User 196790

Profiting From Bernanke's Super-Fed and Obama's Newer Deal

I do believe that the Fed could allow gold prices to inflate to balance their sheets and possibly return us to a global unofficial gold standard, as gold would take the dollar's place as the international reserve currency.

I also believe it could potentially suspend dollar-gold convertibility like FDR, which is why I keep my bullion stored in Australia.


On Jan 23 02:50 PM rothy wrote:

> Naufal, congratulations on an excellent article. I have been studying
> the Fed's balance sheet and come to many similar conclusions. What
> I can't quite understand when people peg the gold price is why they
> choose the Fed's liabilities to measure against the reported gold
> stocks and not a different measure such as M1 or a percentage of
> M3 that might relate to the required reserve ratio. I agree with
> the assessment that all the new money creation ultimately leads to
> inflation but what I find troubling is all of these new ads and discussions
> about gold that have been dormant for several years. It makes me
> wonder if there will be an overt attempt to drive investor dollars
> into gold to allow them to revalue their holdings without having
> to do what FDR did. If they "let" the gold price rise to between
> $6,000 and $10,000 over the next few years in this fashion then they
> could balance their balance sheet. I wonder what happens if their
> liabilities continue to rise as has been stated and their liabilities
> hit 5T in a few years. Would this then imply to you a potential gold
> price of nearly $20,000 per oz? Keep up the great work and I look
> forward to your next post

Profiting From Bernanke's Super-Fed and Obama's Newer Deal

$2T of treasuries becomes a lot once it's exposed to fractional reserve. I think any further intervention in Treasury markets (which the Fed is clearly still doing, with printed money) will be to micro-manage the debt bubble collapse.

Price inflation will show up first and foremost in precious metals (which are all breaking out of important bear trends) and next in equities, which the Fed seems to be putting a price floor under at Dow 8000. This is the outside force you speak of, and it's here.


On Jan 07 07:07 PM Nelson_Lai1975 wrote:

> I agreed that Fed Carry Trade (as mentioned in your article) is what
> keeping demand for Treasuries artificially high.
>
> However, I don't believe that the tide will shift as we speaks. The
> Fed has not acquired enough debt as of yet. The Fed will want to
> be gold price low (via Gold Carry Trade) so there can continue selling
> 30 years Treasuries at around 2%.
>
> Think about it, if you are the Fed, will be satisfied with selling
> only 2 trillions of treasuries ? No, 2 T is like a big drop of water
> in the bucket, but that is not Fed ultimate goal.
>
> With all the anticipated spending that are needed in the short future,
> Fed will want to continue the Fed Carry Trade as long as possible.
>
>
> The tipping point will be outside force from the Fed That outside
> force will be inflation.
>
> It may take at least until after June before signs of inflation show
> up.
>
> Let wait and see.....

Profiting From Bernanke's Super-Fed and Obama's Newer Deal

You're right, credit card write-downs are one of the next shoes to drop, BUTTTT with all of Obama's stimulus plans, the consumer might not be hit has hard as they "should" be. If the banks don't give them money, the government will.

Profiting From Bernanke's Super-Fed and Obama's Newer Deal

MS- I agree that some of the money strictly liquifies banks for solvency, but a lot of it is being intentionally sequestered, or at least the Fed's balance sheet suggests so. Banks have 7x their reserve requirements deposited as excess reserves in the Fed because of the interest the Fed started paying on their deposits. This is money that WILL be lent out soon, whether in the form of the Fed directly injecting it into the economy or banks lending it as they traditionally do.

Profiting From Bernanke's Super-Fed and Obama's Newer Deal

I believe that will be the price you'll have to pay for an ounce of gold in 2012.


On Jan 05 11:32 PM R JENSEN wrote:

> "This leads me to believe gold will be worth $10,000/oz by 2012."
>
>
> Are you referring to what you call the "intrinsic" value of gold?
> Or do you think that this is what you will pay up front for gold?

Profiting From Bernanke's Super-Fed and Obama's Newer Deal

We are no longer a manufacturing export nation. There is no fundamental reason for USD demand and now most nations are pretty much incapable of amassing more American debt. There are no suppy shortages, except for gold, in the sense that excess artificial supply that was being offered in the form of Fed-supported naked shorts is being suddenly removed from the equation. Confidence in the US dollar has already been lost... foreign nations are not keeping dollars because of fundamental strength, but because of necessity. War is possible but like I said there's no nation dumb enough to demand debt repayment. I see a collaborative new monetary order much more likely, a Bretton-Woods 2. America wants to keep its reserve currency status.

$2 trillion new dollars. No goods expansion to back them.

If goods supply contraction is to occur, it'd be much farther down the line.

Profiting From Bernanke's Super-Fed and Obama's Newer Deal

Yes, a lot of this "money" is being taken out of the supply to cover defaults and write-downs, which is why we have temporary deflation right now. However, another deflationary strain comes from the Fed, who is keeping its huge increase in liabilities (money) temporarily seqeuestered for artificial dollar strength to allow the Treasury to finish its funding activitiy. This money is not in the money supply yet, but it will be soon, and that monetary supply expansion is what inflation is.

The American Crisis and the Case for an Inflationary Depression

Euro toast. Europe is too socialist, more and more deficit financing = more debt. Debt culture in Europe is just as bad if not worse than America's.

The American Crisis and the Case for an Inflationary Depression

www.federalreserve.gov...

look at our external debt under clinton and our trade deficit under clinton. he vehemently fought for increased trade with china and the rest of the world, thinking the united states would gain from exporting its expensive goods and services to the chinese, who couldn't afford any of it.

he financed the strong economic growth of the 90s through foreign debt, the issuance of which has caused a debt bubble whose collapse could spell a devalution of the USD.


On Dec 03 01:15 PM VennData wrote:

> "...President Bill Clinton's strong encouragement of globalization
> and foreign trade led to a dependence on debt that will deepen the
> current recession into a possible depression and cause rampant inflation..."
>
>
> What are you talking about? Your ability to pick and choose causality
> is fanciful.

The American Crisis and the Case for an Inflationary Depression

You're right, asset prices are not immune from inflationary pressure, and may in fact rise in nominal terms. However, I still see the Dow below 4000 within the next few years and a real decline beyond that as well.


On Dec 03 10:55 AM paultaut wrote:

> Thank you all, I only got into this article because N. S. appeared
> to be getting a bum rap. I personally disagree with the 3,300 level
> since I can't see inflation without inflated assets of some sort.
>
>
> There are opinions and then there are opinions held by only one person.
> Those who are selfopinionated will never listen to anyone else. Hopefully,
> I will, at least listen. IMHO

The American Crisis and the Case for an Inflationary Depression

what bias? what wrong conclusions exactly? and yes gold, like everything else in the world, has no inherent value other than the value given to it by mankind. however, fiat money can be printed, causing an increase in money supply, which lowers the value of that money. gold supply is nothing like fiat money supply, and its merits as an inflationary hedge will cause demand for it to rise sharply, just as fiat money demand decreases.


On Dec 03 10:04 AM TimT wrote:

> Probably a smart man but clearly lacking in any kind of wise judgement.
> He uses good facts but his obvious internal personal bias causes
> him to come to extreme and wrong conclusions. Gold only has value
> because people perceive it to have value--no different from fiat
> money.

The American Crisis and the Case for an Inflationary Depression

Helicopter Ben has already stated several times he is committed to printing money and inflating us out of economic contraction.

Japan and the US are different in two FUNDAMENTAL ways: 1. Japan did not have a massive exernal debt and 2. Japan did not have the global reserve currency.

There is a GLOBAL economic contraction and every nation is going to focus on DOMESTIC growth first. How do they finance that? Calling in loans to America and selling US treasuries.

There is no liquidity trap here, the Fed won't allow it. And even if somehow it occurs, the debt bubble will collapse itself... simply put, America cannot pay off its debt and there won't be enough demand for US debt to keep the USD afloat.

Five Factors That Can Determine the Fate of the U.S. Dollar

jegan, that is an incorrect analysis. the market/dollar divergence is strictly because the dollar is still considered the safe haven for all the deleveraging and liquidating going on in the equity markets as asset bubbles collapse (which is why so much selling is occuring). when the last bubble, us foreign debt, finally collapses, the dollar will collapse, all while the market continues its descent (the economy will continue to contract, and a devalued dollar will weaken purchasing power parity, adding to the contraction's effects).

oil prices will begin to rise again but mainly because it is priced in dollars, which will be declining. oil priced in gold (better indicator of intrinsic price of oil) may even go down, based on demand destruction. oil stocks will not show anything better than a bear bounce, as the commodity bubble of the last 5 years has collapsed and buying stocks in the american equity markets will show no valuable profit (even if you find a way to find stocks that will trend upwards, the profits you are making are in dollars, which would be losing purchasing power, hence lowering your returns, even to a negative level).

the way to make money is to buy gold and buy bear-biased securities (such as put options, ultrashort ETFs, etc) liquidating their capital gains into swiss francs. this is all long term advice.

Five Factors That Can Determine the Fate of the U.S. Dollar

jegan, that is an incorrect analysis. the market/dollar divergence is strictly because the dollar is still considered the safe haven for all the deleveraging and liquidating going on in the equity markets as asset bubbles collapse (which is why so much selling is occuring). when the last bubble, us foreign debt, finally collapses, the dollar will collapse, all while the market continues its descent (the economy will continue to contract, and a devalued dollar will weaken purchasing power parity, adding to the contraction's effects).

oil prices will begin to rise again but mainly because it is priced in dollars, which will be declining. oil priced in gold (better indicator of intrinsic price of oil) may even go down, based on demand destruction. oil stocks will not show anything better than a bear bounce, as the commodity bubble of the last 5 years has collapsed and buying stocks in the american equity markets will show no valuable profit (even if you find a way to find stocks that will trend upwards, the profits you are making are in dollars, which would be losing purchasing power, hence lowering your returns, even to a negative level).

the way to make money is to buy gold and buy bear-biased securities (such as put options, ultrashort ETFs, etc) liquidating their capital gains into swiss francs. this is all long term advice.

The Perversion of American Capitalism

Deflationary pressure will not be an issue in this case, because no one will want to hoard the USD once it is no longer the strongest investment in the world. The GBP will be the global reserve currency in ten years, mark my words.