Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen

[seanm123]

Re: Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen

The subscriber link is not working.

seems to be an extra "http//" in the URL.

http://http//www.itulip.com/forums/s...533#post141533

[lakedaemonian]

Re: Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen

fyi:

http://www.navytimes.com/news/2009/1...y_base_123009/

China is running a "string of pearls" for naval replenishment/basing in Myanmar, Bangladesh, and Pakistan.

Sri Lanka can now be added to that list as the price for China's support for Sri Lanka's eradication of the Tamil Tigers....which wouldn't have been economically, politically, or militarily possible without Chinese support.

The Chinese also have a VERY long history in Tanzania...so I wouldn't be surprised to see the PLAN grow it's presence there over time.

[thousandmilemargin]

Re: Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen

Regarding China and gold, they can play multiple options at once. Build up gold reserves for international settlements if required, while continuing to peg the yuan against the USA dollar even as the dollar steadily declines in value.

This allows them to continue printing yuan as and when required to stimulate their economy, while leaving open the option to back the yuan with gold at some point in the future if it becomes necessary. At some point they could peg the yuan to gold or a basket including gold. And pegs can be shifted.

There is something to be said for having a dual currency domestic system, where your population borrows and transacts in yuan, but saves in gold. One currency is your store of value, the other your medium of exchange. If an expectation is created that gold will appreciate relative to the yuan over time, this encourages both borrowing ( in yuan) for productive activities, and the stockpiling of gold as a form of saving and inflation hedge.

It suggests though that the pool of yuan savings available for lending will dwindle as savers switch to gold. But the government can fill this gap by printing more yuan to lend. As they indeed are already doing.

This has the smell of a perpetual motion machine - all the smart people can borrow in yuan to invest, knowing deflation will reduce what they need to pay back, while preserving the value of their "rainy day" funds in gold. The benefits of endless money printing and endless (controlled) inflation without destroying the nest eggs of savers.

Doubtless, like all perpetual motion machines, there is a flaw there somewhere, but I think the temptation to try something like this would be very strong.

I suppose the drawback is that workers get paid in yuan, not gold. So when new money is printed, there is a transfer of wealth from workers to borrowers as the value of the paypacket declines. Wage increases would lag behind the printing of new money. So the ordinary guy gets screwed, as always. But since the system benefits people with the ability to borrow, and these tend to be more influential than those who aren't creditworthy, it may be attractive to those in power.

[Jay]

Re: Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen

Regarding China and gold, they can play multiple options at once. Build up gold reserves for international settlements if required, while continuing to peg the yuan against the USA dollar even as the dollar steadily declines in value.

This allows them to continue printing yuan as and when required to stimulate their economy, while leaving open the option to back the yuan with gold at some point in the future if it becomes necessary. At some point they could peg the yuan to gold or a basket including gold. And pegs can be shifted.

There is something to be said for having a dual currency domestic system, where your population borrows and transacts in yuan, but saves in gold. One currency is your store of value, the other your medium of exchange. If an expectation is created that gold will appreciate relative to the yuan over time, this encourages both borrowing ( in yuan) for productive activities, and the stockpiling of gold as a form of saving and inflation hedge.

It suggests though that the pool of yuan savings available for lending will dwindle as savers switch to gold. But the government can fill this gap by printing more yuan to lend. As they indeed are already doing.

This has the smell of a perpetual motion machine - all the smart people can borrow in yuan to invest, knowing deflation will reduce what they need to pay back, while preserving the value of their "rainy day" funds in gold. The benefits of endless money printing and endless (controlled) inflation without destroying the nest eggs of savers.

Doubtless, like all perpetual motion machines, there is a flaw there somewhere, but I think the temptation to try something like this would be very strong.

I suppose the drawback is that workers get paid in yuan, not gold. So when new money is printed, there is a transfer of wealth from workers to borrowers as the value of the paypacket declines. Wage increases would lag behind the printing of new money. So the ordinary guy gets screwed, as always. But since the system benefits people with the ability to borrow, and these tend to be more influential than those who aren't creditworthy, it may be attractive to those in power.

China only supports gold investment by the masses to hedge revolutionary pressures as the inflationary pain inflicted by maintaining the dollar peg gets great. Lots of new debt and rollovers from the US coming this year, and no one to buy but "others." Crank it up Ben!

[thousandmilemargin]

Re: Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen

Along these lines, you could peg the yuan to gold with the stated attention of allowing the yuan to depreciate against gold at 2-3% per year - similar to "inflation targeting" as practiced by many central banks.
So the yuan would be good as gold in the short term, but you wouldn't use it as a store of value.

Reminiscent of a bimetallic system. The problem with bimetallic standards is that the supply of one metal tends to increase faster than the other, throwing out your ratios. But you can get around this by doing measured, periodic revaluations, if the difference isn't too great.

Similarly, if the gold supply grows at 2% per year, and the supply of yuan grows at 4% per year, you can manage the gap by moving the peg 0.2% each month. As long as the devaluation is steady and predictably people can adapt.

[Jay]

Re: Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen

Along these lines, you could peg the yuan to gold with the stated attention of allowing the yuan to depreciate against gold at 2-3% per year - similar to "inflation targeting" as practiced by many central banks.

Only if you throw out the entire US dollar peg and all the ramifications that has. It might destroy China. It would mean no exports, in a setting with no real domestic consumer to pick up the slack, in an economy only partially industrialized. Yikes. There would be a whole lot of billy clubs. China will ride the dollar peg into oblivion. Steps away will be furtive and tentative.

[thousandmilemargin]

Re: Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen

China only supports gold investment by the masses to hedge revolutionary pressures as the inflationary pain inflicted by maintaining the dollar peg gets great.

I agree, that's a major consideration. You can get away with running higher domestic inflation if the nation's savers have inflation protection.

It's probably also seen as a way to draw some money out of property speculation.

I wonder if they'll exploit this feature? Just how much revolutionary pressure can you hedge with domestic gold investment, eh?

[Jay]

Re: Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen

I agree, that's a major consideration. You can get away with running higher domestic inflation if the nation's savers have inflation protection.

It's probably also seen as a way to draw some money out of property speculation.

I wonder if they'll exploit this feature? Just how much revolutionary pressure can you hedge with domestic gold investment, eh?

At some point you need to hedge with a punch to the face. Gonna get lopsided at some point even with inflation hedges.

[thousandmilemargin]

Re: Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen

Only if you throw out the entire US dollar peg and all the ramifications that has. It might destroy China. It would mean no exports, in a setting with no real domestic consumer to pick up the slack, in an economy only partially industrialized. Yikes. There would be a whole lot of swollen faces. China will ride the dollar peg into oblivion. Steps away will be furtive and tentative.

I wouldn't expect a gold peg in the next 5 years, I'm suggesting it is an ace they might like to have up their sleave down the track.

You'd peg the yuan to gold AFTER you'd rode the dollar peg down as far as you dared. It might actually be used to hold the yuan DOWN rather than up. E.G, if the dollar declines to the point where gold is $5000 an ounce, you have a 1-6 yuan peg so gold is 30,000 yuan an ounce, you then peg against gold at 30,000 to 1 to keep the yuan cheap, and announce you'll be running a slightly expansionary policy and sliding the peg at 2% per year.

[Jay]

Re: Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen

I wouldn't expect a gold peg in the next 5 years, I'm suggesting it is an ace they might like to have up their sleave down the track.

You'd peg the yuan to gold AFTER you'd rode the dollar peg down as far as you dared. It might actually be used to hold the yuan DOWN rather than up. E.G, if the dollar declines to the point where gold is $5000 an ounce, you have a 1-6 yuan peg so gold is 30,000 yuan an ounce, you then peg against gold at 30,000 to 1 to keep the yuan cheap, and announce you'll be running a slightly expansionary policy and sliding the peg at 2% per year.

Bet old Benny can out print you all! ;)

We can both agree that is a new world at that point.

[metalman]

Aughts were a lost decade for U.S. economy, workers

lost decade indeed...

Aughts were a lost decade for U.S. economy, workers

By Neil Irwin
Washington Post Staff Writer
Saturday, January 2, 2010

For most of the past 70 years, the U.S. economy has grown at a steady clip, generating perpetually higher incomes and wealth for American households. But since 2000, the story is starkly different.

The past decade was the worst for the U.S. economy in modern times, a sharp reversal from a long period of prosperity that is leading economists and policymakers to fundamentally rethink the underpinnings of the nation's growth.

It was, according to a wide range of data, a lost decade for American workers. The decade began in a moment of triumphalism -- there was a current of thought among economists in 1999 that recessions were a thing of the past. By the end, there were two, bookends to a debt-driven expansion that was neither robust nor sustainable.

There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well.

http://www.washingtonpost.com/wp-dyn...l?hpid=topnews

your red herring victim is not only out money on his stock portfolio... he's out of a job.

[Chris Coles]

Re: Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen

Metalman is getting much closer to the crucial point here. Go into any hardware store and look for the "made in" labels. Then factor in the likelihood of China, at some point, deciding not to continue trading.... Remember, it would take a decade to bring back on line all those manufacturing facilities to make all those Made in China products...... and the associated jobs.

If China closed the trade door the United States would be in a quite impossible position with regard to the supply of the simplest things needed to manufacture new products.

A little like watching a mouse run away but with a long piece of string attached to its tail.... sooner or later, the string runs out and the mouse stops DEAD!

[jk]

Re: Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen

from james turk

Gold also rose against seven other major world currencies, declining last year only against the Australian dollar. The following table presents the numbers for this decade.

Gold % Annual Change
	USD	AUD	CAD	CNY	EUR	INR	JPY	CHF	GBP
2001	2.5%	11.3%	8.8%	2.5%	8.1%	5.8%	17.4%	5.0%	5.4%
2002	24.7%	13.5%	23.7%	24.8%	5.9%	24.0%	13.0%	3.9%	12.7%
2003	19.6%	-10.5%	-2.2%	19.5%	-0.5%	13.5%	7.9%	7.0%	7.9%
2004	5.2%	1.4%	-2.0%	5.2%	-2.1%	0.0%	0.9%	-3.0%	-2.0%
2005	18.2%	25.6%	14.5%	15.2%	35.1%	22.8%	35.7%	36.2%	31.8%
2006	22.8%	14.4%	22.8%	18.8%	10.2%	20.5%	24.0%	13.9%	7.8%
2007	31.4%	18.1%	11.5%	22.9%	18.8%	17.4%	23.4%	22.1%	29.7%
2008	5.8%	33.0%	31.1%	-1.0%	11.0%	30.5%	-14.0%	-0.3%	43.7%
2009	23.9%	-3.6%	6.5%	24.0%	20.5%	18.4%	27.1%	20.2%	12.1%
Average	17.1%	11.5%	12.7%	14.7%	11.9%	17.0%	15.0%	11.7%	16.6%

Gold continues to excel as one of the world's best performing asset classes this decade, and with its break above $1000 per ounce, gold is finally getting the attention it deserves. The increasing number of news reports and other media coverage is evidence that gold is in the second stage of its long-term bull market.
The third and final stage of this bull market is still in the future, so as well as gold has done this decade, it is not yet time to take profits. I expect that gold will rise much further.



http://goldmoney.com/commentary.html

[raja]

Re: Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen

TIPS, while better than nothing at protecting investors against the kind of inflation that caused gold to shine between 1975 and 1980, a period his analysis ignores, are subject to manipulation by governments who hold all the cards via control of inflation indexes and the bond supply.

The government holds all the cards with gold, too, at least domestically . . . .

EJ's article points to the dangers of TIPS, but says nothing of the dangers of gold.

Isn't gold a competitive currency to the government's fiat? Wouldn't the government like to stamp it out, if they couldy?

Imagine Timmy, Ben and Summers sitting around one day with a few agents of Vampire Squid Inc (GS) lurking in the shadows.
Tim says, "You know this gold thing is a real problem. Everybody's buying gold and dumping dollar assets. How are we going to have Debt Serfdom if people stop borrowing dollars to buy over-priced assets?" Ben replies, "You know, you're right. Let's put a big tax on gold profits to crash the gold market. We can tell the little people that we've gone after the rich, evil gold speculators who are ruining the economy." Summers chimes in, "Or maybe we can say it's a national security emergency, and we need gold to back the dollar so we can continue to buy oil. We'll tell the little people 'You want to keep driving, don't you? We're passing a law that all gold owners (except the Banks, of course) must to turn in their gold in exchange for $900 an ounce, so we can save the country and keep the nasty Chinese from ruining our economy."

[metalman]

Re: Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen

The government holds all the cards with gold, too, at least domestically . . . .

EJ's article points to the dangers of TIPS, but says nothing of the dangers of gold.

Isn't gold a competitive currency to the government's fiat? Wouldn't the government like to stamp it out, if they couldy?

Imagine Timmy, Ben and Summers sitting around one day with a few agents of Vampire Squid Inc (GS) lurking in the shadows.
Tim says, "You know this gold thing is a real problem. Everybody's buying gold and dumping dollar assets. How are we going to have Debt Serfdom if people stop borrowing dollars to buy over-priced assets?" Ben replies, "You know, you're right. Let's put a big tax on gold profits to crash the gold market. We can tell the little people that we've gone after the rich, evil gold speculators who are ruining the economy." Summers chimes in, "Or maybe we can say it's a national security emergency, and we need gold to back the dollar so we can continue to buy oil. We'll tell the little people 'You want to keep driving, don't you? We're passing a law that all gold owners (except the Banks, of course) must to turn in their gold in exchange for $900 an ounce, so we can save the country and keep the nasty Chinese from ruining our economy."

itulip was the first to warn about all of that. matter of fact... chances are you got the idea here 3 yrs ago but forgot... often given as the reason for a mere 30% position vs 100% like some folks here got.

google search saves time & rehashing old debate. search & recall.