Quick update

Been doing some more research on fed. Once I get some sleep, I will put it together.

I am now working on it and will be done in four or five hours.

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20 Responses to Quick update

  1. Your web site is excellent. I now visit it several times a day.

    Why is the price of gold not yet skyrocketing?

  2. Anonymous says:

    "Why is the price of gold not yet skyrocketing?"

    I'll let Greenspan answer that:

    “Central banks stand ready to lease gold in increasing quantities should the price rise..”

    It's being suppressed. How long they'll be able to play this game is anyone's guess.

  3. Anonymous says:

    But why they suppress it? Why care?

    Is it because the big governments fear that gold will reflect a constant in comparison with the real purchasing power of fiat currencies?

    Are they are in fear that every long-term investor will invest in Gold instead of treasuries, gilts or Bundesanleihen? or not put their money in already-fucked up retirement plans?

  4. Hugo says:

    Are they are in fear that every long-term investor will invest in Gold instead of treasuries, gilts or Bundesanleihen? or not put their money in already-fucked up retirement plans?

    Exactly. If people has no place where to put their money they will have to put it into their rigged system.

    Btw, not for long. Look at this just came out: NYSE runs out of gold : http://seekingalpha.com/article/128150-nyse-runs-out-of-gold-bars-what-happens-next?source=feed

  5. Anonymous says:

    @hugo

    Thanks for the reply. I involved myself only shortly in the whole topic, but up to now my outlook becomes a little bit unshure, especially because in can't judge the timing of the unfolding. But one example made the case for me:

    a) Get a 100$ or 100 Euro Bill, travel 100 years into the future and try to buy something with it.
    b) now do the same with Gold.

  6. Anonymous says:

    Watching the news of week past it seems ("despite the fundamentals") the dollar is going to keep its strength against other currencies.

    FED can print as many dollars as it decides and the rest of the world will stick on it. They also have unlimited power to hold gold's price down (since they have unlimited money supply to buy it if needed).

    European government watching the US is trying to keep currency ratio, so other countries have no choice and will follow, so US$ is winner again.

    All of that because Chinese "decided" to be vassals of the US forever and they are going to work hard till their death on several dollars wage for US consumers.

  7. Martijn says:

    Come on boys, think a bit broader than just wondering why gold is not trough the roof yet and that Chinese are dumb.
    Do you really believe you guys are the only ones seeing those things?
    China is not going to work itself to death, but the rather waited for a strategic moment to increase their power. In the past the US was a rather forceful opponenet to counter.
    As for gold: it has risen a quite a lot recently and in comparised almost all other commodities are fairly cheap. So it is very possible that investors rather buy cheap commodities than gold at the moment.

  8. Numonic says:

    Borrowing Costs for Small Gold Miners Triples, World Bank Says

    http://www.bloomberg.com/apps/news?pid=20601012&sid;=am5F_2JVPHSM

    Doesn't matter how hard China works and produces, don't you understand that the debt deleveraging is more than the worlds production many times over. We can't produce our way out of this and we can only print our way out of this with Zimbabwe size trillion dollar bills. The Fed will see defaults unless it creates trillion dollar bills. The Fed wants to delay defaults because default is death for the banking system so be prepared to see trillion dollar Federal Reserve Notes just like Weimer and Zimbabwe. It won't happen untill we need it. We'll need it when we realize we can't print $100 bills fast enough to stop defaults. And from there larger bills will be created. The time span of the growth of larger bills from $100 bills to $1,000,000,000,000 bills will be short. The need to print these large bills will be when we take a big credit hit, a big bank going under which will definitely happen before this year is over. Look to see these larger Federal Reserve Note bills before the year is over also watch how even with these large bills credit will continue contracting and prices on things not debt rise, why? not because we have created more base money and larger bills but because all that new money did nothing to stop the credit contraction and credit will still be contracting causing borrowing costs to rise exponentially and be passed on to consumers. The wheelbarrows of money people will be moving around won't be from loans, it will be from their deposited savings accounts. Loans will be scarce. There will be no loans. Savings accounts will be wiped out through defaults caused by the credit contraction and bank runs caused by people who fear loosing their money from bankruptcy and people who have to empty their savings accounts to by food and things. We face rising prices, no loans and, bank runs.

  9. Anonymous says:

    Read:

    http://market-ticker.org/archives/689-Where-We-Are,-Where-Were-Heading-2009.html

    for a goot argued outlook on 2009 (done at the end of 2008). Seems quite sensible.

  10. Numonic says:

    Anonymous,

    I read that market-ticker.org site you just posted and there is one problem.

    The guy has all these pieces but can't put it together on why prices will rise.

    1. He says we've been consuming too much and have a lack of production for the past 20 years.

    2. He acknowledges that there is an ""inflection point" where the spiral tightens" = credit crunch = bank insolvency = shortage of currency.

    Put the two together. In order to continue the system of borrowing, even if is for productive purposes(ie. to by seeds) with the shortage of currency it will cost more to borrow that money and the severity of how much more it will cost to borrow that money is equal to the severity of the outstanding debt that is contracting. So as this credit contraction is going on this economy that has been doing practically nothing but consuming for decades and lacks production/savings will have to pay more to produce if they continue to use this debt based system. As it will cost more to borrow the money since it is so scarce. And the cost of borrowing that money will have to come from somewhere so whomever is borrowing it will have to raise prices to cover those borrowing costs.

    He also says:

    "The calls for "more lending" to consumers and businesses will go exactly nowhere. The problem isn't credit availability - there's plenty of money available to lend if you are credit-worthy. Those who are being turned down now simply aren't credit-worthy when one looks at what they want to do with the money and what they're backing their repayment capacity with. The more "credit stimulus" is thrown into the economy (and there will be more) the worse the downturn will get."

    I like how he says "there's plenty of money to lend, if you are credit-worthy". Credit-worthiness depends on how scarce the money is. The more scarce the money is the less credit-worthy people there are. And right now we have a major lack of credit-worthy people which means the money is very scarce.

    Also he should consider that if allot of people are getting turned down because of what they are backing their payment capacity with it means prices of what those people are selling are too low and that in order to be credit-worthy you have to be trusted to be pulling in allot more money than they lend you. That means you'd have to raise prices and have those prices met by paying customers. If that can't be done, then you'll be denied the loan because banks need more dollars and the dollars more as credit is contracting and dollars are rare. If dollars weren't rare, credit wouldn't be contracting and there would be more credit worthy people than non credit worthy people.

    So point is this credit contraction will lead to rising prices along with massive companies going out of business. The worse the credit contraction gets the more companies will go out of business and the more prices will have to rise and with every company that goes out of business, the less competition there will be for the remaining companies to raise prices and they therefore will raise prices.

  11. Anonymous says:

    @numonic

    Thanks for the well argued and extensive reply - I can follow your chain of though, but I don't agree with the inflation outlook, at least not in the short or intermediate term.

    The standard "literature" scenario is: economic/financial crisis, deflation due to contraction of money supply and consumer demand, then inflationary period and/or currency devaluation/cut and/or war (note: the scenario for a real crisis)

    Why?

    I time of crisis the outlook of most people and business is dire. People buy only essentials and shift larger investments to the future. The flow of money contracts, products have to get cheaper, people have to sell of their assets for less to raise living costs because also unemployment rises. This is deflation (+depression).

    Deflation does not follow, that certain prices do not rise (especially energy, food) but all unessential products (the most) and assets (also Gold) will depreciate and wages will fall. The money is still there, but one one comes forward to spend it and no one comes forward to lend the moneys for a interest rate that is recoverable in most asset based or business activities.

    The one thing that can break the whole deflation game is that a) the debt gets defaulted out of the system or b) the government pumps tremendous "printed" money into the economic cycle and give everyone a free lunch. Since I believe in TANSTAAFL only b) will or can lead to real high inflation or hyperinflation.

    Unfortunately the governments in the world will not allow the default of the "bad" banks. I will not speculate on this long, but if you only read the court proceedings against Deutsche Bank and Commerzbank after the 2nd World War you get sick. I don't think I will be better with other major banks in the world (remember the scandal with Swiss banks and Nazi gold?). The power of the big banks, whatever role and power they have, is the uncertain element in the calculation I can't put a number on. My guess is: Get the liquidity you can, go into deflationary depression and then buy real assets / shares before it gets better.

    Can you follow my arguments, or am I off somewhere?

  12. Numonic says:

    You're off in the same point most people are off on. The false idea is that government printing/bailouts is what will cause prices to rise. Another false idea is that this credit contraction is happening because of "bad/toxic debt" and NOT "too much debt". There is no such thing as "bad/toxic debt" in a ponzi scheme economy, there is only "too much debt". Another false idea is that the ONLY way for prices to rise is for that money to be lent out and circulate the economy by way of the consumer. It is true that as money is lent out and circulating the economy, that money is eating up supply therefore causing prices to rise BUT and this is the big "BUT" everyone misses, in the case we have today with this enormous debt deleveraging (over $1 quadrillion across the globe) this debt deleveraging acts as demand eating up supply just as easy credit to consumers did, except worse.

    It's like you have supply and 2 bidders. 1 bidder is the consumer and the other bidder is the debt. Now although the consumer isn't buying like he used to because of a lack of credit, the debt is doing the buying the consumer is no longer doing and to a greater scale, eating up supply more than the consumer can or did when credit was easy. Why? Although we humans have a stomach and a limit of how much we can consume, debt doesn't. Debt can eat up a whole planet many times over, we humans can't. Because the debt is over $1 quadrillion many times more than the price of all the products in the world and that debt is deleveraging, meaning it is buying up that supply. If you notice, every plan the govt. has had since the start of this credit crunch has been increasing the amount of money being printed. From the first bailouts, to the ZIRP to now Quantitative Easing and the credit crunch has only been getting worse. And NO the credit crunch hasn't been getting worse because of this actions of printing more and more money, it's been getting worse because of the debt deleveraging, because there hasn't been ENOUGH money being printed to slow or stop the credit contraction.

    If these programs and actions did not take place the credit market would have completely frozen and collapsed by now. These actions by the govt. are slowing that process. It won't stop it, only slow it down. The credit market will continue to contract and there will come a point where Quantitative Easing with a $100 bill cap will not be enough to slow the contraction and then you will see the anouncement of larger bills being created and implimented in this Quantitative Easing. These larger bills will NOT be the reason prices will rise, the credit contraction will be the reason. See if we didn't do these bailouts and let the credit contraction continue unabated, there would be massive defaults. The more defaults there are, the more the remaining lenders will be unable and unwilling to lend.

    I asked the question before: If I wanted to borrow money from you and you needed that money badly to pay off your own debts and you knew there was a great chance of me loosing that money and not paying it back wouldn't you charge me more to borrow that money? That is what these bailouts are trying to avoid. If these bailouts were not in place borrowing costs would be through the roof, and although credit is still going on, it is harder and more costly to get and it will get harder and more costly as there is so much more money contracting than there is money being printed. This is the point it's going to act as a bidding war between the consumer and the debt deleveraging. The debt deleveraging is allot more money than the business is asking the consumer to spend and the debt deleveraging will win the bidding war for the supply of the product. So borrowing costs will rise and if the company wants to stay in business the consumer is going to have to out bid what the lender is charging. Since money is very scarce because of the 1 quadrillion dollars deleveraging(more than the price of all the worlds products put together), the lender will charge allot of money(out bidding the consumer) and the lender will own and consume that business. If the owner of the business wants to keep that business the consumer will have to out bid the lender, that means the business owner will have to charge the consumer more and also have that higher price met by paying consumers. If that higher price can not be met, that business man will loose that business to the lender(debt). And being that wages are so low and that we don't make anywhere near the amount of money to out bid the lender (which is this humungous over $1 quadrillion debt deleveraging) even if all consumer money was concentrated to one place it wouldn't be enough to out bid the lender(debt)/stop the credit contraction. That does not mean businesses will wait to raise prices until it sees that the people are capable of meeting those prices. Prices will rise because there are still people out there now who can afford non-neccessities. These people give businesses room to raise prices as they see a market still out there, although not enough to out bid the lender entirely but enough to raise prices to stay in business a little longer. These people who can still afford non-neccessities will be reduced to people who can only afford neccessities and that will happen through rising prices. Bussinesses will do it as a means of maintaining their business. As this happens more people will be poorer and will look to put their remaining money in something that is durable and in short supply relative to the debt(gold and silver). Silver will outperform Gold as there will be more poor people. I believe that before this year is over, the credit crunch will have gotten so bad that borrowing costs will go through the roof promting businesses to raise prices to tap in to these remaining people that can still afford non-neccessities just so that they can stay in business a little longer. The goverment will try to counter act this by printing larger bills to plug the hole of this humungous credit contraction that is out bidding the consumer. Many people will blame the higher prices on the govt. printing larger bills not realizing that those larger bills are attempts to ease the credit contraction which is what is causing business to raise prices.

  13. Anonymous says:

    Numonic,

    great essay.
    One thing, concerning all the deleveraging debt, as monies are repayed... surely money is available to be lent out again??
    Therefore no credit crunch.
    But instead inflation. Possibly in spades.

    I do feel in general discussions on this blog (and others like it) that we are missing the elephant in the room, an elephant that we saw a year ago, but have since forgotten / tended to ignore.
    The elephant is that RESOURCE demand has hit or is dangerously near the limit of production. I am talking about oil and food particularly (not playstations or FIAT money).

    Farmer John

  14. Numonic says:

    By the time monies are repayed we'll have trillion dollar federal reserve notes flooding the streets because that's the only way we'll be able to stop defaults from this credit contraction.

    Note: Default is death to the Banking System and with the amount of debt deleveraging we face massive defaults unless we plug the hole.

    I don't know if you know but it's hundreds of trillions of dollars deleveraging. Have we printed anywhere near that much yet? nope. Can we print $100 bills faster than the credit contraction can remove $100's from the money supply? nope.

    Default is imminent without larger bills being printed.

    Lending or no lending expect rising prices. If lending returns expect rising prices through consumer spending. If lending doesn't return expect rising prices through rising borrowing costs.

    Rising prices is death to the currency and death to the currency is death to the system.

    So all this printing is doing is trying to stall the banking system's death.

    The idea of giving someone else your money to hold and expecting it back will be gone.

    I'm not that religious but the Bible says "lend expecting nothing in return".

  15. Numonic says:

    Ironically the reason the dollar is still strong is because of all this new money they are printing. I know that sounds crazy but the more they print to stop this credit contraction the stronger the dollar will get. The less they can do to stop this credit contraction the weaker the dollar will get as borrowing costs rise and are passed on to consumers giving the dollar less value. If they print too much, prices will rise through consumer lending/spending. But we shouldn't worry about that because the printing presses are not capable of printing too much as the the debt deleveraging is so large and eats up the money supply faster than the printing presses can replace that missing money. If they print too little prices will rise. They are trying to keep up with the deleveraging to keep this banking system going as long as it can but the deleveraging will pick up pace and larger bills will have to be created so as to not fall in the "printing too little" category which would cause prices to rise and the value of the dollar to drop. The printing press will lose the race against the deleveraging unless larger bills are created.

  16. Numonic says:

    One last analogy. Our monetary system is like our solar system. We survive on earth because we are neither too close to the sun nor too far from the sun. In the same way our currency survives when there is a balance between the currency and the debt for the currency. If there are too many dollars in relation to debt, prices will rise(through consumer spending) and this will hurt the currency and if there is too little dollars in relation to debt prices will rise(through borrowing costs) and this will hurt the currency. Keeping the currency strong is vital to the system as the system can not work with a currency that is hard to produce. And the move to a currency that is hard to produce by the people will be the result if we can not maintain this balance of debt and dollars. It's obvious we can not maintain this balance as the fed and govt. is doing everything in it's power to fix this imbalance and failing as credit is still too tight even though the fed and the govt are doing everything they can to untighten it, infact it's only getting tighter. Proof that what the govt. is doing is only postponing the credit collapse/default.

  17. Anonymous says:

    @numonic

    Thanks for your additional answers to my question.

    I still can follow you, but unfortunately can't see it. Point one is, why hasn't this happened before in other depression or recessions? Was the debt ratio still to low? Also I can understand Weimar, Zimbabwe, etc. since the debt was nominated in foreign currencies, but this is not the case related to the U.S.

    Following what you say, a reasoning that I read the first time in all the weeks of search, whatever outcome is inflation?!?! Unfortunately even the critical and outspoken people that forecast the same result, never explain their reasoning mechanics... so its mostly worthless.

    Can you give me any past examples or more references / backgrounds on your reasoning?

  18. Numonic says:

    So funny you ask that, check out Eric's latest blogs about reserve requirements. Yes the debt to dollar ratio was never as large before as it is now.

    I'll explain more later too.

  19. Anonymous says:

    @numonic,

    I'll hope you post you additional comments to this blog article.

    To summarize what you say in my words:
    a)In case the bad debt is not cleared out of the system (i.e. by heavy defaults), borrowing money must get so expensive, that the borrowing cost have to be passed to the consumer, if they like it or not.
    b) Because this affects most companies / corporations, as they are often in debt, all the products of "indebted industries" will raise without any competition for downward pricing.
    c) Since especially high interest rate compound them self even faster, the pricing spiral upwards is not avoidable.
    d) Looking to Weimar it starts slow but then the compounding/exponential factor kicks in.
    e) Only solution is the writedown of the debt with large collapses - not nice, but inevitable.

    Is that what your reasoning is about?

    Additional question: What do you think about the Euro zone? Also high debt, but not as high as the U.S. But the banking institutions of the EU and also the Swiss are highly leveraged, even more than the U.S. ones.

  20. Numonic says:

    "a)In case the bad debt is not cleared out of the system (i.e. by heavy defaults), borrowing money must get so expensive, that the borrowing cost have to be passed to the consumer, if they like it or not."

    First of all there is no such thing as "bad" debt, there is only "too much" debt and "too little" debt. "Too little debt" is when we have the boom and "too much debt" is when we have the bust. In order to maintain the system the government had to maintain the right balance between the amount of paper money in existence and the amount of debt in relation to that debt. During the boom the govt. should have raised rates to slow down the expansion of debt but they didn't. The reason they didn't is because it would give the image of insolvency and more and more people would be cautious of whether some banks were solvent or not and that would be like a self fulfilling prophecy causing people to not trust each other to hold their money, exacerbating the credit crunch when all they wanted to do was slow the expansion of debt a little. So the govt. feared raising rates and curbing credit as it would give the image of insolvency and imminent default. Being that Default is death to the system, there is no solution for too much debt because if the govt. tries to raise rates there would be massive defaults and the system would implode. Ask yourself, if you had money and everyone around you was defaulting on their debt wouldn't you be more cautious of lending that money out? Wouldn't you charge more to lend it out because of the increased risk. So since the inception of this banking system they have been trying to avoid defaults or the image that defaults were likely as that image itself might cause people to think defaults were a probability and from there like a self fulfilling prophecy restrict lending and cause defaults. So what did they do to counter this image, they increased loans. They made loans easy so they can say "See, we are solvent. We have allot of money, we can give money away for free" Unfortunately for the banking system, too much debt eventually ends as the currency is stretched to thin as it can not be printed and transported as fast as credit which is digital and moves through wires and is created in a fraction of the time it would take to create the dollar equivalent in physical dollars. And credit can not move further if there is nothing tangible backing it(even if the tangible asset is a piece of paper). So now not only is there the image of default as credit tightens but defaults are happening. Meanwhile, the govt. and Fed is doing everything in their power to create as much more physical paper currency(Fed Notes) as they can. We have exhausted every avenue increasing the printing of Fed Notes (we have a Zero Interest Rate Policy and Quantitative Easing which is printing Fed Notes as fast as and as much as possible). The only thing left that the Fed can do to increase the printing is create larger bills. The fact that the govt. has exhausted every avenue of increasing the printing of Fed Notes and we are still having a credit contraction is proof that the Fed has lost control and this credit contraction can't be stopped, maybe not even with larger bills but that is the last avenue and if they take that avenue it will make the credit contraction worse because it will expose how severe the credit contraction really is and no one will be lending. You see, the system is screwed from both sides. The more the govt. does to try to stop this credit contraction(and i remind you we have already taken unprecedented measures and have tapped every avenue) the more people are cautious about lending as the govt.'s actions expose how severe this credit contraction is(that everyone is insolvent). And we can't go the other way(with defaults) because the more people default, the more it is exposed how insolvent everyone is and no one will lend if they see everyone around them defaulting. They'll have little faith that when they lend the money out they'll get it back, so either they won't lend or they'll charge a hefty fee for the loan. Massive defaults will be the death of the system and these unprecedented actions by the govt. is exposing how severe the credit contraction really is and is only exacerbating the credit contraction as not only are there people who are insolvent not lending because they can't but even those who are lucky to have cash are not lending because there is less assurance that they will get that money back. As I said before prices will rise because there are still people out there who can afford non-neccesities. And in order for these compnaies to stay in business, they have to get all the money they can because of this credit crunch. So they will tap in to those people who can still afford non-neccesities reducing them to people who can only afford neccessities. After that they will default and go out of business because even if you took every Federal Reserve Note in existance and threw it in the hole of this debt it would do nothing. the debt will still be there. After those who can still afford non-neccessities are reduced to people who can only afford necessities, the dollar will die as there would be no way to repay the debt. And from here people will be using gold and silver, as people will be well in to using it as prices rose to high priced in dollars. So we'll move from using dollars(which is now) to using both dollars and precious metals(which will be when prices rise too high) to using only precious metals(Which will be when the people with the most Fed Notes(the billionaires) are reduced to people who can only afford necessities).

    P.S. As far as Writedowns, I don't think there's that many people willing to give up their bank accounts. Considering the size of the debt(over 1 quadrillion dollars), it would have to be the whole world in unison saying "OK you can clean out my bank account". That is not likely at all. I know I wouldn't do it. I worked hard for my money. And even if that did happen it would still have the same effect as defaulting on all those debts. And I just explained to you the effects of defaulting.

    The game is over buy silver and gold now while it's cheap, it won't be by the end of this year.

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