Tin Foil Hats, Economic Reality and the Total Perspective Vortex

pmbug

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There was a Reuters story yesterday by William Schomberg, “G7 Finance Chiefs to Discuss Bank Reform Push.” Very few people picked up on this but it seems strange that all the sudden a meeting is called to discuss what elements of bank reform. Are they going to try to persuade Germany to get behind the EU push for a banking union and if so why the hurry before the September German elections? The idea of a banking union with resolution authority is sure to be a lightening rod for all the German angst about the bailouts of the peripheral nations. The Reuters piece notes that some G-7 officials are upset that the U.K. called the meeting so soon after the recent IMF talks in Washington. One official said, “I am really annoyed I’ve got to give up my weekend for this.”

This leads me to believe that there must be a simmering problem coming to the boil. ...

... I will continually stress that the main political battle may be the Bundesbank versus the EU. The German central bank is the bastion of “hard money” and is fighting hard about the German polity surrendering monetary and financial rectitude to the French and other profligate countries. ...

... The battle lines are being drawn and it appears that the BUNDESBANK is hellbent on reasserting its authority. This will not be a side-show but the main conflict.
...
More: http://yragharris.com/2013/05/10/meeting/
 

pmbug

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Very surprising to see CNBC is finally on this story...
The U.S dollar is shrinking as a percentage of the world's currency supply, raising concerns that the greenback is about to see its long run as the world's premier denomination come to an end.

When compared to its peers, the dollar has drifted to a 15-year low, according to the International Monetary Fund, indicating that more countries are willing to use other currencies to do business.

While the American currency still reigns supreme -- it constitutes $3.72 trillion, or 62 percent, of the $6 trillion in allocated foreign exchange holdings by the world's central banks -- the Japanese yen, Swiss franc and what the IMF classifies as "other currencies" such as the Chinese yuan are gaining.

"Generally speaking, it is not believed by the vast majority that the American dollar will be overthrown," Dick Bove, vice president of equity research at Rafferty Capital Markets, said in a note. "But it will be, and this defrocking may occur in as short a period as five to 10 years."
...
http://www.cnbc.com/id/100461159
 

Aubuy

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I'm not worried about the dollar. I converted my cash into drachma to get ahead of the curve.
 

pmbug

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...
Quietly exiting

The smart money has been shifting out of US dollars and into real assets for some time. Look at Abu Dhabi buying half of Dubal yesterday (click here). These asset prices also fall in a depression but real assets have intrinsic value. But what will function as money after the paper currencies of the world have been trashed?

Last week the 1999 Nobel Prize winning economist Robert Mundell was in Amman talking about the concept of a new global currency with special drawing rights backed by major currencies and administered by the global central bank, the International Monetary Fund.

He said: ‘The US dollar is now not backed by gold, but only by trust. And since most commodities and major goods such as oil and gas, major metals are exchanged based on the US dollar, it was quite logical that the US government had to increase its power through inflationary measures that made the US dollar less stable.

‘The new system should not be based on any single currency. It should rather allow the introduction of Sprecial Drawing Rights which are assets issued by the IMF, to make the world financial market much more stable,’ he said noting that the SDR should have a value based on the dollar, euro, yuan and yen.

SDR and gold

Professor Mundell is also an advisor to the Chinese government whose central bank has expressed its interest in SDRs backed by gold reserves as well as paper currencies. Ultimately SDRs will have to be backed by gold to win the trust of the world after a catastrophe caused by paper money.

Sadly we have to go through that catastrophe first. But investors ought to realize that for the limited and rather fixed supply of gold available in the world to perform this function it would have to be revalued to a much higher price than it has at present. Herein lies the real top of the bull market for gold.

And this is how gold will end up back at the heart of the global currency system again.
http://www.arabianmoney.net/gold-si...he-heart-of-the-global-currency-system-again/

Left unsaid in #Mundell's forecast of #IMF gold-backed world money is that non-deflationary price of gold is $7000/oz
https://mobile.twitter.com/JamesGRickards/status/342473197674979328
 

benjamen

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http://finance.yahoo.com/news/asian...Rwc3RhaWQDBHBzdGNhdANob21lBHB0A3BtaA--;_ylv=3

"World shares fell and the dollar slumped on Thursday as a sell-off on global financial markets accelerated on concerns over whether central banks will continue the stimulus they have come to rely on."

Even a rumor that central banks might be cutting back on stimulus is causing markets all over the world to veer lower. Imagine the pain if central banks actually do something!
:flail:
 

DCFusor

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Evidently, people are back to BTFD today - or there's more pomo than was reported at ZH...Guess I missed out on a good short opportunity, but it's been a lot more relaxed around here since I got out and stopped trading a couple weeks ago. I'll get back to it, at some point, but for now, I'm happy being out. But a little scared about having all my money in a MM account at my broker, to be honest. A bunch of it is IRA money, and the tax hit I'd get taking it all out to the bank of mattress would be stunning, so I've not done that at this point - but I AM thinking about it.
 

benjamen

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http://www.mybudget360.com/negative...ce-sheet-part-time-us-employment-record-high/

"The latest report shows that the Fed has grown its balance sheet to a stunning $3.5 trillion."
This includes almost 2 trillion in Treasuries!

"Since 2009 we have been in a negative interest rate environment."
This means inflation is greater than the savings rate.

"Housing values are going up on the low rate environment and speculators are flooding the market trying to find a better yield for their investment. This isn’t exactly a positive for middle class families that have seen a stagnant market when it comes to wage growth."

"The press is running as if the jobs report was completely fantastic but we saw a net add of 360,000 jobs (a total of 28,059,000 Americans are now working part-time, a record) but a drop of 240,000 full-time jobs."
All hail the part time job market!
 

benjamen

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Continuation of the unemployment report:
http://www.silverdoctors.com/the-go...arce-part-time-jobs-322k-full-time-down-240k/

"I hope everyone takes note that 322k of the supposed jobs created were part-time – full-time jobs declined by 240k."

"Also please note that while the Govt released a number than enables the momentum traders to juice the SPX and hit the metals today, the Govt also made sure that the unemployment rate stayed comfortably above the 7% level and it was actually a bit higher than expected. The 7% level being the number everyone on CNBC is watching to decide if the Fed will really “taper.”

Also note that overnight last night that India and Viet Nam were aggressively buying despite Govt attempts in both countries to curb gold buying."
 

ancona

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Right on Benjamen!

GovCo thinks we're all fooled out here in Wonderland, and believe the numbers to be true and representative of a heal;thy and growing economy. In actual fact, the economy is grinding to a halt as employers dump all their full timers in favor of even more part timers. This is beyond nauseating for me to watch. Next on the play list, the three day work week, within which we'll all get our "fair share" of 24 work hours at some shitty minimum wage nowhere job.
 

benjamen

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Right on Benjamen!

GovCo thinks we're all fooled out here in Wonderland, and believe the numbers to be true and representative of a heal;thy and growing economy. In actual fact, the economy is grinding to a halt as employers dump all their full timers in favor of even more part timers. This is beyond nauseating for me to watch. Next on the play list, the three day work week, within which we'll all get our "fair share" of 24 work hours at some shitty minimum wage nowhere job.
It seems the temp worker is becoming the new norm:
http://finance.yahoo.com/news/temporary-jobs-becoming-permanent-fixture-140133833.html

"Hiring is exploding in the one corner of the U.S. economy where few want to be hired: Temporary work."

"Combined, these workers number nearly 17 million people who have only tenuous ties to the companies that pay them — about 12 percent of everyone with a job."

"Temps typically receive low pay, few benefits and scant job security. That makes them less likely to spend freely, so temp jobs don't tend to boost the economy the way permanent jobs do."

"But Houseman's research has found that even when jobs are classified as "temp to permanent," only 27 percent of such assignments lead to permanent positions."

"You can hire 10,000 people for 10 to 15 minutes," says Gigwalk CEO Bob Bahramipour. "When they're done, those 10,000 people just melt away."

:flushed:
 

pmbug

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... Gold has been leased out, and we do know this (takes place) because it’s been admitted to by the major central banks. The Fed has admitted it, the European Central Bank has admitted it, the Bank of England has admitted it. They’ve all admitted that they engage in wholesale leasing of gold to the market.

In practice how that (leasing) works is the Fed would contact their agent, typically JP Morgan, sometimes Goldman Sachs, and they would say, ‘OK, the gold price needs to be capped, so here is 20, 30, 40, 50 tons (of gold) that we’re going to lease out to you as our agent. But in theory we can call it back.’

That’s a great theory, but in reality it’s nonsense because once JP Morgan and Goldman Sachs get the gold they sell it into the market. So these bullion banks then become net-short gold. And the Fed says, ‘Well, we still have a contract where in theory we can claim the gold. So we’re going to report that we still own it in the official documents.’

But in reality the gold has been sold into the market. That gold winds up in places like Beijing. But before it gets to Beijing it frequently goes through Hong Kong. And when it goes to Hong Kong, it goes to our refiner, the same people we use. And by the way, Eric, we may own some of the gold that Germany thinks that they own. But Germany will never see that gold because it’s safely stored in my account (and) for our investors at the Hong Kong International Airport.

Regarding that gold, which could have had the symbol of the Bundesbank on it when it arrived in Hong Kong, a leading refiner, one of the biggest in the world that deals with the People’s Bank of China (PBOC), certified that, ‘Yes, we’ve got gold available that we can deliver. We’ve melted it down, we’ve tested it. It may have had the Bundesbank symbol on it when it arrived, but now it’s melted down .9999 (fine) gold.’

That’s how it works in practice. So the Fed gold, that Americans think is theirs, is gone. The gold that the Germans have been told they will get back in 7 years, they’ll never get back because it doesn’t exist anymore (at the Fed). I own it. The People’s Bank of China owns it. The Reserve Bank of India owns it. The central bank of Russia owns it. But the people of Germany (and America) don’t own it.
...
http://kingworldnews.com/kingworldn...l_A_Farce,_The_Fed_&_German_Gold_Is_Gone.html
 

benjamen

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"The coupon on the nation's $13.22 trillion debt averages 1.88 percent with an average maturity of 5.4 years. As interest rates rise, debt will be rolled over at a higher rate, making the burden even greater than it already is. This suggests a likely tipping point for Treasuries."

"The current yield on the Ten-Year Note is 2.6%, up from 1.6% less than two months ago. True, that rate has surged of late but it is still far below its 40-year average of around 7%."

"...the Fed now holds over $3.5 trillion worth of securities on its balance sheet, $1.9 trillion of which are U.S. Treasuries."

A) How does the FED "unwind" it's position and sell off the roughly two TRILLION dollars worth of treasuries without causing rates to rocket up? Keep in mind, the value of a long term bond goes down as market interest rates rise.

B) How does the U.S. government refiance it's existing debt as it comes due over the next 5 years (let alone borrow more)?


Reference:
http://www.321gold.com/editorials/pento/pento071113.html
http://www.321gold.com/editorials/holmes/holmes071013.html
 

benjamen

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The Yuan to referencing gold instead of the dollar?
http://rbth.asia/business/2013/07/17/china_reportedly_planning_to_back_the_yuan_with_gold_47997.html

"...the People's Bank of China is mulling the possibility of phasing out the dollar as the reference currency for the yuan exchange rate, and to start using gold as the reference point."

"Separating the yuan exchange rate from the US dollar may further weaken the American currency in the long run; in addition, China's monetary policy would become very much restricted..."

The Chinease Yuan (redback) to challenge the greenback as reserve currency:
http://www.scmp.com/business/money/...le/1076500/yuan-hailed-world-reserve-currency

"China's central bank said more than 60,000 companies worldwide have permission to do transactions in the currency. Some importers from China say they are getting discounts of up to 7 per cent by paying for goods in yuan, a powerful incentive."

"in East Asia, there is already a renminbi bloc, because the renminbi has become the dominant reference currency, eclipsing the dollar … seven currencies out of 10 co-move more closely with the renminbi than with the dollar".

"It would put China's economy at the mercy of countries that want to turbo charge growth by running large trade surpluses. Beijing isn't eager to accept any of these things."
 

pmbug

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Using gold as a reference point is going to happen sooner or later.
 

bushi

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quite interesting analysis, how USA is fucking up the whole middle east, breaking it up int o smaller, internally-conflicted "stans", that are easy to push around and exploit further:

 

bushi

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A) How does the FED "unwind" it's position and sell off the roughly two TRILLION dollars worth of treasuries without causing rates to rocket up? Keep in mind, the value of a long term bond goes down as market interest rates rise.

B) How does the U.S. government refiance it's existing debt as it comes due over the next 5 years (let alone borrow more)?


Reference:
http://www.321gold.com/editorials/pento/pento071113.html
http://www.321gold.com/editorials/holmes/holmes071013.html
There was a good post on Mish's blog one day, re: controlling interest rates. It actually is pretty simple to keep bonds at 0%, the only thing the Fed needs to do, is to vacuum every bond that pops up for sale, for whatever price is being asked, and voila - no interest rate increase. Simple, isn't it? However, what they loose control over, the very instant they commit to that tactics - is inflation (like, you know, they care about it :rotflmbo:)

You might want to refer to this thing as economic Heisenberg uncertainty principle, if you wish :) - the more you pinpoint one variable, the less you know about the other one.
 

bushi

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...from Acting Man blog:
A Strong Contrarian Signal That This Market Is Toast

Data shows that the ordinary retail public – Mom and Pop – are back on Wall Street, and how! According to the Investment Company Institute, the Great American Public has poured $92 billion into the stock market via stock mutual funds since the start of the year.
To put that in context, in the first seven months of last year – when the market was much lower – they withdrew $180 billion. The last time the investing public jumped into the Wall Street pool with both feet like this was in 2007. And they are investing even more this time around. In the first seven months of 2007 they invested $85 billion into stock funds.
...:popcorn:
 

bushi

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(...)A bunch of it is IRA money, and the tax hit I'd get taking it all out to the bank of mattress would be stunning, so I've not done that at this point - but I AM thinking about it.
...you might want to ask yourself, how many more years you need to keep it in your IRA, Fusor, before withdrawing it without penalties? You might consider, if it is plausible that the whole circus will be still on the road, at that date. It might be better to take a hit today, and recoup at least part of your life savings, rather than counting on the whole thing NOT collapsing, if the required time frame is say 10 years or so.

Being younger myself, I am contributing $0.00 personally to any of my officially-recognized pension vehicles - only compulsory (living in socialist Yurp...) contributions, and paltry 2%, that my employer is paying anyway (and I couldn't cash it). I know there's precisely zero chance that I will receive anything meaningful back from it, when the time of my retirement comes.
 
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