Recent booms and busts

[Pliny]

We have seen governments create certain booms over the past 9 years. We had the technology boom and the latest housing boom. Of course what follows booms are busts. We are seeing predictions in the metals markets that gold will reach maybe as much as $2500/oz. Is this the latest boom?

This predicted boom is a little bit different than the tech and housing booms of late which were both created by government monetary and fiscal policy. One could say that a boom in the gold/silver markets is also driven by government monetary and fiscal policy but there is one difference. The missing ingredient in a metals boom is "confidence". There is a lack of confidence in the sustenance of the purchasing power of the fiat currencies. Printing huge amounts of dollars, burgeoning government debt, and banks stockpiling reserves, are all contributing to the lack of confidence in the future value of the currencies.

Whereas, confidence in the currency was not an issue in the tech and housing booms it is the entire issue in the precious metals booms. Is it the last boom before governments go bust and confidence in their fiat currencies is completely lost?

Let's see, has history provided us with any lessons about fiat paper "money". The US has a couple of examples in the Continental and Lincoln's Greenback which financed the Civil War. They are gone now so I would say they were unsuccessful.

Remember the French Revolution? The King's printers were busy printing up Assignat's and flooding the markets with them. They too are gone.

Then there is Voltaire's warning - "All paper money eventually returns to it's intrinsic value of zero."

[jdobbin]

We have seen governments create certain booms over the past 9 years. We had the technology boom and the latest housing boom. Of course what follows booms are busts. We are seeing predictions in the metals markets that gold will reach maybe as much as $2500/oz. Is this the latest boom?

All booms have a bust in general.

Precious metals may indeed go up but if people think that is the only direction they will go, they'll find they face the same consequences as any other boom investment.

Edited October 5, 2009 by jdobbin

[Pliny]

All booms have a bust in general.

Precious metals may indeed go up but if people think that is the only direction they will go, they'll find they face the same consequences as any other boom investment.

That has been true in the norm regarding metals but I do not believe we are in normal times.

If fiat paper currencies fail, which hasn't happened in the world recently, we will not see a bust in metals prices but a bust in those paper currencies.

[geoffrey]

A bet on gold isn't a bet on gold as much as it is a bet on the US dollar. In fact, Canadian's holding gold really haven't made much money in the last run. Gold is relatively flat in Canadian dollars. It's just in US dollars that it has skyrocketed (I bet your Canadian dollar jeweller didn't tell you that).

If you believe the US dollar will continue to decline, you can hold gold to profit from this... but your profit will be in lower value US dollars. Which does nothing for you in Canada. For gold to increase in Canadian dollars, you'd have to believe in a relative devaluation of the CAnadian dollar... which would not happen without a reduction in the real strength of gold (well, at least I can't forsee an economically reasonable way how it could happen).

So you can use gold to hedge US dollar outflows, but it makes more sense to just hold loonies (or some other attractive currency like AUD or CHF).

If I was an American with living expenses in US dollars and income in US dollars, I'd be buying gold. As a Canadian, it makes absolutely no sense to hold gold in my opinion. Unless your preparing for some doomsday scenario (like nuclear fallout or something). Then maybe it has value.

[Pliny]

A bet on gold isn't a bet on gold as much as it is a bet on the US dollar. In fact, Canadian's holding gold really haven't made much money in the last run. Gold is relatively flat in Canadian dollars. It's just in US dollars that it has skyrocketed (I bet your Canadian dollar jeweller didn't tell you that).

So gold is sitting at what in Canadian dollars?

Aren't the values of all currencies related to the USD? If the USD is falling and the Canadian dollar is sitting steadily at .93. Isn't it falling as well? I believe it will most likely reach par with the USD and that certainly is a loss if you start out with Canadian dollars buying and selling gold in American dollars and then trading them back for Canadian dollars. You have still made back more Canadian dollars just not as much as you could have due to the variance of the dollars exchange rate.

Your post doesn't really make sense to me. What am I not getting?

[geoffrey]

So gold is sitting at what in Canadian dollars?

Aren't the values of all currencies related to the USD? If the USD is falling and the Canadian dollar is sitting steadily at .93. Isn't it falling as well? I believe it will most likely reach par with the USD and that certainly is a loss if you start out with Canadian dollars buying and selling gold in American dollars and then trading them back for Canadian dollars. You have still made back more Canadian dollars just not as much as you could have due to the variance of the dollars exchange rate.

Your post doesn't really make sense to me. What am I not getting?

Gold is about $1,180 Canadian right now.

Gold isn't close to it's high in Canadian dollars. Gold reached $1,237 back in February. But since the USD has bled out since, if you held gold from February on, you've lost money. Gold has moved since I originally posted this in Canadian dollar terms, but not any more than your basket of Canadian equities.

I still contend gold is a poor investment for non-USD earners/spenders. You will make more money elsewhere.

[Pliny]

Gold is about $1,180 Canadian right now.

Gold isn't close to it's high in Canadian dollars. Gold reached $1,237 back in February. But since the USD has bled out since, if you held gold from February on, you've lost money. Gold has moved since I originally posted this in Canadian dollar terms, but not any more than your basket of Canadian equities.

I still contend gold is a poor investment for non-USD earners/spenders. You will make more money elsewhere.

Ok. When the American dollar reaches parity with the peso probably we will see the introduction of a North American currency?

[Jack Weber]

The menacing campaigns that drive the NY Escort corporate spyware and adware market is developing way out of hand. Who are these companies and how do they NY Escorts get away with it? They are costing computer users millions with their sneakware system of promotional crap!We have NY Asian Escort some serious problems. These narcissistic bugger programmers that develop application and browser hijackers, pop-up pushers, adware scam NY Asian Escort and other bogus blots of code that only make life worse, need to be taught a lesson or two.

The pron/escort industry is full of unscrupulous people???

What a shocker!!!!

[Yesterday]

We have seen governments create certain booms over the past 9 years. We had the technology boom and the latest housing boom. Of course what follows booms are busts. We are seeing predictions in the metals markets that gold will reach maybe as much as $2500/oz. Is this the latest boom?

I don't know to read this situation in terms of busts and booms but I can tell you it is an IMF manipulated situation and reiterate again leave your gold where it sits. To me, purchasing gold right now is a fools game and all it would do is support this insane international fiat fiasco. If you allow the new found wealth due to the hike in the value of your gold convince you to extend your credit, you'll be in a lot of trouble when reality hits(the bust). And it will.

This predicted boom is a little bit different than the tech and housing booms of late which were both created by government monetary and fiscal policy. One could say that a boom in the gold/silver markets is also driven by government monetary and fiscal policy but there is one difference. The missing ingredient in a metals boom is "confidence". There is a lack of confidence in the sustenance of the purchasing power of the fiat currencies. Printing huge amounts of dollars, burgeoning government debt, and banks stockpiling reserves, are all contributing to the lack of confidence in the future value of the currencies.

To me, this situation, this lack of confidence scenario, is really nothing much more than media manipulation of the IMF need to jack the price of gold to cover its debt and aid obligations. Done in such a way as to encourage an atmosphere where holders of gold can rake in huge volumes of cash from all the gold standard nuts they can find to sell too for as long as the ride will last. As soon as the IMF and the US finish this credit restructuring the bust will hit and life will resume.

Whereas, confidence in the currency was not an issue in the tech and housing booms it is the entire issue in the precious metals booms. Is it the last boom before governments go bust and confidence in their fiat currencies is completely lost?

I don't think it will be the last government staged boom. I also don't think they will ever go bust. It is the nature of the beast to just rewrite itself. How many rewrites till we get a reasonable working concept? Who knows, I think though the next 20 years of the developments in currency concepts are going to be very revolutionary as compared to today's inferior working concept.

Let's see, has history provided us with any lessons about fiat paper "money". The US has a couple of examples in the Continental and Lincoln's Greenback which financed the Civil War. They are gone now so I would say they were unsuccessful.

Remember the French Revolution? The King's printers were busy printing up Assignat's and flooding the markets with them. They too are gone.

Then there is Voltaire's warning - "All paper money eventually returns to it's intrinsic value of zero."

Regardless of the fact that fiat money concepts have come and gone, regardless of the fact that we are being told that the value of the current fiat system is next to nill. The real underlying situation behind our global recession has more to do with long term financial obligations at a federal level to secure and develop resources on foreign soil.

The obligations involving the aid and loans/credits through the IMF in particular, hence its dilemma.

What about the literally trillions of US dollars that have been used fraudulently over the last 30 years or so. Imagine what this alone does to velocity. How much US currency is stashed away just waiting its turn to exchange hands at a most inopportune moment. Trillions upon trillions! The issues with the US currency are with its use, not its intrinsic value. This is being faced squarely in courts all over the world and the ability to do this amongst other foolhardy wealth concentration strategies are being slowly but surely removed. This will likely level the playing field a bit. I'm thinking in terms of over seas accounts, massive volumes of hoarded US currency. In part this is also being dealt with by replacing the paper dollars themselves.

To be fair, one must see the abuses that are inherent to a gold standard/gold exchanged backed currency as well. IMO, it is the ability to send any form of currency across borders to procure profit that profligates most of our problems.

Edited August 26, 2010 by Yesterday

[Yesterday]

Trends in velocity and policy

expectations*

David B. Gordon t

Clemson University

Eric M. Leeper

Indiana University

and

Tao Zha

Federal Reserve Bank of Atlanta

This paper explores the extent to which the observed secular movements

in velocity can be accounted for exclusively by endogenous responses to

changing expectations about monetary and fiscal policy. Velocity in the

model considered here is determined by the effect of policy expectations on

portfolio choice and by the use of money substitutes to carry out transactions.

As a result, both monetary and fiscal policy are potentially important

determinants of velocity.

This is a paper I've been reading, I am particularly interested in the part that studies the reaction of velocity in terms of currency substitution regarding what might be happening with the SDR. This paper is a little old so its substitutes are not necessarily the same as today but the overall paper is still very enlightening as to how velocity works and its effectors.

Changes in fiscal financing that are pure nominal asset swaps affect velocity

only through substitutions between money and transactions services.

I wonder if this could interpreted to mean that even with an asset swap of debt for SDR credits, this shouldn't effect velocity itself beyond consumer reaction.

One explanation for the decline in velocity in the 1990s is the sharp

increase in flows of U.S. currency overseas. We discuss this explanation and

consider its implications for the path of velocity in the 1990s.

This is interesting because it has been explained that the only reason the US outflow sheets for 2009 showed less action then the inflow sheets regardless of the fact that foreign investment declines do not support the inflow numbers is because private injections that are balancing the sheets are obfuscating the outflow reality. This outflow is very evident in the current velocity of M3 at any rate (I have to study all the rest still)if considered under these terms.

More later...

Edited August 27, 2010 by Yesterday

[Yesterday]

http://news.goldseek.com/RickAckerman/1219212180.php

There was good news yesterday for all those who mistakenly think inflation is worth worrying about: The U.S. money supply experienced its sharpest contraction in modern history. For the rest of us, this can only spell one thing: ruinous D-E-F-L-A-T-I-O-N. The money supply story was reported yesterday by Ambrose Evans-Pritchard, the London Telegraph’s man-on-the-scene in America. The news is likely to have been reported by the U.S. media as well, although we couldn’t find it anywhere else, even on Google’s business page.

Velocity Holds Key

Now, with the news that M3, the “broad” money supply, collapsed by $50 billion in July, we predict that the inflation story is about to go out of style.

http://www.telegraph.co.uk/finance/economics/2795017/Sharp-US-money-supply-contraction-points-to-Wall-Street-crunch-ahead.html

"Monthly data for July show that the broad money growth has almost collapsed," said Gabriel Stein, the group's leading monetary economist.

On a three-month basis, the M3 growth rate has fallen from almost 19pc earlier this year to just 2.1pc (annualised) for the period from May to July. This is below the rate of inflation, implying a shrinkage in real terms.

This is the contraction/velocity issue as I understand it so far.

[Pliny]

I don't know to read this situation in terms of busts and booms but I can tell you it is an IMF manipulated situation and reiterate again leave your gold where it sits. To me, purchasing gold right now is a fools game and all it would do is support this insane international fiat fiasco. If you allow the new found wealth due to the hike in the value of your gold convince you to extend your credit, you'll be in a lot of trouble when reality hits(the bust). And it will.

No one buys gold to extend their credit. When currencies become unsound investment moves to commodities, gold being a commodity and representing future liquidity over other commodities is the investment of choice. Speculators, play a different role by bidding up prices, they are not primarily concerned about the soundness of currencies. Price corrections in gold are speculators taking their profit. Restored confidence in the currency will see a drop in the price of gold due to less investment for safety reasons.

To me, this situation, this lack of confidence scenario, is really nothing much more than media manipulation of the IMF need to jack the price of gold to cover its debt and aid obligations. Done in such a way as to encourage an atmosphere where holders of gold can rake in huge volumes of cash from all the gold standard nuts they can find to sell too for as long as the ride will last. As soon as the IMF and the US finish this credit restructuring the bust will hit and life will resume.

Esentially, you are saying the IMF and the US know exactly what they are doing and are in control of the situation.

It doesn't make sense that "holders of gold" want to rake in huge volumes of cash.

I don't think it will be the last government staged boom. I also don't think they will ever go bust. It is the nature of the beast to just rewrite itself. How many rewrites till we get a reasonable working concept? Who knows, I think though the next 20 years of the developments in currency concepts are going to be very revolutionary as compared to today's inferior working concept.

Every time the market develops a reasonable working concept the government steps in and promising it will maintain it. It never does. It debases the money, and eventually replaces it with worthless paper.

Regardless of the fact that fiat money concepts have come and gone, regardless of the fact that we are being told that the value of the current fiat system is next to nill. The real underlying situation behind our global recession has more to do with long term financial obligations at a federal level to secure and develop resources on foreign soil.

The obligations involving the aid and loans/credits through the IMF in particular, hence its dilemma.

The financial obligations of domestic long term entitlements are more pressing. It is not entirely a government responsibility to secure and develop resources on foreign soil. They contribute to aid and credit extensions.

What about the literally trillions of US dollars that have been used fraudulently over the last 30 years or so.

What does this mean?

Imagine what this alone does to velocity. How much US currency is stashed away just waiting its turn to exchange hands at a most inopportune moment. Trillions upon trillions! The issues with the US currency are with its use, not its intrinsic value. This is being faced squarely in courts all over the world and the ability to do this amongst other foolhardy wealth concentration strategies are being slowly but surely removed. This will likely level the playing field a bit. I'm thinking in terms of over seas accounts, massive volumes of hoarded US currency. In part this is also being dealt with by replacing the paper dollars themselves.

Most government fiscal and monetary policy is designed to increase or maintain velocity. In other words they increase people's desire for goods and services now as opposed to later. It is only when the perception is that the economy is overheating that they will invoke policies that are intended to decrease velocity, that is, decrease people's desire for goods and services now.

An unsound dollar decreases velocity and increases saving. Governments, wishing to keep an economy moving, will in recessionary times vilify saving and call it hoarding among other pejoratives.

In fact though saving is what makes real investments and future production possible. Credit will foster production but credit also means that that future production is created out of debt and the debt must be repaid.

To be fair, one must see the abuses that are inherent to a gold standard/gold exchanged backed currency as well. IMO, it is the ability to send any form of currency across borders to procure profit that profligates most of our problems.

I suppose when you mention currency crossing borders to procure profit you are talking about currency traders? Volatile currency markets will indeed attract currency traders. I don't see why they wouldn't. If currencies are stable, that is, have confidence, currency trading becomes negligible. Most currency in a stable economy crosses borders as an investment.

If you mean international banking or governmental agencies shouldn't extend credit to governments and incur debt in those countries, I agree.

[Yesterday]

No one buys gold to extend their credit.

What I meant was that I won't use the increase of wealth that I have on paper due to the increase in the value of my gold to extend my credit. I think it would be wrong on so many levels.

It doesn't make sense that "holders of gold" want to rake in huge volumes of cash.

True, seller's are happy though.

Essentially, you are saying the IMF and the US know exactly what they are doing and are in control of the situation.

I don't know about controlling anything those are your words but I do believe it is the IMF and US debt that have jacked the price of gold and true to form we didn't miss the boat and hence the seller's market.

Every time the market develops a reasonable working concept the government steps in and promising it will maintain it. It never does. It debases the money, and eventually replaces it with worthless paper.

I can't be so pessimistic myself, things are very different now as compared to almost any time in the past as far as general public scrutiny. I see potential as is my nature.

The financial obligations of domestic long term entitlements are more pressing. It is not entirely a government responsibility to secure and develop resources on foreign soil. They contribute to aid and credit extensions.

You should look again at how much money is both owed to the IMF and what is owed by them. All of the money loaned from this group is for development and to date it has raped countries through making them increase their exports and sell their resources more often then not to foreign entities. I am not 100% sure but pretty sure that part of the refunding program that involves many things like the new production taxes (Tobin and others), the wiping out of billions of debt off third world countries is at the root some how of this(there is more), 'The Dollar Refunding Program'. It's a hard thing to track down. You are right it is not entirely government but the debt that has paved the way for such large amounts of foreign ownership belongs to the US government and the IMF. This debt is larger than most people realize.

I have to go but I want to post this first, this what I wonder when I think of accurate readings of velocity...from this group of articles it is shown that there is more than 12 trillion US not accounted for. It doesn't matter if the printing press ever got turned on, this amount of US currency is out there messing with the numbers.

http://solari.com/archive/missing_money/

More later I have to go.

Edited August 31, 2010 by Yesterday

[Yesterday]

Most government fiscal and monetary policy is designed to increase or maintain velocity. In other words they increase people's desire for goods and services now as opposed to later. It is only when the perception is that the economy is overheating that they will invoke policies that are intended to decrease velocity, that is, decrease people's desire for goods and services now.

Yes, I think this is what everyone expected because this situation looks so much like so many others that have come before but it isn't. Hence the deflationary situation we are in. The government can't increase velocity at the moment regardless of the trillions of dollars that have been supposedly released into circulation. None of it went into circulation (bail-out money and such)or we would see it true?

Check this out, this gives another hint towards what is going with the price of gold and how the US is at the heart of it in a fraudulent way and also kind of gives a hint towards one of the reasons why the IMF revalued gold.

http://www.kitco.com/ind/willie/nov182009.html

The tungsten deposits come in very high grade ore, located in shallow rectangular deposits dispersed widely across the world, segregated in unusual vault heap leach mineralizations. In October, the Hong Kong bankers discovered some gold bars shipped from the United States were actually tungsten with gold plating. This is the exact same Modus Operandi as the silver clad zinc dimes from 45 years ago. History repeats itself. The parallels to mortgage bond fraud with either subprime borrowers or multiple property titles used in bond securitization is easy to spot. A consistent theme runs through the American management of finance and dissemination of fraudulent assets on a global basis. Tungsten gold bars is a feat difficult to surpass. Credit must be given for not leaving any potential for fraud untapped. Refer to insider flash trading, naked shorting of bank stocks, commodity trading on behalf of the USGovt, and much more. No disrespect is intended for the trillion$ counterfeits of superstar grade. Refer defense appropriations, USTreasury Bond sales beyond issuance, and missing Fannie Mae funds. These are legacy crimes.

The initial discovery was something like four gold bars, which the Hong Kong bankers drilled invasively to test the contents. Reminds me of drilling the earth and measuring how many grams of gold per tonne. The HK bankers hoped to have 99% gold yield in their drill program for the resident bars. They found something like 1% instead and 99% tungsten. By the way, tungsten sells for less than $70 per ton, which makes its swaps for gold to be 60x more profitable than silver bar swaps. Another handy usage for the Gold/Silver ratio in calculations. The hunt was on. Now not a single assayer on the planet is available, as all are tied up. They have been commissioned to test the gold bars shipped from the United States of Fraudulent Banker America in their own bullion vaults. They use basic methods of four drill holes with direct assay of shavings, but also less invasive methods like electro-magnetic waves to examine the metal lattice structure. When highest level methods are needed, they turn to mass spectrometry. NOW ALMOST NO GOLD BARS WILL LEAVE THE LONDON OR NEW YORK METALS EXCHANGES WITHOUT SOME AUTHENTICATION, AS DISTRUST IS WIDESPREAD.

How quickly the general public forgets....

http://www.piie.com/publications/chapters_preview/381/2iie3705.pdf

This paper I found quite interesting because it paints a picture of how some governments have created a template to measure underground movement of currency to apply it to GDP. This seems to include counting this fictitious figure based on unobserved transactions in velocity calculations. So far, studying velocity is showing me how unreliable this can be for basing the possible value of the US dollar or the state of the economy in general. Aside from showing the possible level of outflow from the US. Which in itself speaks volumes as to the true state of the US economy right?

I suppose when you mention currency crossing borders to procure profit you are talking about currency traders? Volatile currency markets will indeed attract currency traders. I don't see why they wouldn't. If currencies are stable, that is, have confidence, currency trading becomes negligible. Most currency in a stable economy crosses borders as an investment.

No, not just currency traders. I actually meant it in a more fundamental way. I view international trade (the current version and level of trade) to be a fundamental problem as far as getting currency of any kind under control. It fuels an atmosphere where our level of growth far exceeds our needs.

An unsound dollar decreases velocity and increases saving. Governments, wishing to keep an economy moving, will in recessionary times vilify saving and call it hoarding among other pejoratives.

In fact though saving is what makes real investments and future production possible. Credit will foster production but credit also means that that future production is created out of debt and the debt must be repaid.

Like what we are seeing in Australia?

If you mean international banking or governmental agencies shouldn't extend credit to governments and incur debt in those countries, I agree.

Wholeheartedly!!!!

Edited August 31, 2010 by Yesterday

[Yesterday]

Well, I was hoping you would would call me on my source Pliny so we could both laugh over the tungsten issue. I put that out there to see if you were listening.

Just to clear up my position. The only bars that were legit IMO are the ones that showed up in Germany sent as good bars, not for melting. It was a mis-shipment that went bad and they found them because they were looking for them as part of an investigation into banks who were helping to supply Iran a few years ago with tungsten amongst other things for long range weapons. Good way to get it into the country perhaps...perhaps just one bank trying to pull the wool over the eyes of creditors? At any rate, IMO most of the articles that covered this supposed story are part of a greater agenda most likely funded by the banks to encourage gold fever and the use of electronic gold platforms and the like.

These are my 2 favorite articles about the tungsten.

http://news.coinupdate.com/what-about-the-counterfeit-gold-plated-tungsten-bar-stories-0189/

http://launderingmoney.blogspot.com/2009_01_01_archive.html

Some of the money went to fund terrorist groups like the Hamas and Hezbollah, and to help Iran get materials, including tungsten, for long-range missiles, sources said.

Edited September 1, 2010 by Yesterday

[Pliny]

Well, I was hoping you would would call me on my source Pliny so we could both laugh over the tungsten issue. I put that out there to see if you were listening.

Just to clear up my position. The only bars that were legit IMO are the ones that showed up in Germany sent as good bars, not for melting. It was a mis-shipment that went bad and they found them because they were looking for them as part of an investigation into banks who were helping to supply Iran a few years ago with tungsten amongst other things for long range weapons. Good way to get it into the country perhaps...perhaps just one bank trying to pull the wool over the eyes of creditors? At any rate, IMO most of the articles that covered this supposed story are part of a greater agenda most likely funded by the banks to encourage gold fever and the use of electronic gold platforms and the like.

These are my 2 favorite articles about the tungsten.

http://news.coinupdate.com/what-about-the-counterfeit-gold-plated-tungsten-bar-stories-0189/

http://launderingmoney.blogspot.com/2009_01_01_archive.html

Sorry I can't keep up with you on this. You seem to have a wealth of information regarding gold and what's happening in that market.

As you know I am what is termed a gold bug. But essentially I support whatever the market will devise and am wary what a monopolistic agency will force upon society.