hotairmail
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Obviously there is not an infinite amount of cash
Please use use clearer and more correct english language to say what you mean.
Credit is created by levering a relatively small amount of cash.
I have changed it to help you.
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Not quite following you... if liquidity was infinite wouldn't that mean the currency is worthless... or would soon become worthless?
Maybe you just mean if liquidity remained high, or there was constant excess liquidity. Then I guess asset prices would keep rising.... following by a general inflation in everything, wages, consumables etc. Hyper-inflation.
Do you think it is possible for CBs to maintain excess liquidity? I'm thinking it is only a short-term fix as investors are fooled into spending/investing.
I consider liquidity to be infinite not because there exists an infintely large number of notes - but where there is more money (in all its forms) than there is worthwhile investments. This can occur in a variety of ways.
Regardless of how it comes about, how does that money (in all its forms) stop becoming worthless, especially if you are getting to the point where it actually costs to hold anything including cash?
On the surface this looks to be very similar to a deflationary scenario - except there exists a surfeit of money (in all its forms) as opposed to a shortage.
It is a situation where demand is more than met by supply in everything. This may be triggered by very low wage costs, very high profits leading to excess supply and depressed demand eventually.
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It depends on whether you see a future of abundant liquidity or one of scarce liquidity, doesn't it?
I have my chips placed on the latter. The CBs are attempting the former but I think they will fail.
My point is let's consider a world where liquidity is infinite and that cpi remains low because of low labour costs.
Yields tend to zero and rates remain v. low.
But no hyperinflation potentially even in this sort of situation which is supposed to provide the conditions for such.
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In a hyper inflation of assets as yields tend to zero, where would you put your money? Why would you invest?
This was the sort of situation faced by Japan which lead to the carry trade.
What happens when carry trade options also tend to zero?
So you will have had some sort of hyperinflation - i.e. it's already happened but it's difficult for us to see it because we've lived with it and it's been up so close.
Pension crises as costs rise as bond yields fall, Equitable going bust because they can't meet 3% return a year in low inflation environment, endowments failing to pay off mortgages, btl's with negative yields.
With even more loose money flooding the system, yields could fall even more - witness stock market rises.
Even as cpi remains relatively benign. What you then have is lots of cash around but no worthwhile home. What happens then?
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Faber...
http://www.ritholtz.com/blog/2009/11/faber...ntly-over-1000/
“We will not see less than the $1,000 level again,” Faber said at a conference today in London. “Central banks are all the same. They are printers. Gold is maybe cheaper today than in 2001, given the interest rates. You have to own physical gold.”
China will keep buying resources including gold, he said.
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Agreed we do live in a very interesting that requires a lot of understanding to be gained. I guess I have been lucky in that I have been working for myself for 20 years now.
Now, if only we could get rid of those pesky customers....
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Roubini on gold price on the short and interim term:
Strong words from Roubini. He thinks the system (and sentiment?) is stabilized enough for now, so that gold price moves on the upside will be limited. Interesting.
From a 'stability' point of view he's right. From an excessive liquidity point of view he is also right.
But his conclusion re gold is probably wrong - we will see lots of bubbles as liquidity seeks a return, with trend jumping driving bubbles and busts. Gold will be as prone to this as anything else - if not more.
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Under a TFH situation I always said:
"Gold is for girls; guns are for guys"
Well just found this - best of both worlds....
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http://ftalphaville.ft.com/blog/2009/09/17...metals-for-you/
China to world: No more shiny metals for you
Posted by Tracy Alloway on Sep 17 08:35.
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More on China urging its citizens to buy gold.
http://seekingalpha.com/article/159962-chi...cle_lb_articles
It is also clear that China is literally “putting its money where its mouth is.” China has devoted an enormous amount of resources building up its domestic gold mining industry, soaring to #1 in the world this decade, and it recently stunned the world with the announcement of a huge increase in its official, national holdings (see “China now has 5th largest gold reserves”).
China's gold reserves jumped by 76% from its last announcement in 2002 – up to 1,054 tons. Given that official government purchases on the open market are recorded and announced, this means that rather than buying all that gold openly on the market (which would have driven up the price while they were buying) China has been accumulating gold surreptitiously, through buying up its domestic production – strongly suggesting that ramping-up its gold production was part of a long-term strategic plan to become one of the world's largest (if not the largest) holder of gold among governments.
As I have written previously, there appear to be two, related goals in this strategy. Most-obviously, the Chinese government is now spending its U.S. dollar-holdings faster than it is accumulating them. This is no surprise, given the increasing rhetoric (and increasing intensity) expressing concern about the reckless fiscal policies of the U.S. government – and its worries over the future value of its vast accumulation of U.S. dollar-based debt.
The second goal which the Chinese government appears to be moving toward is having its own currency, the renminbi, replace the U.S. dollar as the global reserve currency. There have simply been too many actions on this front to list them all, however some of the more significant initiatives are bilateral trade agreements (which exclude the use of the U.S. dollar), currency swaps with its trading partner (which substitute the renminbi in bilateral trade), and authorizing its principal, coastal exporting cities to begin conducting most or all of their trade using renminbi.
These initiatives are entirely separate from the buying-spree the Chinese government has been engaging in, dumping U.S. dollars for a vast assortment of “hard assets” - primarily commodities and commodity-producers.
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Just like to say a big thank you to Dr B. My internet time is limited these days, but managed to catch up on a whole load of stuff by perusing this site for a couple of hours, it's invaluable. Good to see Neely and Prechter's latest thinking etc. Really interesting to see that Neely has come around to the longer bear market view - wondered when that would happen. Thanks too, to the various posters who posted links etc. Appreciated.
DD - have you turned into a bot?
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I know it's not trading but thought it might be of interest.
Milton Friedman on gold and the Great Depression video.
(There is a bit where he says you know where the depression started because that is where the gold flowed to. It struck me this is very similar to what we have seen with the flow of dollars back to the USA as the crisis developed - and caught many out like Schiff).
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Reuters reports that g20 are discussing imf sales of gold reserves this pm.
http://uk.reuters.com/article/businessNews...E52U7U520090402
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100% guaranteed. Even some of the few who had bought some before have recently been seen giving it away for empty promises printed on paper!
How did you get yours?
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Buy gold...
http://ftalphaville.ft.com/blog/2009/02/26...ately-buy-gold/
end of good article...
BNYM’s conclusion: Japan is clearly facing a renewed era of deflation. With that it will have no alternative but to turn on the printing presses at force and even possibly intervene in propping up their stock markets again, something that will ultimately lead the yen to revert to its weaker millennium averages — the analysts’ three-month target being 105 to the dollar.
The euro, meanwhile, must suffer in the near-term too because as the dollar element of more diversified global reserves is depleted, the euro weighting becomes increasingly large. With a higher euro risk-weighting anyway on account of increased eurozone sovereign default fears, chances are reserve managers will be looking to limit many of their holdings.
Ultimately, BNYM concludes in the current climate, as the history of QE in Japan shows, only gold is likely to outperform. This is especially the case as QE becomes increasingly employed across the world’s predominant reserve currencies (even the Swiss have alluded to the possibility). Conclusion: The clearest buy for investors remains gold.
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Great article. The gist of which is all paper currencies can depreciate.
Hi Roman. It's not that I didn't understand that fiat currencies can all devalue against physical assets and gold money. They have done all my life.
No, the question I was posing, was if Bernanke thinks one of the keys ways countries got out of the Great Depression was to devalue against other countries - how is that going to work this time round in a synchronised devaluation of all currencies?
Synchronised devaluation = continuing Depression.
A new 'Brettton Woods' will need to be put in place before all this ends whereby producer/net saver nations will have to let their currencies appreciate and stimulate demand for the global economy.
Any better ideas?
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Good article FTAlphaville:
http://ftalphaville.ft.com/blog/2009/02/24...-saw-it-coming/
What’s coming next, from the ‘Man Who Saw It Coming’
Posted by Gwen Robinson on Feb 24 06:31.
The litany of dire predictions for currencies, commodities and the global economy in general not only seems endless - it is getting more predictable by the day. That is because few pundits are making any waves - or money - out of playing Pollyanna, as everyone from Jim Rogers to Nouriel Roubini well know.
While it’s an increasingly safe bet for analysts to leap on the gloom’n'doom bandwagon, there are a handful of analysts out there who get taken more seriously than most - as opposed to herds of kneejerk Cassandras who have shelved their usually bland reports to start warning that the “western banking system is imploding”; “the US is on the brink”; “Europe is melting down”; “China is going down the toilet”; “Japan is already down in the S-bend” etc etc.
Among them, CLSA’s equity strategist Christopher Wood can rightly claim to have been more prescient than most of his ilk - warning some years ago about the consequences of exploding US mortgage securitisation and more specifically, about the growth of subprime lending. In his often colourful newsletter, Greed & Fear (which sadly we no longer receive), Wood has been banging on about everything from warning signs in the Baltic Dry Index for commodities prices to Britain’s banana republic tendencies long before it was vogueish to do so. As a result, he has been consistently rated among the top equity strategists on Asia - most recently by Institutional Investor magazine - and was billed by the Wall Street Journal in 2007 as “the man who saw it [the subprime mortgage crisis] coming”.
That is why when he confidently insists that the gold price will more than triple to reach $3,500/oz in 2010, among other bold predictions, people begin wondering when to buy and how they’ll store those yellow bars.
At CLSA’s annual Japan Forum conference, which opened Monday in Tokyo, Wood was even - err, cheerier than usual, possibly mindful of being an advance act for uber-pessimists including Satyajit Das, author of “Traders, Guns & Money” and Friday’s closing speaker, Marc “Dr Doom” Faber - not to mention the singer Macy Gray (hit songs including “The Trouble With Being Myself” and “Oblivion”) who will entertain participants at the traditional end-of-conference party on Thursday.
According to Wood, not only will gold more than triple in value by 2010 (”it’s the only form of money or credit not contaminated by the credit system” - and the fact it’s still money is that central banks still own a lot of it), the global paper currency system will steadily deteriorate, eastern and central Europe will face a full-scale currency collapse - putting huge pressure on western Europe - and the US will be dealing with a deflationary crisis far worse than that which derailed Japan in the 1990s. The only realistic course for the US is radical action to nationalise its most stricken banks and create one big “bad bank” to take on their toxic assets, he warned. Anything short of that will bring about more economic chaos and drag on other economies.
Monday’s reports about the proposed semi-nationalisation of Citigroup, with the US government considering a plan to take as much as 40 per cent of the group, represents “continued ad hockery” that would merely worsen the malaise and prolong the life of what would effectively become a zombie bank, Wood said.
To those who warn the US financial system would collapse if such radical measures were announced, Wood says “nonsense”. The real problem up to now has been inconsistency of the government’s responses - letting Lehman Brothers collapse while saving others. Of course, while bank stocks would “go to zero” under such steps, full nationalisation of troubled banks and a comprehensive restructure - regardless of who and what it wipes out - would ultimately revive equity markets and avoid a “Japan situation”, he added.
Elsewhere, Wood sees bad news for Asia in the ongoing collapse in US consumer spending: “Asia needs to realise the US consumer is not going to go back to spending like they have in recent years”. Japan, in particular, will face a more-than-doubling of unemployment to 10 per cent within the next 12 months, the “implosion” of consumer confidence and a slide in the value of the yen. At least, he adds, Japan’s growing woes will put the focus squarely on politics, away from purely economic issues, which could well lead to real reform of the domestic economy. And that’s the good news on Japan. Without such reform, however, the country seems doomed - particularly since the briefly encouraging performance of its stock markets last year was completely derailed by the deflationary bust and slide in exports.
After a rundown like that, it might be at least refreshing for the hordes of investors - several hundred who travelled to Japan for the conference - to hear Wood’s final prognosis: that he still believes “Asia is the best long-term growth story… If i was putting money into stocks, I would go for China and India”.
As one reader notes, “any good conference should end with a buy recommendation for your local audience for their local market”.
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There are people expecting a pull back, forced sales are coming into the market due to latest leg down on the markets (look at GSK for a stock that exhibits these deleveraging phases) and the $ chart would form a nice double top, this is the perfect time to strike and I think they will be successful in their attempt, as you say they will ultimately fail. I will be going substantially stronger into Silver and Gold if they do beat it down again.
I think wee could see lower lows in both Silver and Gold. As someone pointed out on anther thread I read this could be a deflationary tactic to force people into bonds and keep rates down to help manage the debt burden. I think a lot of the quantitative easy talk is a bluff to draw in "smart (read easy come easy go)" money from the sidelines into stock and houses so it can be properly destroyed in the bubble deflation and the remainder of the gap left after this will possible come from quantitative easing.
Central banks do not have control of things atm and they are likely very weary of causing runaway inflation, once they gain control of the situation to the downside they are likely to try and re inflate then but I do think we are in for a period of deflation (I have been firmly in the inflation camp for 2 years) but have recently re-evaluated things.
Why?
I am prepaired to be wrong but everything is managed (to the best of their abilities) these days and if you try and think from the point of view of those in charge it seems to be pretty much what happens.See my post on the other dark side yesterday Link
By thinking as if I were someone who wanted to protect the markets/system it is remarkably easy to call the intervention. This is not based on chartism/support levels, just my view of the charts at the time and when they seem to be getting out of control.
Saw it. Great call. I'm a fan.
Thanks for your post, for fear of derailing an important thread I will respond to it on my PPT thread started a while ago.Where is that thread?
GOLD
in Gold, FX, Stocks / Diaries & Blogs
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You can't have a nice debate on this forum anymore.
I think I'll leave.
Dr Bubb - please can you delete my i.d.
Thankyou.