STRONG correlation between US debt ceiling and gold price

swissaustrian

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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 :wave:
2008 basicly mirrors 2011 by the way: Gold shot up, corrected massively (30 %) and then doubled in two years.
Gold%20Debt%20Ceiling%20.jpg
 

dontdeBasemebro

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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 :wave:
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

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

pmbug

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Here's a model of the building the debt ceiling belongs to:
f56wz.jpg
 

swissaustrian

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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-hi...se-debt-limit-another-12-trillion-december-30

You know what to do: BTFD
 

pmbug

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

An elevator
 

swissaustrian

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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

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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.
 

h4rdware

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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

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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

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@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-...ciani-turroni-austrian-case-study-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

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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

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@ 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

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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 ......
 

benjamen

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What would happen to the price of gold, in USD, if we just did away with that pesky debt ceiling?

http://washingtonexaminer.com/pelos...ly-eliminate-the-debt-ceiling/article/2500408

"House Minority Leader Nancy Pelosi, D-Calif., thinks that President Obama should unilaterally eliminate the debt ceiling, rather than negotiate with Congress to spend more money when the United States hits the debt ceiling later this year."

“I think he should [declare the debt ceiling unconstitutional],”

Is she aware that it is up to the Supreme Court to declare something unconstitutional?
 

pmbug

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Debt ceiling? We don't need no stinking debt ceiling!

We+don%2527t+need+no+stinkin+badges.jpg
 

swissaustrian

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New chart on the correlation, the next hike of the dc is due this fall (maybe even before the election, should be fun...) and gold is still well below the last hike, time to catch up :D

KWN%20Fitzpatrick%2060.jpg
 

rblong2us

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Debt ceiling? We don't need no stinking debt ceiling!

Indeed this is by far the simplest way to deal with it.
alternatively keep the number secret

its just a distraction / theatre, to keep us looking away from something else ..... :noevil:
 

benjamen

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What would happen to the price of gold, in USD, if we just did away with that pesky debt ceiling?

http://washingtonexaminer.com/pelos...ly-eliminate-the-debt-ceiling/article/2500408

"House Minority Leader Nancy Pelosi, D-Calif., thinks that President Obama should unilaterally eliminate the debt ceiling, rather than negotiate with Congress to spend more money when the United States hits the debt ceiling later this year."

“I think he should [declare the debt ceiling unconstitutional],”

Is she aware that it is up to the Supreme Court to declare something unconstitutional?

http://thenewamerican.com/usnews/co...tyear-on-national-debt-to-infinity-and-beyond

"President Obama's Treasury Secretary Timothy Geithner has embraced the “Buzz Lightyear” strategy to overcome the fiscal and debt crisis known as the “fiscal cliff”: to infinity and beyond. Geithner told host Al Hunt on Bloomberg TV's Political Capital on November 16 (see video below) that he favors elimination of the statutory debt limit. "It would have been time a long time ago to eliminate it. The sooner the better." The move would place no upper limit on how much Congress and the White House could spend and borrow, effectively making the Disney Toy Story character's catch phrase national debt policy."

Horray, free money for all!
:noevil:
 

DSAbug

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I know this shouldn't surprise me but the boldness of these statements continues to baffle me. I sit here wondering how people could be this f***ing stupid. The end game can't get here soon enough.
 

rblong2us

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yeah, this is the chart I was hoping Fusor could dig out, as he has used it before.

Thanks swissaustrian, now I know where to find it, or who to ask (-;

QEinfinity and this chart is what has me sleeping so well.
 

swissaustrian

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The next debt ceiling hike is due in a few months (April the lastest). The US is about to hit the ceiling in a few days, but the Treasury is going to tap into several funds to get bridge financing as long as the fiscal cliff negatiations last. Even the upcoming political theater about the fiscal cliff should be supportive for gold. Gold hasn't even yet regained the current debt ceiling target at about $1900, the next hike is probably > 1 trillion, so it's time to catch up :D

20121213_citi9.png
 

bushi

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...did you know, that there is a classic rock piece, about these US debt ceiling charts above? Quite popular one, too, by Led Zeppelin - the title is "Stairway to Heaven" :D

"There's a lady, who's sure, all that paper is gold..." - Blythe Masters, no doubts!


PS. What a load of bovine :doodoo:, to call it "debt ceiling" - for pete's sake, it is being risen each time they approach it :rotflmbo:
 
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DCFusor

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Another chart vs total CB debt (well, all the big CB's anyway). Correlation seems a little closer, but who knows with chart tricks?
GoldVsCB.jpg

The thing is, on the chart I use for *trading* on ino.com, it just doesn't look like time yet - the cycles are longer on that one:
http://quotes.ino.com/chart/index.html?s=FOREX_XAUUSDO&t=&a=&w=&v=d12

Looks like you have to see the 50 sma flat or going down then exceeded for a day or two to catch the real big runups. Not a sure thing, but that's the history. This is one good reason to have a non-traded stack - you don't miss those "out of the norm" run ups.
 

swissaustrian

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US is hitting the debt ceiling on December 31st.

Tapping into seggregated funds of 200 bn $ will keep the US going for two more months, i.e. the US government is borrowing 100 bn $ each month.

GEITHNER SAYS U.S. WILL REACH STATUTORY DEBT LIMIT ON DEC. 31
GEITHNER: WILL USE `EXTRAORDINARY MEASURES' TO AVOID DEBT LIMIT
TREASURY: SPECIAL MEASURES TO MAKE $200 BLN ROOM UNDER LIMIT
GEITHNER: $200 BLN TO LAST TWO MONTHS IN `NORMAL CIRCUMSTANCES'
GEITHNER: TAX, SPENDING `UNCERTAINTY' MAKES DURATION NOT CLEAR
GEITHNER SAYS ALL MEASURES HAVE BEEN USED IN PRIOR IMPASSES
GEITHNER OUTLINES PLANS IN LETTER TO SENATE MAJORITY LEADER
http://www.zerohedge.com/news/2012-12-26/geithner-us-hit-debt-ceiling-december-31
 

pmbug

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Yeah, it's definitely a revenue problem... :paperbag:
 

swissaustrian

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Important fiscal dates in the near future:

April 15th, deadline for congress to come up with a budget. Otherwise they'll not get paid: http://www.policymic.com/articles/6871/april-15-citizens-must-pay-taxes-congress-must-pass-a-budget

May 18th: Expiry of the temporary suspension of the debt ceiling
: http://www.nytimes.com/2013/01/24/us/politics/house-passes-3-month-extension-of-debt-limit.html?_r=0

Shortly thereafter: US creadit rating downgrade by Fitch and Moody's.

That's gonna be supportive for pms
 

pmbug

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** bumpity bump bump **

A few days ago, a reader sent me a chart of the price of gold vs. the national debt.

The chart was a bit out of date so I asked Nick at Sharelynx Gold (my favorite proprietor of historical and current gold charts) if he had a similar chart. He did. And here's the chart.

Debt and Debt Ceiling vs. Gold

debt+vs+gold.png


... Unless "it's different this time" gold is rather undervalued here.

http://globaleconomicanalysis.blogspot.com/2013/10/us-debt-already-exceeds-debt-limit-by.html
 

Aubuy

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Juxtaposition is the act or placement of two things (usually abstract concepts) near each other. :wave::flail:
 

pmbug

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Well, they raised the debt ceiling again as expected. Should be bullish for gold in the long term (of course).
 

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