Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

[radon]

Re: Bugs are the enemy, not Gold!

People were overwhellming against TARP but it did not stop the authorities.
Only if +10% of the population owned a meaningful amount of gold individually would there potentially be a critical mass for political backlash.

TARP was transparent to most people. Raiding safe deposit boxes and going door to door with guns collecting gold to give to rich bankers is hardly a good comparison. Vocal minorities tend to have a disproportionate political influence, beside this would feed the current political melee, not defuse it. Why would they do something that is not only unnecessary but politically unpopular?

[vinoveri]

Re: Bugs are the enemy, not Gold!

the more people like gross and dalio buy gold, the less likely it will be seized.

People like gross and dalio are insiders; They will be spokemen for whatever form of "misappropriation/theft" is proposed.
The will be persuaded with carrot and/or stick to play ball and will come out on top.

[vinoveri]

Re: Bugs are the enemy, not Gold!

TARP was transparent to most people. Raiding safe deposit boxes and going door to door with guns collecting gold to give to rich bankers is hardly a good comparison. Vocal minorities tend to have a disproportionate political influence, beside this would feed the current political melee, not defuse it. Why would they do something that is not only unnecessary but politically unpopular?

Sorry, don't get it. TARP was transparent to ALL so its not a good example (of government doing whatever it will notwithstanding what 'the people' want) compared to opaque theft from a minority?

Yes, agree, you will not see FBI agents lining up citizens on the street seaching them for gold. More likely a voluntary surrender/exchange. This will still be misappropriation and taking, and those who don't want to cooperate will be forced to become 'criminals'.

[rogermexico]

Re: Bugs are the enemy, not Gold!

People like gross and dalio are insiders; They will be spokemen for whatever form of "misappropriation/theft" is proposed.
The will be persuaded with carrot and/or stick to play ball and will come out on top.

Bill Gross is the Ray Kroc of bond investing. The proletariat and their proxies (retirement and pension funds, etc) are the ones who are actually doing the buying when Bill Gross "buys" gold. You can't screw Bill Gross' clients without screwing Bill Gross.

IOW, I agree with JK.

[rogermexico]

Re: Bugs are the enemy, not Gold!

Sorry, don't get it. TARP was transparent to ALL so its not a good example (of government doing whatever it will notwithstanding what 'the people' want) compared to opaque theft from a minority?

Yes, agree, you will not see FBI agents lining up citizens on the street seaching them for gold. More likely a voluntary surrender/exchange. This will still be misappropriation and taking, and those who don't want to cooperate will be forced to become 'criminals'.

Explain how you think the government will recover more gold for its reserves with coercion (which is what I think you mean by misappropriation and taking) than with making it attractive by incentivizing the sale of it. Please use an explanation other than "government does bad things".....

Punishing gold holders and "taking" gold will:

1) Hurt or at least inconvenience insiders who hold it

2) Not net as much gold to the government.

3) Result in black market sales that result in gold flowing OUT of the USA and thereby ending up in other country's reserves, to team USA's relative disadvantage in a new non-fiat IMS.

4) Cause unnecessary political resistance/ strife that serves zero purpose and is counterproductive once the goverment wants gold to be worth as many dollars as possible to deflate the unpayable debts

[radon]

Re: Bugs are the enemy, not Gold!

Sorry, don't get it. TARP was transparent to ALL so its not a good example

My point was that the parallel you drew between TARP and gold confiscation was faulty.

Yes, agree, you will not see FBI agents lining up citizens on the street seaching them for gold. More likely a voluntary surrender/exchange.

Again, the political climate and citizens perception of government have, for good reason, changed since the 30s.

[vinoveri]

Re: Bugs are the enemy, not Gold!

Explain how you think the government will recover more gold for its reserves with coercion (which is what I think you mean by misappropriation and taking) than with making it attractive by incentivizing the sale of it. Please use an explanation other than "government does bad things".....

Punishing gold holders and "taking" gold will:

1) Hurt or at least inconvenience insiders who hold it

2) Not net as much gold to the government.

3) Result in black market sales that result in gold flowing OUT of the USA and thereby ending up in other country's reserves, to team USA's relative disadvantage in a new non-fiat IMS.

4) Cause unnecessary political resistance/ strife that serves zero purpose and is counterproductive once the goverment wants gold to be worth as many dollars as possible to deflate the unpayable debts

Simple: Recall history. The taking that occurred in 1933 was retroactive, it was not taking at the time; turn in your gold and receive $ currency of equal value in exchange was the deal. Followed by devaluation which constituted the taking.

My position is simply that the government will do what is in its interest, the people, rule of law, and justice be damned. Of course it will strive to maintain power and attempt to avoid crossing any line which would jeopardize that power (e.g., alienate enough of the populace to effect actual grass roots change).

Your theory is Ipse Dixit. Hope you are right.

[raja]

Re: Bugs are the enemy, not Gold!

The government is running huge deficits, and at some point money printing will stop working.
At that time, the government will be looking for money anywhere and any way it can be pried out of its citizens' hands. This will be true whether or not a gold standard is instituted.

One good source of money for the government will be a windfall profit tax on gold, say 90%.
Of course, the big boys who own gold will be tipped off in advance, and be able to unload their gold before the tax law takes effect.

Gold owners make up a very small percentage of the population, so taxing this minority will not be politically dangerous. Also, gold owners will be demonized as "speculators", and the non-goldowning majority will be happy to see the alleged evil-doers suffer.

If the government is planning to institute a gold standard, announcing the windfall profit tax on gold first will cause a huge panic selling, with lots of tax money generated from the gold profits tax. As the price of gold falls, profits will decline and tax revenues will decrease. But the government still wins, because at that point it can swoop in and scoop gold up at bargain prices.

The US owns the most gold of any country.
Shifting to a gold standard will work no matter how much new gold the government can obtain, so I don't see any strong necessity for it to get more gold through confiscation. But maybe I'm not understanding this correctly . . . and if so, can someone please explain it to me.

[vt]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Eurozone To Boost Bailout Fund To $2 Trillion

http://finance.yahoo.com/news/euro-zone-boost-bailout-fund-170041055.html

[rogermexico]

Re: Bugs are the enemy, not Gold!

The government is running huge deficits, and at some point money printing will stop working.
At that time, the government will be looking for money anywhere and any way it can be pried out of its citizens' hands. This will be true whether or not a gold standard is instituted.

Think of the reason money printing will stop working. What does it mean to say the government will be "looking for money" when they can print a literally infinite amount of it at will. They will not be looking for "money" they will be looking for something to back new money to stop the crash in dollars and UST that is cause by having too much "money" and claims on the wealth of the USA - credit in the form of UST as well as dollars. If all the government needs is "money", then what advantage is there to prying money out of hands when the printing press can make as many dollars as they want? They have not needed taxes for any of the trillions in bailout funds so far.

If there is no gold backing of a new dollar, then you must be proposing that they would steal or tax gold and then sell it for dollars. But as I just said, they can already print all the dollars they want. If there is backing for a new dollar, it will be because they already "have" too many dollars and too much credit issued and this is crashing the dollar's exchange value internationally. In such a situation, they have no need for "dollars" at all, they need to make a new dollar by backing it with gold. So under scenario 1 where there is no gold backing, they have no need to acquire dollars specifically by appropriating gold, and under scenario 2, they need only gold and not dollars

One good source of money for the government will be a windfall profit tax on gold, say 90%.
Of course, the big boys who own gold will be tipped off in advance, and be able to unload their gold before the tax law takes effect.

Again, the government has a million ways to "get money" that would be higher yield and easier than taxing gold ( for one thing, a tax requires the sale of the asset which naturally discourages realization of the tax - hardly efficient) and I would suggest forcing IRAs into UST or instituting a wealth tax (suggestion in England just recently actually) would get a lot more money than forcing gold to be hoarded and having to knock on doors or patiently wait for it to be sold. A windfall profits tax would be the lest effective way to extract either fiat dollars or gold itself from private hands. I think your narrative is clinging to the "gold is the enemy and always will be anathema to the evil fiat promoters" meme - this is a goldbug theme and is flawed as it assumes that gold can become the new money under a new gold window and that it makes sense to vilify gold at the same time. I claim this makes no sense, as gold will not become the new money unless evil fiat promoters stop seeing it as evil and promoting it as evil.

Gold owners make up a very small percentage of the population, so taxing this minority will not be politically dangerous. Also, gold owners will be demonized as "speculators", and the non-goldowning majority will be happy to see the alleged evil-doers suffer.

The 1%ers are 1% of the population and it is not dangerous to attack them. The 1%ers are the elite and know how to avoid attack. Which of these is it? And WHY will they be demonized? I have never heard a goldbug explanation for this. I understand why they might be demonized NOW in a fiat regime that is still printing, or in 1933 when we are under a gold standard and need to deflate. But why, when the government has transitioned to a desire to stabilize the dollar and assure people that it is a safe store of value would the government demonize gold or the few who hold it? What would be the purpose of this? Just to be mean to gold holders?

If the government is planning to institute a gold standard, announcing the windfall profit tax on gold first will cause a huge panic selling, with lots of tax money generated from the gold profits tax. As the price of gold falls, profits will decline and tax revenues will decrease. But the government still wins, because at that point it can swoop in and scoop gold up at bargain prices.

Yes, the government has proved to be so efficacious at manipulating the price of gold. That's why it gone from $270 to $1770 in 10 years. I don't find that scenario convincing, but I guess we will see. It would be clever even as it would not be very effective in acquiring gold. Also, once the decision has been made, USG will want he price of gold in dollars to be as high as possible. As I've said, I think the peg must be higher than the current market price of gold by some amount. What would be the purpose in doing something to depress the gold price right before the window opens if that means our gold is worth less in terms of dollars and any extant debt. Are you suggesting USG would want the dollar price of gold to be lower than otherwise, or that they will not have thought about it carefully enough, and beating up on gold owners will somehow be more important?

The US owns the most gold of any country.
Shifting to a gold standard will work no matter how much new gold the government can obtain, so I don't see any strong necessity for it to get more gold through confiscation. But maybe I'm not understanding this correctly . . . and if so, can someone please explain it to me.

This is true, in a sense, but it contradicts most of your other arguments here about how badly the government "needs money". Why go to such effort to get money via taxes on gold owners when more valuable gold (as backing for the new money) is left on the table that could easily be acquired in the win/win fashion that I have proposed?

The crux of my argument, at least understanding it, is to see the state change - like from ice to water - that must occur for gold to be remonetized internationally. It has huge ramifications and it's hard to wrap your head around. I am only hypothesizing on one aspect of it and how it will affect gold holders. There are lots of other interesting implications.

[rogermexico]

Re: Bugs are the enemy, not Gold!

Simple: Recall history. The taking that occurred in 1933 was retroactive, it was not taking at the time; turn in your gold and receive $ currency of equal value in exchange was the deal. Followed by devaluation which constituted the taking.

More goldbug logic. The government is mean and will be mean to us once again, even if it is against the interest of the government itself and what it is trying to accomplish. The current situation is the polar opposite of 1933 monetarily. Deflation spiral vs sudden stop catastrophe in the exchange value of dollar/ UST.

Explain how acquiring gold to STOP devaluation means the goverment will do the same thing it did when it wanted to CAUSE devaluation? The trashing of the dollars in your pocket it happening right now and will accelerate. There is no need to appropriate gold to effect this. The situation will be exactly the opposite. Why devalue when you have just returned to a gold standard to stop devaluation? In 1933 inflation was needed. This time the inflation will have already occurred and will need to be stopped.

My position is simply that the government will do what is in its interest, the people, rule of law, and justice be damned. Of course it will strive to maintain power and attempt to avoid crossing any line which would jeopardize that power (e.g., alienate enough of the populace to effect actual grass roots change).

Your theory is Ipse Dixit. Hope you are right.

You have not, as far as I can see, offered any reason for the government doing what you propose other than that the government is going to be mean to gold holders because they were in 1933. I've explained why, if the government is going back on the gold standard, it makes sense from their perspective to maximize how much of it they get. Please explain how there is a better way for them to get more gold, or what the motivation would be behind devaluing a new dollar after opening the window specifically to arrest the falling value of the dollar internationally.

[Guest]

Re: Bugs are the enemy, not Gold!

I guess EJ did die trying to get Part II out.

[shiny!]

Re: Bugs are the enemy, not Gold!

Think of the reason money printing will stop working. What does it mean to say the government will be "looking for money" when they can print a literally infinite amount of it at will. They will not be looking for "money" they will be looking for something to back new money to stop the crash in dollars and UST that is cause by having too much "money" and claims on the wealth of the USA - credit in the form of UST as well as dollars. If all the government needs is "money", then what advantage is there to prying money out of hands when the printing press can make as many dollars as they want? They have not needed taxes for any of the trillions in bailout funds so far.

If there is no gold backing of a new dollar, then you must be proposing that they would steal or tax gold and then sell it for dollars. But as I just said, they can already print all the dollars they want. If there is backing for a new dollar, it will be because they already "have" too many dollars and too much credit issued and this is crashing the dollar's exchange value internationally. In such a situation, they have no need for "dollars" at all, they need to make a new dollar by backing it with gold. So under scenario 1 where there is no gold backing, they have no need to acquire dollars specifically by appropriating gold, and under scenario 2, they need only gold and not dollars



Again, the government has a million ways to "get money" that would be higher yield and easier than taxing gold ( for one thing, a tax requires the sale of the asset which naturally discourages realization of the tax - hardly efficient) and I would suggest forcing IRAs into UST or instituting a wealth tax (suggestion in England just recently actually) would get a lot more money than forcing gold to be hoarded and having to knock on doors or patiently wait for it to be sold. A windfall profits tax would be the lest effective way to extract either fiat dollars or gold itself from private hands. I think your narrative is clinging to the "gold is the enemy and always will be anathema to the evil fiat promoters" meme - this is a goldbug theme and is flawed as it assumes that gold can become the new money under a new gold window and that it makes sense to vilify gold at the same time. I claim this makes no sense, as gold will not become the new money unless evil fiat promoters stop seeing it as evil and promoting it as evil.



The 1%ers are 1% of the population and it is not dangerous to attack them. The 1%ers are the elite and know how to avoid attack. Which of these is it? And WHY will they be demonized? I have never heard a goldbug explanation for this. I understand why they might be demonized NOW in a fiat regime that is still printing, or in 1933 when we are under a gold standard and need to deflate. But why, when the government has transitioned to a desire to stabilize the dollar and assure people that it is a safe store of value would the government demonize gold or the few who hold it? What would be the purpose of this? Just to be mean to gold holders?



Yes, the government has proved to be so efficacious at manipulating the price of gold. That's why it gone from $270 to $1770 in 10 years. I don't find that scenario convincing, but I guess we will see. It would be clever even as it would not be very effective in acquiring gold. Also, once the decision has been made, USG will want he price of gold in dollars to be as high as possible. As I've said, I think the peg must be higher than the current market price of gold by some amount. What would be the purpose in doing something to depress the gold price right before the window opens if that means our gold is worth less in terms of dollars and any extant debt. Are you suggesting USG would want the dollar price of gold to be lower than otherwise, or that they will not have thought about it carefully enough, and beating up on gold owners will somehow be more important?



This is true, in a sense, but it contradicts most of your other arguments here about how badly the government "needs money". Why go to such effort to get money via taxes on gold owners when more valuable gold (as backing for the new money) is left on the table that could easily be acquired in the win/win fashion that I have proposed?

The crux of my argument, at least understanding it, is to see the state change - like from ice to water - that must occur for gold to be remonetized internationally. It has huge ramifications and it's hard to wrap your head around. I am only hypothesizing on one aspect of it and how it will affect gold holders. There are lots of other interesting implications.

FWIW (which is admittedly not much) I agree with you; your scenario is what should happen. But the pessimistic part of me thinks raja's argument is more likely what will happen. If the gov't always did what should happen, we wouldn't be in the mess we're in now. Only time will tell.

"The United States invariably does the right thing, after having exhausted every other alternative."
-- Winston Churchill

[raja]

Re: Bugs are the enemy, not Gold!

Here's another scenario to throw in the stew . . . .

I just finished the last section of James Rickards "Currency Wars" . . . what a great book.
I rank Rickards #1 of all the economic pundits I follow, not only for his recent prediction accuracy, but for his real world experience, such as advising the military on financial warfare, his use of systems theory, his frequenting of the university lecture circuit and his 35 years experience working in capital markets. I like his approach to economics in "Currency Wars": he gives the history, the current situation, and his predictions on the outcome -- all well explained. As a lawyer, he presents his "case" in a rational and orderly fashion.

With that intro, let me tell you my understanding of what he predicts as one of three possible future scenarios:

A run on the dollar will occur suddenly and without warning. It will be like an avalanche, where one snowflake too many starts the inevitable catastrophe. (This is reasonable, since the crash will be caused by a crisis of confidence -- a psyhcological phenonmon -- and move at the speed of thought and communication.)

In a matter of only two days, after the Fed and Treasury have tried and failed to stem the selling of dollars, and the stock markets worldwide have closed, the government will step in and impose draconian measures to stop the fall into chaos by invoking the IEEPA act (similar to the one used by FDR). This will include many actions, such as: banning UST sales, closing all exchanges until further notice, no exporting gold, confiscating all private and international gold in the Fed's NYC depository and couple of other NYC depositories (former gold owners to received "suitable" compensation at a future time). This confiscation gives the US over 17,000 tons, about what it held in 1945 before Bretton Woods, making the US the top dog. This majority gold hoard will allow the US to issue a new, gold-based dollar, at 10x the value of the old dollar. A 90% windfall profits tax will be imposed on anyone selling gold to profit from the revaluation.

Under this scenario, you will have about one day to sell your gold in order to profit from the initial mania and avoid the windfall profits tax. Good Luck!
In its timing, Rickards' scenario differs greatly with EJ's. EJ predicts much more time to sell gold prior to the crash. Obviously, these two scenarios require greatly different strategies . . . .

Rickards did not elaborate on why the windfall profits tax will be imposed, and how it would be possible to carry it off. I would like to know his reasoning, but can only speculate at this point:

After revauation, gold would be worth 10x its price before the crash, so gold owners would profit immensely in relation to the rest of the citizenry, who would be suffering as a result of the crash. It would therefore be politically popular to punish those "profiteers", and divert some of the anger that would be generated by the ensuing poverty.
And . . . the government likes money . . . so the windfall tax would provide more moolah to lavish on themselves and their buddies.

By the way, Rickards thinks the scenario described above is the best possible outcome. His other two possible outcomes are chaos, and greater chaos.

[c1ue]

Re: Bugs are the enemy, not Gold!

Gold was money in 1933. Thus devaluation of the dollar necessitated recovery of as much 'free' gold as was possible, otherwise the devaluation would have had much less effect.

Gold is not money today. As noted - all that is necessary for the government to acquire American gold would be some form of tax incentive. One quick example: making profits on gold sales subject to the same investment taxation rates as other passive investments if sold the the US government.

Then devalue.

Note however that the purpose of acquiring gold today is not the same as the purpose of acquiring gold in 1933. In 1933 it was to bring as much of the physical money supply back into government control in order to facilitate the impending devaluation. Today the purpose of the US government acquiring gold is to mitigate against the effects of an impending/ongoing devaluation in the minds of foreign dollar holders. I say only foreign dollar holders because the US residents are screwed anyway.

Confiscation simply makes no sense given this, though of course irrational behavior can always happen.