The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

[coolhand]

Re: The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

Considering how much of an abject failure the EU has been so far, how anyone can ascribe the kind of Machiavellian planning all of what you are saying entails just stumps me.

Abject failure? Since its rollout at $1.13, the Euro has traded as high as ~$1.60 & has averaged ~$1.30-1.35 v. the USD in the past decade...so the Euro rising nearly 20% v. the USD despite nearly non-stop EU bad news per US financial commentators for the past 4 years is a failure ? I don't follow your logic.

[DSpencer]

Re: The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

So far, so good. So what is $9B of "cash equivalent 3-yr bonds" divided by 10 tons of gold, you ask? (if you're not asking, you should be, b/c judging by what's happened to global physical gold supplies since Cyprus, someone's been asking).

$9B/10 tons of gold = $28,000 per ounce....

And for real shits & giggles, think about this...if you revalue all of the gold in the EU to $28,000/oz, guess what you get? You fully collateralize the $3T in EU sovereign debt...ie EU's debt crisis is OVER...

I see calculations like this all the time. Am I the only one that thinks these are meaningless (or close to it) numbers?

How could the EU unilaterally revalue gold at $28,000/oz? Even in a coordinated effort with other major players how could they do it?

One things for sure, if they ever start paying anything close to $28,000 (today's dollars), I will be selling everything I can find and melting down my circuit boards to find more.

To me this idea is like the goldbug version of printing enough money to pay off the debt.

[BadJuju]

Re: The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

Abject failure? Since its rollout at $1.13, the Euro has traded as high as ~$1.60 & has averaged ~$1.30-1.35 v. the USD in the past decade...so the Euro rising nearly 20% v. the USD despite nearly non-stop EU bad news per US financial commentators for the past 4 years is a failure ? I don't follow your logic.

It is a failure for a multitude of reasons. It engaged in many of the same behaviors of the USA without the benefit of holding the world's reserve currency. And to clean up its mess it has destroyed the economies of most of the nations within it. Despite all of the austerity, debt continues to grow wildly in the EU. And even Germany, the one nation that this has benefited, is starting to suffer negative impacts. So what if the Euro is strong if most European nations are completely broke and teetering on collapse, like Greece and Spain. Yet somehow I am supposed to believe that the EU has genius planners that have concocted some Machiavellian plan to dethrone the dollar by initiating freegold.

I appreciate your thoughts, coolhand, but I just cannot get behind the concept of freegold when it relies on so much magical thinking. If it somehow happens, I am not going to complain because I suddenly become much richer. I just see absolutely no reason to think it will.

[coolhand]

Re: The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

I see calculations like this all the time. Am I the only one that thinks these are meaningless (or close to it) numbers?

How could the EU unilaterally revalue gold at $28,000/oz? Even in a coordinated effort with other major players how could they do it?

One things for sure, if they ever start paying anything close to $28,000 (today's dollars), I will be selling everything I can find and melting down my circuit boards to find more.

To me this idea is like the goldbug version of printing enough money to pay off the debt.

Of course these are meaningless numbers...they will be meaningless until somebody powerful decides they aren't meaningless anymore. Unfortunately, you or I won't get a heads up on that ahead of time. So you have to watch what the powerful (the BIS, the net exporter nations) do - the BIS came out last weekend & said money printing isn't working, & the Chinese literally bought nearly 100% of global gold mine supply in April & May; Dubai raised their gold purchases 10x y/y in April...hmmmm...

I am sure you will be melting down everything you can. So will many others. The central banks will be happy to buy it from you. It turns out that paying you in fiat for gold is like an eskimo paying you for gold with snow. It turns out they can always make more!!

How could the EU do this? They just did. In Cyprus. As far as coordinated efforts, the big players (net exporters) will be happy - they can store their wealth something that won't be debased at $1T per year like US Treasuries are!!

Is this a goldbug version of printing money? Sort of...except in the case of money printing, you screw over the "savers" on the planet - the nations who export stuff. In this version, the "savers" can save in a medium that will preserve their purchasing power. As a practical matter, the BIS will likely advocate this. The BIS are the central bankers' central bank. They give orders. The other central bankers take them.

Only the Americans advocate saving in UST's so the US can keep stealing future purchasing power from the net exporting nations just to keep their insolvent banks solvent.

[coolhand]

Re: The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

It is a failure for a multitude of reasons. It engaged in many of the same behaviors of the USA without the benefit of holding the world's reserve currency. And to clean up its mess it has destroyed the economies of most of the nations within it. Despite all of the austerity, debt continues to grow wildly in the EU. And even Germany, the one nation that this has benefited, is starting to suffer negative impacts. So what if the Euro is strong if most European nations are completely broke and teetering on collapse, like Greece and Spain. Yet somehow I am supposed to believe that the EU has genius planners that have concocted some Machiavellian plan to dethrone the dollar by initiating freegold.

I appreciate your thoughts, coolhand, but I just cannot get behind the concept of freegold when it relies on so much magical thinking.

Magical thinking? I hear you, but you didn't answer my question: Given all the above problems with the EU, WHY HAS THE EURO RISEN SIGNIFICANTLY AGAINST THE DOLLAR?

The fact that the euro has risen against USD suggests that my line of thinking may be more than just magical thinking.

The whole world is going towards the Chinese model of social safety nets...that is to say, none. Unsaid in EJ's point on peak cheap oil is that PCO = the end of the social welfare state experiment.

Everyone thinks the social welfare state is the normal state of things b/c it has 100 years of history, when a cheap energy surplus provided for it. It is NOT normal. The 100,000+ years prior to the past 100 years show that. PCO means the end of the big gov't social welfare state. The EU's actions, while unfortunate, show that the EU has both the reality-based cognizance AND the political will to make tough choices.

Contrast that to America, where the only thing keeping us from utter collapse is the fact we can print our own currency. But do you really think the net producing nations will allow us to print our currency forever to maintain our social safety nets even as theirs breakdown? Maybe you do, & if you do, who am I to shatter your illusions.

As for me, PCO means that the economic surpluses that allowed the massive expansion of the social welfare state is a thing of the past. The chinese & the EU have started to realize it & take action. America, not yet. But just b/c we haven't doesn't mean we can ignore it forever. It is a law of thermodynamics, it can't be violated forever.

What people don't get yet is that what EU & the BRICS are doing in the gold market are a means of bringing America "back to reality" - ironic for nation so enamored of "Reality Shows" that we can't face reality...

[coolhand]

Re: The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

It is a failure for a multitude of reasons. It engaged in many of the same behaviors of the USA without the benefit of holding the world's reserve currency. And to clean up its mess it has destroyed the economies of most of the nations within it. Despite all of the austerity, debt continues to grow wildly in the EU. And even Germany, the one nation that this has benefited, is starting to suffer negative impacts. So what if the Euro is strong if most European nations are completely broke and teetering on collapse, like Greece and Spain. Yet somehow I am supposed to believe that the EU has genius planners that have concocted some Machiavellian plan to dethrone the dollar by initiating freegold.

I appreciate your thoughts, coolhand, but I just cannot get behind the concept of freegold when it relies on so much magical thinking. If it somehow happens, I am not going to complain because I suddenly become much richer. I just see absolutely no reason to think it will.

As for not holding the world's reserve currency, you are missing the whole point of freegold. The EU has 70% of its reserves in gold. It is holding the NEXT reserve currency of the world. That is their way out. Everyone gets that joke except for people in the US. I suspect THAT is why the EU has RISEN against the USD despite the litany of problems the EU is having.

[BadJuju]

Re: The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

Because they are better fiscally managed, but that does not mean they are well-managed fiscally. When the USD falls as the world reserve currency, the world isn't going to go to the Euro. But that doesn't mean we are going to have anything like freegold either.

The US has 76% of its reserves in gold. And it holds most of Europe's gold, too. What is the logic in the Euro suddenly becoming the world reserve currency when it doesn't even hold the gold it supposedly owns? I know that in a freegold scenario that ownership doesn't matter insomuch, but it certainly does when you are trying to claim the world's reserve currency. Never mind the level of antipathy that will be held for any paper currency regardless of how much it claims to be backed by gold.

[coolhand]

Re: The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

Because they are better fiscally managed, but that does not mean they are well-managed fiscally. When the USD falls as the world reserve currency, the world isn't going to go to the Euro. But that doesn't mean we are going to have anything like freegold either.

The US has 76% of its reserves in gold. And it holds most of Europe's gold, too. What is the logic in the Euro suddenly becoming the world reserve currency when it doesn't even hold the gold it supposedly owns? I know that in a freegold scenario that ownership doesn't matter insomuch, but it certainly does when you are trying to claim the world's reserve currency. Never mind the level of antipathy that will be held for any paper currency regardless of how much it claims to be backed by gold.

The Euro isn't going to become the next reserve currency. The next reserve asset will become gold, at least that's what the EU & BRICS (the global net producers) are telling us, if we have ears to listen.

The world engages in trade. That trade by virtue of geological & cultural idiosyncracies never quite balances out. Right now, when that trade doesn't balance out, the net consumers write an IOU generally denominated in USD & the net producers hold those IOUs, also generally denominated in USD.

When those IOUs yielded as much or more than inflation, the system worked great. When those IOUs are yielding well under the rate of inflation that matters (the one including energy & food, since if you consume less of either, your gov't &/or country collapse), the IOUs don't make sense & the system goes into the "chaos" that EJ references.

The US does hold a lot of gold, but the 76% # is misleading b/c the US issues the reserve currency so it doesn't need to hold any other currencies, by and large. And the reason the US doesn't want freegold is b/c right now, our USTs are the reserve asset. The US runs a $500B trade deficit & a roughly $1T budget deficit. That is $1.5T per year on a cash basis (more if you accounted for it with GAAP acctg for SS/Medicare/Medicaid).

Under freegold, where gold is the reserve asset of choice, the trade settlement mechanism, the US all of a sudden has to find a buyer for $1.5T worth of UST's to fund that stuff, or cut those programs (10% of GDP.) The US would collapse. Everyone else is in favor of freegold, the US is not.

Shale oil bought us time, b/c it cut US oil net imports; once that reverses, things will get interesting b/c i would be surprised if net exporter nations that need more oil to grow allow the US to import increasing amounts of foreign oil with money hot off the printing press...

I think you are confusing freegold with "gold backed" euro. It is not. Freegold (oversimplified) is just gold replaces UST's as the trade settlement mechanism of choice for the world. The net exporter nations are clearly moving that direction, & why wouldn't they? Gold is simply a bond of 0% coupon, infinite duration & limited issuance, contrasted with the UST, which has 0% coupon, shorter duration than gold but much, much, much greater issuance than gold...

Over the long run, which will hold purchasing power for oil & food more effectively in a PCO world - gold or USTs? It's a no brainer, & has been for a long time (past 15 yrs)...

[verdo]

Re: The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

Magical thinking? I hear you, but you didn't answer my question: Given all the above problems with the EU, WHY HAS THE EURO RISEN SIGNIFICANTLY AGAINST THE DOLLAR?

Currencies do rally strongly when the country is forced into severe deflation. The US dollar rallied in the early 1930's, but I don't think many people would say the Great Depression was a sign that the country had done something right

[coolhand]

Re: The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

Currencies do rally strongly when the country is forced into severe deflation. The US dollar rallied in the early 1930's, but I don't think many people would say the Great Depression was a sign that the country had done something right

Severe deflation in early 1930s is def correct; severe deflation in EU now is strong IMO...relative deflation v. the US, absolutely...and how did the US end the severe deflation of the early 1930s? They devalued the currency v. gold!

It's always been so fascinating to me that people fight freegold as some foreign concept when the US has done it before...

That's what people don't get...after freegold, the US is going to be a different but better place...suddenly mfg jobs will come back. The economy will become more balanced, moving away from FIRE & towards the tech/infrastructure/engineering economy EJ advocates...our economy is simply a function of the currency system, when it changes, so will the economy - away from debt-based consumption & towards export-led production...you can see us moving in that direction already w/oil, no?

[verdo]

Re: The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

Well i was mainly replying to this comment you made

Abject failure? Since its rollout at $1.13, the Euro has traded as high as ~$1.60 & has averaged ~$1.30-1.35 v. the USD in the past decade...so the Euro rising nearly 20% v. the USD despite nearly non-stop EU bad news per US financial commentators for the past 4 years is a failure ? I don't follow your logic.

The Eurozone has been an abject failure so far because they pushed for austerity, which is deflationary and causes massive job loss as seen in Spain. Greece and France. The side effect of failing in this manner is a strong currency

[doom&gloom]

Re: The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

Bingo!

[Polish_Silver]

Market prices vs fundamentals

Look at the stock market chart above, please, one more time. Given the history, does the stock market so presented appeal to any reasonable person’s conception of “cheap”? What could possibly go wrong?

--EJ

I could judge "cheap" better if the plot had a curve showing fundamental value, such as profits, dividends, or book value.

To judge volatility, prices should be on a log scale.

[cader idris]

Re: Market prices vs fundamentals

"you have to be a brave man or woman to hold gold into a Fed tightening cycle and a dollar rally."

"It would not surprise me if the Fed has to double-down on QE before this is all over. It may even have to go full throttle like the Bank of Japan. Then gold will shine again. But that is a story for another day."

interesting times.......

http://blogs.telegraph.co.uk/finance...ke-climb-down/

[kantx]

Re: Market prices vs fundamentals

http://seekingalpha.com/article/1544...3?source=yahoo