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ARCHIVED DISCUSSION FROM 10/24/2000
All times are U.S. Mountain Time
(Yesterday's Discussion.)
ORO
(10/24/00; 23:38:50MT - usagold.com msg#: 39830)
Mr. Gresham - inside and outside
Outside the US, the dollar does not have a central bank to print it. The closest thing there is is the IMF. What they do is maintain the debt load on a debtor nation. They bail it out temporarilly at the price of lengthening the period of indebtedness. Thus the only way we see default occur on a great scale is when a "rogue" like Russia decides to do away with its debt rather than roll it over and try to service it. It is this, and the political decision to absorb excess dollars from the market that has kept the dollar in deflationary mode abroad - on the demand side. On the supply side, the decline in dollar borrowing abroad has created a shortage of supply. Thus we have sustained demand and reduced supply.
There is also increased demand abroad because of the need for dollar assets in order to purchase oil later. (see post on the matter from yesterday or the day before)
Inside the US there is a central bank that can print any amount it wants. So long as money is created at a sufficient rate within the markets, the markets "self supply". When borrowing is insufficient to cover interest and principal payments coming due and lenders are unwilling to roll over debt at interest rates that the borrowers can afford (because of the low credit quality), then the Fed, Fannie Mae and the Treasury can inject fresh funds to buy up securities at a higher price than other market participants would pay. Thus they keep the markets injected with money and replace fresh "non-financial" borrowing with their own borrowing or with freshly printed dollar book entries.
Since they are buying securities above the price that the market would otherwise dictate, the sellers are obviously going to put their money into something other than what it is that the government side is buying. Therefore, the government is pushing, with the help of its semi-private partners, funds that will have to end up being spent.
TownCrier
(10/24/00; 23:37:45MT - usagold.com msg#: 39829)
Question for Sir 'Bear
You said, "It appears to me that governments (and central banks) live largely in an M1 world. Citizens live largely in an M3 world."
Could you breifly elaborate on your meaning?
And in your thoughts of M3 category assets being deflated through monetization into M1 category currency, it would be well for us all to recall that the vast supply of U.S. Treasuries held in foreign central banks (as I recently alluded to in a post to Sir Gresham) are completely off your M3 radar screen. Thus far, the feedback mechanism of the U.S. balance of trade dollar payments in exchange for the yield to be found in U.S. Treasuries has been the secret behind the U.S. "deficit without tears". The very same dollars can cycle through many times, in the process creating these non-M3 assets/liabilities (depends on your perspective) that could potentially be offered up en masse for "relative monetization" via the bond markets, or for REAL monetization through direct channels via the Federal Reserve. It is that particular "overhang" that has the Fed chairman surely thinks about as he lies awake at night, and it is the secondary reason the bullion bankers are nervously wringing their hands.
Elwood
(10/24/00; 23:10:44MT - usagold.com msg#: 39828)
goldhunter (10/24/00; 19:40:11MT - usagold.com msg#: 39817)
"There truly is no difference ...futures/physical will move up in tandem...Watch it unfold..."
Please don't think I'm replying just to piss you off, Sir Goldhunter, but not a single ounce of my physical has ever expired worthless.
ORO
(10/24/00; 23:00:45MT - usagold.com msg#: 39827)
Trail Guide and Traveler - bankers liquidity
The problem I pointed out before in thinking through a deflationary spiral is two fold. First is the issue of bank liquidity, second is the quality of the money.
The banks themselves can not survive a credit crunch where more than 10% of debt is unrecoverable (that is the difference between bank asstes and liabilities). That would wipe out the whole of the banking system. They need at least one of the following to occur: (1) Defaults are small/limited in scale. (2) Security retains enough of its nominal market value to cover the outstanding balance on the loan (accrued interest and principal - remember that the bank liabilities pay interest too and the bank's take is only the margin between them).
In order to save the banks, the Fed must print enough funds to bring back the banks to a point where they are at least liquid, if not solvent. Meaning that as banks sell surviving assets to meet withdrawals (banks with a greater level of non performing loans have more money coming out than coming in). The market value of these assets from distressed sale will fall substantially below what it otherwise would have been. In order for the banks to survive, the Fed must pay above market prices for bank assets till bad bank assets are at a low enough level that they cover remaining liabilities. Since the market value of bank assets (not the fictitious book value) under current circumstances (higher general interest rates and high spreads) is falling, while bank liabilities are still growing at an interest rate similar to that of treasuries, Bank capital is falling at 10 times the rate at which bank assets are falling - and at the same dollar amount, then if last year banks had a 10% capital base vs assets, they can only survive a 10% drop in market value of their assets without becoming insolvent (which does not make them bankrupt - they are only file for regulatory takeover when they are illiquid; when they can't meet a withdrawal, or their insolvency is so obvious that a bank run is treatening and the regulators come in to take over - at tax-payer expense - which is borne out through bond issues).
Essentially, the Liquidity saving operation is such that the banks must sell the Fed (or Treasury, which holds cash balances at the Fed) enough securities to meet net asset loss and interest on liabilities. Thus interest rates must be kept below the market preference - meaning that they must be low enough to induce substantial growth in borrowing demand by consumers. That is, under these distressed conditions, the rates which would keep the banks in one piece are also the rates that would cause people to run out and borrow.
There are also a few things that banks do on their own in order to stay afloat. For example, in order to entice their liability holders to maintain accounts, they move to raise their own long term rates so that people close up their accounts in longer term CDs instead of treasuries, money market funds, regular savings etc.. The 1 year CD rate quoted by many banks is already well above the Fed funds rate and above the treasury rate, best top rated banks are offering over 7.1%. The banks are finding that their CD rates have to be greater than Eurodollar rates and greater than LIBOR - meaning that there is nowhere within the global banking system where funds can be had. Thus the Fed Funds and discount rates are still nicely below the market, meaning that they can't lower rates without triggering another consumer borrowing binge and with it a price inflation spiral.
Let's try to assess the current conditions:
From end 1998, bond funds have dropped 10%, not counting accumulated interest payments. Adding in the bank spread as 2.5% per year (gross spread is 3-3.5%), the market value of bank assets would be down 9% if they are as good as diversified bond fund managers. If they are somewhat better, say they outperform by 1% per year, then they would have lost only 7%. Leaving them with a 3% margin of safety on average. Some banks should already have seen some damage on the REAL front (not necessarily on the books) Some of the more aggressive commercial lenders should already be at the point where they are forced to sell assets.
The Fed is already buying assets through its 28 day repos and through occasional purchase of treasuries from the banks. But they try to minimize this because everyone knows to follow these figures to tell whether the Fed is adding funds (which everyone knows is inflationary). The better way is for the Treasury to use its balances at the Fed to buy back long term treasuries and inject Fed money that way. It actually has some positive connotations associated with it. If Treasury actually buys long bonds and issues short term bills then banks are in a position to have the flow of bond redemption funds fall into their hands (which will happen because the banks can pay higher rates than treasuries because no one can offer a better guaranteed return than a bank when the Fed funds rate is above the whole yield curve). Thus the banks have an incoming flow of funds to use in meeting withdrawals. The Fed and treasury, with the assistance of the Government sponsored debt aggregators Fannie Mae and Freddie Mac are buying up securities from the banks at above market rates, while issuing tons of their own high grade paper into the money market funds.
Now look at the issue of the quality of money. The quality of debt money is as good as the current credit quality of the outstanding debt. The default of a loan removes forever the future demand for the funds borrowed into existence in the past. Thus leaving behind the bank liabilities (dollars) that were then created. When this happens in the debt securities markets, the debt securities are discounted - those that had defaulted are heavilly discounted but those that have not will discount too because of banks having to dump them in order to raise liquidity. With the bank liabilities covered by the Fed and FDIC (i.e. government), the possibility of bank default is ruled out, leaving the bank liabilities but without the initial demand.
Thus the quality of credit money drops with defaults. It also drops without defaults.
It should be noted that money causes prices to rise well after it is created. Even credit cards don't raise prices at once, it takes time and requires the money thus created to fall into someone's hands as business profit or income. It is their decision as to what to do with the new money you created by borrowing to purchase their product/service which will decide the course of prices. As long as this fresh money is not circulated through the real economy to buy new production or build new plant capacity, but flows instead into investment vehicles, prices will stay under control, limited to the effects of initial contract lending.
Initiation of borrowing does have a direct impact on prices, but it is still less than the full impact of credit creation as a whole.
It is only when some borrow now for the purpose of purchasing a future good that credit directly causes prices to rise. As when you sign a contract to purchase a NEW home and borrow in order to pay the contractor before each stage of construction is finished. Your INTENTIONs to borrow will raise the prices of items you and other intended borrowers will pay - even before the money was created. The bulk of future production contracts with borrowing causing direct price increases is limited mostly to NEW home building and business investment, though custom furniture orders and the like are similar.
Back to the people who earned the new money you borrowed into existence and invested it in financial media. So long as they and the sellers of financial media do not take the funds and spend them in the real economy - either through investment in plant or R&D, or through spending on consumer goods, prices will not rise. However, if there is a change of heart on the part of investors as to the profitability of these investments in financial instruments, they will take the funds out and deposit them in a bank. At that point, the bank has to find something to do with those funds so as to pay interest, it will end up lowering rates or credit quality till a borrower is found for it. More likely, however, the bank will use these same funds to purchase existing debt from the markets, or lend the funds to a hedge fund or leveraged investor. Most likely, the interest rate that the investors get will be lower than that expected, and they will take some funds out and spend them.
The big point here is that the quality of credit money falls when it is created (even before it is created) and then courses through the economy from the initial point of spending to the rest of the economy. Even funds that are invested raise prices when they hit the actual economy in real investment in labor and goods. The funds then raise prices again when the financial instruments are sold and funds moved into banks, where they are again used to raise prices. Then again when the deposits are spent.
Like a bond, the dollar is a credit receipt, if the bonds are bad, the dollars created in order to "save the markets" after the fact of borrowing, and the funds circulating throughout the economy that were created at a bank will all fall as well.
elevator guy
(10/24/00; 22:36:46MT - usagold.com msg#: 39826)
What others think of us....
This was posted at a site for commodity traders...Where I used to glean info before discovering this site...
The discussion was about other web sites...
snip
gold bug sites? nothing to learn there, just gold bugs getting poorer by the day, telling each other some day ....
unsnip
Hate to tell her how much I made in gold paper!
Leverage- Get you some.
justamereBear
(10/24/00; 22:35:45MT - usagold.com msg#: 39825)
Trail Guide/Traveller et al re Inflation/Deflation
I seem to be missing, or confusing something.
Some of the arguments I see seem to confuse (whatever your definition of each) M1 and M3.
First off, I agree that many of the surplus US dollars are snugly back in the US. Where else do you have a larger natural market for US dollars than in US entities?
As I read history, it is possible for M1 to inflate dramatically, at the same time M3 is deflating darmatically.
I believe that comes about for 2 reasons. 1) Fear, largely by the lenders, that any money lent, will not be repaid, and they cease to lend, reducing the "fractional banking multiplier". 2) Assets, ie loans on the books, become worthless, thereby reducing M3.
It appears to me that governments (and central banks) live largely in an M1 world. Citizens live largely in an M3 world.
Comments?
LeSin
(10/24/00; 22:28:32MT - usagold.com msg#: 39824)
From GE forum - Thanks to ("uponroof")
The Euro For Oil = Saddam stirring the Black Gold Pot
The Euro For OilÝ
(uponroof) Oct 24, 18:35
If Sadaam gets this off the ground, and the arab contingent of OPEC get a little more upset with the U.S's backing of Israel, we could see a euro/dollar reversal that would turn markets upside down. (BTW in real world circumstances, the Euro's backers would be forming a sweetheart deal to win over Iraq and the arab states. Never happen. Slaves don't rebell without consequences).
The politics of the U.N. are big in this instance (for a change). Even with the U.S. delinquent in dues (with my sincere thanks to the Congress)it won't mean diddly. The U.N. does almost nothing without first checking in with American interests, especially with Sadaam involved. He will need political backing from other arab states to pull off such an anti American move.
Unless of course he really does turn off the taps next week. (Nov 1) and forces the issue. This could be a doozie should arab oil producers, upset with pro Isreali interests, unite for euros. What a leveraged whipping stick to hold over the infidels. ****************************************************
October 24, 2000
Technical Issues Key As UN Mulls Euro Account For Iraq
By MASOOD FARIVAR
Of DOW JONES NEWSWIRES
UNITED NATIONS -- The United Nations is mulling an Iraqi request to open a new account to enable its oil revenues to be paid in euros instead of dollars, a concession Iraq says must be made or it will interrupt its exports
of oil.
U.N. diplomats played down the possibility of political objections to the unconventinal plan, but said there were important legal and commercial issues that had to be resolved.
"We have discussed it informally, but we have not made a decision," said a Western diplomat who sits on the 15-member U.N. Iraq Sanctions Committee. "We think it is not in line with regular market practices, so we
referred it" to the U.N. Treasury and Office of the Legal Adviser.
The sanctions committee maintains strict control of Iraq's 2.2 million barrels a day in oil exports. Proceeds are kept out of Iraqi hands in an escrow
account maintained by BNP Paribas in New York. Foreign suppliers of humanitarian goods are paid out of the account, which currently holds about $10 billion.
Calling the dollar the "enemy country's currency," Iraq earlier this month asked its oil customers to make payments in euros beginning Nov. 1 and called on the sanctions committee to establish a euro-denominated escrow account to collect the proceeds.
The U.N. Treasury and the Office of the Legal Adviser are studying whether U.N. procedures would allow such a move and are examining how the switch would affect revenue into the program, which is used to provide
aid to 22 million Iraqi civilians.
Crude oil is bought and sold internationally in dollars, so Iraq would have to lower its oil price to cover the transaction costs buyers of its crude would incur by dealing in euros, said a diplomat who is familiar with the issue.
Converting the escrow account's deposits into euros would incur further transaction costs, as would conversions needed to pay suppliers of humanitarian goods in currencies other than the euro, the diplomat said.
"The question is, how is it going to impact revenues from the oil-for-food program," the diplomat said. "How are they going to pay the transaction cost? Is it going to come from the escrow account?"
U.S. Not Seen Opposing Plan If U.N. Office Gives OK
Diplomats said the sanctions committee will take up the issue again once it receives the recommnedations of the U.N. Treasury and Office of the Legal Adviser, which are expected in the next two weeks. The U.S., a proponent
of sanctions against Iraq, is not likely to oppose the move if the Treasury recommends it, Western diplomats familiar with the U.S. position said.
The oil-for-food program's coordinator in Iraq, Tun Myat, said the plan wouldn't pose a political problem.
"It's a question of dollars and cents," he said.
Since its inception in 1996, the oil-for-food program has generated an estimated $36 billion in revenues, according to the U.N. Office of the Iraq Program. With the recent surge in oil prices, Iraq is expected to earn about $18 billion in oil revenues this year alone. About $5 billion of the funds in the escrow account have been earmarked for various expenses, including humanitarian supplies sent to Iraq.
Even though the program constitutes an important source of revenue, Iraq has been highly critical of the program, saying it does little to feed its people and that it is used by the United States to justify keeping sanctions on Iraq.
Diplomats said the demand to open a euro account is the latest attempt by Iraq to politicize the program.
"It is superfluous to the operation of the program," a Western diplomat said. "This is clearly a political move."
With one week left before Iraq's deadline, it remains unclear whether Baghdad will follow through on its threat to halt exports if the U.N. turns down its request.
"That's something we should prevent," one Western diplomat said, referring to a potential halt in exports.
Asked whether he was concerned over the Iraqi threats, Myat said, "I have read about it in press reports. I don't think there is anything more to it than that."
Since its launch in January 1999, the European common currency has weakened about 29% in value against the dollar, dropping to a new record low of 83.24 cents last week. Though euro bills will not start circulating
until 2002, the common currency is widely used in international transactions.
State and private banks in Iraq have started dropping the dollar in favor of other hard currencies in business transactions. The decision has led to a surge in the value of the local currency, the Iraqi dinar.
-By Masood Farivar, Dow Jones Newswires; 201-938-2094,
masood.farivar@dowjones.com
TheStranger
(10/24/00; 22:23:48MT - usagold.com msg#: 39823)
Cavan Man's Question - Why Aren't Gold Stocks Reflecting The Inflation Threat?
Cavan Man - As I said earlier today, bear markets happen because a lot of investors, including mutual funds, are selling stocks. Many of those sales undoubtedly result in taxable gains. This presents a problem for any fund which is under water this year. To wit: How can we tell our shareholders, whose money we are losing, that we are also going to stick them with a tax bill? The only way out of this is to unload any losing positions we have and use the resulting loses as an offset. By law, such sales must be completed before the end of October. Ergo, goldminers and a lot of other recent "dogs" are simply being thrown overboard this month.
Additionally, I don't believe the inflation argument is widely accepted yet, though that day is coming. When I first started predicting inflation in these pages 20 months ago, not one other poster agreed with me. Many, in fact, argued that I was wrong. Now, however, even the popular media are at least beginning to see the danger, and many in the Forum take it as a given.
But, frankly, it is not just gold which seems to be ignoring the inflation threat. Government bonds are doing so also. Historically, long governments have tended to yield at least the inflation rate plus 300 basis points. You know that the official 12 month CPI, as reported last week, is currently at 3.5%. Add 300 basis points to that and you get 6.5%. Yet long govies are below 5.75% right now.
If you buy bonds at 5.75% your after tax, after inflation rate of return is bound to be zero. Yet people are buying them anyway. In the year ahead, as inflation becomes more and more self-evident, I predict that such people will be sitting on losses.
The problem really is that most investors drive with their eyes firmly trained on the rear view mirror. When I was a young stockbroker in 1982, America was at the threshold of the greatest bull market ever. Yet I had a dickens of a time getting prospects even to consider buying stocks. Businessweek had recently run a cover story entitled "The Death Of Equities" and the most popular investment book of the era was Howard Ruff's "How to Survive and Win in the Inflationary Eighties". In it, Ruff argued that gold and silver were most assuredly the best place to put one's money.
It takes a lot of reading to see important changes in the landscape before they happen. Most people find it easier just to always expect more of the same. Much of the time, such carelessness works pretty well. You might call it momentum investing. But, sooner or later, it is a great way to get taken to the cleaners.
Who is the Howard Ruff of today? Take your pick. There are lots of them. Gary Shilling is a good candidate. His book, "Deflation" was a top seller last year, though it is all but forgotten now. My personal favorite candidate for the Wrong-Way-Ruff award, however, has got to be Abby Joseph Cohen. Many's the investment club of little old ladies whose savings are now seeping away thanks to this woman's air of sweet self-confidence. Surely she'd never steer them wrong.
Would she?
justamereBear
(10/24/00; 22:16:27MT - usagold.com msg#: 39822)
Rockgrabber associate 39791
It seems to me that the intent of this post is a bit off topic, so I will only make this one post.
Yes it is true that you have indeed changed schools. And there is no doubt that you will learn in this new school. In order to survive you must.
However I question the assumption that is made, that education is to give you practical training for your life outside.
In my mind, particularly in an ever faster changing world, formal education is more about giving you the basis, or the tools, or a method of thinking, to solve the unknown problems you will be faced with.
Why train you on this years tax form, when it is going to be out of date next year. Better to teach you how to read, and add, and subtract, and multiply, and divide, and let you use your brain to figure out the changes, or whatever you need to work out. Once you understand how the cosine of a triangle works, you can deal with any kind of triangle that you run across. Believe me there are lots of triangles in the life ahead of you. (although you may never use cosine again)
A degree does not say that the individual will use the knowledge, or use it to best advantage. A degree means little. I have a few letters that I can put after my name, but I certainly don't have them on my business card. (or anywhere else for that matter) About the only thing I value more than gold, is knowledge.
I am reminded of an adage. Give a man a fish and you feed him for today. Teach him how to fish and you feed him forever. The education system is trying to teach students how to fish by giving them problem solving abilities. You are demanding they give you a fish in the form of a course on tax forms.
There is no doubt that day to day living will give you knowledge. And while the education system does not give you the in depth knowledge that the school of hard knocks gives you by smacking you occasionally, or all to often, it does give you a look at a wide variety of problems, the reaction to these problems, and the result. You can take in 20 or 50 problems, and see the results in the time it takes to work through the same problem in real life. Why reinvent the wheel?
The formal education system is about learning a lot the easy way. If you don't understand that, then I would say you are right. The formal education system has little more to offer you.
TownCrier
(10/24/00; 22:10:33MT - usagold.com msg#: 39821)
goldhunter...
It would be helpful to the Lord of The Tower if you would please follow through with my previous request that you cite the passage in which I have "bad mouthed" gold derivates. It might facilitate an objective decision to have me permanently ejected from this seat on the rooftop. It would seem that such an action could be warranted, particularly if you would also cite the disruptions for which you claimed : "folks at this forum are truly wasting energy pissing others off." Given the business credo that the customer is always right, if you insist on jeopardizing my position here with your remarks, I ask that you at least provide a solid basis to your fitful offerings.
Can you objectively see why I must reject the four speculations you offered for explaining the current situation and trend of the gold market? I will review them one by one.
1) You blame the buy/sell spread on gold coins for the downtrend.
Were you able to type that with a straight face? There is necessarily a buy/sell spread on nearly every tradable asset, and for some assets, there are additional brokerage fees applied each time a trader enters and exits their position...these fees are on top of the spread! (These extra fees do NOT apply to gold purchases and sales.) With your logic, all financial insturments should be in a downtrend, with some moreso than others.
2) You blame the non-event of Y2K for the downtrend as the gold buyers have become sellers.
Were you able to type that with a straight face? Even if I were to overlook the fact that last year's North American sales volume failed to provide the expected (under your Y2K logic) increase in gold prices, I cannot overlook the fact that this Y2K hiccup fails to even bear witness to the factors behind the decades-long downtrend in the gold market.
3) You blame the gold market downtrend on poor marketing on the part of coin dealers, not competing adequately with stocks.
Were you able to type that with a straight face? Enough said.
4) You suggest the downtrend in gold prices is simply because not enough people have seen the light.
Were you able to type that with a straight face? The World Gold Council has reported continuing demand for gold at record and near-record levels on a global basis, and further, that annual demand outpaces annual supply of new production and "scrap" by a significantly wide margin. It appears to me that many people are indeed seeing the light...the yellow light reflecting from the metal in their possession.
But I will agree with you on this in another regard. Simply not enough people are seeing the light that the ample and artificial supply of paper gold has facilitated over the course of many years an adverse effect on gold price discovery, and subsequently, the adverse popular perception of the metal's value.
Time will tell if I am guilty of upsetting your emotional apple cart enough to effect my removal, but I can not be faulted for your stubborn and naive perceptions of global gold market dynamics.
TownCrier
(10/24/00; 20:33:22MT - usagold.com msg#: 39820)
Thoughts for Sir Gresham
In the spirit of your post, and notably this passage:
"But it looks like the "short squeeze" will be on everyone who is in debt to stay on the good side of the shakeout.
+
It seems to me that debtors get the first move, and force lenders into reactive mode, especially if they are long-term,"
do we see a significant picture if we look here? ------> Peering into the accounts of foreign national central banks we may see a ponderous quantity of U.S. Treasury bonds. It is certainly in that light that we must ask your avove question as we identify "who" it is that is in this particular debt, and what options are available to "them" (and available to the bond-holding "lenders") with regard to making first moves and the expected reactions to such events.
RossL
(10/24/00; 20:18:18MT - usagold.com msg#: 39819)
Mining shares
A mine start out as unimproved land. Money is raised to explore the land, invest in equipment, and pay the workers to extract the ore and refine it. After a while, it might produce enough gold to make a profit. Sooner or later, the gold ore runs low and the mine must be closed, leaving a big hole in the ground and possibly leaving an environmental liability.
Question: exactly when is it a good time to buy and when to sell?
RossL
(10/24/00; 19:50:19MT - usagold.com msg#: 39818)
good charts
http://www.investech.com/
These guys over at investech.com do good charts.
goldhunter
(10/24/00; 19:40:11MT - usagold.com msg#: 39817)
A few ideas for Mr Crier...
Maybe, Mr Crier, the price of gold has been in a downtrend because when someone buys a gold eagle coin for say...$285.00, they can 'only get" $279.00 when they want to sell it back?
Or maybe the reason for the downtrend in gold is because all that bought coins for Y2K have sold out after minor consequences were reported in Jan of this year...
Maybe the price of gold is in a downtrend because gold coin dealers are doing FAR LESS advertising then Securities Dealers...(stock brokers)
Maybe we are having a downtrend in gold because SIMPLY, not enough people have seen the light...I'm doing my job to help...folks at this forum are truly wasting energy pissing others off...Are we Bull Market Supporters or Not?
There truly is no difference ...futures/physical will move up in tandem...Watch it unfold...
FOA physical/futures report card due here Dec 1, 2000...I keep score...Do you?
RossL
(10/24/00; 19:15:40MT - usagold.com msg#: 39816)
Leveraged instruments
The recent talk of inflation and dollar destruction has brought with it discussion of derivitaves and leveraged instruments, low LTV mortgages and other means to play the inflation game. This seems to be the "western thinking" that has me wary.
There could be pockets of inflation and deflation swirling around in the markets. The cash chases the hot asset while the next one is cold. One neighborhood could see inflated housing prices while the businesses in another city fail, driving housing prices go down due to the lack of liquidity. This seems to be a fairly good description of the stock markets right now.
tg, you may find yourself in the position where you need to liquidate one of those highly leveraged assets at the worst possible time... My take on the discussion recently is that the big banks may be bailed out when the debt bomb explodes, but that in no way means that every consumer will be given debt relief.
IMO, Someone who is bringing highly leveraged assets into this poker game better worry. Someone who is debt free and has liquid, portable, and non-encumbered assets will not have to worry much. Later, there will be some good distressed assets to purchase with those gold coins.
References:
http://www.usagold.com/gildedopinion/TurkFedReserve.html
http://www.usagold.com/gildedopinion/howederivatives.html
http://www.usagold.com/gildedopinion/RoseInflation.html
Mr Gresham
(10/24/00; 19:04:54MT - usagold.com msg#: 39815)
Debt Magnitude
Trail Guide brings the idea that a massive debt buildup threatens the dollar. Yet many who comment see debt as a trap that forces acquisition of the denominating currency.
I'm trying to think of this in another way that might move a few of us closer to seeing which way the possible shakeout is likely to go.
Debt is a short position on the dollar. You expect to be able to return less valuable dollars later, or at least it less valuable than what you bought with the debt today.
Lenders are long dollars. They expect greater value later, through a combination (or offset) of appreciation and interest.
Debtors have a default option, both individually and in the security of a mass default. Lenders have the repo option on collateral. (Could we say they are long the collateral, too?)
If an overwhelming short position has built up on the dollar through debt, that is an expectation of its decline. But what power do those market players have to enforce such an outcome?
If they keep making payments, they strengthen the dollar? If they default, they weaken it? There are incentives in both directions, depending on the player. But it looks like the "short squeeze" will be on everyone who is in debt to stay on the good side of the shakeout.
It seems to me that debtors get the first move, and force lenders into reactive mode, especially if they are long-term. The guess may come down to: how valuable are repossessed assets, vs. a workout with debtor-in-possession, and how valuable is one's good credit rating, if so many well-respected neighbors are going down, too?
I guess the Fed would be a part of circling the financial wagons, attempting to set up the next era of "good credit risks" within a process of who the financial community thinks should get to own/manage the repo'd stuff. A further concentration toward the favored ones, no doubt, but still some big tumblers. A real snakepit.
Cavan Man
(10/24/00; 18:36:33MT - usagold.com msg#: 39814)
Stranger
In your view, why aren't quality mining shares moving ahead in advance of the gloomy inflationary outlook? Second; what will ignite a rally in mining shares? See 'ya soon...CM
wolavka
(10/24/00; 17:55:54MT - usagold.com msg#: 39813)
Stupid is as stupid does
Okay i confess, i'm long position limit in comex gold. Do or die. No guts no glory. Go get them goldhunter!!!!!!!!!!
TownCrier
(10/24/00; 17:39:24MT - usagold.com msg#: 39812)
goldhunter...
Please provide an excepted quote to serve as a supportive example of the truth behind your contention that I have been "bad mouthing" derivatives.
In anticipation, I would ask, do you also accuse a geologist of "bad mouthing" gravity or erosion when he explains why a rock rolls down a hill?
You have offered this bit of wisdom for our consumption:
"these futures will lead your coins up and away when the current trend is reversed..."
By making this comment, it stands to reason that you also stand able to offer a supportable explanation regarding the nature of this current trend, how it developed, and what is likely to be its undoing. Please do so, or be not so hasty to shoot down that which you do not understand.
Trail Guide
(10/24/00; 17:06:37MT - usagold.com msg#: 39811)
Comment
TownCrier,
Thanks for explaining about the long post cutoff limit. I think in the future I will address other posts with short clips of their items in mine. Then none of these will get so long.
TC, I'm going to read all of your recent clips as they do address a lot of the things happening now.
I also want to summarize my discussion with Traveler as it came across too broken. I do accept many of his points but am really trying to explain clearly what forces are in play now that will alter those same.
Thanks for all your work, Trail Guide
-------------------
Hello TG,
I saw your msg#: 39809. No that is not entirely what I said. I think if you read the latest James Turk article here in the USAGOLD system you will see different. He does a nice job of explaining some of it. You see, assets can go up very big in an inflation but still come no where near to keeping their purchasing power. I'll cover this more when I post a summary on the Gold Trails.
Trail Guide
Humble Pie
(10/24/00; 17:04:03MT - usagold.com msg#: 39810)
Trail Guide/Traveler roundabout in #39794
Outstanding discussion to say the least ,as longrange stability becomes an oxymoron when the foundation of wealth is little more than DEBT.
tg
(10/24/00; 16:46:53MT - usagold.com msg#: 39809)
(No Subject)
So, according to trailguide, stay highly leveraged and be in as much debt as possible(preferably fixed interest)and buy stocks, gold, real estate or whatever because the upcoming hyperinflation will make those assets fly in value and your debt will become relatively negligiable.
So under traiguides scenario, blackgold & yellow gold won't be the only sources of wealth, so will any asset that is not a dollar note
I can't buy that scenario.
You say trailguide, that the upcoming financial storm will be like nothing before. That reminds me of what investors were saying about the new economies.
History does rhyme
CoBra(too)
(10/24/00; 16:38:20MT - usagold.com msg#: 39808)
@CM - meant the land of the Aussie and the CDN. $ -
- That's probably western thinking - there still is the "Nugget" and the "Maple"!
- Lot's of typo's too - can't blame to the old computer - sorry - would love to join your cook out - maybe next time --
Thanks for the kind 'invite' - best regards cb2
Cavan Man
(10/24/00; 16:19:55MT - usagold.com msg#: 39807)
Hello again CB2
The sweet potatoes are on the boil and the wings upon the grill. I'll have just one pint and make a fine salad. Why, do wish you were coming over for dinner. We'd set an extra plate.
It is quite apparent to me that we live in a world where not only the "markets" are dislocated but, humanity as well. Never have been a gloom and doomer but in my view, the future is very clouded. I'll not let my family be taken captive by events so easily diagnosed.
Unemcumbered assets are the very best kind. Remember, "location, location, location". Kind regards...CM
Cavan Man
(10/24/00; 16:04:39MT - usagold.com msg#: 39806)
CB2
CDN? OZ? (as in land of?) Hello.
CoBra(too)
(10/24/00; 16:00:44MT - usagold.com msg#: 39805)
Physical vs Paper - Gold ... of course!
While not really wanting to get into the topic - so eloquently chewed over by our friends, teaching the true blue and only solution - I do concur with the "necessity" of holding physical at this important juncture.
As many of you know, I am from a small country, having joined the euro-zone (- another topic, which may become explosive in Nice in Dec.) and are happy for our advantage in export revenues and probably unhappy to accept the double whammy of US $ contract pricing in oil and other important commodties. I'm also unhappy, since I'm still not fully accepting the true outcome of the political will of the EU, which will be challenged again in Dec. - 10 smaller vs 5 big contenders to change the rule of hitherto equality.
As I may accept that even some of the inflated EU EGO's may come to their senses in view of the reality of economic turmoil, in the aftermath of potentially severe global repercussions by the overextended $ and all of its financial markets and accept their responsibility - again in a global sense ... and a global chance to come to the rescue of free trade. Even, or even better as it would be a blow to globalization, something I can't fathom anyway, since the cards have been dealt by the master cardsharp - the US$, the single most important currency today.
As it may only be a question of time, when the superior performance of the US economy will be unmasked as the charade it is and the new (as well as the old) economy's fabled earnings will be dragged to the scrutiny of the reality of the new light of tomorrow's dawn - the inherent problems of inflated financial and RE assets, propelling this jet-stream of misallocation of newly created funds to loversupp;y FRN's to the detriment of public debt are sowing up in company earnings. Even the most advanced CA ingenuity, together with political(?) relaxed regulatory over- or better hind-sight, will not forever ide the fact - corporate earnings have been on a decline for at least 5 qu's.
My take, where to hide as the $ -bow finally cracks, before shooting the final arrow. Well, of course physical gold, some euro's, or trying to be a contrarian some liquid OZ and CDN. holdings and again, coming back to topic of course, some gold in the ground - uninhibited by BB's.
....And finally, as Traveller stated "black and yellow gold - the only assets worth holding" - I may add shut in oil reserves are seeing the light of the day - ... look for the few potential "shut in" gold reserves - not up for grabs by the greedy! - Thank you - cb2
ORO
(10/24/00; 15:31:10MT - usagold.com msg#: 39804)
Trail guide - business credit
Debt to equity, according to Noland, is at 83% (if I remember right). So it is that much worse.
goldhunter
(10/24/00; 15:00:54MT - usagold.com msg#: 39803)
Mr. Crier...A Deal?
Mr town Crier, A Deal I propose to you...
If you will quit bad mouthing derivatives (Comex Gold Futures/options), I will promise you that said futures will help your "precious" precious coins and "dealership" make more money than you can imagine...
You see, despite the "local talent" viewpoints around here, these futures will lead your coins up and away when the current trend is reversed...
Big Money, Mr. Crier, will be long again someday...and they will be long futures, and coins too...
Your and others' bashing of derivatives is wasted energy, as we are all on the same team!!!
Deal?
TownCrier
(10/24/00; 14:49:32MT - usagold.com msg#: 39802)
Sir Golden Truth
RE: "U.S FORCES ON FULL ALERT!!!!! ... Gold now up 10cents???"
Elementary, my dear Watson. The price discovery mechanism is based on such items as gold derivatives (and notably the gold futures market) and the status of the balance sheets (and evolving sentiment) within the bullion banking sector. The performance and desirability of this paper gold requires both confidence and anticipation of *normal* market operations, not much unlike that required for paper currencies to function.
Given the state of domestic and global affairs, what element do you expect would prompt smart money or big money to move into these paper gold arenas so as to bring to bear an upward impact in the price? Would it not be more likely that the instruments and markets that we have all come to rely upon for price discovery of the underlying metal (as duly adjusted to reflect interest rates, etc.) would themselves fall into discount and perhaps ultimate discredit?
Much of this has been widely discussed here on the Forum and at the Gold Trail page, so I will not burden anyone further with my echo of those thoughts.
wolavka
(10/24/00; 14:23:30MT - usagold.com msg#: 39801)
Look at march dollar index
This mkt is gonna break hard to downside. short range top, it's over for dollar.
Golden Truth
(10/24/00; 14:17:50MT - usagold.com msg#: 39800)
U.S FORCES ON FULL ALERT!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Gold now up 10cents????????????????????
Who needs GOLD anymore?
The masses have been so dumbed down and blinded by the deceiver who appears as a light know as Technology.
Well its about to reveal it's true nature DEATH,DEATH,DEATH i've always said it's going to take a Nuclear explosion to move GOLD,Holy,Holy,Holy is the Lord God Almighty!
Get ready for the P.O.G to really BLAST off and soon,even then the Manipulators will try, but in vain they will FAIL.
WAR only days away, how very, very sad!
G.T
DaveC
(10/24/00; 13:31:39MT - usagold.com msg#: 39799)
Al Fulchino (10/24/2000; 7:27:47MT - usagold.com msg#: 39775)
I think that the "token" Libertarian has been allowed in by the Republican establishment. His name is Dr. Ron Paul.
Any other Libertarian may not be allowed money to finance a campaign. That is the first thing that comes to mind, unless there is no handy "normal" Republican around.
I too would like to see the Republicans actually live up to what their web site says about being the party for smaller government. But it has not happened in the 90s and I don't see another Ronnie on the bench. At least Reagan was able to stem the pace of the growth of government. I don't think GW is quite up to snuff.
Today's climate does not allow for anyone who even comes close to being idealistic. But the pendulum will swing back soon, I hope.
Ciao.
TownCrier
(10/24/00; 13:13:21MT - usagold.com msg#: 39798)
An Australian perspective...a must read
http://www.theage.com.au/bus/20001025/A5330-2000Oct24.html
Gold owners can gain some insight from this commentary delivered to a population of Australian dollar owners.
Among many other good points, the article writer states plainly, "Globally, matters are coming to a head."
Again, this one is a must read for those of you needing to expand your perspectives.
wolavka
(10/24/00; 12:49:39MT - usagold.com msg#: 39797)
Margin on gold
Expect them to raise after tomorrows close.
TheStranger
(10/24/00; 12:37:09MT - usagold.com msg#: 39796)
Inflation Update
This is the longest message I have ever posted here at the Forum. I would not have done this except that I believe it is also the most important post I have made. Those who have already read Sunday's Financial Times article about the dollar can skip it and save some time. I include it here because it is important to my sumation below and because some members of the room may have missed it. Thanks.
**********
Below are excerpts from three newspaper articles which appeared two days ago in the Chicago Tribune, the Salt Lake Tribune and the Financial Times of London, respectively. My remarks appear at the bottom.
The Chicago Tribune, Sunday, October 22, 2000 by Bruce Japsen
HEALTH-CARE INSURANCE BILLS TO JUMP
Next year's health insurance bill might make even the hardiest individual a little sick. Premiums are expected to take their biggest jump in a decade.
Major employers report that health-care costs are rising at least 10 percent to 13 percent, and workers are likely to see a similar increase passed along to them, according to a new study. Most employees will pay at least $125 more in premiums next year.......This year, health care costs rose an average of 9.4% nationally (according to a study to be released this week by benefits consulting company Hewitt Associates)... Hewitt's study of 320 companies with 1,000 employees or more comes from a database of 3.5 million employees and their dependents... No matter what health plan a compny provides, employees are not likely to escape higher rates. On average, companies say their healthcare premiums are going to be up about 10% for preferred provider organizations and point of service plans; 12% for traditional endemnity plans; and 13% for health maintenance organizations.
The Salt Lake Tribune, October 22, 2000 by Lesley Mitchell
Home Prices Up On Wasatch Front
The average value of new home permits issued throughout Utah continues to rise. The average new permit totaled $133,315 - not including the lot price - for the first six months of this year, up 5.3% from the same period last year and 25% from 1996.
http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT3LJ30LOEC&live=true&tagid=IXLMS1QTICC&subheading=global%20economy
Funding fears add currency to doubts on the US dollar
By Christopher Swann
Published: October 23 2000 20:14GMT | Last Updated: October 23 2000 22:25GMT
Like the proverbial cat the dollar has had many lives.
For more than a year, economists have been predicting that the currency would soon succumb to the bloated US current account deficit, which looks set to reach $440bn this year. Until now the appeal of its assets has enabled the US to suck in 70 per cent of the world's capital account surpluses.
"Each time international appetite for one class of US asset has started to wane, another has taken its place," says Paul Lambert, director of currencies and bonds at Deutsche Asset Management.
But once again analysts are beginning to ask whether the dollar is running out of lives.
"It is increasingly difficult to see what will come to the rescue of the dollar this time," says Jim O'Neill, head of currency research at Goldman Sachs.
Of particular concern have been the seemingly unrelated problems of Europe's telecommunications companies and technology stocks more generally.
These companies have recently been the driving force behind the boom in cross-border merger and acquisition activity, which has been lifting the dollar ever higher.
Last year $73.6bn - or nearly one-third of cross-border M&A inflows to the US - came from the telecommunications sector.
Now it looks as though this particular source of dollar support is likely to dry up.
"US technology media and telecoms companies are still something of a bargain for their European counterparts," says Paul Meggyesi, senior economist at Deutsche Bank in London.
"The question is whether European telecoms companies in particular can afford to pay even bargain prices any more," he adds.
A spate of merger activity, coupled with the princely sums being paid to governments for third generation licences, have saddled European telecoms companies with huge debts.
Indeed, lending to telecoms companies has reached such proportions that European regulators are examining whether banks are overexposed to the sector.
Credit rating downgrades for Deutsche Telekom and British Telecommunications among others - along with recent falls in share prices - have left European telecom companies less able to make further US purchases.
"A lot of these companies have completed their expansion phases and are thinking about consolidation," says John Montgomery, senior global economist at MSDW in New York.
This is not the only cloud on the dollar's horizon.
Corporate bonds - an even more important source of dollar support than foreign direct investment - have also been losing their shine.
A recent stream of warnings from such bellwether companies as Intel, Motorola and Apple, have helped sour the outlook for corporate earnings.
Meanwhile, the National Purchasing Managers index recently fell below 50 - the boom-bust line for the US industrial economy.
Against this backdrop many investors have been selling corporate bonds.
Pimco, the world's largest bond fund manager, has urged investors to avoid corporate bonds at all costs. "Spread product (corporate debt) is in for some grim reapings in the next month and the next few quarters," William Gross, managing director of Pimco, warned investors last week.
"Even a slowdown in the inflow into the US corporate bond market would leave a gaping hole in the funding of the current account deficit," say Mr Lambert, pointing out that flows in 1999 represented around 60 per cent of the deficit.
Nor can the dollar any longer rely on the outperformance of US shares. After several years of outperfor-mance, US stocks have actually lagged behind those in Europe - with the Standard & Poor's index down 5.5 per cent on the year to date, compared with a5per cent fall in Germany's Dax and a 3 per cent rise in the French CAC-40.
Even so, the dollar's recent habit of pulling rabbits out of hats has left economists reluctant to rule out the possibility that it will manage to attract new flows.
"Crisis in the Middle East and rising oil prices - if sustained - would generate continued demand for US Treasuries as a safe-haven asset," says Avinash Persaud, head of global research at State Street, the Boston-based investment bank.
One further possibility, argues Joseph Quinlan, is that Japanese companies - who have recently stood back from the cross-border merger boom - will swoop down on US companies.
"This could be the dollar's tenth life," quipped Mr Quinlan.
But most think these are wild card options.
"It looks like the dollar bull run may have entered the final straight," says Mr Lambert.
With negative factors for the currency continuing to accumulate, the dollar can not be expected to defy gravity for much longer.
**********
David Davenport's remarks:
In addition to the above, last week, the Social Security Administration announced a 3.5% cost of living increase, the biggest benefit inflation adjustment in a decade. Such reports as these clearly demonstrate how wrong government reports, claiming little or no inflation, really are. For the past two years, the Clinton administration has been telling us that price increases have been limited almost entirely to oil and tobacco. Because these increases were deemed to be more political than economic, Americans have been encouraged to believe that inflation is tame. (This, despite the fact the Gore campaign has been railing against high pharmaceutical prices all year, and the Fed has already raised interest rates six times.
But the important thing to remember is that, when excess paper money is created, prices inevitably rise. And, in the past three years, money has been created in America to a degree which is almost unprecedented. First it was to deal with the $100 billion collapse of Long Term Capital Management. Then, it was to respond to the Asian Contagion of 1998. And finally, it was to protect against the potential of a y2k calamity.
The results of so much money creation are all around us. You see it in the tech bubble which occurred last winter. You see it in the very high debt levels which exist in all segments of American society. Perhaps most worrysome, you see it in the trade deficit which is discussed in the Financial Times article above. And, finally you see it in oil prices and rising inflation. Americans have been beguiled by prosperous times into spending like there is no tomorrow.
Morgan Stanley's chief economist now believes that the chance of a recession developing soon is rapidly rising. Whether we have one or not will depend upon the Fed. Will they have the courage to defeat rising prices, or, fearing a slow down, will they turn on the jets by creating even more money? In recent weeks, they have been creating more money.
This question truly is political rather than economic. But, whatever the answer, we are headed for higher inflation. Why? Because, either the Fed will create even more money to keep already overextended consumers spending, or the economy will slow, and cause the dollar to fall. And because Americans import $30 billion a month more than they export, a serious drop in the dollar would make all imports cost much more.
Unfortunately, these problems are developing precisely when stock valuations are higher than they have been in any previous cycle in history. This is why we are in a bear market this year.
STOCK COMMENTS
Exxon Mobil announced their quarterly results this morning. In contrast to the many earnings disappointments coming from tech land, Exxon's reported an increase of 96%! Of course, like last time, the stock immediately went down a couple of points. People have been told by both Washington and Wall Street that high oil prices are only temporary. So they sell the stock on any good news. Still, we are making progress here, and I expect the stock to go to new highs soon.
Gold has dropped about 1% this month, but the mining stocks have been hammered. Many mutual funds sold stocks during the big declines this year at a profit. October is the last chance mutual funds have to take offsetting losses. The impulse to take such losses is especially acute this year because fund manager's do not want to report taxable gains to their shareholders in a year when the shareholders have lost money. This tax loss selling turns any stock which is down for the year into road kill at least for another week.
The argument for owning gold and some gold mining shares is still very persuasive. As inflation continues to unfold and as the dollar begins to weaken, long-suffering gold should be one of the few places to hide. The rally, if it comes, may be very sudden and very dramatic.
wolavka
(10/24/00; 12:21:04MT - usagold.com msg#: 39795)
It's over for the sharemarkets
News media to interview aflac duck for market direction.
No wonder soros left.
Trail Guide
(10/24/00; 12:16:24MT - usagold.com msg#: 39794)
Let's try it again?
ALL:
HA! HA! Oh Boy!
I was just rolling up through the posts and came across the tail end of mine. I thought it was some kind of reply from someone else. I thought, what in the world is he talking
about with all that Rods business?????
Then I saw it was mine. Guess it was too long and got cut off. Don't know where the rods in the sky stuff came from? Must be those funny people in Colarado or is it Calf.? (big smile)
Oh well, here is the rest of it from where it went haywire:
****************
With respect to Trail Guide's "living in many, many lands and have witnessed and used such inflating systems," I would point out these key differences in economic profiles.
Unless he was economically alert during the last time a reserve currency "fell from grace" (the pound sterling following WWI), then the experience of Mexico, Argentina, Russia and other commodity based economies are not on point.
==============Well, the pound opted to have the dollar back it's "transitioned" currency so the effects are not the same. Further, their debt structure had not come anywhere close to what we currently have. So they muddled through. The same could be said for the dollar if it took the Euro
as it's reserve backer. However, comparing the debt levels of Britain then and the dollar now is like comparing a baseball to the universe!===============more
Furthermore, hyperinflation is difficult to introduce when a country's government, businesses and citizens are already overly leveraged and are having trouble meeting debt service obligations ($2 trillion annually as recently posted by ORO). Total debt in America is often quoted in multiples of
record high GDP. It is one thing for the FED to pump money vigorously into the economy. It is another matter all together for the banks to find credit worthy or semi-credit worthy users of this fresh tidal wave of liquidity. By some estimates, corporate America has already leveraged up from
a conservative ratio of 25% debt to 75% equity to a precarious 75% debt to 25% equity ratio. That is almost a 10 fold (1,000%) increase in debt!
============= Traveler, every time you bring another log to our "Gold Trail" fire, I pour gasoline on it and burn it before it becomes of use. But keep trying, sooner or later I'll run out of fuel. (smile)
Again, hyperinflation in our economy will (as I demonstrated in the beginning) begin with our government buying the debt from creditors and changing the terms of it's payment for over leveraged citizens and businesses. Further, a rising price structure of an extreme nature, such as this, quickly raises all wages and income levels. Allowing everyone to service easily what seemed like a mountain of debt before. No different than looking back to when minimum wage was $1.00 and now is $5.00+/-. Only happening on a super accelerated scale. =======================more
In summary, he who has the gold makes the rules. The creditor class -- both the domestic plutocracy and their foreign cousins, has the gold -- both literally and in the form of debt claims. They would rather convert their paper claims into foreclosed hard assets following a deflation and
at worst loose a billion or two from poor collateral valuations while reaping trillions in new purchasing power. That beats passively loosing 20% - 40% - 60% of the value of the entire debt portfolio from hyperinflation.
=============== Exactly who in the voting public do you think is going to sit still for this paper conversion? You,,,, me,,,,that man behind the tree? Ha! Ha! """NoONE""" leaves their debt claims laying around in a country where their citizens are being economically tortured by huge, all
consumeing debt claims! At least not without massive risk returns. That's why rates soar so high. You either run for it or take a big chance in staying,,,, most run if a stable medium exists. Providing that medium in either Euros or a Free Trading gold market is where the ECB / BIS can play the
good guys============more
Furthermore, if the word came out that hyperinflation was the policy of the USA, who would lend their funds for the prospect of receiving less purchasing power later? I for one would rather take my chips overseas to an economy that is stable and offered good returns for definable risks.
Domestic usury laws can only be raised so high and bankruptcy laws tightened so tight before the great unwashed revolt.
===============My feelings exactly!===============more
The major risk to the scheme of the plutocracy is a revolt of the masses -- whether politically through election of populists who pass legislation such as foreclosure moratoriums or violently though protests, strikes, lynchings, pogroms and the like. Thus inflation followed by hyperinflation will be instituted by the FED at the instruction of its masters once the fear of loosing it all exceeds the greed of gaining another prized asset on the cheap.
================Very good!=================more
Lastly, consider this. Current wealth of creditors only increases during deflation as each dollar now held becomes more dear.
=============That used to be true before the volumes of debt securities began to dwarf the universe. Today, most asset holders are true to nature players of the trading mentality. If inflation becomes the risk, they will exit the door in an attempt to out trade you and me (and that man behind the tree (smile))! Most of them will simply run up the inflation ladder seeking the next higher return. In the process marking the market down in existing holdings until the government must also buy those items at par. ===============more
Inflation is a wild card for everyone. For example, my one ounce Maple may be worth $20,000 or $30,000 once deflation is turned into hyperinflation (and former creditors have switched to being net debtors). But what is that $30,000 worth in today's purchasing power - $3,000 for a 10 to 1
return or $300 for a big waste of time and energy?
==============ALL:
This is one of the major flaws in Western Hard Money thinking. We tend to view the dollar price of gold in a static purchasing power light just because it's bookeeping priced through paper accounting deals.
Lost in our perception of all this is the fact that current bullion prices must rise into the thousands just to reflect the US credit inflation that existed 20+ years ago! Much less reflect it's value relationship to the current trillions of debt.
Our modern dollar paper gold derivatives have masked the true gold values all this time. Start with a base of gold holding it's international wealth value at $3,000 to $10,000. Then extrapolate that to handle any future money printing to buy our already hyper inflated debt! Now you have an idea why PGSs (Physical Gold Advocates) are so quiet as they buy bullion today.
The current marketplace has so understated it's true dollar value, physical gold must rise far beyond any price inflation that's in our future. Only Western commodity traders using a thought process that says; """the dollar market price of anything is correct because the dollar price says so"""" think gold today is a "one - on - one to price inflation" proposition. Nothing could distort the picture more. ==============more
Truly, what waits for us economically just over the horizon will be calamitous and stunning for all but a few.
===="""We watch this new gold market together, yes?"""=====
Black Gold, Yellow Gold - the only wealth worth physically owning.
=======Absolutely, Sir Traveler, Absolutely!!!!=============
Thanks
Trail Guide
Mr Gresham
(10/24/00; 12:05:03MT - usagold.com msg#: 39793)
Fun!
Thanks, Leigh, for your patience and understanding. "Merde!(?)" My rods (and cones) are tired, too.
Henri -- you gotta wonder did we get cross-posted with a UFO website, or are Another and his Friend from farther "East" than we had previously guessed. (I'm smilin', oh yeah, he's smilin'.)
Trail Guide -- you made quite clear answers to my questions as you answered Traveler. I smell some homework ahead for us.
SteveH
(10/24/00; 11:57:18MT - usagold.com msg#: 39792)
repost
www.kitco.com
I like the last paragraph especially. Only 10-kids killed per year under 5 with firearms. 600 drowned. Our priorities are messed up.
Date: Tue Oct 24 2000 13:33
Bigred (Why are the citizens of the Western World not up in arms about oil prices? ) ID#117231:
-
This is not intended as political debate ( although one can certainly go there ) . It's been 43 years since the writer sat in a classroom studying International Economics in Graduate School and there has certainly been a lot of water ( and effluent ) flow under the bridge since then, including a lot of secret agreements and protocols and the creation of the IMF, WTO. etc. I'm struck with the serious imbalances in currency valuations World-Wide and why we are not characterizing some as depression ( deflation ) and some as excess valuation ( inflation ) . If you lived outside North America you might justifiably conclude that the U.S. Dollar is experiencing rampant inflation and, as measured by the stock market valuations at 1.5 times the value of the underlying assets, you would be correct.
The World trade in oil is certainly a serious question now that Saddam Hussein has stated publicly that he is shipping arms to the Palestinians ( which can only realistically be done with the complicity of Jordan ) . A further question is why are the citizens of the Western World not up in arms about oil prices this time around. The last time this happened in the U.S., truckers parked their rigs and farmers and truckers drove down the streets of Washington demanding action. This time it has only happened in Britain ( which, you'll see why in a minute, has really been "bitten."
I crunched a bunch of numbers and came up with the following data ( Source: Last Friday's financial data in Monday's Wall Street Journal ) .
Oil is paid for in U.S. Dollars. The exchange ratios of the national currency to the dollar for selected currencies are shown based on long term valuation in percentage terms. The higher the number, the more
unfavorable the exchange rate.
Canada ( 1.0 )
Mexico ( 1.0 )
Korea ( 1.0 ) fixed by Korean Law
Germany ( 1.44 )
Euro ( 1.22 ) not in actual circulation yet but used to settle accounts.
Japan ( 1.19 )
Britain ( 1.94 ) .
The actual commodity prices for the products are ( shown as the New York Cash Price with the increase in valuation compared to a year ago shown after the slash ) :
Arab Light $27.37/1.34
Arab Heavy $25.06/1.30
West Texas Intermediate $33.75/1.46
Alaska North Slope $32.30/1.45
#2 heating oil $.9719/1.61
Diesel $.9849/1.57
Unleaded Premium ( non-oxygenated ) 1.0009/1.50
Unleaded Premium ( Oxygenated ) $1.0484/1.55
Unld Reg ( non-O2 ) $.9972/1.57
Unld Reg ( O2 ) $1.0434/1.60
Natural Gas $4.85/1.61
In the US there's an average of about 35 cents a gallon applied as tax on road fuel grades. "Red" diesel for
farms and off-road use is not taxed by the federal government and usually not by the states ( it is dyed red ) .
By now one should be able to see where I'm going with this. The result of the multipliers shows that the countries shown are actually paying the following percentages for crude oil based on their long- term currency valuations and, of course they are paying in U.S. Dollars.
Canada ( 1.34 )
Germany ( 1.93 )
Euro ( 1.63 )
Japan ( 1.59 )
Mexico ( an exporter ) ( 1.34 )
Britain ( 2.60 ) .
The European countries have onerous tax burdens on fuels with the tax actually mitigating the rise in fuel prices when the tax is per unit rather than "ad valorem." There are some very serious distortions which could go "off scale" with continued problems in the Middle East. For example, the U.S. is supporting Israel while the Arab League Summit just concluded with a joint statement soundly condemning Israel signed by 21 of the 22 nations attending. The other country ( Libya ) had walked out earlier because they asserted the resolution was not strong enough.
Conclusion: There is very little good news these days. Realistically, the rest of the World is in or facing serious economic distortions which reflect that the dollar is seriously overvalued. There is reason to
wonder what other "skeletons" might lie in the closet after the disclosure ( by the Liberal New York Times ) last week of the secret protocols to the Nuclear Non-Proliferation Treaty between Gore and Russian Premier Chernomyrdin which the White House has refused repeatedly to even share with the Senators on the Intelligence Oversight Committee as required by law.
The 1995 agreement reportedly gives the Russians immunity from sanctions in U.S. Law so they can continue to deliver arms to Iran through 1999. The traffic continues because the Russians are simply concluding we are too weak to do anything about it.
The major issue here is the most advanced diesel powered submarines in the World that could, according to military experts, put the Persian Gulf battle fleet out of business in about four hours. These have been
delivered.
There is also the matter of advanced energy research involving the Russians which should give the Iranians the ability to produce enriched uranium in less than two years.
Meanwhile at home, we continue to be distracted by rhetoric of the number of kids killed by firearms every year and other issues which are relatively minor. The figures for 1998 have just been released. The
number of children under age 5 killed by firearms ( in all categories ) was ten, more drowned in a bucket of water. Almost all the juvenile deaths were in the 17-19 year old group involving something already
illegal, i.e. drugs. For comparison, 600 children under age five drowned in swimming pools.
Got Gold?
(Is this you Aristotle?)
Rockgrabber
(10/24/00; 11:57:10MT - usagold.com msg#: 39791)
BACK TO SCHOOL
I'M AN AFFILIATE OF ROCKGRABBER AND I'M VERY PLEASED TO SEE THE ADDITIONAL POINTS OF VIEW ON THE SUBJECT OF A FAILING SCHOOL SYSTEM. I'M 24 AND HAVE BEEN GOING TO SCHOOL NOW FOR QUITE SOME TIME ONLY TO FIND OUT THAT ALMOST EVERYTHING THAT ONE IS TAUGHT IS PRACTICALLY USELESS. THE PROBLEM DOES DON'T LIE WITHIN BAD PROFESSORS OR TOO LARGE OF CLASSROOMS BUT RATHER THE CONTENT OF WHAT IS BEING TAUGHT. FOR EXAMPLE, HOW MANY OF US KNOW SOMEBODY WITH A DEGREE, YET THAT INDIVIDUAL IS WORKING IN A LOW PAYING JOB THAT HAS NOTHING TO DO WITH THEIR "FORMAL EDUCATION" IF THEY ARE WORKING AT ALL. I NEED MORE HANDS TO COUNT-GOOD THING I LEARNED HOW TO USE A CALCULATOR. FUNNY, BACK IN HIGH SCHOOL CALCULATOR MATH WAS DEEMED FOR DUMMIES; HOWEVER, AT LEAST THIS CONTENT WAS PRACTICAL AND CAN BE USED IN EVERYDAY LIFE, WITH EASE. ISN'T THAT WHAT SCHOOL IS SUPPOSED TO DO FOR US - GIVE US A FOUNDATION OF VALUABLE INFORMATION THAT ONE CAN TAKE ON IN LATER YEARS AND APPLY THIS INFO IN A PRACTICAL WAY IN EVERYDAY LIFE FROM THE WORKPLACE TO THE HOME TO MAKE OUR LIVES EASIER. IF THIS IS THE CASE WHY AREN'T WE TAUGHT ON HOW TO DO OUR TAXES. THE ANSWERS ARE VERY SIMPLE AND IT HAS TO DO WITH WHAT THEY (GOV'T) WHAT YOU TO KNOW AND WHAT THEY DON'T WHAT YOU TO KNOW. IF WE'RE SUPPOSED TO FILE TAXES WHEN WE START WORKING, WHICH FOR MANY OF US WAS DURING HIGH SCHOOL, WHY AREN'T WE TAUGHT ABOUT THIS SUBJECT AT ALL; YET, I CAN FIND THE COSINE OF A TRIANGLE AT AGE 16. DOES THIS HELP IN ANY WAY TO UNDERSTANDING MY OWN PERSONAL FINIANCES? HELL NO. THE GOV'T NEEDS AN ENORMOUS FLOCK OF SHEEP, PREPROGRAMMED GOING INTO COLLEGE TO ONLY BE LEAD FURTHER DOWN THE ROAD INTO THE ABYSS OF USELESS INFO. WHAT DOES ALL OF THIS EQUAL, LOTS OF MONEY FOR BIG BROTHER. YOU GOT THOUSANDS OF PARENTS POURING THOUSANDS OF DOLLARS INTO UNIVERSITIES SO THEIR KIDS CAN GET USELESS DEGREES IN PSYCHOLOGY TO NAME ONE. NOT TOO MANY CLASSES ON THE STOCK MARKET, FUTURES, OPTIONS, BONDS, AND EVEN REAL ESTATE CLASSES ARE MINIMAL. IF ONE IS GOING TO LEARN ANY PRACTICAL AND REVELANT INFO ABOUT THESE SUBJECTS YOU NEED TO DO IT ON YOUR OWN AND IT DEFINITELY HELPS TO HAVE A FRIEND AND WEBSITES LIKE THIS ONE, WHETHER PRO OR CON, TO FULLY COME TO AN EDUCATED CONCLUSION USING BOTH THEORY AND REALITY. ACCORDING TO MY DAD I'VE DROPPED OUT - ACCORDING TO MYSELF I'VE JUST GONE BACK TO SCHOOL.
Henri
(10/24/00; 11:52:55MT - usagold.com msg#: 39790)
Trail Guide
I hope that was not your password that appeared at the end of your "reply to Traveler" message.
These are excellant discussions! I am following most of it and yet it still seems a bit "over my head". I now am less confused than this morning after reading Travelers counterpoint message. I can't quite tell whether it is because I have my roots in western thought or I am looking backwards toward the future.
One thing worries me in the extreme though and that is that you too have seen the rods! (smile)
TownCrier
(10/24/00; 11:51:07MT - usagold.com msg#: 39789)
Sir Trail Guide and others...
The program that facilitates posting to the forum has an upper limit to the size of any given single post that it can accommodate and process. If you see that the tail end has been shredded during its trip in cyberspace, simply identify and resubmit the missing portion from your original...which you've hopefully created and saved in another file.
Leigh
(10/24/00; 11:18:52MT - usagold.com msg#: 39788)
Mr. Gresham
How about "Dagnabbit!" Or any other semi-curse words that won't offend sensitive eyes? (I probably know some, but I can't think of any at the moment.) Know how you feel, though!
TownCrier
(10/24/00; 11:18:00MT - usagold.com msg#: 39787)
UK - euro in the spotlight
http://uk.news.yahoo.com/001024/80/amzv2.html
Bank of England Governor Eddie George said during a speech in Paris, "The euro is substantially undervalued in terms of the medium-term 'fundamentals', so in the same way sterling is on most calculations substantially overvalued against the euro."
While speculating over the likely effect had the UK opted to participate in the Monetary Union from the outset, he said, "the likelihood is that we would have experienced something of an inflationary boom -- as they have, for example, in Ireland though I am not sure one can generalise from the Irish experience." Despite the relative strength of the pound versus the single currency, the UK has managed to run a trade surplus with the EU in August, the first such surplus in nearly five years. The article concludes with the telling comment:
"Economists say there is evidence that British exporters have been cutting their prices in sterling terms to maintain their competitiveness in European markets in spite of the strength of the pound. That has hit corporate profits."
Mr Gresham
(10/24/00; 11:10:10MT - usagold.com msg#: 39786)
Damn!
Just posted and I see what's come in below, all of us typing simultaneously, and I have to drive off to pre-school and clients now. Damn! It's kind of a torture when you get what you want, but can't enjoy it immediately. (Well, maybe I could lop off "A" from today's schedule, and just do "B" and "C"...)
Mr Gresham
(10/24/00; 11:05:48MT - usagold.com msg#: 39785)
Traveler #39771
(So hard to get a workday started when you're self-employed and stuff like on this forum appears every morning...)
(Also amazing to find out that USAGold board seems to be about 83% Canadian lately -- me, 25%, PEI/N.Scotia)
Your essay matches with what I have learned and thought through study of economics since the 70s. Those would have been my scenarios, too, until I started reading FOA here. As you mention, ("Physical Gold Advocates fear not. Gold historically has done ITS BEST during a deflation.") you two are not too far apart in direction, only in degree.
I am now going to have to read you both side-by-side to see what special cases he has brought to us that make such a difference. I believe it is mostly in the realm of losing exclusive world reserve currency status, something which most of us did not think or learn much about anywhere else, and would be a unique event. Any precedents with the British pound's retreat we can look at? That's why I've looked or asked for numbers that show the amount of dollars that could come this way.
(my 4-year-old has just entered, with demands for attention, so my train of thought is evaporating rapidly)
Any precedents in the 70s inflation? Beginning any loss of reserve status? Or was that mostly a _price_ phenomenon caused by oil, as opposed to money supply booming? (And thus bound to fall to earth with Volcker poking at it.)
I had expected that gold performed well in a down cycle only because of the default ("chaos on all sides") possibility, but didn't see FOA's level of multiplied value, (times 100) unless the Fed monetizes everything in sight. The deflationary impulse is for *Everyone* to pull in their horns, and only certain asset classes would benefit if the surviving money flees disproportionately to them.
Before I run, Traveler, I wonder if the exploration should be along the lines of time horizons of liquidity preference and the workout of lenders' disintermediation at present. If borrowers can scratch up the cash for payments, expecting asset values to recover more quickly, then the lenders asset-feast may have to wait. If deflation grinds on, well, we're not Japan here with its amazing covering up, and they'll grab more, IF, as ORO points out, they can themselves survive their illiquidity.
Can the Fed liquefy only to favored parties? (Silly question, of course, but give it a thought.)
Debtors and regular folks will be scrambling for liquidity themselves, but bankers and FDIC and Treasury will be trying to string them out with federally-"guaranteed" long-term obligations, perhaps forced, as in, your unreachable savings account or CD is now "rolled over" as part of your Social Security "account", to be collected whenever. Would this stave off hyper-inflation (after destroying the bond market)?
It's hard to see real estate multiplying many times more, unless the printing presses (Immediate liquidity, as opposed to disintermediated credit) are cranked to Smokin' velocity. Or, everyone sells their Beanie Babies and all surviving savings run to it. But that type of promiscuous money-production has been with us in several forms for several years now. We just haven't seen the full inventory of all the "money" that exists, and in all its forms (a la Doug Noland's Prudent Bear essays). FOA must think (1) there is more of it than anyone thinks, (2) it is all going to rush for the exits at once, and (3) the Fed will have to accommodate everyone's desire to cash out in order to keep certain structures intact.
OK, enough for now.
Trail Guide
(10/24/00; 10:58:56MT - usagold.com msg#: 39784)
comment
Hello Traveler,
Let's talk:
Your words first, then
====my words====more
--------------------------------------
The Traveler (10/24/2000; 0:25:21MT - usagold.com msg#: 39771) Deflation Scenario II
Greetings and warm regards to all.
Tonight, I will address the inflation or deflation debate that was highlighted this weekend by the formidable and never to be dismissed Trail Guide. Forgive me as I tell you my view from 30,000 feet. Much closer and the details would get in the way of full understanding by many here.
First, I thank Trail Guide for referring to me as a smart hard money thinker. His companion comment that I and many others walk forward down the gold trail but are looking backwards is similar to saying generals always fight the last war during a current conflict or that you can't see the
economic pot holes down the road if you are always looking in the rear view mirror. Fair enough.
I however reply with a well-known admonishment from Lord Acton. This Cambridge historian of the 19th century wrote that those who do not know history are doomed to repeat it. I have devoted a professional life and investing life to knowing "something" of economic history - both domestic and international history. My summary viewpoint as expressed @ 39423 is reproduced below.
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The economic lesson is ... ... ... ... ... .
Deflation is everywhere and always a monetary phenomenon -- a lack of sufficient currency and CREDIT in the economy to support prices. When the growth in credit slows or turns negative due to higher interest rates and higher default rates, then the above illustration [about the collapse of real estate] plays out.
================Mr. Traveler: conversely: the "real" inflation I point to is largely a cash phenomenon, where all the past massively over created credit instruments are brought up by the money making authorities and paid for with printed cash or allocations to the owners digital cash
accounts.================= more
Some wise ones here state inflation is the curse waiting for us over the horizon. I doubt it because we are already highly inflated. I point you to the NASDAQ's PE, home prices and auto prices for but three easy references.
================ Sir, your three examples are the beginning "price" results of our highly inflated financial credit structure. However, as I pointed out above, that structure today is in the form of "highly reproduced" (inflated) credit instruments. In addition add to that mix all the vast
paper derivatives in place and we can see how very different our present money inflation has been. Even as it only begins to raise prices.=============more
For hyperinflation to occur, even more credit would have to flow from Mr. Pump.
============Not true, sir. As your own examples pointed out above, rising prices in your examples above indicate how we are already receiving the effects of a hyper inflated credit system. Again, these are only an advance example of price inflation that's beginning to reflect the "real" amount of "credit money" we have created over 20, 30, 40 years. ============more
But to whom? The consumer is over leveraged already. The consumer has binged on easy credit to the point that debt service now takes more than 90% of disposable income for 80%
of consumers according to the St. Louis FED. See why the economy has soared. If the above illustration does play out, most consumers -- still anguished by their recent credit traumas - will avoid the credit trap and thus Mr. Pump will be "pushing against a string".
Remember, the consumer represents 65% or so of the GDP. As credit goes so goes the economy.
=================Good point! It's one we have used to explain why deflation in a credit inflation is always a real possibility. But, hyperinflation cannot happen in a credit society unless the credit starts being made into cash.. Our (yours and mine) "pushing on the string" scenario is
predicated on pumping more credit to those that don't need it.
However, in the real hyperinflation that's coming as it follows our current credit inflation phenomenon it's not the borrowing class that's liquefied, it's the lending class! Remember, out there in our vast dollar world, for every dollar a consumer has borrowed, some entity holds the other
side of the credit instrument. Our classic deflation begins when these holders are no longer being paid, resulting in the write down of their assets. Across the land, banks, credit unions, citizens with lend able funds and every other form of lender no longer own a credit instrument that's sellable at par. That's 100 cents on the dollar.
Hyperinflation begins when pushing on the string no longer is an option. As you pointed out; "the consumer is binged out"! But there is more (smile).
We would not embark into such an obvious currency destroying process if we could drag the rest of the world with us into a cleansing recession. Call it an "almost deflation" where we start the inflation / deflation circle over for one more credit cycle. This is our record from most the dollar's
life.
No country ever hyper inflates for the pleasure of the ruling class, as many want to believe. They / We inflate to keep the domestic system in use and do so because it's the last resort. In other words you are forced into it! Today, the advent of the Euro has created a currency competition that will allow world investors to run from any deflationary, restrictive policy the US can offer. Our
currency will be lowered to non reserve status no matter what route we take. Just as in many other historic examples and present examples around the world, nation states always choose hyperinflation when no other way out is offered. No nation on earth has ever cascaded themselves into deflation once they are off the gold money system.
Below Traveler addresses some of the very aspects I detail in the above.======================== More:
Our worthy Trail Guide declares in his fireside chat along the Gold Trail @ message 43 that it will be different this time. It may be but as Cavan Man, a Missouri resident, might say: "Show Me". In part, Trail Guide states:
The US cannot walk away from hiking our ""gold trail"" now. Because "this process" is one of the few tools available to them for keeping the dollar perception in a good light. In effect by slowing the currency transition process they are doing exactly what world dollar holders need the[m] to do.
They will inflate these derivatives until in effect; our modern gold market bankrupts itself as supply is exhausted. I say, good! (smile) But once we get to that stage, I expect that a super US economic downturn will ensue.[*] Then the fed will go wide open and cover everything in sight to keep us going! The ongoing price inflation will be driving everything from physical gold to real estate through
the roof.
[And a paragraph later... ... .]
Yes, it eventually breaks everything! But this is nothing new for us gold history buffs and it's what has happen in countless modern national fiats around the world today. Nations that don't have a reserve currency to play with. We will do like their citizens do, continue to use dollars but carry in our pockets whatever new reserve is in fashion, as a backup! Be it gold or Euros or both. In addition, our entire financial structure (like in these other nations) will change to operating in an inflation economy. Money will be lost, big time and made big time, but things will still be financed, brought and sold. Houses will double, triple then double again in price, even as financing rates
approach 35%, 40% or whatever. We will also follow the (then) prevailing world policy concerning physical gold, solely because it will make economic sense to our officials.
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Do read the complete message for a fuller context and more vivid understanding. Your wealth and your grandchildren demand this of you.
Perhaps the point of debate between us is: (A) Does severe deflation come next at [*] above followed sometime later by inflation and eventually hyperinflation, or (B) Does the US go directly to hyperinflation? This debate has many, many dimensions and is complicated to map. But let's give it
a whirl.
ORO @ 39481 has stated that the FED will do the bidding of its owners (the banks) if events don't get too far beyond their control. I agree. Do banks and other holders of debt instruments (loans, mortgages, gov't and corporate bonds) want their wealth withered by hyperinflation? I don't believe for a moment that the creditor class is this egalitarian.
==============No Traveler, I doubt the creditor class as a group is seeking to remove the financial inequalities that separate people through this coming process of hyperinflation. Far from it. As I stated above, the credit hyperinflation has already occurred. It's there, in place as we speak.
What is now faced by this non egalitarian lending crown is the choice of: having their debt instruments defaulted on and losing everything,,,,, or playing let the fastest runner win the game!
My friend this is the choice you get when the currency your assets are denominated in hits the end of it's "timeline".
Human nature has followed this path for thousands of years. You know the old joke about out running the bear? Well, these lenders will influence our financial policy as such. They will try to get their debt securities liquefied first, spend the fiat and in this process out run you and I. Leaving anyone they can beat to the mercy of the hyperinflation bear eating their remaining fiat assets.
Your point above about deflation and then inflation is still valid; if we cannot get the borrowers to borrow more and in doing so stop the economy from serviceing "OUR DEBT SECURITIES",,,, ! But we cannot risk the markets, in this particular time and place to make that decision.
Here, we and the world would for the first time make a "judgment call"; ---can the "dollar fiat system" our wealth is stored in endure the deflation / recession that must
follow?---
To date, everyone stayed with the only reserve currency available. Tomorrow they will not because they have a choice.==================more
According to the IMF, foreign holders of dollars (including Central Banks) have a $6.5 trillion stake (roughly 60% in debt instruments) in protecting the value of their dollar holdings. Do they wish to see their purchasing power drop TO 25% or so under a hyperinflation adjustment
============Again, dollar holdings by foreign CBs are worthless anyway when the nation issuing them does and must run a constant trade deficit. The money can never go home, only build further on digital account.
This is the reason most Hard Money Advocates fall so short in evaluating our present gold values using only the commodity use of gold. They completely miss the fact that current dollar pricing of gold vastly understates it's wealth asset value.
Especially to CBs if their dollar assets dissolve in bookkeeping form, the way they would do in a hyperinflation. No, the billions in assets they hold in dollar debt instruments would not disappear, only be transferred through a massive devaluation of the dollar against gold.
================== more
or increase TO 175% or so under a deflationary adjustment?
=======================Again Traveler:
My above explained why a deflation cannot be in the cards. But if so, foreigners holding even government guaranteed paper debt in a deflating currency is little more than bookkeeping wealth if the actual goods buying power of the currency is compromised.
Yes, our US would continue to print dollars to service it's debt, making the accounts look good. But, in such a deflation situation, foreign exchange controls are a 100% guarantee. Foreign held dollar assets would not come home, at least not at the same exchange rate one needs to become
financially whole!
When the world begins to abandon a currency at the end of it's reserve timeline, deflationary gains on debt instruments are an illusion of bookkeeping. There would be no 175% real purchasing power gains allowed. ========================more
If those wise monetary strategists and Euro creators thought that the dollar would go "up in smoke", why do they continue to hold on to the US$ at an INCREASING rate of accumulation?
The ECB holds nearly 80% of its assets in US Treasuries (with 15% more in gold and 5% more in Yen). Is this the position of a shrewd central banker or wealth builder who is nervous about the future purchasing power of the US dollar? Why have not foreign dollar holders transitioned more
rapidly away from the dollar and into the Euro, gold and other vehicles that would protect their wealth from the confiscation of inflation and later hyperinflation. Given that its "ShowTime", one would think that the transition would be more complete than still having $6.5 trillion "At Risk" of going up in smoke. (Actually, it is "ShowTime"but physical gold is a sideshow in the unfolding three-ring circus). I suspect all those foreign held dollars are still in the USA because of an explicit promise -- Your dollars will increase further in value as we deflate the debt bubble and you are able to buy hard assets for dimes on the dollar.
====================Traveler, I addressed this in the above. Still, their asset base is safe in any circumstance.Their gold sales are largely to each other and much of the very gold they are delivering to certain clients will return for Euros once a dollar transition begins. Indeed, there has
been massive ongoing physical gold buys the world over. Who do you think has been buying all the gold non official "Paper Gold Advocates" have been divesting themselves of? The key to understanding the scope of this is in seeing through the dollar paper gold pricing system. Had the
prices of paper gold been rising all these years, it would have indicated a continued support of the dollar based gold markets. As such, the world today expects this currency system to fail, taking it's paper bullion markets with it!
These "shrewd central bankers" are no fool to the economic world nor the political world. The US is still a major military and political force and will continue to be for some time. Allowing the US to destroy our own system and offering an avenue of escape for investors worldwide is a master political play. Why dump your dollar reserves when such an action would make you the bad guy? Buy some gold quietly, yes. But, better to let your dollars dissolve and have your assets transformed by a dollar / physical gold devaluation. FreeGold will do just that! ======================more
To RossL, Nickel 62 and others, your question is thus answered. Those dollars sent overseas by the trade deficit have ALREADY returned to the USA in the form of capital flows into debt instruments (60% or $4 trillion) and to a lesser extent equities and other assets. This gleeful
repatriation of dollars is historically unprecedented and has been done for a reason. Like those of "Giant" domestic wealth builders whose dollars are now sitting in debt instruments, these instruments will be converted - in the fullness of time - into currency to purchase hard assets ("old economy" companies with captive customers, positive operating cash flow, little debt and little remaining CAPEX, or trophy real estate or certain other proven factors of production) once the deflationary spiral has exhausted itself and driven the price of all these factors into the ground.
ORO stated that the banks want the gold mines and telecoms on the cheap. The above is the process for setting up the BUYS of the CENTURY. Perhaps a real time illustration would serve us well at this point.
================= Your presentation shows a lack of understanding about how exchange rate risk works during unsettled times. Failing nation states that have opted for a fully """""fiat currency"""""" (the US dollar) do not simply stand by and allow ownership of everything in the country to be transferred to foreigners. Or even local creditors for that matter.
Truly, the vast bulk of overall debt assets standing against US credit extending institutions dwarfs our ability to service with real goods. Even at vastly deminished prices. These debt structures are held for further fiat accumulation only. Truly a Western Thought concerning wealth. Once an
economy begins to get into trouble, everyone flees these very instruments you stand by in your analysis. Truly, people understand political risk as it pertains to the fleecing of constituencies. It doesn't happen in powerful states and investors know it.==============more
A Denver ========"Traveler's example"====company at 40 cents.
In the late 80's and early 90's, some banks liquidated land at an average 24% of the then CURRENT appraised "Fair Market" value, incoming producing properties at 50% of replacement cost or about 60% of then CURRENT appraised value and residential homes at 81% of the then CURRENT appraised value. Less than a decade later, most properties had handsomely appreciated from the FED induced credit expansion. Boom then bust then boom is the age-old
cycle of wealth transfer TO the plutocracy.
========= These cycles end when the currency timeline ends! ==========more
Next, ... ... ... ... ... .
Does the US Government want hyperinflation? A close call depending upon timing and how events unravel. It could silently default on its outstanding debt and contingent liabilities (such as EXIM and SBA loan guarantees, FDIC insurance, etc.) by passing out wheelbarrows of FRN ala Weimar Germany. On the other hand, so many middle class welfare programs (the Big 5 are about 48% of total outlays) are indexed to inflation. They could never be met from the current tax code which has indexed rate brackets -- Thank you Ronald Reagan!
===========This is exactly what many people see and are preparing for! ==========more
Many models have =======more of Traveler's examples of possibilities=====apostles of Jenny, Jerry and Ophra.
Physical Gold Advocates fear not. Gold historically has done ITS BEST during a deflation! Yes deflation. When all other assets were spiraling down in value because defaults soared and collateral sales pressured the prices of all hard assets, gold alone increased its value. It has no liabilities (no one to default) and is portable to destinations without domestic deflation. See Professor Roy
Jastram's The Golden Constant (Wiley & Sons, 1978) for a 416 year history of gold under four major deflationary periods of the past. If you are a bit lazy or pressed for time, simply recall that gold in the 1930's went from $20 to $35 during that deflationary depression. One caveat: All four
were under some form of the gold standard.
=============== OK, now you say: """"One caveat: All four were under some form of the gold standard.""""
Boy Traveler, that's some caveat! (smile)
Four hundred and sixteen years of history examples can be toppled by one little caveat. Truly, that little point is exactly "the point" for today's time!
Our modern dollar world has created a fiat debt structure money system of biblical proportions. Nothing like it has ever been produced in the annals of time. We got to this point because our money was gold in the beginning. Then we allowed our confidence in gold as wealth to grow into
the abilities of mankind to continue such a money system without gold. The result is a massive debt against every thing except gold! Every asset that exists in the USA is fully covered by such debt several times over. Either directly or indirectly through various official government debts.
There is simply no historic example in the history of mankind that shows where everyone surrendered their assets to satisfy such debt. Yet, this is the process you Traveler, fully well expects from a deflation. A deflation by the way, that no gold standard today says must happen?
Truly, had the dollar advocates allowed it to be devalued against gold long ago we would all know where we stand. Free trading Physical gold would have slowly risen in dollar prices in an ongoing process that would have taken gold prices into the heavens. But, it didn't happen and an imploding debt structure (caused by pushing on a string of consumer credit demand) will be "QUICKLY" countered with debt instrument purchases from the official level. The old 1980 monetary control act is already in place and allows our fed to buy everything down to your shoe laces in order to stop any debt defaults. ===========================more
Is not deflation the very outcome that the Austrian economist Mises predicts following periods of rampant credit excesses? Furthermore, if one has escaped indentured servitude (being a debtor)through hyperinflation, how likely is one to "re-up" by borrowing at floating rates of "35%, 40% or whatever". What could one invest in and reasonably hope to make a positive spread (return on investment) if this is your cost of capital?
============Well Traveler, if you go to just about any third world country today, there are many extreme examples of what "re-uping" is all about.
Further, deflation's following the credit excesses Mises talked about only happen when people believe the currency system will last and opt to stay with it.--- OR -- They escape the bad credit risk inherent in remaining in such a deflating system by jumping to another system of younger
stature. Still, it leaves the choice of hyperinflation as the only route after a fiat expansion.
When such processes unfold today, people look for security in a fiat. One that will back itself with gold valuations conducted in an ongoing nature. Something the US fought so very hard to avoid all these years!===========more
With respect to Trail Guide's "living in many, many lands and have witnessed and used such inflating systems," I would point out theseom2Ä^Ý3yýThe above is1C process for setting up the BUYS of the CENTURY. Perhaps a real time illustration would serve us well at this point post @ 39276) at $3.38, backed it to $7 and now moans about it at 40 cents. The chances are good that the bondholders will own this company following a structured settlement that converts the debt into stock and retains current management with reset strikes on their options. Current shareholders indexed rate brackets -- Thank you Ronald Reagan!<br><fcfc in 1C2ÄUƒ3yý and in the 1Cns. WHAT ARE RODS? Rods are cylindrical shaped objects that are appearing in the skies, in homes and in the oceans. WHAT ARE RODS? Rods are cylindrical shap
The Traveler
(10/24/00; 10:37:54MT - usagold.com msg#: 39783)
Snippets from last week's Credit Market Commentary of Noland @ PrudentBear.com
This week, Moody's announced that it expects corporate bond defaults to rise to a staggering 8.4% during the next twelve months. During the third-quarter, Moody's downgraded $44.3 billion of junk debt, compared to upgrades of $19 billion. There were 82 junk downgrades versus 29 upgrades. Also during the quarter, Moody's placed 62 US corporate issues under review for downgrade, compared to 37 for possible upgrade, and 50 for downgrade during the second quarter. Dow Jones quoted Moody's John Lonski, "we ought not to be quick to assume that the worst is over for the high-yield bond market." There should also be no mystery why junk bond yields are at the highest in 10 years and why they will not be narrowing any time soon.
Another news release from Moodys caught our eye this week. "The number of downgrades in the U.S. asset-backed securities market significantly exceeded the number of upgrades by 122 to 23 during the first six month of 2000." We continue to see cracks in the foundation of Wall Street "structured finance," with the highest probability of a serious break in US and global financial markets since 1998. An acute liquidity crisis has developed in at least the equity derivatives and junk bond markets, with quite negative implications for liquidity throughout the US financial system generally. Again, the focus is on the impairment of the leveraged speculating community and the inevitability of forced liquidations. It's all about liquidity, or the lack thereof...
Consumer credit excess runs unabated. After a huge month of issuance ($30 billion), the asset-backed market is on track for total issuance of almost $230 billion for the full year. This compares to $217 billion last year. Year to date, 27% of issuance has been for home-equity loans, 19% for credit cards, 20% auto loans, and 34% for "other." The "other" category includes manufactured housing, aircraft leases, student loans and equipment leases. Only time will tell as to the quality of these loans, particularly in the "other" category. Obviously, the asset-backed market is a key source of funding for the continuing consumption binge. With its earnings release, we see a 26% year-on-year increase in managed receivables from credit card powerhouse MBNA. Capital One experienced 30% loan growth during the third quarter, up from 23% during the second-quarter and 13% growth during last year's third quarter. There is little mystery behind today's stronger than expected report on retail sales - it's all about credit.
Rockgrabber
(10/24/00; 09:31:09MT - usagold.com msg#: 39782)
A failed system, (please read this)
Because one may not have had an attent focus to understand things the way schools wanted them to, does not mean they are not bright. I would actually argue they can be more bright, due to being less currupted by the schools (goverment). If you are the goverment and you want to have everyone see things the way you wish them to, you start in school. Why do you think this school system is screwed?? = Cause its designed to be.. Its the goverments school system, its almost as failed as there prison system. They dont want these things to work, they just want them to look like they work (sort of the same as the money system). Everything built by man was destined to fail. A little more time, and we will have had enough time to accomplish our foolishness. Its all on the table to see, pretty soon it will be time to eat what is on the table. you can go to school for your hole life and not come up with ansers (They dont teach right and wrong). The more you go to school the more likely you will be to see things "their way". You will end up your hole life striving for things that are in vain, if you go where school directs you. School is good for learning some things, like facts, but all else is there just to direct you going where they want you to walk. So dont get out of line!!
WW Oracle
(10/24/00; 09:31:04MT - usagold.com msg#: 39781)
@Oro
Would you expand on why "they" want telecom specifically, in addition to precious metals?
I find this especially interesting in light of the fact that Deutsche Telecom is spending $50 bil to buy a U.S. telecom company. This cannot be explained, as you hypothesize, by Europeans snapping up American assets so as not to lose market share when the dollar crumbles.
Galearis
(10/24/00; 09:22:47MT - usagold.com msg#: 39780)
@ Traveler
A fascinating read...
I would like to wait for ORO's and Trail Guide's take on your post, but in the meantime I ponder what "debt instruments" you mean in reference to the repatriation of US dollar assets? I am not nearly as familiar with the fiscal side of the world as many are here, however, I am even more confused than ever with your contention that US$ debt, some 4 trillion $s are probably already comfortably back home in the US. One would think that for geo-political reasons (freezing of foreign assets and accounts)for foreign countries that have perpetrated transgressions against the United States would pose a security problem for fairly large population blocks out there.
Thanks for a most interesting read.
G.
goldfan
(10/24/2000; 9:08:44MT - usagold.com msg#: 39779)
justamereBear 39767
Sir JustamereBear Thanks for your long thoughtful post. I have been a bit reluctant to continue, since I seem to be drawing so much vitriol for my few maybe clumsy atempts to understand what might be coming to Canada in the event of further major increases in US$ oil prices, and why oil should be priced in US$ anyway. But I have decided I have a right to carry on a civilized discussion, no matter who is screaming outrage from the sidelines. And I am greatful for your support in this.
When we sit around the campfire, each of us sees that fire from a different point of view, yet, it is still only one fire. I have to struggle sometimes to remember this.
Canadian Life and the oil business
I was born and educated in B.C., Chemical Engineer.
One of my grandfathers emigrated to Canada from Italy in 1900, worked on the railway, became a Vancouver hotel owner, quite wealthy, and lost it all in the 30s crash. On my mother's side they were United Empire Loyalists, from the Old World to Boston in 1700 or so, then to Canada in 76. My great grandfather lived for 20 years with the Innu in Labrador, 1860's, and then wound up a scout on the Prairies, for the Feds against Riel. My grandfather, a medical doctor, was a pioneer in public health and hygiene, and was simultaneously chief medical officer for Manitoba, AND Minnesota, in about 1900. (No borders then!!!) His entire family, except my mother, wound up back in the US.
I'd rather be called a Canadian than anything else except a human being and a good man (grin).
All my early life I heard stories about the wicked East and the nefarious French Canadians. I think now it must have been hard to have been a French speaking Canadian, visiting B.C. and be subjected to such mindless prejudice. When I graduated from UBC I deliberately accepted a job offer from a major Oil company to work in their Montreal refinery. I wanted to see for myself what Quebec was like. I found the people of Quebec to be utterly charming and fun. Much more like what I understood the Italian half of my family to be like, than the British half, which was the environment I'd known in BC.
Transferred to Toronto, back to the British! I stayed with that oil company for about 15 years. By the late 50's it had become apparent that unless you were either American, or had spent a lot of time in the exploration and production department iin Calgary, you weren't going to have a chance to be president. By 1960, the centre of financial gravity was already shifting from Toronto to Calgary. By 1976 or so, the head office was moved to Calgary.
There was a bigger centre of gravity in the USA though, and the biggest of all was still in Europe. At one point, we wanted to establish a potash business in Saskatchewan, selling to the US. The project was stopped, because the US branch of the company said it was their market, and even though they weren't planning to exploit it, we couldn't. In that multi-national oil firm, it was ok for the US to sell in our Canadian market, refined oil and insecticide etc. But it was not ok for us to sell in their markets.
It's frustrating to me that we have such different views of what happened. I see the TransCanada Pipeline as a government sponsored, private enterprise that was just like many of the oil companies, government sponsored, tax rebates for exploration and so on, like the original Canadian Pacific railway, designed to keep Canada together, out of the hands of the Americans, make it possible for Canadians coast to coast to have our resources when others ran out, and to deal with each other. In Ontario, for the period of about 1960 to 1970, we paid more than world oil prices to Calgary branches of multi-nationals, and to other smaller local oil producers, to fill that line, so they wouldn't send their oil south. I guess we paid closer to world prices from about 1970, to 1980 when oil went from 1.75 to 37 $ per barrel.
Then in 1980 the NEP which so annoyed the people of Alberta, and the local oil companies. I had left the oil company in 1970, so I don't know what the reaction was internally. Most of those big multi nationals were already dealing with having their assets nationalized by various governments in Africa and the Middle East, so what happened in Canada must have been relatively small potatoes to them.
All this stuff as I see it is the interplay between powerful corporate people, banking people, and government people. And the ordinary people, of whom I am one, get caught up in their machinations and often shout their battle cries, without knowing who is our real enemy.
It is no surprise to me the Globe and Mail didn't publish the views of Calgarians in 1980. They don't publish my views now about gold and world economics and the forth coming disasters to people's so-called savings, the way the banksters and our governments have conspired to create the illusion of wealth while setting us up to steal yet more of the little we have. And they have got us screaming at each other, when we should be joining forces against them.
I guess I resent being made responsible for the Globe and Mail editorial policies, just because I happen to live in Ontario. They don't listen to me either, I assure you.
I have in my past flirted with the corporate power elite, some of the biggest names in Canadian finance, and I found them all the same, sort of "clubbable", clearly the same kind of people, with the same viewpoints on most things. I don't think these people are members of a conscious conspiracy. I think they just do what they have always done, with the people they are most comfortable with, because they know no other way.
They can't be reached with the kind of reasoning I espouse, any more than can the people who who want to dump S on me, just because I live in Ontario. I couldn't run with that crowd, lack of ambition, and their kind of smarts. Also, I had other stuff I wanted to do with my life.
Right now, I am really keen to understand when and how the whole economic edifice we place so much faith in, will come tumbling down, fearful for the effect these events might have on my children's daily life and hopes, hopeful a better, more "community-oriented" way, more respectful of each other, and our environment, will come out of it.
I'd rather debate economics, and fundamental values, than this or that environmental or corporate or political issue, which seem to me to be putting the cart before the horse.
At the centre of it, in ways I don't undrstand but am trying to learn here and elsewhere, is gold, what it means, why it endures.
Thanks, for the continuing discussion.
Goldfan
Cavan Man
(10/24/2000; 8:09:30MT - usagold.com msg#: 39778)
Hello Traveler
Was not the move to $35 POG a "command event" and devaluation of the dollar? My concern is that a deflationary event will bode ill for POG.
I've often wondered out loud here what the US strategy is in defending our markets and currency. Well, intervention in a cloak and dagger context is relatively evident yes. Moreover, the foundation is a "too big to fail" series of tactics--like Thai's 800# Gorilla.
No countries can exist in a vacuum but, the Euro zone perhaps in conjunction with additional key, strategic partners is relatively closed is it not?
Here's my call: Escalating inflation accelerating from the point oil producers agree to more widespread use of the Euro in exchange for their resources. The inflation will ravage the economy and evolve into a deflationary cycle. Ultimately, full recovery is ten years forward.
agbull
(10/24/2000; 7:58:42MT - usagold.com msg#: 39777)
new web site on silver
http://www.silver-investor.com/
New precious metals site focusing mostly on the white metal.
ORO
(10/24/2000; 7:46:55MT - usagold.com msg#: 39776)
Elwood Thanks for correction
My mixup, Brown did not date the events which, as I should have remembered, were not concurrent, and he was referring to future events when talking of current and past events.
Al Fulchino
(10/24/2000; 7:27:47MT - usagold.com msg#: 39775)
DaveC (10/23/00; 23:03:11MT - usagold.com msg#: 39765)
Dave,
I like your thoughts. In fact, I would be very hard pressed not to deeply respect your thoughts about staying the course and fighting for what you believe one voter at a time as you say. I just hope this excercise isn't like keeping a book about a cure for some illness on a shelf. And we wait for people to recognize that we have that cure on shelf number nine. I wonder why we can't just keep knocking at the Republican door and stay the course on educating one votor at a time there. And as simple success is added one at a time, we also pick up the residual vote of less ideolgical or principled Republican voter as they vote with you against a Democratic opponent. Can't you just see Trent Lott looking at the balance of power some day and seeing that first member of the Libertarian segment of the Republican party make his way through a primary. He then sees that this one candidate helps him keep his power and any majority? It is how the Newt Gingrich party, as I call it, made their way up the ladder.
Anyways. Best to you and yours. It has been a good discussion and I have learned some things from yourself and others about this.
wolavka
(10/24/2000; 6:16:33MT - usagold.com msg#: 39774)
Margin increases
Energy sector, it's gonna blow!!!!!!!!!!!!!!!!!!!!!!!!!!!!
RossL
(10/24/2000; 4:26:13MT - usagold.com msg#: 39773)
ThaiGold
Consumers win. Lousy businessmen lose. Buy all the rice and papayas you can at these low prices. While it lasts!
Rice. Get you some <grin>
justamereBear
(10/24/2000; 0:50:56MT - usagold.com msg#: 39772)
Lampreey_65 #39747 and Rockgrabber #39754
Now, those are both posts that touch me where I live. Questions like these are the substance of why we are here. Excellent
Rockgrabber, formal education does not a brain make, and the degrees handed out by the school of hard knocks, when combined with some grey matter, are much more valid than the other kind. I sat on the board once with a guy who claimed he had only a grade 3 education. He was without a doubt, probably the most effective board member I have ever seen. An absolute delight.
The Traveler
(10/24/2000; 0:25:21MT - usagold.com msg#: 39771)
Deflation Scenario II
Greetings and warm regards to all.
Tonight, I will address the inflation or deflation debate that was highlighted this weekend by the formidable and never to be dismissed Trail Guide. Forgive me as I tell you my view from 30,000 feet. Much closer and the details would get in the way of full understanding by many here.
First, I thank Trail Guide for referring to me as a smart hard money thinker. His companion comment that I and many others walk forward down the gold trail but are looking backwards is similar to saying generals always fight the last war during a current conflict or that you can't see the economic pot holes down the road if you are always looking in the rear view mirror. Fair enough.
I however reply with a well-known admonishment from Lord Acton. This Cambridge historian of the 19th century wrote that those who do not know history are doomed to repeat it. I have devoted a professional life and investing life to knowing "something" of economic history - both domestic and international history. My summary viewpoint as expressed @ 39423 is reproduced below.
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
The economic lesson is ... ... ... ... ... .
Deflation is everywhere and always a monetary phenomenon -- a lack of sufficient currency and CREDIT in the economy to support prices. When the growth in credit slows or turns negative due to higher interest rates and higher default rates, then the above illustration [about the collapse of real estate] plays out.
Some wise ones here state inflation is the curse waiting for us over the horizon. I doubt it because we are already highly inflated. I point you to the NASDAQ's PE, home prices and auto prices for but three easy references. For hyperinflation to occur, even more credit would have to flow from Mr. Pump. But to whom? The consumer is over leveraged already. The consumer has binged on easy credit to the point that debt service now takes more than 90% of disposable income for 80% of consumers according to the St. Louis FED. See why the economy has soared. If the above illustration does play out, most consumers -- still anguished by their recent credit traumas - will avoid the credit trap and thus Mr. Pump will be "pushing against a string".
Remember, the consumer represents 65% or so of the GDP. As credit goes so goes the economy.
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
Our worthy Trail Guide declares in his fireside chat along the Gold Trail @ message 43 that it will be different this time. It may be but as Cavan Man, a Missouri resident, might say: "Show Me". In part, Trail Guide states:
The US cannot walk away from hiking our ""gold trail"" now. Because "this process" is one of the few tools available to them for keeping the dollar perception in a good light. In effect by slowing the currency transition process they are doing exactly what world dollar holders need the[m] to do. They will inflate these derivatives until in effect; our modern gold market bankrupts itself as supply is exhausted. I say, good! (smile) But once we get to that stage, I expect that a super US economic downturn will ensue.[*] Then the fed will go wide open and cover everything in sight to keep us going! The ongoing price inflation will be driving everything from physical gold to real estate through the roof.
[And a paragraph later... ... .]
Yes, it eventually breaks everything! But this is nothing new for us gold history buffs and it's what has happen in countless modern national fiats around the world today. Nations that don't have a reserve currency to play with. We will do like their citizens do, continue to use dollars but carry in our pockets whatever new reserve is in fashion, as a backup! Be it gold or Euros or both. In addition, our entire financial structure (like in these other nations) will change to operating in an inflation economy. Money will be lost, big time and made big time, but things will still be financed, brought and sold. Houses will double, triple then double again in price, even as financing rates approach 35%, 40% or whatever. We will also follow the (then) prevailing world policy concerning physical gold, solely because it will make economic sense to our officials.
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
Do read the complete message for a fuller context and more vivid understanding. Your wealth and your grandchildren demand this of you.
Perhaps the point of debate between us is: (A) Does severe deflation come next at [*] above followed sometime later by inflation and eventually hyperinflation, or (B) Does the US go directly to hyperinflation? This debate has many, many dimensions and is complicated to map. But let's give it a whirl.
ORO @ 39481 has stated that the FED will do the bidding of its owners (the banks) if events don't get too far beyond their control. I agree. Do banks and other holders of debt instruments (loans, mortgages, gov't and corporate bonds) want their wealth withered by hyperinflation? I don't believe for a moment that the creditor class is this egalitarian.
According to the IMF, foreign holders of dollars (including Central Banks) have a $6.5 trillion stake (roughly 60% in debt instruments) in protecting the value of their dollar holdings. Do they wish to see their purchasing power drop TO 25% or so under a hyperinflation adjustment or increase TO 175% or so under a deflationary adjustment? If those wise monetary strategists and Euro creators thought that the dollar would go "up in smoke", why do they continue to hold on to the US$ at an INCREASING rate of accumulation? The ECB holds nearly 80% of its assets in US Treasuries (with 15% more in gold and 5% more in Yen). Is this the position of a shrewd central banker or wealth builder who is nervous about the future purchasing power of the US dollar? Why have not foreign dollar holders transitioned more rapidly away from the dollar and into the Euro, gold and other vehicles that would protect their wealth from the confiscation of inflation and later hyperinflation. Given that its "ShowTime", one would think that the transition would be more complete than still having $6.5 trillion "At Risk" of going up in smoke. (Actually, it is "ShowTime" but physical gold is a sideshow in the unfolding three-ring circus). I suspect all those foreign held dollars are still in the USA because of an explicit promise -- Your dollars will increase further in value as we deflate the debt bubble and you are able to buy hard assets for dimes on the dollar.
To RossL, Nickel 62 and others, your question is thus answered. Those dollars sent overseas by the trade deficit have ALREADY returned to the USA in the form of capital flows into debt instruments (60% or $4 trillion) and to a lesser extent equities and other assets. This gleeful repatriation of dollars is historically unprecedented and has been done for a reason. Like those of "Giant" domestic wealth builders whose dollars are now sitting in debt instruments, these instruments will be converted - in the fullness of time - into currency to purchase hard assets ("old economy" companies with captive customers, positive operating cash flow, little debt and little remaining CAPEX, or trophy real estate or certain other proven factors of production) once the deflationary spiral has exhausted itself and driven the price of all these factors into the ground. ORO stated that the banks want the gold mines and telecoms on the cheap. The above is the process for setting up the BUYS of the CENTURY. Perhaps a real time illustration would serve us well at this point.
A Denver based gold mining company has a proven US prospect that can produce gold at a cash cost of $134 per ounce assuming a POG of $325. It also has a 43% ownership in a Canadian junior exploration company that has a proven Peruvian zinc prospect and other promising South American prospects. Unfortunately, it has limited revenues, little cash and $15 million in unsecured bonds that are due and payable in 8-01. A well-regarded gold stock analyst picked this miner in 1995 (a watershed year for the US$ - see my post @ 39276) at $3.38, backed it to $7 and now moans about it at 40 cents. The chances are good that the bondholders will own this company following a structured settlement that converts the debt into stock and retains current management with reset strikes on their options. Current shareholders could thus be diluted to 10% or less of the company. If you had $1,000, would you buy a bond at par or common shares in this company at 40 cents.
In the late 80's and early 90's, some banks liquidated land at an average 24% of the then CURRENT appraised "Fair Market" value, incoming producing properties at 50% of replacement cost or about 60% of then CURRENT appraised value and residential homes at 81% of the then CURRENT appraised value. Less than a decade later, most properties had handsomely appreciated from the FED induced credit expansion. Boom then bust then boom is the age-old cycle of wealth transfer TO the plutocracy.
Next, ... ... ... ... ... .
Does the US Government want hyperinflation? A close call depending upon timing and how events unravel. It could silently default on its outstanding debt and contingent liabilities (such as EXIM and SBA loan guarantees, FDIC insurance, etc.) by passing out wheelbarrows of FRN ala Weimar Germany. On the other hand, so many middle class welfare programs (the Big 5 are about 48% of total outlays) are indexed to inflation. They could never be met from the current tax code which has indexed rate brackets -- Thank you Ronald Reagan!
Many models have been run and are being run trying to estimate the impact on the Unified Budget assuming many conflicting variables such as (1) higher unemployment resulting in reduced FICA and income tax receipts and higher outlays for "safety net" expenditures, (2) the sharp reduction in capital gains taxes resulting from a sick equity market, (3) the use for several years to come of NOLs by corporations which no longer pay taxes but are receiving refunds because of their losses, and (4) higher (inflation) or lower (deflation) interest on the current debt (nearly $6 trillion) plus new trillions of debt issued soon to balance sharply lower tax receipts and sharply higher outlays.
In a period of hyperinflation, could the US issue more bonds and notes in order to balance the budget? Perhaps, but at what rate and in what currency? Would a 50% APR every 28 days like the Mexican CETES in 1995 be acceptable to the pride of the only superpower? Or would 3% on funds borrowed in Euros be more understandable to the apostles of Jenny, Jerry and Ophra.
Physical Gold Advocates fear not. Gold historically has done ITS BEST during a deflation! Yes deflation. When all other assets were spiraling down in value because defaults soared and collateral sales pressured the prices of all hard assets, gold alone increased its value. It has no liabilities (no one to default) and is portable to destinations without domestic deflation. See Professor Roy Jastram's The Golden Constant (Wiley & Sons, 1978) for a 416 year history of gold under four major deflationary periods of the past. If you are a bit lazy or pressed for time, simply recall that gold in the 1930's went from $20 to $35 during that deflationary depression. One caveat: All four were under some form of the gold standard.
Is not deflation the very outcome that the Austrian economist Mises predicts following periods of rampant credit excesses? Furthermore, if one has escaped indentured servitude (being a debtor) through hyperinflation, how likely is one to "re-up" by borrowing at floating rates of "35%, 40% or whatever". What could one invest in and reasonably hope to make a positive spread (return on investment) if this is your cost of capital?
With respect to Trail Guide's "living in many, many lands and have witnessed and used such inflating systems," I would point out these key differences in economic profiles.
Unless he was economically alert during the last time a reserve currency "fell from grace" (the pound sterling following WWI), then the experience of Mexico, Argentina, Russia and other commodity based economies are not on point.
Furthermore, hyperinflation is difficult to introduce when a country's government, businesses and citizens are already overly leveraged and are having trouble meeting debt service obligations ($2 trillion annually as recently posted by ORO). Total debt in America is often quoted in multiples of record high GDP. It is one thing for the FED to pump money vigorously into the economy. It is another matter all together for the banks to find credit worthy or semi-credit worthy users of this fresh tidal wave of liquidity. By some estimates, corporate America has already leveraged up from a conservative ratio of 25% debt to 75% equity to a precarious 75% debt to 25% equity ratio. That is almost a 10 fold (1,000%) increase in debt!
In summary, he who has the gold makes the rules. The creditor class -- both the domestic plutocracy and their foreign cousins, has the gold -- both literally and in the form of debt claims. They would rather convert their paper claims into foreclosed hard assets following a deflation and at worst loose a billion or two from poor collateral valuations while reaping trillions in new purchasing power. That beats passively loosing 20% - 40% - 60% of the value of the entire debt portfolio from hyperinflation. Furthermore, if the word came out that hyperinflation was the policy of the USA, who would lend their funds for the prospect of receiving less purchasing power later? I for one would rather take my chips overseas to an economy that is stable and offered good returns for definable risks. Domestic usury laws can only be raised so high and bankruptcy laws tightened so tight before the great unwashed revolt.
The major risk to the scheme of the plutocracy is a revolt of the masses -- whether politically through election of populists who pass legislation such as foreclosure moratoriums or violently though protests, strikes, lynchings, pogroms and the like. Thus inflation followed by hyperinflation will be instituted by the FED at the instruction of its masters once the fear of loosing it all exceeds the greed of gaining another prized asset on the cheap.
Lastly, consider this. Current wealth of creditors only increases during deflation as each dollar now held becomes more dear. Inflation is a wild card for everyone. For example, my one ounce Maple may be worth $20,000 or $30,000 once deflation is turned into hyperinflation (and former creditors have switched to being net debtors). But what is that $30,000 worth in today's purchasing power - $3,000 for a 10 to 1 return or $300 for a big waste of time and energy?
Truly, what waits for us economically just over the horizon will be calamitous and stunning for all but a few.
Black Gold, Yellow Gold - the only wealth worth physically owning.
Simply Me
(10/24/2000; 0:23:00MT - usagold.com msg#: 39770)
Bought=Brought...Indication of German Heritage?
Hi Trail Guide (If you're still around),
It never occurred to me that you and Prof. VonBraun could be the same person. Instead, I figured you both to have come from German families. Where I grew up (southwestern Pennsylvania hills), using "bought" and "brought" interchangeably was a common characteristic in the language of folks who grew up with German heritage or in an area settled predominantly by German immigrants.
Not looking to expose your identity. Just thought I'd bring up a more likely reason for the language similarities.
simply me
ThaiGold
(10/24/2000; 0:20:10MT - usagold.com msg#: 39769)
Phantom Rice Merchant: Part 1: [RePost from Sunday]
Does This Sound Familiar.?. [for those who missed it]
==============================================================
Once upon a time, far far away, in a Southeast Asian village,
there was a small open air marketplace. Local farmers would
bring their harvested crops and handcrafted items there for
sale daily on their little cubicle tables and mats. Each had
over the years, earned enough to have a small truck. One was
painted Red. The other was painted Blue. They drove in from
the North. Where the rice paddies were located, their homes.
For years, these two farmers setup their two competing tables
for their bags of Thai Sweet Rice. Each usually brought about
50 bags of rice. And each posted his price on a little sign
atop his own stall's pile of rice bags.
As the day wore on, each farmer would glance over at the other
farmer's sign and it's dwindling pile of rice. And each would
adjust/re-write his own price to be a tiny bit lower than
the competitor's price. The prices fluctuated, mostly downward
until by the end of the day, each farmer had sold all of his
rice. At which time each closed up and went home in their trucks.
Then one day a funny thing happend. A newcomer came to the
marketplace, on a bicycle. No truck. And he proceeded to setup
his sales-mat nearby the other two rice merchants. He placed
only a single bag of his example Thai Sweet Rice upon his mat.
It was of identical quantity and quality as the other farmer's
50 bag stacks.
Then, to their amazement, this newcomer placed a sign upon his
otherwise empty mat: "Rice for Sale -- Lowest Price Guaranteed --
U-Pickup at My Warehouse Tonight".
And as an initial price, he'd glance at the other two farmer's
signs, then write his own price in big numerals, 10 Baht *lower*.
Curious shoppers, couldn't resist his low price and upon examining
his single rice bag's quality and taste, would happily place an
order with the newcomer for one or two bags, whatever they had
intended to purchase that day. Each customer received a "chit"
from the newcomer, guaranteeing availability, later that night,
at his nearby "warehouse" at an address just south of town.
As the day wore on, the two competitor farmer's kept re-pricing
thier own stacks of rice lower and lower. To try to lure the
customers back to their still stacked stalls. But they had
virtually no customers. Everyone was buying instead, from the
newcomer, and happy as larks walking home with their rice-chits.
For, nomatter how much lower the two farmer's marked down their
own bags of rice, the newcomer always re-priced his to be lowest.
Needless to say, at the end of the day, the two old time farmers
had sold none of their rice. Yet the newcomer had sold 100 bags
of his "example rice" and had alot of Baht to show for it. Then
the newcomer closed up shop and rode out of town on his bicycle
an hour before the other two farmers normally would close.
Relieved that this newcomer had departed, the hapless oldtimers
remained at their rice-stacked stalls hoping against hope that
a few more customers might come late to buy at-least some of their
piled-high leftover un-sold rice.
And fortunatly, a customer did showup.!. With a cute Yellow truck.
And this customer first went to one of the two farmers and looked
at his by-now rock-bottom re-priced sign. He then bought all of
that farmer's unsold (50) bags of rice. The farmer was delighted,
and even helped to load the bags onto the Yellow truck. Then that
farmer went home.
Next, the Yellow truck customer went to the remaining farmer's
stall and was pleaded-with to purchase all of his unsold bags
of rice too. And at an equal or sometimes even lower price. And
since this seemed fair and acceptable, the consumer proceeded to
purchase those 50 bags as well. And the farmer was delighted to
assist in loading them upon the Yellow truck. And went home.
The Yellow truck departed as well, but towards the South.
In the cool of the evening, one by one, the customers who'd
bought individual bags of "chit-rice" showed up at the warehouse
and were greeted pleasantly by the newcomer. Each presented his
chit and received promptly and courteously a full bag of rice
of the identical quality and quantity they had seen earlier as
his "example" bag in the marketplace. One hundred chit-buyers
each received their rice and happily went on their merry way.
A satisfied customer, spreads the news to others. And soon, the
newcomer had a regular clientel each day in the marketplace.
And each day, the same ritual ensued. The hapless competitor
farmers kept marking down their unsold rice and by the end of
each fruitless day, were always amazed and relieved to see the
miraculous arrival of the mysterious Yellow truck arrive to
purchase all their unsold bags.
As weeks progressed, the newcomer's business grew, and soon he
was selling 300 chit-bags of rice daily, at guaranteed lowest
prices. But the two competing farmers were not disturbed much
by this. Because, fortunately for them, each day the mysterious
Yellow truck buyer bought up all their unsold rice. And indeed,
even arranged for each farmer to bring 150 bags of rice each day
instead of their usual 50 bags each. Which they were delighted
to do, even if they only got a rock-bottom and ever-lower price.
After one year of this brinkmanship, one of the farmers told
the Yellow truck that he wouldn't be bringing anymore rice to
the marketplace. He just couldn't afford to grow and harvest it
any longer at such dismal prices. He would sell his rice farm and
move away to Bangkok. At a meager price too, as he no longer cared.
Upon hearing this, the Yellow truck buyer offered to buy his rice
farm from him. And the farmer agreed. And did so. But the Yellow
trucker knew nothing about rice farming. Instead he just let the
farm go fallow. Meanwhile he was able to get the remaining rice
farmer to bring a full 300 bags of rice daily, to makeup the short-
fall. Which he did. For another year.
But by the second year, that farmer too had found rice farming to
be uneconomical at such continued low prices. He would sell his
farm to the Yellow trucker as well. And at a meager price.
Now the Yellow trucker owned two wonderful, but fallow rice farms.
The next day, the newcomer arrived in town at the marketplace
and setup his usual stall mat. But today, his sign was different.
It simply said:
"Rice Workers Wanted -- Minimum Hourly Wage Guaranteed -- Apply here"
Several unemployed rice paddy workers immediately applied, and
soon the newcomer was bringing 300 bags of rice daily into the
marketplace, where he was the lone remaining rice seller.
And his new sign said:
"Highest Quality Thai Sweet Rice -- New Crop -- New Price"
"Buy now -- While Supplies Last"
==============================================================
ThaiGold@OperaMail.Com
===============================================================
ThaiGold
(10/24/2000; 0:19:52MT - usagold.com msg#: 39768)
Phantom Merchants: Part 2: The Saga Continues...
.... The Bangkok Connections ....
==============================================================
As you read previously, the two oldtimer (ex) rice farmers were
forced out of business by a Newcomer, who entered their small
and serene village marketplace with nothing but his bicycle;
barefoot; shirtless; and an equally poor but cooperative helper
with a Yellow U-Rent-A-Truck. With rented bamboo hut as warehouse.
Clever Newcomer was able to, not only corner the market in rice;
drive the two competitors out; but even became owner of their
two prized rice farms, all with little effort; no capital; and in
a very short time. And was able to raise the prevailing RicePrice
to whatever he deemed the consumers would bear thereafter.
The story continues now, as we learn of what became of the two
hapless (ex) rice farmers: All they had left was their little Red
and Blue trucks. And a small pittance they'd received from the
sales of their wonderfully productive rice farms north of the
small village to that devious Newcomer.
Each farmer migrated to Bangkok to start a new life. One opened
a Topless, STR8 Bar. And the other opened a Bottomless, Gay Bar.
In booming downtown Bangkok. Where Business is Business.
Both became friends in their newfound barroom enterprises as
they were no longer in competion, and indeed often visited each
other's Bar for afternoon chats and convivial drinks. Coffee.
During one of these sessions, one introduced the other to a
wealthy regular bar patron who was a Rice Exporter, with a very
large warehouse on the riverfront. And to another patron of
the other bar, who was similarly a wealthy Papaya Exporter with
a similar riverfront warehouse. Bangkok bars are a melting pot.
During the conversation the (ex)farmers related their woes about
how they'd been manipulated out of their rice farms and previously
self-sustaining marketplace. The two wealthy warehouse owners
listened intently and with empathy. The patrons both liked these
two hapless (ex)farmers (now Bar Owners) and wished to help them
"get-even" with that coniving Newcomer, as well as make it possible
for them to return to their beloved farm village. Which they missed
greatly. Afterall, village life is far more pleasant than Bangkok.
So they hatched a plan. A two-part plan. One farmer would become
once again the dominant rice farmer. The other would become the
dominant Papaya Orchard/cannery owner. In that village.
Here's what they devised. A flawless scheme. Perfectly legal.
The wealthy Rice Exporter noticed that he always had way-more bags
of rice accumulating in his riverfront warehouse than could be
loaded onto the freighters. And it was a problem for him as it
just consumed alot of wasted space and he got no revenue from it
during the sometimes lengthy storage periods.
And likewise, the wealthy Papaya Exporter had a similar problem
with excess inventory of his canned Papayas. Their plan would
solve both these exporter warehouseman's problems as well.
The two Exporters offered to loan 10,000 bags of first-quality
Thai Sweet Rice to the (ex)farmer who owned the Red Truck. And
they offered to loan 10,000 cans of Papayas to the (ex)farmer
of the Blue truck. And for these "leases" they'd only require a
modest 1% annual "interest" payment. The Rice and Papayas would
of course "someday" need to be returned, but the Exporters felt
that was irrelevant because they were eager to move it out of
their inventory and earning at least a meager 1% return. The time
it spent away from their warehouse, out of their control, was not
bothersome to them whatsoever. Their main objective was to help
their Bar Owning friends return to the village. And who knows,
they might even make them an offer to purchase their thriving
Bars from them at some later date. At reduced prices of course.
Meanwhile, the Bars might serve as "collateral" for the leases.
So both Bar Owners agreed immediately. Then each signed the lease
papers and partially loaded their booty into their respective Red
and Blue trucks. At the riverfront warehouses. And departed for
their prior village far to the north. Laden with leased commodity.
Upon arrival, they combined their Baht and rented a modest size
bamboo hut nearby the village marketplace. Actually so-nearby
that people in the marketplace could easily see it and walk to
it and even peek inside at the contents. It was real. Consumers
would be bolstered by the legitimacy of that nearby "warehouse".
Then the (ex)farmers proceeded to bring their Red and Blue trucks
into the village and with much fanfare, hired some local boys to
help them unload 10,000 gleaming bags of (leased) Thai Sweet Rice
and 10,000 colorfully labeled cans of (leased) Papayas. This was
accomplished over a period of several consecutive days, since
their trucks were small. Eventually the entire 10,000 bags and
10,000 cans were hauled into their newly secured warehouse.
The next day each (ex)farmer came into the village marketplace
and setup their UpStart stalls. Directly across the narrow street
from Newcomer's monopolistic rice stall. And a few stalls away
from the market's two (hapless/targeted) Papaya oldtimer farmers.
And they glanced at the prevailing price signs of each, and then
methodically hand-letterd their new signs accordingly, but of
course with respective prices a hefty notch *below* their targeted
competitor's.
Consumers came throughout the long day and as expected, prefered
and bought, their Rice and Papaya needs from these two UpStart,
but proven reliable (come see our warehouse -- see for yourself)
new marketeers. Sure, each consumer received initially a simple
paper Rice-Chit / Papaya-Chit for his Baht. But it was a simple
and convenient process to redeem their chits immediately or even
at any later date at the UpStart's warehouse. Which saved the two
the inconvenience of carting 300 bags/cans daily to their stalls.
Economies of scale... Or what.?. Consumers liked the nearby and
chit-convenient method as well. They could continue to wander
the marketplace doing their shopping for other items, then just
stop by the warehouse on the way home to pickup their heavy rice
or Papaya cans later. No fuss. No muss.
And as expected, the targeted competitors continued throughout
the day to unsuccessfully low-bid and reprice downward their own
Rice and Papayas. But to no avail. They had no customers because
the UpStarts were able every-time to decrease their prices to
be the lowest. Afterall, they had 20,000 Bags and Cans sitting
in their new warehouse to back them up and deliver from. Price,
to them, was irrelevant. They had other objectives than "profit".
And besides, their Rice/Papaya inventory had cost them virtually
nothing (but 1% of it's value) to obtain and maintain. Low cost.
At the end of that marketing day, the competition was left with
all their unsold bags and cans. And the UpStarts had cornered
both markets in virtually one fell-swoop. Imagine that.!.
And much to the chagrin of Newcomer, the UpStarts did *not* offer
to buy any of his unsold Rice. Nor the unsold competition's cans
of Papaya. They would be stuck with their unsold goods for
the next several days. Each suffering insufferable losses. All a
part of the shrewd plan to flood the market and force prevailing
prices to ridiculously low levels. A new concept for sure.!.
Eventually the UpStarts relented somewhat and agreed at the
end of each day to purchase some (but not all) of those hapless
unsold commodities. This was "helpful" to the Newcomer and the
oldtimer Papaya farmers. As it "allowed" them to stay in business
a bit longer, even as their profits and discounted prices dwindled
to ever lower benchmarks. It was all part of the UpStart's charade
and agressive behind the scenes tactics. They had become ruth-
less and determined. They would be the 800 Lb gorillas of price.
And too (while some didn't realize it) enabled the UpStarts to
replenish their high daily turnover of Rice and Papaya in their
warehouse. Indeed, They carefully managed their "buybacks" so as
to maintain their dominant 10,000 bag and 10,000 can inventory.
Remember: Neither had a producing farm nor orchard. And it was
a long trip to Bangkok to buy replenishments. Better to simply
buyout the competitor's products instead, at whopping discount.
Commodity commonality. Isn't it a wonderful thing.
Within a short time, the oldtimer Papaya farmers could no longer
afford to sell at below their production costs and (as in the
previous saga) eventually were relieved to sell their entire
Papaya Orchards and canneries to the UpStart with the Blue truck.
Blue Truck (ex)farmer UpStart had now achieved his goal: He was
left as the only remaining Papaya source for the village. And
he was able to set his price and worker wages at whatever point
he felt the market would bear. And did so. And also repaid his
10,000 lease of Papaya cans to the Bangkok warehouseman exporter.
He now had a comfortable life with his two new Papaya Orchards.
And to boot, he still owned his Bangkok Bar. Collateral released.
Similarly, the previous/devious Newcomer was forced out of his
business with his own tactics used relentlessly against himself
by the UpStart with the Red Truck. And was himself relieved to
be able to sell both his ill-gotten Rice Farms back to the (ex)
farmer with the Red Truck.
And the 10,000 bags of rice were lease-fulfilled back to the
Bangkok Rice exporter. Plus the minimal accrued interest. Now
he was once again the village's only rice source and farm owner.
How magically his assets have grown. Two Rice farms and still has
his thriving Bar in Bangkok. Capitalism, Asia-style. It's great.
That should be the end of this saga. But isn't. In future chapters
we will learn of whatever became of the beaten/despised Newcomer.
He (being shrewd and brash) of course knew or suspected how the
two farmers had beaten him with this new game tactic. But at the
time was powerless to overcome their strategy. Mostly because he
didn't have the required connection to big Bangkok warehouses. He
wasn't an insider nor privy to their carefully conceived plans.
And besides, the cooperating Bangkok exporters would certainly
have brushed him aside all as part of their empathetic plan.
Can you say r-e-v-e-n-g-e.?.
And of course he didn't own a coveted Bangkok Bar to add punch
to the whole scheme. Recall that the Exporters expected the two
Bars at a favorable "friendly" price from the two (ex)farmers.
Do you suppose they may be a bit irked at not (yet) becoming
the owners of those Bars.?. Hell Hath not the Fury of a wealthy
Exporter scorned. Can you say c-o-n-s-p-i-r-a-c-y.?.
And we will learn of a curious discovery the UpStarts made when
they realized some consumers were not (daily) redeeming their
chits at their warehouse for actual Rice bags nor Papaya cans.
Amazingly, their inventory kept growing. What to do with it.?
Can you say r-i-s-k-y.?. or d-e-r-i-v-i-t-i-v-e.?.
We'll also be surprised to learn of another revolting development:
The unexpected return of the mysterious Yellow trucker. Who now
has a business card that says simply: "Have Truck -- Will Travel"
Can you say e-n-t-e-p-r-e-n-e-u-r.?.
And what of the local "Mayor" and "Regulators".
Can you say p-a-y-o-f-f-s.?. or c-o-m-p-l-i-c-i-t-y.?
==================================================================
Stay tuned...
ThaiGold@OperaMail.Com
==================================================================
justamereBear
(10/24/2000; 0:15:36MT - usagold.com msg#: 39767)
Goldfan 39739
I was born and raised in Alberta, and came east in the 50's, leaving all of my immediate family there. Of course I visited fequently, in addition to limited business travel.
In the late 60's, I attended a funeral for a relative. This was before the NEP. I was standing with my brother and sister, who still live there. An old classmate spoke to my brother. I thought he didn't recognise me and said Hi. He looked me up and down, and spewed out a load of invective to the effect; "why don't you eastern bastards just stay away, the stench in here is intolerable," and left. I tried to talk to some other school chums, who were barely civil, and the phrase "you eastern bastards" popped up frequently.
During the NEP "crisis" I was reading the Calgary Herald, the Edmonton Journal, the Globe, and the Montreal Gazette, on at least a weekly basis. I never saw ANY of the Alberta points published in the eastern papers.
How do you say S P I N M E I S T E R ?
I saw the same thing during the Korean War. I got ahold of some Indian Enlish language newspapers, (which one would think to be fairly neutral) and compared them with ours. Not only were we not talking about the same war, I doubt we were talking about the same planet.
That TransCanada pipeline was not about helping Alberta. Alberta would much rather have shipped its hydrocarbons south. Much more profitable. It was about many things, including security of supply for the east, and maybe a little freeby from "family".
Near the end of the NEP "crisis", I got caught at a public gathering in a situation, in which I got shoved around a bit, and, which was so ugly that I feared for my life, or at a minimum expected to wind up in hospital. Most of these people were people I knew, and the words "eastern bastard" popped up often.
These people were, and to some extent still are, bitter. REAL bitter. SUCH BITTERNESS DOES NOT ARISE WITH ABSOLUTELY NO CAUSE.
I'm sure the media in the west had its own spinmeisters at work, and I will accept that it may have been overdone there too. However, no one who saw both sides, even briefly, can accept the sheer propaganda that came out of the east. To be sure, Ontario and Quebec got tarred with a brush that belonged in part to the Federal Government. But then, Albertans also could not get their points heard at the Federal level because of the HOO HAW that was coming from the heavily populated, and heavily represented, provinces of Ontario and Quebec.
I am sure that at any point, and certainly from about 1954 onward, that Alberta was of the opinion; "Please don't help us. With friends like you, who needs enemies"?
Alberta did not need or want help. They had BLACK GOLD.
ViewYesterday's Discussion.
Permission to reprint is hereby granted where the USAGOLD name is cited along with our web address, mailing address and phone number. For electronic reproductions, citing the post heading and the http://www.usagold.com/cpmforum/ website address as the source is sufficient.
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