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**Dridamse** · February 28, 2009, 01:37 AM

Re: A Video for Fred/EJ....(Gold bugs do not watch!)

Originally posted by qwerty View Post

Sorry. But we are talking of a piece of paper there, and we all know what the iTulip community thinks of paper.

What happens when the s*** hits the fan? Here is the worst case scenario from someone who thinks it unlikely but what would be bound to happen:

http://www.eurointelligence.com/arti...c4dc2ce.0.html

"But that does not mean that a breakdown of the euro area is inconceivable under all scenarios. Let us start with the hypothetical scenario of a Greek payment default. If the German finance minister, as I would expect, were to insist pedantically to apply the no-bail out clause, the crisis could, within hours, spill over to Portugal, Ireland, Spain and Italy, where bond spreads would be shooting up. Hedge funds will suddenly have discovered a good opportunity to make up for previous losses. Finance instruments such as Credit Default Swaps (CDS) are imminently suited to this type of speculation: If you stock up with Portuguese or Italian CDS during one of the panic runs, you stand to make very large profits. This in turn accelerates the domino effect of the crisis, and market interest rates will go up to double-digit rates all over southern Europe. The EU will hold an emergency summit at which it becomes clear that it is too late for a general bailout. This would have worked in the case of Greece or Ireland. But Italy and Spain are simply too big.

"The summit would summon experts who tell the prime ministers that there are only two alternatives. Either the euro-area is dissolved with immediate effect. Or, one creates an imminent fiscal union, starting with single the European issuance of all future debt, and the transformation of all existing debt into a single European bond. The member countries would lose the sovereignty over budgetary politics. The finance ministers would receive their daily marching orders from Brussels. This would, of course, require a whole new EU Treaty, which the prime minister would have to agree on almost in real time.

"I am not sure how Germany�s political leadership would jump when confronted with such a stark choice. Jean Quatremer, the Brussels correspondent of the French newspaper "Lib�ration", asked on his blog on Tuesday whether Germany is still a European country? The political instincts of Angela Merkel and Peer Steinbr�ck have been clearly anti-European during this entire crisis. They have prevented any real economic coordination with persistent reference to the national interest. "

The problem is that in the Eurozone they are tied to each other in most of the economic ways that the states of the USA are. They survive or fall as one. If due to the actual crissis they have to strengthen the Eurozone with a common fiscal policy they will do it. These time no referendum the survival and success of the Union will prevail over any other consideration.

Politicians talk to the public in the news but behind they do this
http://www.stratfor.com/analysis/200...banking_system

You just have to find the appropiate way of achieving what you want.

**qwerty** · February 28, 2009, 01:59 AM

Core Thesis: Qtve Easing Won't Work As Soon As This Year

I am so entertained by this guy. Just been ferreting about YouTube.

http://www.youtube.com/watch?v=owH4v...eature=related

Jan 23rd interview by the Financial Times.

Seems to me that here is the basis of all his other views for the coming year:-

They can't print enough dollars this year. There is a shortage of dollars. People laugh at this, but there's $50T in debt, and the offsetting assets that they thought were there, aren't.

All the billions of dollars and pounds they are printing right now are instantly "vaporized" to pay off part of this debt. People ask him where all the money that the UK govt gave the banks has gone - do hedge funds have it? No, it was vaporized. (Actually, in the UK it will, strictly, have been vapourised).

It'll be a little while yet before they succeed in quantitative easing, if ever (he cites Japan).

So what if China contracts this year (gasp) what if the USD continues to strengthen, what if govt bonds continued to outperform? ....

Other things I picked up in all his appearances:

Big oil and agricultural companies are the only equities he would touch - because they are not leveraged with debt. And underlying commodities will be highly priced in ten years time.

He doesn't know where the S&P will be at the end of 2009 and 2010, but he does know where it will be in 2025 - where it was 8 years ago.

**kartius919** · February 28, 2009, 01:59 AM

Re: A Video for Fred/EJ....(Gold bugs do not watch!)

From a currency perspective, if you did not bail out the struggling EU nations, why would that collapse the Euro?

**qwerty** · February 28, 2009, 02:12 AM

Re: A Video for Fred/EJ....(Gold bugs do not watch!)

No no no. The states of the US:

- Have been together a lot longer
- Are the same nation culturally, legally and elect one national government which has both fiscal and monetary authority

The states in the US are more like the Laender in Germany. The German government was able to get western Laender to give money to the new eastern ones, much the same way that money is moved between states within the US by the Federal Government - Federal taxes in Connecticut can be used to pay off deficits in Louisiana.

But there is no European government with the money to bail out Greece and save it from anarchy. It would need the governments of Germany, France, the Netherland to decide to give money to Greece (and there is no law which says they have to).

I don't believe that the man in the street in those countries will see why, when he himself is having such a hard time, that he should go further into debt to save the Greeks.

**qwerty** · February 28, 2009, 02:18 AM

Re: A Video for Fred/EJ....(Gold bugs do not watch!)

Originally posted by kartius919 View Post

From a currency perspective, if you did not bail out the struggling EU nations, why would that collapse the Euro?

Because you can't allow a western European nation to fail. And these nations will fail without either money lent to them, or the ability to see their currency devalue.

If one PIGG (Portugal, Ireland, Italy and Greece) falls, they all will, and there is not enough wealth in the rest of Euroland to bail them out. So they have to be cut loose, pushed out.

As our man Hendry says, Britain has it's Pound, we need Lira, Pesetas and Drachmas.

**qwerty** · February 28, 2009, 02:34 AM

Galbraith seems to agree

On another iTulip thread today:

http://www.itulip.com/forums/showthread.php?t=8355

"

Despite the fact that these steps were able to ward off complete disaster, monetary policy today has little power to restore growth. In the Depression they called it "pushing on a string." With interest rates already at zero, there is little more the Federal Reserve can do. Chairman Bernanke's London speech grasps at a number of straws, including "policy communication" and the reduction of long-term interest rates. But the former is a weak reed and the latter is of very doubtful effect in a liquidity trap. If rate cuts do not lead to new borrowing -- as they have not -- then their effect is actually counterproductive, since they reduce the interest income flowing to the elderly and others who hold the national debt, or (what is the same thing, economically) cash and cash-equivalents in the banks.

The phrase "quantitative easing" -- or in Chairman Bernanke's formulation, "credit easing" -- is often heard these days. What does it mean? Not much, in my view. Can it be relied on to produce a return to economic growth? No. Credit easing, at its heart is about liquidity -- a problem monetary policy can deal with. But the problems of the economy go far beyond liquidity. Chairman Bernanke's discussion of "heterogeneous effects" -- the supposed differences between lending to banks, to the commercial paper market or elsewhere, strikes me as a keen example of wishful thinking. It is unlikely that the Federal Reserve can, merely by making judicious distinctions, materially reduce the perception of risk in these markets and therefore the credit spreads that are strangling them today.

The deeper problem obviously lies in the lack of demand for output, in the collapse of confidence, in the grim prospects for profit, and in the absence of collateral to support new loans. These problems will require much more work -- work to persuade the public and the business community that effective, long-range, sustained, visible action is underway. The Federal Reserve is not the agency that can persuade the world of this."

**kartius919** · February 28, 2009, 03:12 AM

Re: A Video for Fred/EJ....(Gold bugs do not watch!)

How does the currency fall?

**ASH** · February 28, 2009, 03:36 AM

Re: A Video for Fred/EJ....(Gold bugs do not watch!)

Originally posted by metalman View Post

what is the value of the denominator of the deflating debt if not for the productivity, hard work, reputation, taxes, credit & fine gun ships, of the usa?

why it's... it's... zero!

what's a $5,000,000,000 debt owed by gm or citi to the usa gov't divided by zero?

zero!

what's a $2,500,000,000,000 in credit card debt owed by all the usa j6p's divided by zero?

zero!

trick question for the lukinator...

what's a $13,000,000,000,000 debt owed by the usa to china divided by zero?

i could do this all night.

bottom line, luke... what's your bet... that the debt denominator goes from 1 toward 2 or 1 toward 0... knowing full well which one means instant death for pols and the other means maybe getting re-elected.

Um... apologies in advance for a math nerd comment, but...

In the limit in which the denominator goes to zero from a positive value, the quotient goes to infinity, not zero. If we assume that the denominator started out positive (productivity, etc.) and it approaches zero from the positive side, then this implies the debt divided by the productivity becomes infinite (meaning if our productivity crashes, the burden of any fixed level of debt becomes infinite in relation to our ability to service it).

**xela** · February 28, 2009, 03:47 AM

Re: Euro breakup- bullish or bearish

Originally posted by qwerty View Post

It seems that they threw away the keys when they signed up for the Euro.

But what I'm reading is that a PIIG can't/won't leave unilaterally - that would be suicide.

What will happen is that a PIIG defaults, and that brings the others down too.

Then the Eurozone meets and is faced with two choices:

1) The Germans take a walk, maybe taking the French with them recreating new marks, francs or the core-Euro

2) The Germans sign up for a single Eurozone supra-national bond issuer. Greek government bonds become Eurozone Govt bonds. The Greeks have no fiscal power any more, and the Germans get to take on the PIIGs debt.

The smart money is on (1). But the problem is, which Euros have "Deutschland" printed on them? How if you are owning Euros before the breakup, can you make sure that yours get converted into New DMarks and not into New Drachmas?

I think before a country defaults it'd be kicked out the eurozone, somehow you forget that option, for whatever reason.
But to answer your question: as always, the "X" marks the spot. I guess you would also avoid the Ys, Ts, Ms and evens Ss?

**medved** · February 28, 2009, 04:56 AM

Re: A Video for Fred/EJ....(Gold bugs do not watch!)

Originally posted by metalman View Post

does anyone else understand how completely idiotic that is? -5% deflation across the world? for years? how lame. has that ever occurred in history? no? gee, wonder why.

Because, and I hate to say it, *this-time-it-is-different*. For the first time in human history we have totally global economy, and this global economy has been poisoned by an enormous credit bubble. We should be careful with historical parallels. There are not that many of them.

In essence, the oldest type of money (gold) was replaced by an alternative money (debt). Everybody believed, we could manage it, however, it blew up in our faces. Now we are trying to fix it by deflating part of existing debt and substituting the rest by gov't debt. This may be a long process.

**ecortes** · February 28, 2009, 05:36 AM

Video is from December at least

If you look at the numbers and charts that video was done in December; Dow at 8800 and SP at 900.

So far Hugh Hendrix is wrong especially if he is still short gold miners which are up 80% since December, to bad for his investors.

Invest in precious metals, agriculture, energy, and short the US bond market. Manage your asset allocation and reduce your gainers versus your lagers on a regular basis.

As I see it, prior to a Tsunami the tide goes out, and this inflationary tsunami is starting to come back in. Precious metals are leading but might correct short to mid term, the Agris are following strongly for the last two month, US 30yr yields are starting to increase having hit 2.65% in Dec and are now at 3.65%, and energy seems to have hit a bottom.

Furthermore listen to the signals the market is sending. On the day Hillary arrived in China to beg them not to sell their dollars and treasuries, the Chinese annouced a tewnty year oil deal with Russia at $73 a barrel. On the day she left they annouced that they will be buying "foreign oil companies". Then you had Total's purchase of UTS energy in Canada, and Abu Dahbi's purchase of Nova Chemicals in Canada, lastly Agrium's purchase of CF Industries. Those with cash are buying real assets, the rush out of cash is starting and that always is the beginning of hyperinflation.

We have two choices; grab your surfboard a ride the wave that is just starting, or stay at the beach.

Just my thaughts.

**renewable** · February 28, 2009, 05:43 AM

Re: A Video for Fred/EJ....(Gold bugs do not watch!)

Originally posted by kartius919 View Post

I'm also sick of these financial "whiz kids" and Austrians bashing employee pensions and benefits as "legacy costs."

His argument seems to be it would be better to have lean efficient new companies that sell what people want - it could cost taxpayers less to just let them go and use new tax income from growing new companies to remedy the 'legacy costs' rather than to go for socialist style state subsidies for the car industry for ever, a la France. Don't know if he is right.

Originally posted by thousandmilemargin View Post

I think Hugh is right to say that a lot of people are buying gold early in anticipation of inflation that is still a year or two away. But people with gold are likely to hold onto it as they see inflation coming, rather than trying to trade short term. So gold may hold steady through 2009 - as it did in 2008 - then take off in 2010 once it becomes clear that inflation is very close.

He's looking at if from a hedgie's perspective. The guy must buy tonnes of gold in a second, with the click of a mouse - would imagine he never sees 'his' gold. He may find people who walk to their dealer and pay a big physical premium, then hoard them in the cellar, will be less fickle than he thinks.

**Guest** · February 28, 2009, 05:51 AM

Re: A Video for Fred/EJ....(Gold bugs do not watch!)

Just to be balanced on the themes, here's another Scotsman and fellow market analyst (and a very damn clever one too - Peter W. Millar, founder of Valu-Trac Investment Research Ltd. in Scotland) which was picked up by GATA from a paper he wrote back in 2006. This is a very good summary of what comes **after** Hendry's tactical move out of inflation hedges. One has to tip one's hat to these two analysts for some really pithy observations on where we are and where we are going.

________________

Seven Fold Increase In Gold Needed To Avert Debt Depression

PETER MILLAR: SEVEN FOLD INCREASE IN GOLD NEEDED TO AVERT DEBT DEPRESSION

Submitted by cpowell on Thu, 2007-02-22 00:14.

7p ET Wednesday, February 21, 2007

Dear Friend of GATA and Gold:

While it is almost a year old, a study of the enduring importance of gold in the world economic system by R. Peter W. Millar, founder of Valu-Trac Investment Research Ltd. in Scotland, seems ever more compelling.

Millar stresses the periodic upward revaluation of gold as the mechanism for defeating a deflationary debt depression at the end of an economic cycle. Millar writes:

The first cycle unfolded as follows:

> Phase One: stability under a Gold standard until 1914

> Phase Two: inflation until 1921 which resulted in a build-up of Debt

> Phase Three: disinflation which brought stability and allowed asset inflation until 1929, but encouraged a further build-up of Debt

> Phase Four: instability after 1929 caused by deflation of assets from over-priced levels and exacerbated by excessive Debt levels, leading to depression of economic activity

> Phase Five: Monetary reform enabled by a revaluation of Gold to overcome deflationary Debt depression

In the second half of the twentieth century we saw a repeat of the first three phases of the same cycle:

> Phase One: stability from 1944 to 1968 under a Gold Standard

> Phase Two: inflation from 1968 to 1981, which caused and justified another build-up of Debt

> Phase Three: disinflation from 1981 until the end of the 20th Century, and maybe to the present

"However, it appears that Phase 4 (instability and ultimately deflation due to excessive debt) may have started. If so, Phase 5 (revaluation of the gold price to raise the monetary value of the world monetary base and hence reduce the burden of debt) becomes likely or inevitable. The extent of that revaluation would need to be major according to our calculations, probably by a factor of at least seven times, possibly up to 20 times the current price of gold."

The price of gold when Millar wrote his study, in May 2006, was about where it is tonight.

Millar's study is titled "The Relevance and Importance of Gold in the World Monetary System" and you can find it in PDF format at the link below.

CHRIS POWELL, Secretary/Treasurer - GATA

____________________________

VALU-TRAC / R. Peter W. Millar CA

RELEVANCE AND IMPORTANCE OF GOLD IN THE WORLD MONETARY SYSTEM

Introduction

Most investments (equities, bonds, gold and commodities) have an �Intrinsic Value�, existence of which justifies an investment. For bond and equity markets, the Intrinsic Value stems from the annual income stream, which can be valued and related to prices. Price changes occur as a result of market arbitrage between competing income streams and their Intrinsic Value yields. Knowledge of Intrinsic Value yields therefore provides a means of successful strategic and tactical asset allocation, while knowledge of the behaviour of Intrinsic Values also provides a means of timing investment decisions.

For investments which produce no income, such as Gold and other commodities, Intrinsic Value can be measured in relation to Central Bank International Monetary Reserves. Graph 1 below shows the Intrinsic Values of Gold (green line), World Equity markets (blue line) and World Bond markets (red line):

Graph 1: Gold, Equity and B ond Intrinsic Values

The histories of these three Intrinsic Values show the attraction to-day of �alternative� investing, for which Gold is here used as a proxy, because of superior and declining intrinsic value. Gold Intrinsic Value (green line) is now superior to Intrinsic Values of both the World Bond and Equity markets. It is also reducing absolutely and relatively to each in a �bull� market. World Equity market Intrinsic Value at 4.3pc (blue line) is less competitive but at least it is not as low as it was at the end of the stockmarket �bubble� in 2000. Then it was actually lower than that of the World Bond market (red line), which is now rising in a �bear� market.

History of Gold in the International Monetary System

Gold has been the foundation of monetary systems for centuries. To illustrate the importance of Gold in monetary developments over the last century, one could start with the end of the British Gold Standard in 1914 to permit inflationary financing of World War I, since when the Pound Sterling and US Dollar have lost 98% and 94% respectively of their purchasing power. As with all monetary inflations, it resulted in, and even �justified�, a buildup of Debt as the public borrowed in order to spend money before loss of its purchasing power, with a view to repaying borrowings after loss of its purchasing power.

The end of monetary inflation in 1921 brought a return to stability for the UK and US with favourable effects of lower interest rates and rising Bond and Equity market prices. As prices rose, Intrinsic Values fell. In 1929, collapse of overpriced Equity markets with low Intrinsic Values produced asset deflation which, due to the high and unsustainable Debt level, resulted in deflation of consumer demand and subsequently the Depression. The cure for this came in 1935 when the burden of Debt was reduced by devaluing the paper money in which Debt was denominated. This was achieved by raising the paper money price of Gold, which increased the total World Monetary Base to well beyond the paper money level of Debt.

To restore stability and to avoid giving a message in favour of possible further inflation of the World Monetary Base, Foreign Exchange Rates were then "fixed" against Gold and the US Dollar was made convertible into Gold at a set price. For this purpose, five leading Central Banks pledged to maintain the price of Gold at $35 per ounce, which they did until 1969 via the so-called London Gold Pool. The desired effect was to circumvent global piecemeal pressures of bankruptcy because of the Debt level by revaluation of the Gold part of the World Central Bank Monetary Base in relation to Debt, at the same time restoring liquidity to the World Monetary Base.

Restoration of a (US) Gold Exchange Standard in 1935 was ratified at Bretton Woods in 1944. Integrity of the US Dollar was guaranteed by the right of non-US Central Banks to convert their US Dollars to Gold if they feared that he purchasing power of the Dollar could be devalued through excess creation of money. However, in 1968 this arrangement was informally, and in 1971 formally, ended. The World Monetary system came off the US Gold Standard to permit inflationary financing of both the Vietnam War and the US welfare state (the �Great Society�) which led directly to the Great Inflation of the 1970�s and which as usual touched off a resurgence in Debt.

The 1970�s Great Inflation of money ended in 1981, resulting in falling interest rates and strengthening Bond and Equity prices. The change in policy was a deliberate attempt by World Central Banks, le d by the US Central Bank under Paul Volcker, beginning in 1981 to maintain the integrity of the means of exchange or the quality of Money by keeping the rate of change in Total International Monetary Reserves (IMR�s) as close to zero as possible. This has remained official policy, but since 2000 the rate of change has accelerated in a worrying sign, as shown later. These episodes demonstrate two occurrences during the last century of the typical monetary cycle, which has five phases.