STRONG correlation between US debt ceiling and gold price

[swissaustrian]

This chart isn´t new, it´s from late july 2011 BEFORE the debt ceiling hike.
I think it´s a good tool to put into perspective where we are right now. Gold had it´s spike up to 1923 right after the debt ceiling deal and S&P downgrade. It fell of a cliff thereafter. If you expect no further debt ceiling hikes in the future, it might be time to sell. If otherwise you do expect more debt, BTFD
2008 basicly mirrors 2011 by the way: Gold shot up, corrected massively (30 %) and then doubled in two years.

[ancona]

GREAT chart.

[dontdeBasemebro]

If you expect no further debt ceiling hikes in the future, it might be time to sell. If otherwise you do expect more debt, BTFD

BTFD all the way, they'll keep piling debt upon more debt. They can hardly cut a zinc post-1982 penny out of the budget let alone deal with the ever increasing $15T debt.

[swissaustrian]

The only scenario under which the US budget gets balanced is a Ron Paul presidency imho

[PMBug]

Here's a model of the building the debt ceiling belongs to:

[swissaustrian]

America Maxes Out Its Credit Card Again - Treasury To Raise Debt Limit By Another $1.2 Trillion On December 30You didn't think US consumer confidence could be bought for free now did you?
U.S. TREASURY SAYS DEBT LIMIT TO BE RAISED BY $1.2 TRILLION
U.S. DEBT TO BE $100 BLN WITHIN LIMIT ON DEC. 30, TREASURY SAYS
STEPS FOR INCREASING DEBT LIMIT UNDER 2011 BUDGET CONTROL ACT
And the piece de resistance that 100% debt to GDP brings:
OBAMA ON DEC. 30 LIKELY TO ASK CONGRESS TO RAISE DEBT LIMIT
Just as we thought the circus was over if only for a few weeks...

http://www.zerohedge.com/news/us-hit...on-december-30

You know what to do: BTFD

[PMBug]

You know what they call a ceiling that always moves up?

An elevator

[swissaustrian]

You know what they call a ceiling that always moves up?

An elevator

Somebody has to examine the correlation between Ron Paul´s poll numbers and the debt ceiling. His imaginary msm poll ceiling seems to be an elevator, too.

[DCFusor]

Well, it just proves the (oversimplified) thesis that gold is simply inverse the dollar. I've seen some pretty nice charts on this, and for certain, long term it's just that - so far.

I think we'll start to see strains in the whole commodity complex as other things start to become relatively rare, and dollars abundant. We've already mined nearly all the high grade ore for all the other metals too...peak oil...name it - it's all getting harder and requiring more scarcer energy to produce. We can't forever have growth on a finite planet, but our entire system is based on a requirement for it. Doesn't take a genius to see that can't go on indefinitely. The trick (which I don't claim to have) is to know how and when the various other things will kick in and the effects on us of each separately and together.

[swissaustrian]

Zerohedge has another piece on the gold-debt ceiling correlation today:
http://www.zerohedge.com/news/tim-ge...s-best-friends

[h4rdware]

Exactly DCF -

"what fraction of a barrel of oil does it take to extract 1.0 barrels of oil..."
and
"how many barrels of oil does it take to extract X..."

It's a slow dance, but the music does fade out. It's also very hard to identify the fade against a complex score you do not know...

[DoChenRollingBearing]

I wonder...

I know that life does not correspond much to abstract math, but both gold and the debt seem to heading into exponential growth. It "looks like" we may be at the "kink" in the curve, when both start going up alarmingly fast. We also are at the point where INTEREST on the debt has become a BIG part of it. Usually when that happens, it becomes very difficult to control the runaway debt.

Nor am I hearing anything among the top three contenders (Obama, Romney and Gingrich) for next president that gives me any comfort. WE here all know what has to happen: RADICAL SPENDING CUTS and to shrink our menacing .gov. Ron Paul could have possibly made this happen were he to be elected, but that looks extremely unlikely now.

I was out today (guess why!), and the ONLY signs I saw (FL Primary is Tuesday) were for Romney. The polls have the two of them (Gingrich and Romney) very close.

So, in en environment where we get ZERO or near zero on any bonds or such financial instruments and with inflation (both "price movements" and larger money supply), I do not see any other place to put money than into PMs. Well, maybe more bearings too...

ZIRP until 2015! And who knows HOW MUCH more debt (doctored figures anyway).

At some point this IS going to matter...

[swissaustrian]

@DCRB: historically, the endgame of a debt bubble is a currency crisis. The gold market seems to anticipate this. Eventually the market will just reject dollars (and euros, and so on) I've posted a thread on a book about the Weimar hyperinflation: http://www.pmbug.com/forum/f4/book-e...dy-weimar-479/

The author describes brilliantly how it took a few years until the German population realized that their money wasn't worth anything. The Reichbank (German central bank) had already massively increased the money supply by buying government debt.
In order to get massive price inflation, this newly created money needed to get into circulation. Price inflation is a monetary phenomenon. But there's one more factor needed: increasing velocity of money. That's what's missing today. Once the dollar gets rejected, we'll get velocity. Eventually there will be a currency reform, but I think we're years away from that. The unique part of the current episode of monetary insanity is that it's global. No country in the developed world will be unaffected.

[DCFusor]

A true exponential curve can be plotted in such a way as to show the "kink" anywhere - it's really the same shape everywhere - and where you see the kink (EE's call it the knee) depends on the plot scale. Of course, for best interpretation, that scale might have to take into account not relative, but absolute numbers. In our case, an economy can boom at $20 oil - or $60 oil, but probably not at $100 oil - so there's an absolute scale involved for some things (in current nominal value).
In this example, there's an absolute scale (disregarding some other things for the moment) - where something that was a varying positive number flips to a negative number as the price of oil exceeds some number determined by other things - There is an addition or subtraction in there along with the shape of one of the curves.

I think that's what you mean by the kink this time - we really are at a place where there's an absolute reference which might be derived off the cost of living vs income or something similar.


Your concern about debt service is real - and why the Fed is doing what it can to keep rates down - even though that's not so much what they really want. They're trapped and can't escape at this point. Allowing rates to go up kills us in debt service already. This is the fear in Europe, after all. You could say they haven't managed this as well - but that depends on the time-scale you're going to use, as we're just digging a different hole, not a smaller one.

Radical cuts aren't going to happen. They'd have to come out of entitlements in the main and a lot of people already aren't satisfied with what they suck out of those.
As Heinlein said - once the plebes find out they can vote bread and circuses for themselves, it's only a matter of time before the collapse. That's the main thing about humans that makes "it's different this time" such a dangerous statement.

Looks like we'll keep monetizing our debt "forever" - unless the Fed finds some magic to escape the need for low rates. We'll just devalue our way to a more global standard of living the boiling frog way. We'll have some company in Yurp, and by the time we get there, I think the global average will have risen a little, but it's not going to be fun.

[DoChenRollingBearing]

@ swissaustrian and DCFusor

Yes re both of your comments to mine. Indeed, the exponential function does scale like that, that is kind of its definition, it is its own derivative (wow, I have to remember that line...).

THE book on financial crises is:

This Time is Different by Reinhart and Rogoff. It was written a year or two ago and shows EXCATLY what swissaustrian is saying. Once you hit a certain point, CRISIS! 800 years of examples... It is kind of heavy reading though. My recommendation is that on your next long trip anywhere is that you take ONLY this book, that will force you to read it. And it ain't pretty either!

[rblong2us]

Ive read lots of articles from 'austrians' who reckon the fed does not lead in deciding interest rates, the market decides.
It sees where rates are heading and pretends to be in control by altering rates.

how long before the market sees risk in being in $ and demands a higher risk premium ?

ZIRP is just another attempt at controlling Mr Market, who will have the last laugh cos he always does ......