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  • G-20 Summit: A New World Order?  [View article]
    The hand wrote:

    > to finger fiat money as the cause of this crisis is the same as saying
    > credit cards are the cause consumer credit bubble. because we could
    > we did.
    > we had inflation when we had a gold standard.

    True. Even with gold backed money the banks issued more paper certificates than they held in physical metal. Sound money and a fixed supply are two distinct problems which both need to be addressed.

    > we had recessions and depressions with a gold standard.

    Yep. Due to the deleveraging of fractional reserve issuance of unbacked paper.

    > we had massive budget overruns under bretton woods.

    We also had a central bank that printed money for which no gold was held.

    > obviously we have a problem, but it is not the fiat currency.

    There are three separate and related problems to be overcome:

    1) Money supply should be permanently fixed via backing of gold so that it can't be created out of thin air. Full convertability must be available to keep banks and governments honest.

    2) No fractional reserve banking. Full 100% backing of all paper currency with gold at all times.

    3) Government cannot spend what they do not collect.

    Any problems that can be generated within these rules will not have any serious impact on the health of the economy at large. Long term and sustainable economic growth would result even though individual failures will occur.
    Nov 13, 2008. 12:03 PM | 2 Likes Like |Link to Comment
  • Defining a Depression  [View article]
    "If I understand the Mogambo (and others) an ever increasing amount of loans is needed under FRB just to prevent default of existing ones??!! " - moonbat

    This seems to be an oversimplification akin to saying that using a fixed money supply constrains the accumulation of wealth.

    Suppose there are only 200 oz of gold in existence and I borrow half of it (in a no fiat money world where only gold is money) to start a business. I owe 1/2 the entire money supply plus interest to my lender.

    To start my business I must spend part of that money to get equipment, acquire materials, or pay labor. Then I sell my product at a profit and use the proceeds to pay down the loan and interest while maintaining a profit for personal gain.

    Over time do I not pay off the entire loan and interest out of profits, even though there are never more than 200 oz of gold?

    Remember that money circulates through many hands, so paying for a loan plus interest merely represents one iteration of the same money during its movements.

    Wealth grows even though the money supply is fixed. If I pay you 10 ounces of gold to build my house, you are 10 ounches of gold richer and I own a house worth 10 ounces of gold. There is more wealth but the same amount of money.

    Likewise with loans and interest. I may use the same piece of gold several times in making payments on the loan if I earn it via my labors after the lender spends it on something else. So a fixed amount of gold has reduced the outstanding balance on my loan by being 'earned' many times.

    A slippery concept. I'm not sure I'm entirely correct on this point, but I can't think of any better way of putting it. Suggestions welcomed.
    Nov 13, 2008. 11:39 AM | 1 Like Like |Link to Comment
  • Defining a Depression  [View article]
    "bank leverage (FRB) with a monopoly currency engages in legalized theft by inflation" - moonbat

    While that is currently true, it doesn't require a monopoly currency to run a fractional reserve bank. As the reference to the 1830s noted, the US stopped using its central bank in 1833, yet the local banks continued to make un-backed loans in money that were legally "backed" in gold at a fixed rate.

    Even the goldsmiths of old figured out that you could print up more receipts than you had gold stored in a safe and earn interest on money that didn't exist.

    The central bank is the cartel. Fractional reserve lending of unbacked money is the act they currently have a monopoly for, but that doesn't mean it wouldn't happen without a central bank or without fiat money.

    If fractional reserve banking were outlawed, having a central bank or not wouldn't matter.
    Nov 13, 2008. 11:26 AM | 1 Like Like |Link to Comment
  • Gold Bugs Beware  [View article]
    "Institutions (central banks) setup to pump liquidity into the system at crucial times can come under strain when their balance sheets are stretched and they are forced to raise capital."

    Once again the author exposes his lack of understanding. Central banks don't sell assets to raise capital. They don't need to.

    They PRINT the money and lend it to the gub'mint in exchange for gub'mint debt.

    A few moments on Google will show that central banks around the globe have been selling LESS gold than they had announced since 2006. If anything, sales reduced below expectations would help support the price of gold on the market.

    Nov 13, 2008. 10:59 AM | 2 Likes Like |Link to Comment
  • Gold Bugs Beware  [View article]
    "those investors may be tempted to sell if the price reaches their entry level. We may see a squeeze of sorts on the gold market, should that ETF be forced to liquidate sizable holdings at a fast pace to meet redemptions. Should that occur at the same time as the IMF or a central bank selling gold to meet short term expenses, there could be a structural crash in the price of gold."

    The author should read the prospectus and understand how redemptions work before jumping to invalid conclusions based on hunches. Your argument makes you look silly once actual facts show you don't understand what you're talking about.

    Redemptions are conducted by presenting the ETF with a total of shares and cash equivalent for a pre-defined amount of gold plus expenses. The ETF then delivers the physical gold in exchange for the shares.

    Purchases are the opposite. Gold and cash is presented to cover the predefined amount plus expenses and shares are issued in return.

    The ETF can't be "forced to liquidate" because 'liquidation' means delivering physical gold for shares presented, by definition.

    How exactly does that mechanism create "a structural crash in the price of gold"?

    The number of ETF shares at any given time is limited. They are traded on the open market. Buyers pay cash to sellers. The ETF itself is not impacted one iota by the price of the shares at any point in time. If GLD trades at $1, the ETF will still have just as many ounces of physical gold in storage as they would if it traded at $100,000.

    The ETF is only required to produce the physical gold under the cirmstances noted above and further expanded upon in the prospectus. If someone were to buy and present every single share plus expenses the ETF would only be obligated to deliver every ounce of gold in storage.

    The ETF NEVER sells the gold in the open market.
    Nov 13, 2008. 10:51 AM | 3 Likes Like |Link to Comment
  • Citi's Desperate Straits  [View article]
    Say it isn't so! Executives are "unhappy with the board"?

    Tough toenails. I was under the impression that the board called the shots as the direct representatives of the shareholders (you know, the acutal owners).

    Even so, it appears that the board is trying to close the barn door after all the horses have run off into the hills.

    Expect TARP II to emerge from the woodwork soon enough. There aren't enough taxpayer dollars being printed and wasted as it is now.

    As for the executives, they already have donned their 'golden lifejackets'. They've already done their preying, it's the shareholders who need divine intervention.
    Nov 13, 2008. 10:15 AM | 1 Like Like |Link to Comment
  • China Gets It Right, But Hurts America  [View article]
    The author is correct. If China decides to start spending it's USTreasury debt and USDollar reserves on local development it will be very hard on the US.

    If they are selling US debt and dollars, then by definition they have stopped buying them. This will drive interest rates up for US debt and drive the value of the dollar down.

    Who will fund the US deficit if the Chinese stop lending us the money? If we can't borrow to fund the deficit, will we have the political will to cut gub'mint spending by 30% across the board, or will we simply start printing more dollars and risk hyperinflation down the road? Neither is a very good choice, but those will be the best options we have at that point.

    The US gub'mint and people have lived beyond their means for far too long. The bill is about to be presented for payment and it's going to be painful trying to find the money to settle our tab.
    Nov 13, 2008. 10:06 AM | Likes Like |Link to Comment
  • Reasons to Bail Out GM  [View article]
    A) "Midwesterners are equally justified in expecting delivery on Democratic economic promises. That's how a democracy works"

    Yes. Take from the many and give to the few with political connections, or as H.L. Mencken noted: 'Democracy is an advanced auction of stolen goods'. There's never any question about stealing the goods, it's just a matter of who gets them afterward. Is there any wonder why our economy is going down the tubes?

    b) "most government spending, outside of entitlement transfers, is investment."

    I'd claim that most of it is pure waste. If it were truly a viable "investment" then a private company would be making a profit doing the same thing.

    c) "It might be cheaper than the alternative of letting GM fail and throwing its employees, and its suppliers' employees, and its dealerships' employees, and so on and so forth, onto the unemployment rolls "

    Cheaper for whom? Is it cheaper for the American public that will pay outrageous prices for sub-standard vehicles? Why is it that everyone believes it it OK to make the public pay 15% more so that a Big 3 autoworker can have a job when other car makers can manufacture equivalent or better vehicles for less?

    D) "The government also has a lot more latitude about exactly whom it bails out than most commentators seem to realize. There seems to be an assumption that any bailout will, by necessity, have to be a bailout of all GM's bondholders, and will probably leave some non-zero value for shareholders as well. But that doesn't have to be the case: There are numerous ways of structuring a "bail-in" whereby GM's bonds are restructured and its bondholders share some of the pain."

    Once again, the gub'mint will introduce a change in 'the rules' to save the profilgate few. Does anyone actually believe that doing something like this will inspire confidence in the investor class to risk more money on the Big 3 knowing that tomorrow the gub'mint could decide you don't even deserve to get your money back? Doesn't this line of reasoning run counter to the "transparency in finance" goal?

    None of these reasons make economic sense. They are nothing more than rationalizations for the political expediancy of stealing from the many and rewarding the (incompetent) few.

    These are NOT the priniples that built the country in the first place.
    Nov 13, 2008. 09:54 AM | 1 Like Like |Link to Comment
  • Defining a Depression  [View article]
    "How does the 1837 Panic compared with the present situation?" - Tawny Angel

    Good question. From THE PANIC OF 1837 BY: EDWARD M. SHEPARD from Shepard, Life of Martin Van Buren (Boston: Houghton, Mifflin Company. 1888), copyright expired) via wikipedia:

    "The often quoted illustration of Mobile, the valuation of whose real estate rose from $1,294,810 in 1831, to $27,482,961, in 1837, to sink again in 1846 to $8,638,250, not unfairly tells the story".

    And also there was an "enormous extension of bank credits during the three years before the breakdown in 1837"

    "Between 1830 and January 1, 1834, the banking capital of the United States had risen from $61,000,000 to about $200,000,000; the loans and discounts of the banks from $200,000,000 to $324,000,000; and their note circulation from $61,000,000 to $95,000,000. The increase from January 1, 1834, to January 1, 1836, was even more rapid, the banking capital advancing in the two years to $251,000,000, the loans and discounts to $457,000,000, and the note circulation to $140,000,000"

    Gee, over-leveraged real estate bubble then and now. Note the fractional reserve lending at work in the 1830s with "only" 1.8:1 leverage (current leverage is nearly 9:1?). Banks loans outstanding exceeded bank capital the entire time, even without a central bank (Jackson stopped using it in 1833). Something to keep in mind.

    The Panic of 1837 didn't 'end' until 1843.

    Anyone care to guess when this one will 'end' given that our leverage is more than 4 times as great as it was in 1837?
    Nov 12, 2008. 05:01 PM | Likes Like |Link to Comment
  • Treasury Continues to Harpoon the Real Economy  [View article]
    "An economy built on consumption must transform into an economy built more on manufacturing and exports" - DaveW

    Very close. Substitute an "economy built on savings" and you will be closer to the truth. Economies built on non-productive debt are doomed to collapse in the long run, even faster if the debt is issued via leverage (aka fractional reserve banking).

    This has been the fate of every country relying on fiat currency throughout history. Why does everyone expect things to turn out differently for us? Ain't gonna happen.

    Buckle up. It's gonna be a bumpy ride from here on out.
    Nov 12, 2008. 04:19 PM | Likes Like |Link to Comment
  • The Death of Buy and Hold?  [View article]
    "If you bought the Dow Jones Industrial Average on 10/29/1998 (8495 close) you have a ten year return of no capital gain plus approximately 2% per year in dividends" - jlounsbury59

    Don't forget to include the effects of inflation during that interval to calculate real returns. From 1998 to today there was a total of 25.5% loss due to inflation per the BLS inflation calculator.
    Nov 12, 2008. 03:55 PM | 1 Like Like |Link to Comment
  • U.S. Mint Makes Drastic Cuts to Its Collector Gold & Platinum Coin Offerings  [View article]
    Via Google:

    "Mark my words. It will not be six months before the world tests Barack Obama like they did John Kennedy," Biden said in Seattle. "The world is looking. Watch, we're gonna have an international crisis, a generated crisis, to test the mettle of this guy."
    Nov 12, 2008. 03:39 PM | Likes Like |Link to Comment
  • U.S. Mint Makes Drastic Cuts to Its Collector Gold & Platinum Coin Offerings  [View article]
    "not- circulating, hoarded wealth" - TERN

    Ha ha ha. We used to call it 'savings'.

    One of the main reasons why it isn't circulating is because there isn't very much of it. The majority of what's circulating is debt based coupons, not savings.

    bowman makes an interesting point. Do you have any sort of link to a recent Biden statement to that effect?
    Nov 12, 2008. 03:36 PM | Likes Like |Link to Comment
  • Defining a Depression  [View article]
    "there are even better stores of value for what lies ahead" - Socialism cannot compete!

    Yep. Beside hard rations there are booze, cigarettes, and soap. You will find they are quite liquid assets if things get really bad. Booze is 'medicinal' too. ;-)

    Flint and steel wool come in handy on occasion as well.
    Nov 12, 2008. 03:26 PM | 2 Likes Like |Link to Comment
  • Defining a Depression  [View article]
    " Smartypants: "How does it end?"

    NORTHCOM 09 " - thedozer

    I believe that moonbat is heading up the effort for collecting bits of lead for just such an emergency. With the BHO administration coming soon, I'm thinking that there will be a large number of good ol' boys doing likewise very shortly. Let us hope it doesn't come to that.
    Nov 12, 2008. 03:21 PM | 2 Likes Like |Link to Comment