatives work. If I go long 1 gold contract (GC) which represents 100oz, all I need is about $5000 in my account. But if gold drops $100 in a few minutes before anyone has a chance to close or liquidate the position, I instantly owe $5000 if I close the position, and I'll get a margin call for $10k to maintain the position. If gold drops another $100, I have to pony up another $10000, instantly. So suddenly my $5000 investment turns into $25,000 loss if gold drops $200 due to a sudden market shock. What if gold suddenly skyrockets up $400 and I'm short a gold contract? Ooops. Now I owe $45,000. That's what we're talking about. Not someone buying a bunch of covered puts or selling covered calls and losing their premium. I believe they'll shut down the gold exchange once it drops $100 in a day, so it may be difficult or impossible to exit positions in some circumstances.
<< <i>no increase in the standard of living since 1997..you dont have more "stuff" than 18 years ago? Really? How does one quantify "standard of living"? >>
I don't know if "stuff" is a good measure. If you go back a few more decades it used to be that the wife didn't need to work. Now in most families both have to work to make ends meet. Families used to have far more savings and retirement savings. Now not so much.
<< <i>Nowhere do you hear that gold or the monetary standard in play was a cause of any of these problems--Why would you need too? PM bulls want a return tot he gold standard. History has shown that a gold standard has not curtailed excessive debt nor prevented extreme economic conditions. >>
You're talking about different degrees of excessive. As with any of us personally, or our cities or our states, we can borrow excessively to the point of bankruptcy as long as someone is willing to lend. This is the limitation a gold standard sets in place. You cannot do what Zimbabwe did and utterly destroy a currency with a gold standard in place. That doesn't mean the government won't borrow more than they can repay, but they do have to find someone dumb enough to lend the money.
<< <i>Eventually gold will hit $5000 and the PM bulls will say, "I told you so", and they still will never realize how wrong they were, if they are even still alive. >>
They are right but they are wrong?
RR good explanation on the difference between derivatives and options, but you you should know by now you are preaching to the preacher. He fails to understand that in a world of lies gold will always tell the truth and that what he sells is not necessary golden.
"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
Well there is no way the U.S. will ever return to a Gold Standard unless the entire monetary system collapses.
I hate to say it, but I must agree with Cohodk here. Certainly in this multi-year thread we have had plenty of time and circumstances for the Dollar and the U.S. monetary system to collapse.
Year after year for nearly a decade Jim Sinclair, Peter Schiff, et al have predicted “ THE COLLAPSE” now we have Jim Rickard saying for sure in the next 5 months its down the toilet.
I think that since we live in a paper world the chances are for many years to come we will continue to live in a paper world until such time as we all live in an electronic money world. Certainly at that point all the PM bloggers will say, NO WAY THIS CAN LAST.
There is no way any of this could last over the last ten years, but it just keeps going.
A dam is filling up with water and will overflow eventually thus wiping out the town below it. So we have choices....
The doom and gloomers would just look at the dam and say we're all gonna die, its inevitable, go to the tavern and talk about the good old days with their buddies.
While others would say, lets build another dam upstream to contain the excess water. Some would say, lets divert the water around the town. Some might say, lets make the dam bigger. And still others might say lets move the town.
And this is the same with our financial system. Surely there is a group who would rather do nothing and complain, but there is a much larger group that will find a solution.
Exactly. Because other assets performed much better, thus leaving those PM'ers in a relatively weaker position. They were right, gold went up, but their financial situation is still worse than others. And, many will be right but never see it because they are long dead.
As with any of us personally, or our cities or our states, we can borrow excessively to the point of bankruptcy as long as someone is willing to lend. This is the limitation a gold standard sets in place
Really, didnt stop excessive lending historically as pointed out by Roadrunner and Lacy Hunt.
If you go back a few more decades it used to be that the wife didn't need to work. Now in most families both have to work to make ends meet. Families used to have far more savings and retirement savings. Now not so much.
What do we spend money on today that we didnt in 1985? The answer is lots of personal choices (cell phones, cable TV, bigger houses, fancier cars, ect). If we spent like we did in 1985, the Mrs. wouldnt have to work. But we have the "wants", and to fulfill those wants we need to make more money. Why do you think Dave Ramsey is so effective?
<< <i>Roadrunner, I believe I have seen or read almost every interview Hunt has given and have read almost all of his investment/economic articles. I am quite confident that I understand his positions with greater clarity than you, no offense, but this is my wheelhouse..... >>
Well, apparently you missed a few. Go check the u-tube links I mentioned above. I listed 2 of them below, easy to find too. He says the standard of living not improving since 1997 is a "serious indictment." His quote...not mine. His definition of standard of living is a few posts down. Apparently, Lacy Hunt doesn't base your SOL on how much stuff you borrowed to "own" via a maxed out credit card. Maybe the SOL in Baleyville is a lot higher than in 1997....just the not entire USA where J6P lives. I'd agree with LH that 18 years is a whoppin' long time to have shown no progress in the SOL for the average American. That's a huge problem considering the Trillions in debt we've taken on in that time to "fix" things and stimulate the economy. Do I have more "stuff" today than I did in 1997? Nope. I've downsized my extra cars, rare coins, and about everything else I could. Everyone I know around my age or older is trying to downsize/deleverage/simply their lives. I still haven't bought an Iphone, Ipad, huge flat screen TV, etc. Still have the same flip-top phone ($100/yr) that I've had since before 2006. Stuff is what I don't need. Don't have a car with all the latest computer gadgetry. It's a 2002 Lincoln. I drive in the car. It's all I do with it. It doesn't communicate with me, nor I with it. No TV, no NAV-GPS, no food dispenser or Ibot to serve me drinks....lol.
All the comments I took from those LH videos are basically quotes, especially the items on fixing the economy. Hunt doesn't think the US will take its medicine. So we all agree there. The govt will wait for the system to crash/implode. Since it's already past Hunt's over-indebtness level, all we can do is wait and watch for the fireworks as Armstrong's Big Band and Hunt's Bang Point approach. We're kicking a can down the road, a can full of nitroglycerine.
Never said that any US bank would have to pay out $50 TRILL to cover their deriv's losses. Those are what the losses would be if we choose to cover them on a counter-party failure. We won't. The system will implode and no major bank will be left solvent/standing. It doesn't matter that there's enough derivatives to blow the system up about 5X to 10X over. 1X is all that will be needed. One big bank going down will all it will take to implode the system. Heck, $4 BILL from LTCM in 1998 and a few hundred $BILLION from Lehman in 2008 nearly took down the system. In fact they would have w/o interventions. The amounts we're talking today are a 100X bigger than those guys. Are derivative's in your wheelhouse now too?
People must have been sleeping around here when I debated with Mr. Baseball for 2 weeks on gold's uselessness and a gold standard. I said then we won't go back to a gold standard. It wouldn't work any ways. No standard works. Bankers and govt's cheat. That's why I mentioned Lacy Hunt's 4 major US indebted cycles of the past 200 years. Those were caused by the govt and banks putting out the punch bowl for way to long, despite any monetary rules/regs or even a gold standard. Pick any standard you like. It will be cheated on by the banks and abused until the next over-indebted cycle appears in another couple of decades. But first, we have to deal with this one which is some 15-20 years in the making. I think if you honestly polled any PM bull they will tell you that a return to a gold standard would not be a fix for abuse of a monetary system. Looks at what the bankers did by inventing OTC derivatives? Who needs a gold standard or a USD monetary standard when you can invent your own game of play money (otc derivatives) and make $TRILLs doing it...until the system blows up in your face like it did for BSC and Lehman.
While no gold standard is on our horizon, a shift to an IMF SDR that is made up of a basket of currencies/commodities/assets is quite realistic. Gold could be one of the items in that basket. If Hunt is correct, the current system will probably waffle on until it breaks and deleverages. I did find it interesting that he feels the system is still leveraging up despite the hit that commodities have taken starting in 2011. Certainly the US stock market is still heavily up-leveraged....even if J6P is owns a fraction of the pie that he had in 1999-2000. Big banks/HFT's, hedge funds, sovereign investment funds, etc. are the players in the US stock market. Baleyville is only a minor player.
Hunt on heading to the Bang Point - curing debt with debt...with gold out of the picture for 44 years, the debt extinguisher of past centuries is gone. Debt no longer gets extinguished via normal commerce as it used to in the classical gold standard via real bills. It now gets extinguished during major bust cycles.
Google/Utube this verbage "Former Fed Official warns of multi-decade downturn PART 1 - Lacy Hunt." In the first few minutes of said video he mentions no progress in the Standard of Living since 1997 being a "very serious indictment".... His broad definition for SOL is median household income adjusted for inflation. Makes sense to me. It's about what we earn....not how much "stuff" you can accumulate. Bernie Madoff accumulated a lot of "stuff"....lol. It's also a fact that real worker wages (inflation adj) have not risen since 1973. Hunt's use of the "misery" index on Hoisington letterhead is interesting. If I posted that here I'd be laughed at for being out of touch with reality. Maybe Mr. Hunt is out of touch along with the rest of us tin foil hat club members....lol. I know many here dismiss our views just "because." I figured if Lacy Hunt was saying the same thing maybe others might put in an order for some Reynolds wrap.
<< <i>As with any of us personally, or our cities or our states, we can borrow excessively to the point of bankruptcy as long as someone is willing to lend. This is the limitation a gold standard sets in place Really, didnt stop excessive lending historically as pointed out by Roadrunner and Lacy Hunt. No, but the debt wasn't excessive to the point of ruin. And how much was the dollar devalued all of those other times? >>
As stated a gold standard doesn't prevent monetary abuses; however, it increases the visibility and transparency of purposeful devaluation rather than hiding and obscuring what is really happening. For example, when the US declared that an ounce of gold was worth $35 in 1934, the whole world knew about it. Now if the US had gone and increased that a couple years later, and then a couple years later, and on and on, well that would be pretty tough to explain when seeking re-election wouldn't it? And maybe the politicians would work a little harder to avoid that scenario? Maybe it would give some backbone to politicians to explain in real terms that people understand why we can't afford something or have to cut back on government spending. So no, a gold standard doesn't solve everything but it does force a level of honesty and have other positive effects on government.
<< <i>What do we spend money on today that we didnt in 1985? The answer is lots of personal choices (cell phones, cable TV, bigger houses, fancier cars, ect). If we spent like we did in 1985, the Mrs. wouldnt have to work. But we have the "wants", and to fulfill those wants we need to make more money. Why do you think Dave Ramsey is so effective? >>
RR responded to this very well. Technology has made our lives easier but that doesn't mean we have a higher standard of living. In the 80's J6P could earn a decent living with most menial jobs. Today, a McDonald's worker can barely afford to buy a meal at the place he works with an hour of wages without an employe discount. Some will burn an hour's wages in gas just commuting to work and back, and that doesn't include a car payment or insurance. Cars, gas, and food are not new expenses.
Exactly. Because other assets performed much better, thus leaving those PM'ers in a relatively weaker position. They were right, gold went up, but their financial situation is still worse than others. And, many will be right but never see it because they are long dead.
So were they right, or were they wrong? >>
Everybody's right, nobody's wrong.
"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
In the 80's J6P could earn a decent living with most menial jobs.
I consider my 1980's jobs menial. No they did not earn a decent living. And no, we did not get by without the wife working. Not even in the 1950's was that true.
Conspiracy theory once again becomes conspiracy fact. . . but that doesn't mean there's manipulation.
"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>
<< <i>
<< <i>What if the US were to lose the exclusive right to the world's reserve currency?
It would be a blessing. >>
Like it was to Great Britain.
The lengths the US goes to to protect it should give you a clue. >>
Please tell me how Great Britain has suffered? Please explain these "lengths". >>
Surely even you know the answers to these questions.
"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>Interesting that you conclude technology is not oil, when the opposite is true. >>
Actually you understand exactly what I am saying. Technology is the fuel for economic growth and lubricant for productivity.
Knowledge is the enemy of fear
That really doesnt mean anything. Sweden ranks way below both in GDP yet I think its citizens are doing quite well.
It's not going to be so easy to sell otc interest rate swaps to foreign govts (ie Greece, Italy, etc.
And thats bad how? Isnt that what "we" want to see?
Will that inflation coming back to US shores be a blessing? I don't know, but having to bring back a large % of the USD's and Treasuries being held overseas doesn't seem like a blessing.
Why do you assume any of this would happen? And if it did, why wouldnt that be good?
Knowledge is the enemy of fear
<< <i>
<< <i>
<< <i>
<< <i>What if the US were to lose the exclusive right to the world's reserve currency?
It would be a blessing. >>
Like it was to Great Britain.
The lengths the US goes to to protect it should give you a clue. >>
Please tell me how Great Britain has suffered? Please explain these "lengths". >>
Surely even you know the answers to these questions. >>
Exactly the response I expected. Again you have failed to let me down.
Knowledge is the enemy of fear
<< <i>
<< <i>Interesting that you conclude technology is not oil, when the opposite is true. >>
Actually you understand exactly what I am saying. Technology is the fuel for economic growth and lubricant for productivity. >>
That's a great quote, I'd use it for a sig line, but I already have one that's also tried and true...
although to read some of the things people write, Liberty is dead in America, there is no Science or Technology because it's all fake numbers, there is no more Productivity or Industry in America because it has all been exported to Them or taken over by the other Them, or is being stolen by the other them, or is destroyed by the fanatical other other Them.
They and Them sure is busy
Liberty: Parent of Science & Industry
bringin America back from ruin...
<< <i>you musta forgot the booming cannabis industry...
bringin America back from ruin... >>
Peyton Manning has said that since Colorado legalized recreational weed that the pizza delivery businesses he bought when he moved to Denver have exploded to the upside with business!
Matt Taibbi with another piece. This one almost too hard to fathom. Seems the major banks have been beating the tar out of whistle blowers and then getting out of these jams with a fine. The guy was awarded a multi-$MILL settlement which was later overturned. At that point BoA came after him. They placed a lien on his home and he ended up having to pay them $98,000 in court costs. When he argued that it was ridiculous to put this burden on an unemployed/unemployable whistle blower a California Superior Court judge denied his argument — on the grounds that Winston failed to prove a disparity in resources between himself and Bank of America! The irony of it all is that the whistle blower has paid a bigger penalty that nearly everyone associated with the 2008 financial crisis. You can't make this stuff up. One common thread in these stories is that the new US Attorney General nominee has "prosecuted" at least 2 of these big banks into sweetheart deals. Exactly what's need to continue what AG Eric Holder started.
I could sell some of my "stuff" that has slowed A LOT since the buck went to 95.
We could have a 50 state yard sale.
How will taking away the U.S dollar as the world's reserve currency effect the U.S.'s ability to police the world?
Would NATO play a more prominent role as the policeman of the world and its members would have to increase there defense budgets accordingly since the U.S. would not be able to.
Our defense expenditures have greatly contributed to our current debt levels which was possible in part because of the dollar being the world's reserve currency.
Box of 20
The premise is all wrong. Currencies dont cause civilizations to collapse. Civilizations cause currencies to collapse. If you think the US civilization is going to collapse then bet against the dollar, I would.
And dont "we" all want the US to stop policing the world? Having a reserve currency doesnt allow us to build more airplanes, or ships or missiles.
Knowledge is the enemy of fear
<< <i> Having a reserve currency doesnt allow us to build more airplanes, or ships or missiles. >>
Of course it does. The debt that pays for all that military is absorbed by countries needing dollars to conduct international trade. No demand for dollars would equate to no demand for US debt.
Could be the reason why Spain nor Britain nor France nor Portugal no longer control the world's oceans.
"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
Could be, but isnt. Spain was superpower 500 years ago, maybe in 500 years the USA will be a has been also, but it aint gonna be tomorrow, or next year, or the next generation.
Knowledge is the enemy of fear
<< <i>Could be the reason why Spain nor Britain nor France nor Portugal no longer control the world's oceans
Could be, but isnt. Spain was superpower 500 years ago, maybe in 500 years the USA will be a has been also, but it aint gonna be tomorrow, or next year, or the next generation. >>
At least you now appear to understand the relationship between reserve currency and "superpower."
"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>Recent western super power status has lasted roughly lasted 80-120 years....about the length of time the currencies have lasted....and rot out the governments. Portugal, Spain, Dutch, France, Great Britain, USA. >>
Hey, coincidentally, that's about how long a human being lasts, too!
Liberty: Parent of Science & Industry
<< <i>What if the US were to lose the exclusive right to the world's reserve currency?
It would be a blessing. >>
It would result in a dollar selloff; oil would spike and gold would spike. Hyperinflation would be within reach. Far from a blessing.
"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
It would be a blessing. >>
It would result in a dollar selloff; oil would spike and gold would spike. Hyperinflation would be within reach. Far from a blessing.
I wouldn't call it a blessing unless I knew exactly what the impacts were really going to be. I don't think anyone really knows what's coming next. We seem to be in the midst of a reformation of a new set of monetary standards, but your guess is as good as mine about what the final product is going to look like.
What I observe is various governments and central bankers hopping from one crisis to another and reacting in ways that only serve to keep themselves in positions of power and influence, respectively.
We mortals are so far below the relevant pay grades that we have no way of knowing what types of deals are being negotiated and how they might affect us.
A dollar selloff implies that the proceeds from the dollars being sold can find a safe place to land. I wouldn't sell dollars in order to buy rubles or pesetas. Would you? A dollar selloff seems to imply that more domestic bubbles will appear in various places. Where's the next bubble if the dollars all get sold and come back home?
Maybe that's why QE has been suspended, there's an ample supply of dollars coming back home now.
I knew it would happen.
<< <i>
<< <i>Could be the reason why Spain nor Britain nor France nor Portugal no longer control the world's oceans
Could be, but isnt. Spain was superpower 500 years ago, maybe in 500 years the USA will be a has been also, but it aint gonna be tomorrow, or next year, or the next generation. >>
At least you now appear to understand the relationship between reserve currency and "superpower." >>
How the heck do you derive that from my comment? No wonder you such a conspiracy advocate.
Knowledge is the enemy of fear
<< <i>
<< <i>What if the US were to lose the exclusive right to the world's reserve currency?
It would be a blessing. >>
It would result in a dollar selloff; oil would spike and gold would spike. Hyperinflation would be within reach. Far from a blessing. >>
LMFAO. It is clear you have absolutely no knowledge of intermarket relationships, economics or monetary policies.
A country is not defined by its currency, never has been, never will be. But, a currency is defined by its country. Someday, hopefully, you will see the difference.
Knowledge is the enemy of fear
<< <i>
<< <i>
<< <i>What if the US were to lose the exclusive right to the world's reserve currency?
It would be a blessing. >>
It would result in a dollar selloff; oil would spike and gold would spike. Hyperinflation would be within reach. Far from a blessing. >>
LMFAO. It is clear you have absolutely no knowledge of intermarket relationships, economics or monetary policies.
A country is not defined by its currency, never has been, never will be. But, a currency is defined by its country. Someday, hopefully, you will see the difference. >>
You should run for political office.
"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 hear Govt perks are good.
Knowledge is the enemy of fear
Think what athletes are paid is exhorbitant? Well, go ahead and throw and catch and run with a ball like that, or try to stop those who can do those things, and you can, too!
Think that pensions for 30 year verterans of police and firefighters are unfair? well, put in your time and go get yourself some of that easy money gravy train!
Jealous of bankers and CEOs and hedge fund managers? Well, go ahead and become one, and then you too can be a THEM!
Liberty: Parent of Science & Industry
Boo!
Liberty: Parent of Science & Industry
<< <i>When was the last time you took out a bet with $1,600,000 to $2,500 odds? We can reasonably assume that most of the contracts are much closer to the middle of the bell curve
Th
BTW---In the example I gave, that $2500 IBM position is now worth $15,000.
That position was worth over $36,000 at Fridays close. But now it ceases to exist as it was a option (derivative) with a finite life. No I didnt trade it. And no there wasnt "someone" on the other side who lost $1,600,000 (notional value as the derivative doom and gloomers like to use).
Derivatives are not evil, are not "weapons of mass destruction", and will not bring down the financial "house of cards". High frequency trading?....now thats another subject (but also will not bring down the house").
Knowledge is the enemy of fear
Nobody said someone lost $1,600,000. Let's be straight about that. But the odds were definitely used to establish the rate being paid by the losing side of that trade for the duration of the contract. Stop the sensationalism. Prove your point with the actual numbers. Thanks!!
And doesn't the specific contract establish who loses what for the notional value being "created"?
Let's talk about these "notional values". Aren't we just talking about leverage? How many times has leverage caused problems in the financial world? Leverage was the issue in the Great Depression, just the same as it was the problem in 2007 for mortgage flippers and in 2008 for the tbtf banks. Is this not exactly correct?
The issue at hand is why one class of market participant can play with leverage without consequences while the rest of the market participants (and even market non-participants) are forced to bear the brunt of the tbtf class' bad bets on derivatives contracts.
cohodk, unless you're really tight with Jaime Dimon you'll be thrown overboard without a moment's reflection if you get yourself into a bind, and maybe even if you ARE tight with him.
Just sayin.
I knew it would happen.
<< <i>And no there wasnt "someone" on the other side who lost $1,600,000 (notional value as the derivative doom and gloomers like to use).
Nobody said someone lost $1,600,000. Let's be straight about that. But the odds were definitely used to establish the rate being paid by the losing side of that trade for the duration of the contract. Stop the sensationalism. Prove your point with the actual numbers. Thanks!!
And doesn't the specific contract establish who loses what for the notional value being "created"?
Let's talk about these "notional values". Aren't we just talking about leverage? How many times has leverage caused problems in the financial world? Leverage was the issue in the Great Depression, just the same as it was the problem in 2007 for mortgage flippers and in 2008 for the tbtf banks. Is this not exactly correct?
The issue at hand is why one class of market participant can play with leverage without consequences while the rest of the market participants (and even market non-participants) are forced to bear the brunt of the tbtf class' bad bets on derivatives contracts.
cohodk, unless you're really tight with Jaime Dimon you'll be thrown overboard without a moment's reflection if you get yourself into a bind, and maybe even if you ARE tight with him.
Just sayin. >>
Why arent you getting this? Im am not be anymore sensational than those who discuss Deutsch Bank being on the hook for $62 Trillion in derivatives. Deutsch Bank does not have a $62 Trillion position any more than I would have with a $1.6 million position in IBM. The doom and gloomer uses these ridiculous numbers to scare you. So I tried to put things into perspective with a trade than anyone with a $400,000 portfolio could do. You keep talking about odds and betting, get those terms out of your mindset and this will all become much clearer. Talking about $quadrillions is NOT using actual numbers.
Just like no one was going to lose $1.6 million on my trade, Deutsch Bank is not going to lose $62 trillion, or even $1 trillion. And this has been my point of contention. The doom and gloomers are only frightening themselves with numbers that are not only unrealistic, but false.
Jamie Dimon does not control my future anymore than I control yours. I am not afraid of Jamie Dimon, and neither should you.
Knowledge is the enemy of fear
I know that Deutsch Bank has been in the news lately, but I don't know what their balance sheet looks like, and I doubt that anyone else does either. I do know that the Fed bailed out Deutsch Bank in 2008, and there's no way of knowing what transpired. We don't get to know.
Does it matter if the bank is on the hook for $1 million, or $1 billion when they are both insolvent and illiquid? It wouldn't take much of a downdraft in a position containing $62 trillion (even if hedged), for the portfolio to get hit for $1 billion. Would that be enough to push Deutsch Bank into insolvency?
If someone mismanages and loses $1 billion in assets and took disproportionate risks, and if this places the bank into insolvency, the bank shouldn't be bailed out. The bank should be liquidated, the management should be fired and investigated for having insufficient internal controls.
If they have $62 trillion in outstanding derivatives contracts, there's no excuse. Why would you take out that much in leveraged contracts? What could they possibly be trying to hedge? How perfectly would that portfolio need to be balanced, both in absolute terms and in temporal terms? It's nuts.
I knew it would happen.
When Lehman cased out from their bankruptcy they suffered a 90% loss on their derivatives. This was was a situation of a failed counter-party with no bailouts and no available netting. This was real world reality. When LTCM went down in 1998 their net loss after a bailout was in the 50% range. So even a 10% failure on $1 Quad is a big loss to swallow. Obviously, the system can't handle another Lehman with a failed counter-party and no bailouts.
What Cohodk fails to mention with his options contracts is the fact that it is part of a fully regulated, fully standardized, fully transparent, fairly liquid, and marked to market asset that is traded on major exchanges. They are traded during every hour of the trading day where their values can be readily determined. This is not the case for otc derivatives. Those are fully opaque, unregulated, non-standardized, illiquid, marked to model, that are rarely if ever traded on any exchange. The deals on those are made and then they are put in the closest. Both counter-parties value them any way they please. On the failure of either counter-party the entire notional contract becomes payable. That doesn't happen with IBM options. There's nothing at all in common with standard US stock market options of S&P 500 companies vs. non-standardized derivatives other than they are technically both derivatives.
The similarity ends with the dictionary definition of "derivative." One gets it value determined by something real and trackable, the other gets its value from a computer algo programmed by the owner. A good comparison would be like having a professional coin dealer appraise a $1,000,000 coin collection. And then take a guy off the street with no coin experience whatsoever, give them a 2008 Red Book, and ask them to value the collection. I'm not afraid of Jamie Dimon. But, have a concern with the $70 TRILL or so in otc derivs that JPM carries. They don't even have enough liquid assets to cover the approx. 3% "cash out" of those derivs. Cohodk could not legally lose $1.6 MILL on his options trade due to the way they are set up and regulated. That is not the case with the DB $62 TRILL notional. If their counter parties fail, they are on the hook for the whole $62 TRILL. That's the big difference between regulated SM options and unregulated otc derivs. IBM options are valued per standard FASB accounting rules.....otc derivatives are not. There are no accounting standards for otc derivatives. What other parts of the US financial or monetary systems have no approved accounting standards whatsover?
The fact that Lehman lost 90% of full notional value on their otc derivatives clearly is an "inconvenient truth" that shows the losses can be catastrophic. How come their risk management didn't net out all those contracts to come out about even? Why didn't LTCM, Enron, Amaranth, AIG, Bear Stearns, MF Global, or JPM's London whale also net themselves out to about break even? Why? Because the guys were greedy, they made mistakes, and their algo assumptions didn't work in the actual market place. Go figure.
Another difference between Cohodk's IBM options trade is that he probably can't rely on more than a 60-70% success rate on his trades from year to year. Temper that against the past 10-12 years of JPM where they essentially NEVER have a losing quarter. Derivative's and being a conduit of the USTreasury/ESF/PPT certainly helps too.
He discusses the heavy debt/over-capacity periods of 1820's-1860's, 1873-1894, 1920's-1930's, and past 15 years. Nowhere do you hear that gold or the monetary standard in play was a cause of any of these problems. What I hear is excessive govt incentives, malinvestments, over-consumption, taking on excessive debt, etc. Apparently you can do all these "bad" things on or off a gold standard. Effective debt levels are 2X as severe as existed in 1928. According to this guy, "deficits do matter." At about the 14 min point he discusses how the FED's money injection does raise particular asset prices. Austerity doesn't get politicians re-elected nor does it raise your standard of living in the short term....hence the population and those in power don't prefer this method any more. Derryb was right. If any of us "chicken little" or "tin foil conspiracy theorists" say any of this stuff we are dismissed as fools. Hunt sees a consumption based tax coming. If we don't have the political will to fix these things.....then we meander along to the "bang point" (ie when people/corporations/govts no longer lend to other govts). I'd like to know what this guy thinks of the US bank's $300 TRILL in otc derivatives is of any concern. Because it is essentially another layer of debt/debt-money.
Part 2 - did he say we could approach conditions seen in Greece? An unsustainable and negative path? Economic opportunities are disappearing? US standard of living has peaked? Short term gain for long term pain? Sure seems like a doom and gloomer to me. In short Hunt says we're on the totally wrong path. He also invests in gold and silver coin.....perish the thought! Boomers are the only age group "booming" employment as they can no longer retire early and/or coming back into the work force after retirement. Hunt: low interest rates are reflective of a weak/unproductive economy ..... no increase in the standard of living since 1997....once extreme over-indebtedness or over-trading occurs (like today), the choice of monetary or fiscal response almost doesn't matter....
His solutions? Increase taxes, preferably by keeping marginal tax rates steady or lowered but also closing loop holes, consumption tax to generate revenue, reform SS-Medicare and other entitlements....basically austerity. Videos are easy to find on U-tube (Lacy Hunt Road Blocks to Recovery).
This is my point....THERE IS NO $62 TRILLION on the hook. Just like there is no $300 quadrillion that Roadrunner likes to use, or there is no 10x the annual supply of silver on the hook.
In my example there was no $1.6 million on the hook. Just a $2500 investment. Can you see it now?
The PM bulls were wrong about QE pushing gold to $5000.
The PM bulls were wrong about Greece/Spain/Italy pushing gold to $5000.
The PM bulls were wrong about Ukraine pushing gold to $5000.
The PM bulls were wrong about India and China pushing gold to $5000.
The PM bulls were wrong about inflation pushing gold to $5000.
The PM bulls were wrong about interest rates rising.
The PM bulls will be wrong about derivatives.
The PM bulls will be wrong about the US dollar collapsing.
All assets classes have their day in the sun based on investor psychology. Now surely PM got a lot of attention and went higher than present prices, but the problem with this asset class is that very few "trade" them. Investors in this class typically just buy and hold and die.
Think about this---many on this board love manipulation and conspiracy theory, right? So why dont those see people see how they were manipulated and conspired against to buy silver at lofty levels. Silver is, for all intents purpose, at the same price as when the first round of QE was announced. All the silver bulls were lied to. They were told to be scared. What has that gotten them? Jaded opinion? Poor investment return? Anger? Irrational discouragement?
Eventually gold will hit $5000 and the PM bulls will say, "I told you so", and they still will never realize how wrong they were, if they are even still alive.
Knowledge is the enemy of fear
And there are no banks on the hook for $40-8- trillion dollars. No bank would ever lose that amount. So why scare people into thinking that JPM will lose more than the GDP of the entire planet? Its not only foolhardy, but irresponsible.
Knowledge is the enemy of fear
I could breakdown you comments, but will just highlight a few...
Effective debt levels is not the same as actual debt levels. Huge difference.
no increase in the standard of living since 1997..you dont have more "stuff" than 18 years ago? Really? How does one quantify "standard of living"?
US standard of living has peaked? Really? Again, quantify. These are all nice soundbites that play well on peoples fears, but where exactly are you trying to tell people?
Nowhere do you hear that gold or the monetary standard in play was a cause of any of these problems--Why would you need too? PM bulls want a return tot he gold standard. History has shown that a gold standard has not curtailed excessive debt nor prevented extreme economic conditions.
If any of us "chicken little" or "tin foil conspiracy theorists" say any of this stuff we are dismissed as fools.---You are dismissed as fools because you use rhetoric, hyperbole and stupid cartoons to attempt to persuade rather than logic, reason and common sense. If Hitler wore a clown outfit instead of a uniform or suit, do you think he would have been so persuasive?
Increase taxes, preferably by keeping marginal tax rates steady or lowered but also closing loop holes, consumption tax to generate revenue, reform SS-Medicare and other entitlements.---I agree. But is the most dominant demographic going to let this happen? No friggen way!!! Thats why we will continue in this relative economic malaise until that demographic has less influence. Isnt that what I have been saying for years?
Knowledge is the enemy of fear
Liberty: Parent of Science & Industry
<< <i>In my example there was no $1.6 million on the hook. Just a $2500 investment. Can you see it now? >>
That's how options work, but that's not how futures and other derivatives work. If I go long 1 gold contract (GC) which represents 100oz, all I need is about $5000 in my account. But if gold drops $100 in a few minutes before anyone has a chance to close or liquidate the position, I instantly owe $5000 if I close the position, and I'll get a margin call for $10k to maintain the position. If gold drops another $100, I have to pony up another $10000, instantly. So suddenly my $5000 investment turns into $25,000 loss if gold drops $200 due to a sudden market shock. What if gold suddenly skyrockets up $400 and I'm short a gold contract? Ooops. Now I owe $45,000. That's what we're talking about. Not someone buying a bunch of covered puts or selling covered calls and losing their premium. I believe they'll shut down the gold exchange once it drops $100 in a day, so it may be difficult or impossible to exit positions in some circumstances.
<< <i>no increase in the standard of living since 1997..you dont have more "stuff" than 18 years ago? Really? How does one quantify "standard of living"? >>
I don't know if "stuff" is a good measure. If you go back a few more decades it used to be that the wife didn't need to work. Now in most families both have to work to make ends meet. Families used to have far more savings and retirement savings. Now not so much.
<< <i>Nowhere do you hear that gold or the monetary standard in play was a cause of any of these problems--Why would you need too? PM bulls want a return tot he gold standard. History has shown that a gold standard has not curtailed excessive debt nor prevented extreme economic conditions. >>
You're talking about different degrees of excessive. As with any of us personally, or our cities or our states, we can borrow excessively to the point of bankruptcy as long as someone is willing to lend. This is the limitation a gold standard sets in place. You cannot do what Zimbabwe did and utterly destroy a currency with a gold standard in place. That doesn't mean the government won't borrow more than they can repay, but they do have to find someone dumb enough to lend the money.
<< <i>Eventually gold will hit $5000 and the PM bulls will say, "I told you so", and they still will never realize how wrong they were, if they are even still alive. >>
They are right but they are wrong?
RR good explanation on the difference between derivatives and options, but you you should know by now you are preaching to the preacher. He fails to understand that in a world of lies gold will always tell the truth and that what he sells is not necessary golden.
"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 hate to say it, but I must agree with Cohodk here. Certainly in this multi-year thread we have had plenty of time and circumstances for the Dollar and the U.S. monetary system to collapse.
Year after year for nearly a decade Jim Sinclair, Peter Schiff, et al have predicted “ THE COLLAPSE” now we have Jim Rickard saying for sure in the next 5 months its down the toilet.
I think that since we live in a paper world the chances are for many years to come we will continue to live in a paper world until such time as we all live in an electronic money world.
Certainly at that point all the PM bloggers will say, NO WAY THIS CAN LAST.
There is no way any of this could last over the last ten years, but it just keeps going.
A dam is filling up with water and will overflow eventually thus wiping out the town below it. So we have choices....
The doom and gloomers would just look at the dam and say we're all gonna die, its inevitable, go to the tavern and talk about the good old days with their buddies.
While others would say, lets build another dam upstream to contain the excess water.
Some would say, lets divert the water around the town.
Some might say, lets make the dam bigger.
And still others might say lets move the town.
And this is the same with our financial system. Surely there is a group who would rather do nothing and complain, but there is a much larger group that will find a solution.
Knowledge is the enemy of fear
Exactly. Because other assets performed much better, thus leaving those PM'ers in a relatively weaker position. They were right, gold went up, but their financial situation is still worse than others. And, many will be right but never see it because they are long dead.
So were they right, or were they wrong?
Knowledge is the enemy of fear
Really, didnt stop excessive lending historically as pointed out by Roadrunner and Lacy Hunt.
If you go back a few more decades it used to be that the wife didn't need to work. Now in most families both have to work to make ends meet. Families used to have far more savings and retirement savings. Now not so much.
What do we spend money on today that we didnt in 1985? The answer is lots of personal choices (cell phones, cable TV, bigger houses, fancier cars, ect). If we spent like we did in 1985, the Mrs. wouldnt have to work. But we have the "wants", and to fulfill those wants we need to make more money. Why do you think Dave Ramsey is so effective?
Knowledge is the enemy of fear
<< <i>Roadrunner, I believe I have seen or read almost every interview Hunt has given and have read almost all of his investment/economic articles. I am quite confident that I understand his positions with greater clarity than you, no offense, but this is my wheelhouse..... >>
Well, apparently you missed a few. Go check the u-tube links I mentioned above. I listed 2 of them below, easy to find too. He says the standard of living not improving since 1997 is a "serious indictment." His quote...not mine. His definition of standard of living is a few posts down. Apparently, Lacy Hunt doesn't base your SOL on how much stuff you borrowed to "own" via a maxed out credit card. Maybe the SOL in Baleyville is a lot higher than in 1997....just the not entire USA where J6P lives. I'd agree with LH that 18 years is a whoppin' long time to have shown no progress in the SOL for the average American. That's a huge problem considering the Trillions in debt we've taken on in that time to "fix" things and stimulate the economy. Do I have more "stuff" today than I did in 1997? Nope. I've downsized my extra cars, rare coins, and about everything else I could. Everyone I know around my age or older is trying to downsize/deleverage/simply their lives. I still haven't bought an Iphone, Ipad, huge flat screen TV, etc. Still have the same flip-top phone ($100/yr) that I've had since before 2006. Stuff is what I don't need. Don't have a car with all the latest computer gadgetry. It's a 2002 Lincoln. I drive in the car. It's all I do with it. It doesn't communicate with me, nor I with it. No TV, no NAV-GPS, no food dispenser or Ibot to serve me drinks....lol.
All the comments I took from those LH videos are basically quotes, especially the items on fixing the economy. Hunt doesn't think the US will take its medicine. So we all agree there. The govt will wait for the system to crash/implode. Since it's already past Hunt's over-indebtness level, all we can do is wait and watch for the fireworks as Armstrong's Big Band and Hunt's Bang Point approach. We're kicking a can down the road, a can full of nitroglycerine.
Never said that any US bank would have to pay out $50 TRILL to cover their deriv's losses. Those are what the losses would be if we choose to cover them on a counter-party failure. We won't. The system will implode and no major bank will be left solvent/standing. It doesn't matter that there's enough derivatives to blow the system up about 5X to 10X over. 1X is all that will be needed. One big bank going down will all it will take to implode the system. Heck, $4 BILL from LTCM in 1998 and a few hundred $BILLION from Lehman in 2008 nearly took down the system. In fact they would have w/o interventions. The amounts we're talking today are a 100X bigger than those guys. Are derivative's in your wheelhouse now too?
While no gold standard is on our horizon, a shift to an IMF SDR that is made up of a basket of currencies/commodities/assets is quite realistic. Gold could be one of the items in that basket. If Hunt is correct, the current system will probably waffle on until it breaks and deleverages. I did find it interesting that he feels the system is still leveraging up despite the hit that commodities have taken starting in 2011. Certainly the US stock market is still heavily up-leveraged....even if J6P is owns a fraction of the pie that he had in 1999-2000. Big banks/HFT's, hedge funds, sovereign investment funds, etc. are the players in the US stock market. Baleyville is only a minor player.
No standard of living increase since 1997....Hunt mentions that "we have failed to reattain the economic performance of the 1950's"....his words, not mine.
Hunt on heading to the Bang Point - curing debt with debt...with gold out of the picture for 44 years, the debt extinguisher of past centuries is gone. Debt no longer gets extinguished via normal commerce as it used to in the classical gold standard via real bills. It now gets extinguished during major bust cycles.
Google/Utube this verbage "Former Fed Official warns of multi-decade downturn PART 1 - Lacy Hunt." In the first few minutes of said video he mentions no progress in the Standard of Living since 1997 being a "very serious indictment".... His broad definition for SOL is median household income adjusted for inflation. Makes sense to me. It's about what we earn....not how much "stuff" you can accumulate. Bernie Madoff accumulated a lot of "stuff"....lol. It's also a fact that real worker wages (inflation adj) have not risen since 1973. Hunt's use of the "misery" index on Hoisington letterhead is interesting. If I posted that here I'd be laughed at for being out of touch with reality. Maybe Mr. Hunt is out of touch along with the rest of us tin foil hat club members....lol. I know many here dismiss our views just "because." I figured if Lacy Hunt was saying the same thing maybe others might put in an order for some Reynolds wrap.
<< <i>As with any of us personally, or our cities or our states, we can borrow excessively to the point of bankruptcy as long as someone is willing to lend. This is the limitation a gold standard sets in place
Really, didnt stop excessive lending historically as pointed out by Roadrunner and Lacy Hunt.
No, but the debt wasn't excessive to the point of ruin. And how much was the dollar devalued all of those other times? >>
As stated a gold standard doesn't prevent monetary abuses; however, it increases the visibility and transparency of purposeful devaluation rather than hiding and obscuring what is really happening. For example, when the US declared that an ounce of gold was worth $35 in 1934, the whole world knew about it. Now if the US had gone and increased that a couple years later, and then a couple years later, and on and on, well that would be pretty tough to explain when seeking re-election wouldn't it? And maybe the politicians would work a little harder to avoid that scenario? Maybe it would give some backbone to politicians to explain in real terms that people understand why we can't afford something or have to cut back on government spending. So no, a gold standard doesn't solve everything but it does force a level of honesty and have other positive effects on government.
<< <i>What do we spend money on today that we didnt in 1985? The answer is lots of personal choices (cell phones, cable TV, bigger houses, fancier cars, ect). If we spent like we did in 1985, the Mrs. wouldnt have to work. But we have the "wants", and to fulfill those wants we need to make more money. Why do you think Dave Ramsey is so effective? >>
RR responded to this very well. Technology has made our lives easier but that doesn't mean we have a higher standard of living. In the 80's J6P could earn a decent living with most menial jobs. Today, a McDonald's worker can barely afford to buy a meal at the place he works with an hour of wages without an employe discount. Some will burn an hour's wages in gas just commuting to work and back, and that doesn't include a car payment or insurance. Cars, gas, and food are not new expenses.
<< <i>They are right but they are wrong?
Exactly. Because other assets performed much better, thus leaving those PM'ers in a relatively weaker position. They were right, gold went up, but their financial situation is still worse than others. And, many will be right but never see it because they are long dead.
So were they right, or were they wrong? >>
Everybody's right, nobody's wrong.
"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 consider my 1980's jobs menial. No they did not earn a decent living. And no, we did not get by without the wife working. Not even in the 1950's was that true.
Conspiracy theory once again becomes conspiracy fact. . . but that doesn't mean there's manipulation.
"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