How the Treasury Bubble Will Burst and Why 67 comments
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WINTER INTENSIFIES
The deflationary credit contraction, or as some call a Kondratieff Winter, is intensifying. For the time being the worldwide financial and monetary systems have taken a step back from complete oblivion. The usual measurements such as the TED spread, three-month LIBOR and the two year swap spread have shown improvement. This improvement should not be mistaken for a miraculous healing because the fiat currency fractional reserve banking system is terminal. Eventually it will be replaced by a commodity currency with 100% reserves and no counter-party risk.
The system does not so much collapse as evaporate and these measurements only show a decline in the rate of the evaporation. For the most part the financial crisis of 2008 only affected Wall Street. 2009 will be the beginning of Main Street being affected. With unemployment at 17.5%, according to John Williams of ShadowStats, the Greater Depression has arrived and only begun.
U.S. TREASURIES ARE THE BIGGEST BUBBLE OF ALL
A few weeks ago I explained why U.S. Treasuries are the Biggest Bubble of All. In summary, gold is the ‘risk-free asset’ and the normal and natural way for money and currency to function is with gold and silver or some other physical commodity. This allows for useful and accurate value calculation instead of the current derivative illusion. Financial historians may very well view the 95 year FRN$ bubble as an unusual anomaly and wonder how so many people were so ignorant, much like we view the culture who thought the earth was flat or that the sun revolved around the earth.
Currently as evidenced in the M1 Money Multiplier the velocity of the FRN$ is slowing tremendously. As Ludwig von Mises predicted decades ago in chapter 20 of Human Action, ‘The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. … But then finally the masses wake up. … A breakdown occurs. The crack-up boom appears.’ Which begs the question:
HOW AND WHY THE U.S. TREASURY BUBBLE WILL BURST
As long as the U.S. can pay and issue debt, the currency event of hyperinflation cannot happen. Because the U.S. has no internal savings, the debt must be absorbed by foreigners. When foreign demand for U.S. debt subsides then at least two scenarios can happen: (1) printing the money with hyperinflation or (2) a default which may not result in hyperinflation. But what I want to do is focus on the liquidity pyramid.
Seeking safety and liquidity capital has moved from derivatives to real estate to commodities to MUNI bonds to listed stocks to Treasury bills to gold and all the assets either financial or tangible in between. The liquidity pyramid is not set in stone but mainly a large scale roadmap. Most assets can easily be placed in the liquidity pyramid somewhere.
At all times and in all circumstances gold remains money. Therefore, the Ancient Metal of Kings belongs at the very tip of the pyramid. Gold has been and is in tight supply because holders of capital do not want counter-party or custodial risk. Finding a trusted third party, like GoldMoney, to hold one’s bullion in a proper way is extremely hard. As a result, spreads on both coins and bars have risen significantly. People want physical possession of the ’sweat of the sun’ and not ‘paper gold’ like the problematic GLD or SLV ETFs.
COUNTER-PARTY AND CUSTODIAL RISK
An essential element of counter-party risk is the reliance on the financial ability of the counter-party. For example, if your house burns down then receiving proceeds to rebuild the house is contingent upon the insurance company’s financial ability to pay. By contrast, if you drop off a suit at the dry cleaners and they go bankrupt then you get your suit back and do not get in line with the other creditors because the suit was held in bailment.
As counter-party risk increases, holders of capital develop more suspicion of their brokers, custodian banks and on through the food chain. As holders of capital seek safety and liquidity they decrease the layers of risk between them and their purchasing power.
WHY TREASURY BILLS WILL BURST
People run to Treasury Bills seeking safety and liquidity because they are lower in the liquidity pyramid. However, as more capital piles into them it drives rates lower and lower. Eventually Treasury Bill rates reach 0% or even go negative. This presents a problem.
Why hold a Treasury Bill with a bank, broker, custodian bank or the Federal Reserve itself when you could take possession of physical Federal Reserve Notes?
Taking possession eliminates at least two types of risks. First, is any potential counter-party risk with whoever is holding the Treasury Bill for you. Second, ‘political risk’ which is a much larger threat. For example, what if the Treasury Bills cannot be rolled over? What if the government does not redeem the Treasury Bills? What if the government, like other governments have done, decides to transmute the Treasury Bills into 1-2% perpetual bonds?
HOW TREASURY BILLS WILL BURST
As the yields on Treasury Bills approach 0% they have the return of cash but do not have the benefits of cash as they may be impregnated with counter-party risk or have decreased liquidity. In other words, Treasury Bills and cash have the same benefit profile but not the same safety and liquidity profile. This analysis also applies to demand deposits with the bank such as checking accounts or CDs. All the downside but none of the upside.
Holders of capital seek to eliminate their downside while maintaining the same upside resulting in less demand for government debt. To entice capital up the liquidity pyramid, rates must rise but cannot because so much capital is moving down the pyramid. To date, enticements up the pyramid have failed as MBS, Auction Rates Securities, ABCP, the DOW, S&P 500, etc. all show as asset price deflation continues and intensifies.
When a house of cards collapses there are at least cards left on the table. In the current case, there are no cards left on the table. As we see, the current system is not collapsing but evaporating.
CONCLUSION
The deflationary credit contraction is intensifying. Holders of capital seeking safety and liquidity have driven down yields on Treasury Bills. Treasury Bills have the same upside as physical Federal Reserve Notes but additional downside. As holders of capital seek to eliminate the downside for which they are not being adequately compensated demand for government debt will decline. For these reasons the U.S. Treasury Bubble is destined to burst.
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This article has 67 comments:
'Fed May Purchase Treasuries in Days to Ease Credit, UBS Says'
This act will be seen historically as 'crossing the Rubicon' in the truest sense. Monetizing Treasuries is a large and public admission that the US is broke and no longer creditworthy. Look for coordinated announcements and activity in Euroland, Britain and Japan to try to stem capital flight.
Finding it and buying it easily, without an excessive premium.
Potential for theft.
Potential loss of value in redemption.
Redemption...period.
If it looks like a barter scenario, due to a currency collapse, gold in any quantity may be a little diffficult to exchange, especially for the going 'market rate'.
Physical silver is more practical.
The guy at the gas station may not take a small piece of gold, but will probably take (real) silver coins without any big problem.
Buying a gold etf has a lot of risk. The rumor is that the amount of gold bullion actually being stored is less than what the fund says. If a real big withdrawal demand arises there may not be enough physical reserves to meet it.
In the end, yes, there will be some inflation and maybe a crash in bond prices, but I don't see it within a year.
but that is not to say that understanding this Kondratiev theory is not important.
Kondratiev waves was a theory documented in the Stalin days in the early 1920's. it was used to explain economic cycles which were approximately 50 years long. it just so happened that the great depression fell neatly into this theory. it did not however produce an extreme winter around 1980.
many people, myself included, believe we entered a negative economic cycle in 2000. Whether you would like to attribute this to Kondratiev cycles, or standard bull/bear economic cycles - it is not important. it is not debatable that we are in a bear economic cycle.
This Exter's inverse pyramid was created in the 1970's - and caution should be used in applying this to todays situation. The current risks to municipal bonds (for example), would put them pretty much at the top of this inverse pyramid.
you will not wake up one morning an discover that the usa government has defaulted. this will be a slow process. the signs will be on the table for a long time before it happens. this is one reason i believe treasuries should be owned inside of etf's where you can dump the etf at first sign of trouble. there are many more fears you should have about exposure to treasuries other than default. if a situation arrises that interest rates rise, your investment capital in the treasury will diminish.
in this kind of economic maelstrom, owning physical gold in the form of jewelry or coins is simply insurance. you do not buy health insurance because you know you will be sick - but because it is possible you could get sick. are you thinking you might be making money off of health insurance? gold can be viewed as an instrument of barter since it takes up little volume if your bank does not open.
and if you believe there is no problem with banks or the dollar, then you can ignore the need for gold.
Society won't completely collapse, it will just get more dreary for a while. In the meantime, you can exchange gold and silver for ever-increasing handfulls of paper money.
Get out of the bunker and get some sunshine. Smell the flowers! Things won't be as apocalyptic as you think.
you have to pay a commission to buy it
you have to pay by the month to have someone store it for you
you have to pay a commission to sell it.
i keep my gold in a safe deposit box but the bank is not open 24/7.
> jack
I hold both gold and silver bullion because in Canada there is no sales tax on bullion trade. It's simply as easy as owing a stack of $1,000 dollar bills in your safe. But bullion should only be there for your family and neighbours and all the other grasshoppers you need to help later. A better store of value is to keep - say 30 cases of wiskey in your basement and a pallet load or two of Costco beans and rice. Hunger will be more immediate and more painful than the loss of your paper dollars.
Let me ask you a question - if both your house and your neighbor's house were burning, what would you do? Would you leave your family to burn in your house while you go save your neighbors from their burning home? I think the answer is obvious.
On Jan 19 10:45 AM kurtieboy wrote:
> This whole article is based on the assumption that foreign demand
> for US Treasuries will dry up. That will not happen as there are
> no better alternatives for foreigners. That is the bottom line.
Since the govt (Fed) can print US dollars without limit, I see zero prospect that it would ever default on T-bills.
To me, Treasury bills = Federal Reserve Notes = US Dollars.
There is a US dollar bubble, and it will pop one of these days.
"Y'all should just remember that things haven't usually worked out well for those who bet against American economic power."
No doubt they were saying the same things just before the decline of the Roman and British empires.
In fact, the attitude you hold is at the heart of why the US is destined to decline economically. People in the US have had many decades of prosperity unprecedented in the history of mankind. This has led to a "manifest destiny" mentality, that we can build up an unlimited amount of debt, spend it on consumer goods, and the good times will just keep on rolling.
But, where are we now? We have an unprecedented load of government and personal debt, we have neglected to maintain our infrastructure, we have failed to prepare for the coming decline in fossil fuel supply, and our manufacturing base has dried up.
The notion that America will be economically strong because it has been in the past is the attitude that inevitably dominates a mighty empire just before its collapse.
The US has been blessed with such good fortune in the past, partially through hard work and partially through fortunate circumstances, that a psychology of invincibility has become prevalent in our society. The notion is that the US is special and not subject to the laws of physics or economics.
This is a dangerous delusion. And the economic downturn of 2008 I think has begun to wake Americans up to that fact.
A few thoughts on your comments. Using gold as a currency is actually in principle quite easy because physical gold can be wedded to modern technology of electronic funds transfer. People will be able to do gold-denominated transactions electronically.
However, it may be a ways off before such a system gets established on a widespread basis. (probably, it will gain steam after the dollar experiences substantial inflation for several years in a row)
However, gold does not have to be extremely liquid for it to be used as a form of savings. You would hold gold for the bulk of your savings, and deal with day to day consumer transactions with a smaller account of paper money. That way you only need to do an occasional gold transaction to replenish your paper money account.
(although-this does contradict the article author's contention that gold is the most liquid of all the forms of money, a point I am not inclined to agree with)
Also, the fact that gold is slightly more cumbersome than paper money is not much of a drawback for large entities that hold large monetary accounts such as governments, financial institutions, etc.
You indicate that interest rates on bonds will go up as more money is printed. To me, that would be great. If T-bills are dealt with by the US govt on a market system rather than being monetized, then yes interest rates will go up and it seems to me under those circumstances that the thing to do is to buy T-bills as the interest rates get substantial, and then they serve as an inflation-hedged investment without the hassle of gold.
However, I think that by monetizing T-bills the govt will be able to keep interest rates near zero. Eventually, no one will want T-bills except the Fed, which will crank out as much paper money as needed to sop up all the new T-bills.
So I sincerely doubt that T-bills will be a viable inflation-resistant investment in the forseeable future. But, hey, if interest rates on them do indeed go way up, then I would agree that they could become a good place to put one's money.
People decry gold bugs as beeing doomsters, but as the REAL doomsters have pointed out, if things get really bad, even gold will be worthless, since it has no intrinsic utility.
So the real doomers are those who say buy bullets and beans.
In my view, if things get as bad as they fear, even that strategy won't do much, it might buy you and extra few days or weeks of survival before you perish along with the rest of us. And, if the world gets that bad, I think it will be a world that will be so gruesome that we will welcome death.
I don't think it will get that bad, but the point is that under a worst-case scenario, no strategy is going to do you much good.
On Jan 19 11:03 AM Tony Daltorio wrote:
> What typical American arrogance and ignorance! There are much better
> alternatives than the USA. Most countries, thanks to Wall Street,
> have major economic problems of their own. Their money will stay
> at home and take care of their own people.
> Let me ask you a question - if both your house and your neighbor's
> house were burning, what would you do? Would you leave your family
> to burn in your house while you go save your neighbors from their
> burning home? I think the answer is obvious.
The anti-gold Credit crowd loves painting gold bugs in the apocalypse light, and the worst part is, IT WORKS! Nobody holding gold should ever hope for an apocalypse type of scenerio. It's a preserve of wealth from the things we know are possible, inflation and govermental abuse of currencies. Why is that such a controversial stance? Whoever designed the idea that gold owners were somehow backward thinking folks has done one helluva job convincing the media and modern economists.
A new currency will come out of this. One based on actual stuff and the dollar will loose its foreign reserve status. This will result in a INDIVIDUAL PURCHASING POWER decline for Americans until we can build up our productive capacity again to either provide for our needs domestically or trade internationally again in this new, yet to be defined currency.
Gold being a good store of value long term will maintain purchasing power in anything but the most apocolyptic environment in which case you should also have a store of REAL GOODS ie. food,clothes,personal hygiene products etc. These are measures of ACTUAL wealth, but due to their difficulty of storage, spoilage etc are not good LONG TERM mechanisms of wealth.
The most prudent strategy is storing dollars for existing fixed debt, gold for maintainence of CURRENT purchasing power for FUTURE use and hoarding goods and food staples that you would otherwise consume in the near term and in case the SHTF (which can be purchased rather cheaply currently.)
These are not investing strategies but insurance. Investments and speculations will be partaken with whatever purchasing power you're able to salvage from this global re-alignment.
It surprises me that otherwise sophisticated financial types do not realize a fundamental fact: Money is not arbitrary.
The issue with gold is like any other, supply and demand.
China, India and Middle East are large consumers of gold. I sincerely believe we are about to devalue our currency. This will be the real cause for inflation, not supply and demand. When this happens we will have a controlled Zimbabwe type effect. I expect S&P at 4000 in a couple of years. This will not mean much at 10 a gallon of gas and 8 dollars a loaf of bread. Any opinion?
On Jan 18 03:33 PM MarvinMBA wrote:
> Holding and trading in gold is not possible in our paper economy
> as we are now structured. Forget gold because if we do have a bubble
> in the Treasury market try taking an oz of gold and going to the
> market and expect gold in change...its crazy just crazy to think
> of gold as anything but a valuable commodity. If we get a bond/treasury
> collapse, interest rates will just rise and prices will inflate
> and you will be able to protect yourself by holding government backed
> paper giving you a high rate of return like 10 or 15 percent. Ever
> here of a cost push depression...its going to happen...in fact its
> happened already try going to the grocery and buy some fruit or vegies
> for 2 bucks a pound..its happening right now except for the interest
> rates which are going to skyrocket..MarvinMBA
The text "Economics" (2nd Edition) by Parkin and Bade gives the following explanation for cost-push inflation:
"Inflation can result from a decrease in aggregate supply. The two main sources of decrease in aggregate supply are
* An increase in wage rates
* An increase in the prices of raw materials
These sources of a decrease in aggregate supply operate by increasing costs, and the resulting inflation is called cost-push inflation
Other things remaining the same, the higher the cost of production, the smaller is the amount produced. At a given price level, rising wage rates or rising prices of raw materials such as oil lead firms to decrease the quantity of labor employed and to cut production." (pg. 865)
Aggregate supply is the "the total value of the goods and services produced in a country" or simply factor 2, "The supply of goods". The supply of goods can be influenced by factors other than an increase in the price of inputs (say a natural disaster), so not all factor 2 inflation is cost-push inflation.
Of course, the next question would be "What caused the price of inputs to rise?". Any combinations of the four factors could cause that, but the two most likely are factor 2 (Raw materials such as oil have become more scarce), or factor 4 (The demand for raw materials and labor have risen).
> Gold is used for personal and religous adornment and has very little
> utility with one gigantic exception: It can function as money.
Anything can "function as money". In prisons, packs of cigarettes and sardines "function as money". Gold only "functions as money" if enough people agree that its valuable. If they change their minds, then it no longer is.
In devastated economies, like post-WWII Europe, gold has historically been surprisingly irrelevant. When currencies collapse, trade usually revolves more around commodities with an industrial or recreational use (alcohol, cigarettes, medicine).
Gold is also attractive in a deflationary environment.
* [unattractive], not [attractive] in a deflationary environment.
None of us knows. And this goldbug guy is ludacris. He favors buying Gold ETF, but you can't take physical delivery of that. So in the doomsday scenario, it will profit you none to have an investment in an ETF with no real physical assets.
The article is like saying if you're in a drought, it will eventually rain. There's no doubt about that, but tell us when!
www.bloomberg.com/apps...
if you want an inflation hedge, buy realestate.
www.bloomberg.com/apps...
Also see...
Nice article, thanks.
www.bloomberg.com/apps...
On Jan 19 10:45 AM kurtieboy wrote:
> This whole article is based on the assumption that foreign demand
> for US Treasuries will dry up. That will not happen as there are
> no better alternatives for foreigners. That is the bottom line.
Times have changed and I doubt moving to a rural area would help you... People from the cities, ifd it came to the end of the world as we know it, would find you. If you were to show up in Kansas, expecting to eat corn, you'd be surpised to find it is bred to be more of an industrial biochemical base for corn syrup, feed, etc. You'd spit it out if you tasted it.
Nice thought, but not practical.
On Jan 19 12:44 PM muley101 wrote:
> It looks like most people's worst case is my best case. The incompetents
> who put us in this hopeless hell by mixing solcalism and capitalism
> are now in charge, led by someone full of socialist inexperience.
> Gold is a very good investment, but your very best investment is
> airable land far away from the cities that will become death traps.
> Buy your land near flowing water, put a trailor on it, sell your
> house in the suburbs for whatever you can get for it, move to the
> trailor, and start building the cabin. This is what I am doing, along
> with learning how to grow my own food.
On Jan 19 02:08 AM satur9nine wrote:
> Who are you people? When I am living in my post-bailout wasteland
> where the American dollar has no value I will be laughing my ass
> off at those of you who invested all your time and energy into buying
> worthless shiny metals. Instead I will be living in the completely
> self-sufficient bunker I built during the pre-apocalypse we call
> now. Why would anyone be interested in your metal when they could
> simply kill you and possess all your belongings after every single
> government and corporation in the world goes bankrupt and the human
> race reverts to savagery and anarchy?
On Jan 19 02:08 AM satur9nine wrote:
> Who are you people? When I am living in my post-bailout wasteland
> where the American dollar has no value I will be laughing my ass
> off at those of you who invested all your time and energy into buying
> worthless shiny metals. Instead I will be living in the completely
> self-sufficient bunker I built during the pre-apocalypse we call
> now. Why would anyone be interested in your metal when they could
> simply kill you and possess all your belongings after every single
> government and corporation in the world goes bankrupt and the human
> race reverts to savagery and anarchy?
On Jan 19 09:04 AM weatherbill wrote:
> gold n silver will be good for a transitional time of trouble. When
> the price soars, you sell it, and quickly convert it to food and
> other tangables needed becasue some things you folks have not factored
> in, is the west coast earthquake tsunami that's going to takeout
> the entire us west coast and usher in WW3 with china and russia,
> so probably the more important question is, where is there going
> to be a safe sustainable plac eto live at such a time when the suply
> lines are cut off..... I say get to the southern hemisphere somewhere.
On Jan 19 12:44 PM muley101 wrote:
> It looks like most people's worst case is my best case. The incompetents
> who put us in this hopeless hell by mixing solcalism and capitalism
> are now in charge, led by someone full of socialist inexperience.
> Gold is a very good investment, but your very best investment is
> airable land far away from the cities that will become death traps.
> Buy your land near flowing water, put a trailor on it, sell your
> house in the suburbs for whatever you can get for it, move to the
> trailor, and start building the cabin. This is what I am doing, along
> with learning how to grow my own food.
This couldnt be further for the truth. If you have several billions of dollars in cash (like a foreign government or a corporation), then the safety and liquidity profile of holding cash is far, far riskier then the chances of the government defaulting on 0% T-bills. Where is one to store the physical paper dollars? Put it in a bank, and the bank could go under and wipe out your holdings. Build your own vault with 24-hour security (at siginificant cost)? If you're China, do you run billions of dollars on a ship across the Pacific? Gold has even more of these logistics challenges. Holding the money in short-term T-Bills is a no brainer.
On Jan 19 11:48 AM lance sjogren wrote:
>
> People decry gold bugs as beeing doomsters, but as the REAL doomsters
> have pointed out, if things get really bad, even gold will be worthless,
> since it has no intrinsic utility.
>
> So the real doomers are those who say buy bullets and beans.
>
> In my view, if things get as bad as they fear, even that strategy
> won't do much, it might buy you and extra few days or weeks of survival
> before you perish along with the rest of us. And, if the world gets
> that bad, I think it will be a world that will be so gruesome that
> we will welcome death.
>
> I don't think it will get that bad, but the point is that under a
> worst-case scenario, no strategy is going to do you much good.
The fundamental problem with a commodity-based money system (Gold-Standard) is that it impedes the full representation of an economy's increasing production of value (ultimately deflationary). The fact that the total supply of gold (increased by mining or decreased hoarding) does not necessarily increase in supply to match an economy's ever increasing production of value is why Fractional Lending was allowed by Governments in the first place.
Fiat money created debt free by the Treasury in a full reserve lending banking system (a.k.a Lincoln's United States Notes) would allow Government to directly control the total supply of money, just as the founders intended in Article 1, Sec 8. Debt-free United States Notes would be injected into the economy in two major ways: 1) All Government Spending would be done in US Notes 2) The Treasury would BUY BACK Government debt (bonds, bills, etc...) with US Notes.
Of course this massive injection would be inflationary. However, the inflationary effects of introduction of the notes would be controlled by the linked increase in banking reserve requirements (to ultimately 100%). Banks would therefore have to ABSORB the excess capital. Because of the nature of our system, the total National Debt is essentially equal to the amount of money that banks would have to absorb when transitioning to full-reserve.
Once on a full-reserve debt-free monetary system, the supply of US Notes should then be legislated to increase at a SET rate to account for increasing population (with exceptions for emergencies such as war). If Government printed too much (Inflation), prices would rise and Government would be held ACCOUNTABLE by the populace. The converse is likewise true if Government policy was deflationary.
In this system, fiat money represents value, derived both from Government's exclusive recognition of the Notes as acceptable for tax and its use in the creation of value (infrastructure) erasing the 'Gold as value' argument.
MONETARY REFORM ACT = No National Debt, Controlled Inflation, Decreased Taxes
The Real Solution:
www.themoneymasters.co...
What it effectively does is used future soc sec entitlement as default insurance and would get a serious injections of money into the economy. So when people are paying off their house they are also effectively putting money back into their retirement?
I see change coming in these ways: (What's your view of our near (1-5 years) future?)
1. Issuing ALL NEW dollar notes that are MUCH harder to fake or forge... This in itself will allow the Govt. to recycle it's older dollars and also ask folks (think IRS) where they suddenly "got" large amounts of dollars! Given a short time frame in which to trade in old notes for new notes, expect to see MUCH under the table $wapping. Down the road, expect to see Global or Earth dollars that are mostly electronic but not before countries clean house and take yet another devaluation hit...
2. Inflation will occur, folks with Real Estate will continue to enjoy some security but not in the traditional way (long term holdings). For those that say that nobody will be able to buy real estate in the future, expect to see long term rental or lease that solve the short term problem of no down payment money!
3. Rural land will reduce greatly in value as folks re-populate our Cities in order to find jobs, save the cost & energy of commuting and just plain reducing the costs of living. Rural land will harder to police and crime will tend to move where the police don't patrol due to budget constraints.
4. The exception to #3 above, will be US island property (think Hawaii) which will increase in value because it will become the very safest haven for Americans to live under American law, plus it can easily be policed and or insulated from Mainland US/World due to it's location.
5. Health will become THE most important issue after Energy and Food, as folks begin to take charge of their own health because public dollars refuse to fund welfare care for those that abuse both themselves & the new health system!
6. Electric generation & grid improvements will usher in the electric vehicle for inner-city use and gasoline cars will be mostly phased out as folks get paid to upgrade/buy more efficient cars made by the Govt. supported auto makers.
See you then!
Would I exchange food for gold? No, unless I had more than I could eat before it goes bad. I can't eat your gold and normal food will last a month or two (cans - until eaten). Using something for money assumes that most of the world keeps functioning and will accept gold or silver for exchange or local farmers will take it. It is possible that if the USA goes down, so will the ROW. That seems to be happening now to some extent on at least a financial basis.
If the stock market goes to zero, then the country's economy will go to zero since companies and transport will not be operating. If gold goes sky high then gold and silver producers should go the same way. I don't believe this will happen.
These are just thoughts, I don't have the crystal ball (one of you guys took it).
On Jan 20 09:39 PM StateofConfusion wrote:
> Though I think silver coins and maybe some gold coins could be used
> for currency, it may be useless by the time it is needed. In a hyperinflation
> scenario it becomes extremely difficult to grow food or produce and
> import products. Hoarding becomes normal, except for money which
> can't be spent fast enough. Metals can be useful as a hedge against
> inflation as long as the currency does not enter hyperinflation.
>
>
> Would I exchange food for gold? No, unless I had more than I could
> eat before it goes bad. I can't eat your gold and normal food will
> last a month or two (cans - until eaten).
Very good point. If you want to hedge against "doomsday"-- canned soup is probably a better bet than gold. A hungry person wants soup, and a Campbell's soup can is universally recognized. If you look at places where the financial system collapsed, gold and "valuables" tended to be purchased for very little.
In a besieged city, there's no black market demand for gold
The best solution for the present economic crisis would be a REBOOT or restart of the entire debt system for the ENTIRE WORLD.
1. A data base listing ALL DEBT, government, business and personal needs to be created. The list would need to list the debt and debt holder with a bank that could make an accounting of the debt. Included would be all national debt of all nations, all mortgages car notes and credit cards for individuals. All outstanding bond and other debt for corporations, The idea is to list ALL DEBT of any kind owed.
2 . Every government on the planet would need to call a special secession of its legislature.
Using the same authority that governments have to use or create FIAT CURRENCY the legislatures and Central Banks need to authorize the creation of ACCOUNT CREDIT in an amount equal to all the listed debts in the world.
3. The Various governments and Central Banking Systems then need to make a accounting change equal to the debt in the form of an ACCOUNT CREDIT or CREDIT zeroing out ALL THE DEBT in the entire world.
The following day the economy of the entire world would restart and the Stock Markets of the world would react to the new renewed capital in the banking systems, the Capitol now available to restart all business and the disposable income to the individual people would restart and grow the retail sectors and the manufacturing sectors of the entire world.
Allen Charles Report
allencharlesreport.blo.../
as for gold, why buy something that the gov't would confiscate if things got bad enough? at that point it won't really matter what you own, worthless fiat money or golf that ain't really yours to keep.
Tell me, why hold gold again?
On Jan 18 06:11 PM ibejack wrote:
> This whole idea that gold is only going to be valuable in an apocalypse
> is bunk, or that gold bugs just buy gold to one day barter at the
> world's end. I buy gold because it is acts as a preserve of wealth.
> Nothing more, nothing less. That might mean protection against inflation
> or hyperinflation, currency collapse, or govermental abuse. I have
> no idea if one could barter gold or not, but I do know that gold
> has a 10,000 year old track record, so chances are that once the
> "apocalypse" is over I will have retained my wealth for the new world.
as of Q2 2006 (source" theprudentbear.com)
On Jan 18 10:28 PM japan20000 wrote:
> Japan has a debt to GDP ratio way over that of the US and JGB have
> had tiny yields for many years no. Anyone betting that will change
> any time soon? Why such certainty the US will be different. Most
> people didn't believe we will be in a similar situation with Japan
> and now lo and behold - Fed funds at 0. Why should the rest be all
> that different?
www.guardian.co.uk/wor...
On Jan 18 06:11 PM ibejack wrote:
> This whole idea that gold is only going to be valuable in an apocalypse
> is bunk, or that gold bugs just buy gold to one day barter at the
> world's end. I buy gold because it is acts as a preserve of wealth.
> Nothing more, nothing less. That might mean protection against inflation
> or hyperinflation, currency collapse, or govermental abuse. I have
> no idea if one could barter gold or not, but I do know that gold
> has a 10,000 year old track record, so chances are that once the
> "apocalypse" is over I will have retained my wealth for the new world.
Gold has issues as discussed above, the least of which is that true demand (i.e. consumption) can go to near zero.
That leaves Black Gold and food commodities.
Since our agricultural production and distribution is largely dependent on oil this leaves me to think that oil is the best way to play the dollar bubble. Some Canadian Energy Trusts pay fat yields, and are denominated in $CDN as an added hedge.
comments on oil specifically vs gold vs shorting treasuries?