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Our monetary system is insane

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2 minutes ago, hornhorn said:

Did you read the paper? The amount you're parroting is the cumulative facility(as in repo facility, auction facility, SWAPS, etc.) to make the money move, not the actual bailout. To have an expanding economy, Federal reserves of all countries have to back central banks with cumulative facilities. 

Actual bailout loans still stand at $245.2 billion which were paid back, with interest.

Ensuring money flow to the financial institutions is the major part of the "bailout." I understand you want to limit the scope to one bailout mechanism. But the response was much greater than the appetizer you focus on. There main courses were the meat of the financial rescue for the few Too Big to Fail Institutions.

And to the greater point, the ability to use trillions to bail out the TBTF institutions - without ensuing massive inflation - demonstrates we, as a nation, can spend trillions to help out those who do not qualify for TBTF status. That is the issue, no?

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1 minute ago, washparkhorn said:

Ensuring money flow to the financial institutions is the major part of the "bailout." I understand you want to limit the scope to one bailout mechanism. But the response was much greater than the appetizer you focus on. There main courses were the meat of the financial rescue for the few Too Big to Fail Institutions.

And to the greater point, the ability to use trillions to bail out the TBTF institutions - without ensuing massive inflation - demonstrates we, as a nation, can spend trillions to help out those who do not qualify for TBTF status. That is the issue, no?

That money flow was occurring even before the collapse and has been occurring since. You seem to under appreciate the word trillion. $29 trillion is a huge number, its larger than the US GDP. If that was the size of the bailout the top 100 wealthiest people in the world would all be bankers the poorest of them at a net worth of $250 billion. Two and a half times wealthier than Bezos today. That isn't the case.

We as a human race have figured out that a static dollar serves no purpose which is why it needs to be repurposed while sitting idly in a bank account somewhere. You're looking at it as a conspiracy against the poor. It isn't.

 

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if i lend you $5, and the next day you pay me back, and then i lend you $5, and then the next day you pay me back, and then i lend you $5, and then the next day you pay me back ... how much money did i lend you?

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17 minutes ago, elfenix said:

if i lend you $5, and the next day you pay me back, and then i lend you $5, and then the next day you pay me back, and then i lend you $5, and then the next day you pay me back ... how much money did i lend you?

Four...?

 

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12 minutes ago, elfenix said:

if i lend you $5, and the next day you pay me back, and then i lend you $5, and then the next day you pay me back, and then i lend you $5, and then the next day you pay me back ... how much money did i lend you?

If you lend me $1,000 and allow me to lend $10,000 based on your $1,000 loan, you allow me keep the interest on the $10,000 loans,  and you will, in fact, pay me to park the money on the money you lend me, aren't you giving me much more than a $1,000 loan? And then if you guarantee to bail me out if the some of those $10,000 loans you allow me to make on the $1000 you loan me, well then, I am going to make a lot of money from your little $1,000 daily loan. And I will have no risk, will I? And without risk, I am more likely to make risky decisions with all of the liquidity you provide me, no? But as long as you guarantee I am too big to fail, why would I not try to maximize my profits?

Privatize the profit and socialize the risk - the American Financial System since 2008. 

 

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Posted (edited)
12 minutes ago, washparkhorn said:

If you lend me $1,000 and allow me to lend $10,000 based on your $1,000 loan, you allow me keep the interest on the $10,000 loans,  and you will, in fact, pay me to park the money on the money you lend me, aren't you giving me much more than a $1,000 loan? And then if you guarantee to bail me out if the some of those $10,000 loans you allow me to make on the $1000 you loan me, well then, I am going to make a lot of money from your little $1,000 daily loan. And I will have no risk, will I? And without risk, I am more likely to make risky decisions with all of the liquidity you provide me, no? But as long as you guarantee I am too big to fail, why would I not try to maximize my profits?

Privatize the profit and socialize the risk - the American Financial System since 2008. 

 

Tell that to Lehman Brothers 

Edited by Incredulity

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Posted (edited)
On 1/9/2019 at 11:44 AM, Fudge Nuggets said:

People have been saying that since the US got off the gold standard.

Bernorange is a gold fanatic.  He hates "fiat money."  That's all you need to know.  

Bernorange, as you read this Bernanke is laughing at you.

Edited by Bullneck

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If you lend me $1,000 and allow me to lend $10,000 based on your $1,000 loan, you allow me keep the interest on the $10,000 loans,  and you will, in fact, pay me to park the money on the money you lend me, aren't you giving me much more than a $1,000 loan? And then if you guarantee to bail me out if the some of those $10,000 loans you allow me to make on the $1000 you loan me, well then, I am going to make a lot of money from your little $1,000 daily loan. And I will have no risk, will I? And without risk, I am more likely to make risky decisions with all of the liquidity you provide me, no? But as long as you guarantee I am too big to fail, why would I not try to maximize my profits?
Privatize the profit and socialize the risk - the American Financial System since 2008. 
 
The historical evidence is that the banking system is far more stable with the fed in place than without, so I don't think your complaint about moral hazard has much grounding. It's also moving the goalposts from your previous blurb.

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Posted (edited)
4 hours ago, elfenix said:

The historical evidence is that the banking system is far more stable with the fed in place than without, so I don't think your complaint about moral hazard has much grounding. It's also moving the goalposts from your previous blurb.

I don't doubt that the Fed has performed well for those who benefit from their direct aid. And indirectly, there is a case that the direct Fed interventions have trickled down to benefit some. But the bottom line is the Fed interventions were massive and we did not see the inflation one would expect from such loose monetary policy. 

I am not sure I was moving the goal posts to moral hazard as much as I am pointing out  - if we can directly aid the most wealthy with Fed type interventions, would it be moral to aid those who are less wealthy or who have no wealth at all with similar interventions? It may be more moral. 

If that is moral - then the question of moral hazard is ripe. What moral hazard do we face as a nation from aiding the less wealthy in this nation using the same interventions the Fed used to save the most wealthy? Two different sets of people and institutions, of course, so the banking industry may not be a relevant perspective for that discussion. And one does not have to tear down the wealthy to aid the less wealthy. Raising the less wealthy's boats benefits all, does it not? They would inject the money back into the system already dominated by a relatively few wealthy individuals. Win-Win.

But there is moral hazard - depending on the intervention - for both the individuals benefitting from the hand-up and from the institutions who will administer such funding. I am less worried about the individuals because their debt burden is so high right now. They will be paying off financial institutions (which could be its own problem). 

I do worry about the institutions that would administer the interventions. An extremely efficient bureaucracy is needed or preferably none at all other to add digits to repository accounts. There is moral hazard with the amount of money at issue for institutions. Their control must be well-defined and limited.

Is demand-pull inflation a risk at this juncture and, if not, how much room do we have until it is a risk is still the basic question. Is MMT correct, as proven by the 2008 interventions to save and reinflate the financial sector?

Edited by washparkhorn

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4 hours ago, Bullneck said:

Bernorange is a gold fanatic.  He hates "fiat money."  That's all you need to know.  

Bernorange, as you read this Bernanke is laughing at you.

Bern is an honest proponent of a worldview shared by many for good reasons. One always has to start at the issue of hazards associated with fiat money.

It is appearing to be the case that for the United States, our fiat money behaves very differently from Zimbabwe or from Greece or just about any other currency out there. Is that temporary? Sure - given enough time, everything is temporary. We are just coming to understand how fiat money works for the US - and it is blowing up traditional economic beliefs, at the present. 

Bern is absolutely right that a catastrophic shock to the system will destroy it. And gold/silver might provide a safe haven for some with enough of it. I am just not sure with our military that will ever be the case in the US. We will quickly reestablish the new dollar as the world's currency because of our might and remarkable geography and people (I hope). So my bag of silver coins I was going to use may never be needed. But it's a good feeling to have them. 

Bern's view and opinions are important to this topic especially - as are everyone else's. Bern keeps us grounded in the fundamentals of storing wealth. 

Bernanke is the luckies SOB walking. He doubted MMT and then used it to save his buddies - and it did not trigger massive inflation. He thought it would - so he put on the austerity brakes before the job was done. Only Little Timmy Geithner is luckier. 

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It's kind of amazing how many people earnestly believed we would see massive inflation right after something like $16 trillion essentially evaporated.

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Central banks have lost control of global liquidity. The dollarised international financial system has become treacherously unstable and vulnerable to a sudden reversal in capital flows.

Yet the International Monetary Fund is a diminished force and no longer has the firepower to act as the world's lender of last resort in an emergency. That is the stark conclusion of a G20 task-force of leading currency experts.

A surge in offshore dollar lending -- increasingly through opaque security markets -- has exploded to $18 trillion and has overwhelmed the safety buffers of the existing financial architecture. The concern is that a continued surge in the value of the US dollar -- potentially triggered by the coronavirus epidemic, or any other black swan catalyst -- could bring this to a head.

"The risk of an unexpected and unplanned reversal of abundant global liquidity hangs over the world economy. Strong contagion across markets could make the endogenous dynamics of global liquidity very dangerous," the panel warned in an advisory report for G20 ministers, the Financial Stability Board and the IMF.

A decade of ultra-low interest rates and quantitative easing has flooded the globe with highly unstable forms of funding denominated in dollars, with no guarantor standing behind them. Glaring currency and maturity mismatches have accumulated.

This structure is prone to an abrupt "dollar crunch" should borrowers in China, east Asia, emerging markets, or even parts of Europe suddenly start scrambling for scarce US currency to repay bonds and loans in a crisis.

The report from the Robert Triffin International forum said the purely "private component of global liquidity" (defined as foreign currency credit to non-banks) has mushroomed to $12 trillion. This now dwarfs the shrunken $3 trillion pool of "official" liquidity, such as IMF resources, central bank swap lines, and even the eurozone bailout fund (ESM).

This private liquidity is highly geared to spasms of risk appetite and over-confidence, and even more geared to panic when trouble starts. It can snap back violently and set off potentially unstoppable chain reactions in a heartbeat. The liquidity is "destroyed" by forced deleveraging. Staircase up, escalator down.

"As the 2008 experience shows, the supply of private liquidity cannot be relied upon in periods of stress," according to the document by Bernard Snoy, Andre Icard, and Philip Turner, former top officials at the World Bank and the Bank for International Settlements.

They warned that there is no clear backstop if anything goes wrong. This is the Achilles' heel in the structure of globalised modern finance, the torment of regulators at their Swiss sanctum sanctorum in Basel.

The IMF cannot plausibly come to the rescue in a major upset. Its resources have dwindled to just 1 percent of global external liabilities, down from 4 percent in the 1980s, overtaken by the mushrooming scale of cross-border finance. "The IMF is not in a position to function as an international lender of last resort. The global financial safety net is too small," they said.
...

https://www.telegraph.co.uk/business/2020/02/09/global-task-force-sounds-alarm-dangerous-dollar-crunch/

h/t (no paywall):  http://gata.org/node/19826

Imagine how big the current stock market bubble will get if the Fed really opens the spigot.

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... This looks like a truly historic juncture, of the kind that comes along only every few decades, as the international financial order shifts.

After the war, the developed world was governed by the Bretton Woods accords, which tied all currencies to the dollar, which was in turn pegged to gold. It was a looser form of a gold standard, and survived until 1971. That was when Richard Nixon ended the gold peg, realizing that it had become too great a burden for the U.S., and stood in the way of the expansionary fiscal policy he was hoping to adopt ahead of his re-election campaign.

The result was a huge shock to the world order. With the gold peg gone, the financial system adopted a new anchor, which was oil. In a book published 10 years ago, I tried describing the system that replaced Bretton Woods as an Oil Standard. Effectively, producers tried to defend themselves against the declining buying power of the dollar by hiking prices, so as to keep the price of oil in gold terms effectively constant. The oil/gold ratio measures how much gold you would need to pay to buy a certain amount of oil. As the chart shows, it ended the 1970s almost exactly where it had started, despite the massive increase in dollar terms.
...
The Oil Standard era ended in the early 1980s. Markets — and everyone else — had lost faith in the ability of central banks to control inflation. Paul Volcker arrived at the Fed, raised rates more than anyone thought he would dare, provoked a recession, and convinced everyone that central banks could control inflation after all. In conjunction with the Reagan/Thatcher approach to economic management, and then the collapse of the Soviet Union and the resurgence of China, that ushered in a quarter-century of triumphalism for a new model anchored by broadly trusted central banks.

That foundered in the financial crisis of 2007-09.  Now we have reached a new juncture, where the fear is that central banks cannot control deflation. For the post-crisis decade, the U.S. has managed to stay distinct, thanks in part to the privilege of the world’s reserve currency, and in part to the superior success of its corporate sector. It has done this even as Japan and Western Europe have sunk into negative interest rates, while the emerging markets have stagnated. The twin shocks of the epidemic and the oil price now appear to have wounded confidence that the U.S. can stand alone.

It certainly looks as though the world has at last arrived at a point that it appeared to have reached a decade ago. Some new financial order, to replace Bretton Woods and the system that Volcker built to replace it, is now needed. A decade of monetary expansion has delayed the issue. It is hard to see how it can be delayed much further. It would be wise to brace for disruption to match what was experienced at the end of the 1970s and the beginning of the 1980s.
...

https://www.bloomberg.com/opinion/articles/2020-03-09/crash-in-oil-prices-bond-yields-marks-shift-in-global-order

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1 hour ago, Rusty Shackelford said:

What are your thoughts on the dollar milkshake theory?

I had to look it up after reading your post (I guess I live under a rock?), so none.  The dollar is rallying hard today - back up over a hundred this morning.  Time will tell whether it's a "reverse tsunami" or if we find some equilibrium..

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54 minutes ago, bernorange said:

I had to look it up after reading your post (I guess I live under a rock?), so none.  The dollar is rallying hard today - back up over a hundred this morning.  Time will tell whether it's a "reverse tsunami" or if we find some equilibrium..

https://www.zerohedge.com/markets/what-12-trillion-dollar-margin-call-looks

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1 hour ago, Rusty Shackelford said:

Just FYI - zerohedge has a very low percentage of fact-based and evidence-supported reporting.

https://mediabiasfactcheck.com/zero-hedge/

It's registered in Bulgaria under a pseudonym and its creator/founder described their stance and messaging as “Russia=good. Obama=idiot. Bashar al-Assad=benevolent leader. John Kerry= dunce. Vladimir Putin=greatest leader in the history of statecraft.”

They're not a great source to post if you want to be taken seriously.

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Yes I know, I ignore 99% of the bullshit they repost, but do you have anything to say about the article I posted?  Re-posting is what they do, but in this case it's Bloomberg and JP morgan.

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The economic debate of the day centers on whether the cure of an economic shutdown is worse than the disease of the virus. Similarly, we need to ask if the cure of the Federal Reserve getting so deeply into corporate bonds, asset-backed securities, commercial paper, and exchange-traded funds is worse than the disease seizing financial markets. It may be.

In just these past few weeks, the Fed has cut rates by 150 basis points to near zero and run through its entire 2008 crisis handbook. That wasn’t enough to calm markets, though — so the central bank also announced $1 trillion a day in repurchase agreements and unlimited quantitative easing, which includes a hard-to-understand $625 billion of bond buying a week going forward. At this rate, the Fed will own two-thirds of the Treasury market in a year.

But it’s the alphabet soup of new programs that deserve special consideration, as they could have profound long-term consequences for the functioning of the Fed and the allocation of capital in financial markets. Specifically, these are:

  • CPFF (Commercial Paper Funding Facility) – buying commercial paper from the issuer.
  • PMCCF (Primary Market Corporate Credit Facility) – buying corporate bonds from the issuer.
  • TALF (Term Asset-Backed Securities Loan Facility) – funding backstop for asset-backed securities.
  • SMCCF (Secondary Market Corporate Credit Facility) – buying corporate bonds and bond ETFs in the secondary market.
  • MSBLP (Main Street Business Lending Program) – Details are to come, but it will lend to eligible small and medium-size businesses, complementing efforts by the Small Business Association.

To put it bluntly, the Fed isn’t allowed to do any of this. The central bank is only allowed to purchase or lend against securities that have government guarantee. This includes Treasury securities, agency mortgage-backed securities and the debt issued by Fannie Mae and Freddie Mac. An argument can be made that can also include municipal securities, but nothing in the laundry list above.

So how can they do this? The Fed will finance a special purpose vehicle (SPV) for each acronym to conduct these operations. The Treasury, using the Exchange Stabilization Fund, will make an equity investment in each SPV and be in a “first loss” position. What does this mean? In essence, the Treasury, not the Fed, is buying all these securities and backstopping of loans; the Fed is acting as banker and providing financing. The Fed hired BlackRock Inc. to purchase these securities and handle the administration of the SPVs on behalf of the owner, the Treasury.

In other words, the federal government is nationalizing large swaths of the financial markets. The Fed is providing the money to do it. BlackRock will be doing the trades.

This scheme essentially merges the Fed and Treasury into one organization. So, meet your new Fed chairman, Donald J. Trump.
...

https://www.bloomberg.com/opinion/articles/2020-03-27/federal-reserve-s-financial-cure-risks-being-worse-than-disease

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The Federal Reserve on Tuesday announced the establishment of a temporary repurchase agreement facility for foreign and international monetary authorities (FIMA Repo Facility) to help support the smooth functioning of financial markets, including the U.S. Treasury market, and thus maintain the supply of credit to U.S. households and businesses. The FIMA Repo Facility will allow FIMA account holders, which consist of central banks and other international monetary authorities with accounts at the Federal Reserve Bank of New York, to enter into repurchase agreements with the Federal Reserve. In these transactions, FIMA account holders temporarily exchange their U.S. Treasury securities held with the Federal Reserve for U.S. dollars, which can then be made available to institutions in their jurisdictions. This facility should help support the smooth functioning of the U.S. Treasury market by providing an alternative temporary source of U.S. dollars other than sales of securities in the open market. It should also serve, along with the U.S. dollar liquidity swap lines the Federal Reserve has established with other central banks, to help ease strains in global U.S. dollar funding markets.

The Federal Reserve provides U.S. dollar-denominated banking services to FIMA account holders in support of Federal Reserve objectives and in recognition of the U.S. dollar's predominant role as an international currency. The FIMA Repo Facility, which adds to the range of services the Federal Reserve provides, will be available beginning April 6 and will continue for at least 6 months.

https://www.federalreserve.gov/newsevents/pressreleases/monetary20200331a.htm

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I don't know who's aware of this, but our own esteemed Bernorange has testified before both the House and Senate Finance Committees.  He also served for a time as the Undersecretary of Treasury in the Minting Division.  I saw him on CSpan once and recorded some of his findings.  Here's a snippet:

 

Spoiler

Many of you have probably already seen this:

Spoiler

 

 

 

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The stock market is not the economy: 

Exhibit - "off the charts" (little blue line on the right margin of the chart).

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It's a little premature IMO, but it certainly looks like the wheels are in motion and they aren't going to stop.

Quote

For years, gold bugs were relegated to the fringes of financial markets. Often viewed by mainstream investors as tinfoil-hat conspiracists with basements full of beans and bottled water, their warnings sounded apocalyptic: a coming collapse in financial assets, widespread devaluation of paper money and global disasters that erode civil liberties.

Welcome to 2020.

As the coronavirus brings economies around the world to a standstill, gold is rivaling Treasuries and the dollar as the best-performing major asset this year. The metal proved its haven status with a 6% rally as almost $16 trillion was wiped off global stock markets and oil plunged.

There’s also been a scramble for physical metal as investors in exchange-traded funds build the biggest stockpile in history and dealers say they’re struggling to find gold to sell.
...
There’s echoes of many of the typical gold bug predictions in today’s crisis. Besides the obvious economic and financial-market upheaval, social interaction has become taboo and in some places soldiers are telling people not to leave their homes.

Even the so-called paper market for gold is showing cracks and a squeeze last month on New York’s Comex, the largest gold futures exchange, added fuel to another of the prophecies: that when the crisis came, there wouldn’t be enough gold to go around.
...

https://www.bloomberg.com/news/articles/2020-04-03/gold-bugs-finally-see-their-predictions-of-doom-coming-true

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On 4/4/2020 at 5:55 AM, bernorange said:

It's a little premature IMO, but it certainly looks like the wheels are in motion and they aren't going to stop.

https://www.bloomberg.com/news/articles/2020-04-03/gold-bugs-finally-see-their-predictions-of-doom-coming-true

I bet people who made fun of Texas for the gold reserve are thinking how smart it looks now. 

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FT calling for BOE to directly finance government. MMT is becoming the new normal. 

Quote

The FT is continuing to face reality as it considers what to do in the face of the coronavirus crisis. It has an editorial today that concludes:

The scale of today’s downturn means even the most direct monetary financing, such as “helicopter money”, or handing cash to the public, should remain an option.

That’s pretty radical, and I rather strongly suspect suggests that this editorial reflects the views of Martin Wolf, who has always had sympathy with helicopter money, when I have had my doubts, believing it for government to manage our social safety net.

Rather more importantly, they go out of their way to make clear that they support direct monetary funding (DMF) of the government by its central bank. As they say:

There is no clear distinction between quantitative easing and monetary financing.

They clarify this by suggesting that the only obvious difference is whether unwinding is possible, or not. But as they then note, the original national ‘debt’ of 1694 was not unwound. Nor has any UK QE been unwound, and the idea that very much of that now in existence in the world might be unwound  is now ludicrous: the capacity to do so simply does not exist. Most QE is DMF already.

 

https://www.taxresearch.org.uk/Blog/2020/04/07/the-ft-says-its-time-for-the-bank-of-england-to-start-direct-funding-of-the-government-modern-monetary-theory-has-won-the-day/

 

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Careful what you wish for WPH.  It's not a problem until it is, and then it's too fucking late.

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Another $2T stimulus in the pipe, because why not?  The next politician that asks "Well, how are we going to pay for that?" about anything should be shot on the spot.

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As investors rush to cash during these very uncertain times, Bridgewater Associates' Ray Dalio reminded everyone during his Reddit Ask Me Anything event Tuesday that cash is still “trash” relative to assets like gold.

One of the more popular questions the founder of Bridgewater Associates was asked Tuesday was this one — “A few months ago you said cash is trash. But now cash is king. What gives?”

Dalio was very happy to clarify his answer, noting that his opinion has not changed even after the COVID-19 outbreak hit the financial markets hard all across the board.

“When the virus hit and it had its negative impact on earnings and balance sheets, asset values plummeted which made cash look comparatively attractive. However, what did the central banks do? They created a ton more cash,” he said.

“When you think about what assets are safe to own, and you think of cash, please remember that while it doesn't move around in value as much as other assets, there is a costly negative return to it in relation to goods and services and other financial assets that amounts to about a couple of percent a year, which adds up,” he continued.

Dalio sees value in assets like gold and stocks: “I still think that cash is trash relative to other alternatives, particularly those that will retain their value or increase their value during reflationary periods (e.g., some gold and some stocks),” he said.

The U.S. dollar is regarded as the world’s reserve currency, which is why the U.S. government is able to provide money and credit, Dalio explained when answering a question about the current market environment.

“While the U.S. accounts for about 20% of the world economy, the U.S. dollar accounts for about 70% of the world's buying, selling, borrowing, and lending … I believe that increasingly there will be questions by bondholders who are receiving negative real and nominal interest rates while there is a lot of printing of money about whether the debt assets they are holding are good storeholds of wealth. I believe that cash, which is non-interest-bearing money, will not be the safest asset to hold,” he said.

The COVID-19 crisis has been boosting the U.S. dollar as “the world desperately needs dollars,” Dalio added, noting that this renewed greenback strength will not last.

“Having the world's printing press to produce the world's currency is the equivalent of having the world's most important asset, especially in times when so many people need the world's money. So, we are now having a short squeeze on the dollar,” he said. “Eventually, that will end because either that shortage of dollars will be satisfied by enough creation of dollars or it won't be satisfied in which case there will be debt defaults and restructurings that will reduce the need for dollars. When that happens, the dollar will weaken. It will also weaken when those who are holding dollar-denominated debt no longer want to hold that debt because interest rates are inadequate and so much dollar-denominated debt and money is being created that its value is undermined.”
...

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https://www.kitco.com/news/2020-04-08/-Cash-is-king-Ray-Dalio-doubles-down-on-cash-is-trash-relative-to-gold-during-Reddit-AMA.html

We are in the eye of the hurricane.  Things seem calm.  The consequences of money printer going brrr won't be realized until we hit the backside of the storm.

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On 4/7/2020 at 8:04 PM, bernorange said:

Careful what you wish for WPH.  It's not a problem until it is, and then it's too fucking late.

I hear you. But we have crossed that bridge already - have we not?

“The entire foundation of the budget process is built on an illusion of control." - James Galbraith

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Cross posting for CR talk....Republican looking to intentionally default on our debt.

 

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...
What, meanwhile, does gold tell us about the stock market? I am not a fan of returning to the gold standard, but it is undeniable that the decision by President Richard Nixon to break that link in 1971 had a profound effect on what followed. If we regard gold as the continuing true measure of monetary stability, it suggests that stock markets’ gains in the almost 50 years since are almost entirely due to “money illusion,” or the erosion of the dollar’s buying power. The following chart shows the value of the S&P 500 in dollar terms, and the ratio of the S&P 500 to the gold price, both set to 100 when Nixon left the post-war Bretton Woods agreement:

spacer.png

In gold terms, the stock market was higher than in 1971 for a few years around the top of the dot-com bubble, and again for a few months at the top of the latest bull market. It is now almost 30% below where it was in 1971.

To be clear, stocks would still have been a better investment than gold in 1971, because these numbers don't include reinvested dividends. But this exercise suggests that stocks’ function as a store of value is largely an artifact of the dollar. The higher gold price also suggests that confidence in the dollar is waning.
...

https://www.bloomberg.com/opinion/articles/2020-04-15/gold-still-shines-50-years-after-nixon-will-netflix

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On 4/10/2020 at 8:39 AM, LABEVO said:

Cross posting for CR talk....Republican looking to intentionally default on our debt.

 

Graham is an idoit. Defaulting on a debt would be economic suicide for the United States.

We can spend trillions because the United States always pays its debts. 

Want to hurt China? Bring manufacturing back to the United States. 

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'The Fed Can't Print Gold,' Bank of America Says

Apr 21, 2020 2:59PM EDT

Bank of America’s analysts also make the case for three senior gold miners.

Bank of America’s strategists see gold hitting $1,800 an ounce in 18 months.

Gold’s not having a good day—but that hasn’t stopped Bank of America for upping its target on the precious metal to $3000.

Everyone has their reason for liking gold. Some like gold as an inflation hedge. Others like it as protection against increased uncertainty. Still others want to own it in case they have to flee their home country in the middle of the night, even if that seems a bit extreme. And right now people want to own gold.

Gold’s recent run began back at the end of September 2018, when the precious metal was trading at $1,465.70. Since then, it’s gained 15% to $1,689.60 And if Bank of America’s Michael Widmer and team are right, the precious metal is heading a lot higher. Like 78% higher, to $3,000. The reason? “The Fed can’t print gold.”

Widmer expects rates to be low in the U.S. and the rest of the world for a very long time as central banks try to boost GDP growth and inflation. They’ll also be increasing the size of their balance sheets, while government deficits balloon. “Another important point to remember is that, just as central banks are socializing risk in financial markets, governments are increasing their spending like never before during peacetime,” he writes. “Investment demand has correlated strongly with gold prices in recent years, and we expect precisely this group of buyers to drive gold prices higher.”

Is it going to be a straight line? Absolutely not. Gold will have to wrestle with a strong U.S. dollar and reduced demand from places like India and China. That shouldn’t stop gold from hitting $3,000 fin 18 months, Widmer writes.

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On 4/21/2020 at 9:13 PM, workswithseed said:

I guess I should buy gold. Checks bank account..... Okay, silver it is.

 

Gold has crazy mark-ups right now, but the premiums on silver are batshit rabbit-boiling insane. It looks low at $15 and change, but good luck finding even generic stuff at less than 18.50 unless you are running a pawn shop. I guess people are buying it thinking it'll go to 30/oz again. I read that half of the mined silver gets used up every year in industry, so I don't expect it to come roaring back with the whole world shut down..

I mean, hell, snag a few ounces, maybe it'll jump up and stay up. If it doesn't, use my rationale-- sure, it dropped 20% since I bought it years ago, but that's 80% of my would-be beer money that I still have in my wallet instead of around my gut.

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52 minutes ago, RDCanecutter said:

Gold has crazy mark-ups right now, but the premiums on silver are batshit rabbit-boiling insane. It looks low at $15 and change, but good luck finding even generic stuff at less than 18.50 unless you are running a pawn shop. I guess people are buying it thinking it'll go to 30/oz again. I read that half of the mined silver gets used up every year in industry, so I don't expect it to come roaring back with the whole world shut down..

I mean, hell, snag a few ounces, maybe it'll jump up and stay up. If it doesn't, use my rationale-- sure, it dropped 20% since I bought it years ago, but that's 80% of my would-be beer money that I still have in my wallet instead of around my gut.

Hey, silver is prettier than beer, but beer tastes better. 

I'd love to buy gold, and I might since work is actually starting to pick up again which means precious over time. I live in Oregon, so I'm also just thinking of going panning in one of the rivers for gold.

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44 minutes ago, RDCanecutter said:

... I read that half of the mined silver gets used up every year in industry, so ...

FWIW, some of the world's largest silver mines are shut down right now - something like 40% of global production is shut down.

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4 minutes ago, workswithseed said:

Hey, silver is prettier than beer, but beer tastes better. 

I'd love to buy gold, and I might since work is actually starting to pick up again which means precious over time. I live in Oregon, so I'm also just thinking of going panning in one of the rivers for gold.

The best gold price I found recently were old 90% gold Mexican Pesos, Provident Metals has the least-insane markups I've found. Still not cheap, but not a total gouge. Probably some other fair deals out there with older stuff like 20 Francs and British Sovereigns so long as you don't get sucked into "numismatic" values-- buy-back price is usually purely the gold weight. Spend lots of time reading up before you buy anything-- there are traps for the unwary.

Got a buddy who pans for gold. He has fun, and once in a blue moon finds a little nugget that maybe pays for his gas. It's like fishing, minus all the guts.

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Deflationary headwinds increasing - similar to 2007-08 - despite trillions in liquidity provided to the most wealthy. 

Perhaps the trillions were given to the wrong people - again. 

Look for credit lines for the middle and working class to be cut, as they were in 2007-08, which intensified trend towards deflation in the Great Recession and expect the same in 2020. 

Printing has no inflationary effect when those with liquidity don't want to spend (if you have billions, your needs are already met). 

The real economy is in desperate need of inflationary boosters to slow the speed of the deflationary effect from the loss of income (no ability to buy = deflation/recession/depression).

Main Street - not Wall Street - spends, which increases demand and productivity. 

Wrong Fed Chief, Wrong Economic Policy, and Wrong Leadership in Both Parties. 

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No question that commodities(including silver to an extent), real estate, etc. are going to go through a deflationary period. It also appears the USD is strengthening relative to all other fiat, but all currencies will weaken against gold. As we become “Japanified” I expect similar price action as we’ve seen in XAU/JPY since the GFC.

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mpu


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