doublenickel

China's 'Problem': Too Much Money

kman makes a good comment that in essence a single homeowner has borrowed a negligible amount of the banks capital, AND, I might add, the bank has recourse through foreclosure. But for a HUGE borrower, who has the ability to break the bank, what would the reaction be? Especially if the bank has no legal recourse of seizing assets. The US is still a sovereign entity, and no matter how much China may want to repo some of what the US has, we have the sovereignty and the military to say, No you won't. Not that that's the moral or ethical response, you understand. It's the "might makes right" response which governments in extremity always resort to.

However, on the flip side, I find the argument which boils down to "China's economic problem is that it has too much money" lets the cat out of the bag. It tacitly admits that the "money" China holds isn't worth anything. Substitute "value" for "money" in the argument and you can see that it makes no sense. Then substitute "fiat currency" and it makes perfect sense.

Decoupling Of Physical Gold And Paper Gold Prices

Nothing is a forever investment. But now is a bull market in commodities and I prefer to make the trend my friend, as the saying goes, and not swim upstream. The time will come to get out of real assets and into paper. Let me know when an ounce of gold will buy the Dow, and when the P/E of the broad market is around 5 or 6.

Decoupling Of Physical Gold And Paper Gold Prices

It's my experience that there is now a difference of about $2/oz between the futures price of silver and the price you can buy it at auction on ebay (the free-market price). That's about a 15% premium of metal over paper. Time was (prior to March) that 90% silver US pre-'65 coinage was obtainable in the same auctions below spot, sometimes as much as 10%. Something has definitely taken place since then. I don't assign much credence to spot prices anymore. The explanation in March was that prices were so high that people were rushing out to buy. Now the same people are saying prices are so low that people are rushing out to buy. Hmmm.

The Merrill Lynch Diet: Starving Shareholders

I'm a newby to this whole game, but it seems to me that what Merrill and others are doing in selling newly-issued stock (I assume that's what they're selling) is a precise analogy to the government's "creating liquidity". What Merrill is doing, looks to me to be spending some of their market cap--about 8 billion of the 24 (oops, 23.5...oops, 23...)billion. A little math tells me that after this is over, the share price will be at about 16, assuming nothing else changes, which it will, since existing holders probably will be motivated to do something about their situation. I know this is hopelessly elementary to most of those out there, but it was an "aha" moment for me, and I'm glad of the opportunity to think about it at the keyboard. I welcome any enlightening comments!