Friday, September 26, 2008

Open Forum

This is an open forum. Please feel free to share anything. Especially empirical evidence of a changing gold market or a changing dollar market.

18 comments:

FOFOA said...

Jim Sinclair's Mineset website, a gold bastion, is tonight encouraging people to support the Paulson Plan. This is a shocker. I don't agree with this assessment, but it is a sign that we should all be scared. When the Goldbugs are saying that we should embrace government intervention, something is wrong in the world.

Here's the way I see it. We are right at a turning point. The least worst we can hope for is a bad recession and a stock market decline. Next worse is a stock market collapse and a depression. Next worse is hyperinflation. Just look at Zimbabwe today. And the absolute worst is the destruction of the dollar on the world stage.

And I'm afraid that worst case scenario is right where we are headed. We should be restoring confidence in the markets and the dollar by requiring transparency in the biggest financial companies. Instead we are moving forward with glossing over the root of the problem with more money. Money from where? Exactly.

The world sees this. They are already tired of America. And as for all the financial problems right now, we are getting blamed. Foreign Central Banks right now are considering ways of cutting us out of the equation.

For the past 65 years we have had something more valuable than an unlimited supply of gold. We have had the privilege of owning the printing press of the world. Our dollar has been used by every country in the world to buy oil from the Middle East. It has been used by China, Japan, and many others as a way to hold the savings that come with a trade surplus. And because of this, we have been able to print dollars and watch them flow throughout the world in mass quantities. Every printed dollar bringing a little more wealth to America, and with that, a little more dependence on "the system".

If the world revokes our privilege as the worlds "money printer", then we are in big trouble. Because we have become so dependent on our "status" as the world's reserve currency, we will hardly be able to function without it.

As it stands right now, we are not a net producer, we are a net consumer. So without the world's net support, we will start consuming ourselves. Just like in the movie Alive. Imagine a depression where even our utility workers are laid off. And the few that remain can't do the job. Everything will shut down. I can imagine a world where we would go weeks without power, and only the labor of thousands of volunteers would finally get things running again. Imagine the panic and chaos that would surround this picture.

This is exactly why I DON'T support "the plan". It is destroying the dollar just talking about it. We need to clean up this mess, starting with the big Wall Street banks. We need to hold them accountable. If we FORCE transparency, then the market will be able to price in the winners and dump the losers. That is the direction we need to take.

German leader warns U.S. superpower era is over

"WASHINGTON, Sept. 26 (UPI) -- German Finance Minister Peer Steinbrueck has proclaimed the Writing on the Wall for the United States: America's days as an economic superpower are over, he said Thursday.

Steinbrueck said the United States will "lose its financial superpower status" as a result of the current financial crisis. He said it was now inevitable that the major industrial powers would move into a multipolar financial world with better capitalized Asian and European banking centers rivaling the United States...
"

This talk is measured in it's severity because this situation is still developing. But read the whole article:

"Indeed, it looks increasingly likely that the dollar will not even remain the leading reserve currency. For several years, Arab nations, led by Saudi Arabia, that were alarmed by the financial measures included in the Patriot Act have quietly been transferring hundreds of billions of dollars into euros."

These are the thoughts of the policy makers around the world right now as they watch our Congress on the news.

Ender said...

What a great idea! An open forum.

Jim’s site (www.jsmineset.com) has been a beacon of light in a shadowy world. It is widely watched and has a huge active following. At the same time, desperate times require desperate measures. Maybe Jim’s being asked to be patriotic? Also notice that the “Unvarnished Facts” comment is posted by Monty and Tony.

The question is why this change? Is there really a change? And when Jim speaks, people listen.

Let’s reflect upon what Jim’s been advising for a second or two . He’s been telling his readers to, effectively, remove themselves from the system. If you have stocks, remove them from accounts that allow the ‘host’ to borrow them. Take delivery if need be. With bonds, move to government bonds. With currency, move to foreign currency. With Gold, get physical. In each case, Jim’s been advising his readers to – make their claim and remove it from the system. Keep this in mind as we take a side trip.

Over a year ago two hedge funds collapsed at Bear Stearns. When they did, the banks went through the typical process for liquidation and took the ‘assets’ to market. After a brief attempt at an auction, which is where a Marked to Market price is established, they canceled the auction in fear that the market price would be set at fractions of the original price. From that point on, the bankers have not been able to take their assets to market and discover the real price of them. Effectively there was a Paper Asset Market Crash at that point that represented a large percentage of their holdings on their books.

What does this really mean?

Banks have been hiding their condition through a unified stand of not taking their paper assets to market. Because such a huge percentage of their holdings are built upon these paper assets (everything under the sun) the lack of market has severely crippled the bank’s ability to function. During these months, they have been forced to raise capital and use their last little bit of more standard assets to make ends meet.

But now, because people are getting a little more nervous, they have been removing themselves from the equation following Jim’s advice. The shakeup in the Money Market Hedge Funds have compounded the matter and so now the assets that the banks have been using to keep themselves afloat are acting as a drain. Thus, just a little itty bitty run (a few billion) can tip a bank into insolvency.

What’s a regulator to do? He going to do everything that he can to buy a few more days in hopes that a market will come back for the original crashed assets. To do this, the regulator must keep banks solvent. To do this, he must stop the little runs on the banks. To do this they will most likely regulate away ‘segregated’ accounts (which they did for the BA + Merrill deal) while doing everything that they can to limit people from getting into their accounts.

The idea here is that if you can’t stop it by making the assets good again, prevent people from exiting the system exposing its weak point. This, is what Jim was advocating.

If the assets that the banks are holding are not made good quickly, the only choice will be to limit people exiting the system. It’s pretty easy to do that by presidential decree. Something like – you will only be able to get access to your standard cash flow until this crises is over. All your savings will remain in the system.

This is not without precedent.

My guess is we’re getting very close to this type of temporary action.

FOFOA said...

I'm curious if anyone else has made a significant withdrawal of cash from BofA either today or yesterday. Yesterday my wife was asked some curious questions while making a withdrawal. It was almost as if the tellers had been told to try to determine the purpose of the withdrawal through leading questions like, "Oh, are you going on a vacation?"

Dave said...

I was systematically withdrawing money from WaMu in anticipation of its demise. I realized that my actions - if duplicated by other customers, which they were - would contribute to and accelerate WaMu's demise.

In its final days, customers supposedly withdrew $17 billion from WaMu.

I've been systematically "checking out" of the system in many other ways for several years. again, in anticipation of this turmoil.

Dave

FOFOA said...

Dave,

I have been preparing since last November when the US dollar fell below the Canadian dollar. That event opened my eyes along with difficulty I was having selling a house I owned. Preparation has come with tough decisions along the way. I truly feel for those that are just waking up to this right now. There are some people that I have been very open with from January through June but they refused to accept what I saw. And then after July 15th when the dollar went up and the price of gold went down, I had to listen to some mockery. But even still, I feel sorry if people get personally hurt by a failure to act.

Something interesting is happening right now. Some surprising names are switching and now supporting the bailout, even though they admit it won't do much. What do they now see and what has changed? Here is my count:

Switched to now backing the Paulson plan-
Nouriel Roubini
Glenn Beck
Monty Guild

Still opposed to the plan saying it will be worse-
Karl Denninger
Mike "Mish" Shedlock
Peter Schiff

I know there are many more that should be on each list. Please feel free to add names to these lists. I think this important to keep track of. And watch these videos, especially the first one: Link

So what is it that they think the bailout will save us from? Is it an all out run on the "Main Street" banks? WAMU went down on Thursday in an unusual way. Then on Friday the markets were very hard on Wachovia. Is THIS what they think a bailout will stop, a run on Wachovia? Yes, it is a scary thing, but I don't thing the bailout will stop it. At best I think it will just delay it by a week if it was really going to happen.

Because once the bailout goes through, it cannot be reversed. And it sets us on a path for more bailouts and more market controls. And once the market resumes its decline and the bailout is judged not to have worked very well, the panic and the bank runs will be exponentially worse. If Congress were to reverse direction right now and take a hard line on Wall Street, at least the taxpayers would have confidence in Congress. And a failure or three on Wall Street following a demand by congress for transparency would likely be cheered as Main Street regains confidence that those who caused this whole mess might get what they deserve.

Yes, the credit markets are a huge problem right now. But confidence is an even bigger problem. And I'm talking about the confidence of the Average Joe who is just waking up. A bailout only restores confidence until the first 500 point down day AFTER the bailout. Then all hell breaks loose.

That's when we get a Presidential decree that funds MUST remain in the system. See: Argentina crisis.

Is THAT what we want? As of this weekend, that is our heading. And believe it or not, the Argentina effect will be the least of our problems. Because then the rest of the world will dump their dollars back into our economy. And if that sounds good, trust me it's not.

This whole bailout plan seems to me to be at best, one long two week jerk of the knee. And at worst it may be something much more sinister. When was the last time that Congress had a knee jerk reaction to anything, and it turned out to be exactly the right move? How about Wall Street? How about Wall Street and Congress working together on a knee jerk reaction to something this big? What odds do you thing a Las Vegas bookmaker would lay on this plan working like a charm? And if it doesn't do just that, as I said, all hell breaks loose.

FOFOA said...

Ender,

I almost forgot to thank you. Your thoughts help mine proceed. Almost like a trail guide. ;)

Dave said...

I'm curious what causes a respectable observer to capitulate. I mean, if a bailout is seen as a bad idea one day, how can it be seen as a good idea the next? What changed?

I've felt all the bailouts are wrong and will never change my mind. They are wrong on so many levels. I was even against the Chrysler bailout back around 1980 and that was merely a government loan guarantee, and for a mere $1.5 billion! Now the government is apparently extending a $25 billion loan directly to the automakers!

So I wonder why these other people changed their minds. Were they "bought off"? Did a closer examination of the problems reveal something horrendous and terrifying? If the latter, then the bailouts are even less likely to succeed!

What I see today can be summed up with one word: flailing. These people are like people who cannot swim, floundering in the water. They are desperately searching for anything that floats to cling to. Rationality and logic are tossed right out the window in such a situation.

At the risk of sounding haughty, I think I see the situation with more clarity than most, precisely because I have removed myself from it as much as possible. I'm not nearly as dependent on maintaining this particular economy as are most people, so I don't have a vested interest in any particular outcome. Consequently, I don't believe any of these bailouts can possibly "work." At best they might delay the day of reckoning a few months, but then it will be a whole lot worse.

Like you, fofoa, I have tried to enlighten people about what's coming - or has now arrived - only to be dismissed as a doomsayer. It gives me no pleasure to see my darkest visions becoming reality! And worst of all, I believe this is just the beginning. I'm kind of expecting that the rest of my life will be spent dealing with turmoil, crisis and adversity. I think back on how much I enjoyed my past, carefree years of freedom, security and abundance, and sadly acknowledge that it may never be that way again in my lifetime. At least I'm glad for the memories. People being born today won't even have that.

Dave

Dave said...

Even as our "representatives" work on this bailout plan - the plan that wouldn't die - they are blatantly lying to us.

Check out this article from the Washington Post, which quotes Bush saying:

“Many of these assets still have significant underlying value, because the vast majority of people will eventually pay off their mortgages,” President Bush said yesterday in his weekly radio address. “In other words, many of the assets the government would buy are likely to go up in price over time. This means that the government will be able to recoup much, if not all, of the original expenditure.”

If these assets have "significant underlying value" and are "likely to go up in price," then why can't their present owners sell them on the open market? Why does the U.S. government have to buy them at nominal rather than market prices? The reason the companies that own these assets are facing a "liquidity" crisis is that they cannot sell these assets - nobody will buy them because they are worth far less than their nominal values. So what are the odds that they are "likely to go up in price"? About nil. If anything, the government is going to buy them at nominal prices and then they are going to go down substantially in price.

I love the part about being "able to recoup much, if not all, of the original expenditure." That sounds exactly like the pitch for the Iraq war, that Iraq's oil revenues would finance the war.

Do we really want these people saving us?

Dave

FOFOA said...

Dave,

I doubt if they were "bought off" with money. But clearly, someone with a lot of clout is going around making calls to personalities with followings. The idea is to swing enough votes. Some in Congress who have the tendency to share our views are feeling a lot of pressure from constituents to vote NO on the bailout. I wouldn't be surprised to find out that the person making phone calls is even higher than I suspect. It would be interesting to know what was said, but of course we never will.

Dave said...

You know, I just ran across an article written Sunday - yesterday - by Nouriel Roubini, in which he writes:

Thus, the Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown. It is pathetic that Congress did not consult any of the many professional economists that have presented - many on the RGE Monitor Finance blog forum - alternative plans that were more fair and efficient and less costly ways to resolve this crisis. This is again a case of privatizing the gains and socializing the losses; a bailout and socialism for the rich, the well-connected and Wall Street. And it is a scandal that even Congressional Democrats have fallen for this Treasury scam that does little to resolve the debt burden of millions of distressed home owners.

It doesn't sound to me like he's capitulated, thank goodness.

Dave

FOFOA said...

Dave,

I saw that too. Perhaps I need to adjust my list a little. Also, Jim Sinclair appared on Sunday and didn't sound like he supported Monty's point of view.

But what about this video? The one on top. Doesn't Nouriel sound like he supports the bailout on Glenn Beck?

Dave said...

I tried to watch the videos but for some reason, they would not appear.

No matter. My comment about NR wasn't meant to be contradictory. I just wanted to assure everyone that some people at least seem to be adhering to their principles.

Dave

FOFOA said...

Some in Congress too, apparently!

Ender said...

Hmmm… Even through the first try didn’t work, it doesn’t mean that there can’t be a second try.

Probability would have it that our fearless leader will make a very strong statement that congress must pass some kind of law that will relieve the stress on the bankers. I would expect that he’ll address the people and tell them that they must support their congressmen (and women).

Meanwhile, the second attempt will most likely hit resistance and by the weekend, we will have more failed banks. It is at that point that the president will take decisive action to stop the runs on the banks.

Watch, shell we?

Are you ready?

FOFOA said...

I agree. This week is a major turning point. I expect to see convulsions both in the markets and in Congress.

I am almost ready. I recently moved some assets to BofA and now I will pull them out of there. I agree with you, I think I may have a week.

And I am someone who has been diligently preparing and moving things around since April. It seems like we are right down to the wire now. Those just starting this week will likely cause markets to tumble and banks to fail.

The early bird gets the golden worm. I think I may have gotten mine just in time.

jerry said...

It is early Tuesday morning, 9-30, and the Asian and European markets are taking big hits. The US market will open, probably, at 10,000 or close to it. Only a guess.

Roubini's back and forth opinions were probably a result of peer influences. Those that surround him, had him take another look at the figures, is a second guess of mine.

I appreciate you, FOFOA, writing a piece which responded to a comment I had written on your post. I just got to a printed copy I had, earlier this evening. You really took the time to write your thoughts out thoroughly. Thanks!

You titled it "The Picture Another Paints."

I am not totally convinced that gold, and silver, are basically artificially suppressed currencies. I see that to a point, but again, I cannot view these currencies as only that. They are commodities, too.

The Chinese buy dollars, as well as other currencies, and as you explained they also buy up dollars from their citizens. One way or another the Chinese buy/own our dollars, and yes, it is our debt. They do so to own us. They can control our economy and monetary policy by doing so. If they did not have this strangle hold upon us, they might feel more vulnerable if we decided to legislate import tariffs on their goods. The more of our currency/debt they own, the more control they have over our policies.

I used the word PRICE when discussing the fluctuations in gold's value on the exchange markets. You are correct--- I should say exchange rate instead of price. But one thing comes to mind and that is if I held a currency that was very devalued, I might try to buy a more valued currency with what I held just because of the stability factor and possible purchasing power of that other currency. By hold that more valued currency, I might be able to purchase more with it than if I used my less valued domestic currency. Therefore, price does come into play. I buy that other currency from one that holds it and willing to sell it for one reason or another.

In a way, such a scenario might be similar to the concept of gold having to be auctioned in order to for one to get its value out of it. But that final price is determined by the buyer who actually has the cash. The seller is subject to the buyer's possible control of the final bid price. The same goes for grain, corn, or hogs. The guy who has the cash controls the bid price. It all is based upon the number of gold coins/bars coming to auction at the same time and how many buyers are there with the cash.

The fewer the buyers, the lower the price.

It all goes back to a post I had many weeks ago when I said, what will be the new world currencies? It may very well be food for one, resources for another, etc. The nation with the most available food stuffs, for example, may actually have more power than one that holds gold. It is all about need.

Thanks for giving me the opportunity to discuss all of this. This open comment is coming at a time when we are all at a time in history when this nation could go up in flames. I am not an occultist, but what do you make of the closing figure on the DOW being 777 at 7% (I saw that changed to 6.9, but I did see at closing 7%.

There are so many dirty fingers in this decision making that it would be real hard to make it clean and correct.

FOFOA said...

Jerry,

For gold and silver, I think that gold is much more of a store of value than a commodity. Silver, on the other hand, is more of a commodity and is a store of value to a much lesser extent.

What you say about the Chinese is true so long as the dollar is the reserve currency. When it is not, we will have defaulted on that debt, and the dollars still held by the Chinese will be basically worthless. Then they will make our problems worse by frantically dumping their dollars to try and salvage some value.

What you say about devalued currencies is true for money you need in order to live. Another is talking about what to do with "savings", or excess money. If you take the same view with both your savings AND the money to live on, then you are "of Western thought" as he would say.

What you say about bidding is also true. When it comes to hogs, corn and grain, it is that money that is needed to live that will be doing the bidding. In the case of gold, it is the world's savings, or the world's "trade surplus" that will be doing the bidding. And in the case of gold, only gold fills that need on a worldwide scale, and has a 6,000 year history of doing so. So while the majority of the money will be spread around bidding on all sorts of commodities, almost ALL of the world's savings will bid on gold. That will be overwhelming to the relatively small amount that will be for sale. That is the picture Another paints.

Everything you say makes perfect sense. I think you are just missing the significance of gold on the world stage once paper money is exposed as a poor way to save your excess money. The world will most definitely need a new reserve currency. A currency gains it's value in it's usage demand in transactions. But it is a poor way to keep your savings.

As for numbers, yes, there have been a surprising amount of appearances of numbers like 666 and 777 lately. I'm sure the numerologists are going nuts. Maybe those numbers will appear next time I sit down at a slot machine! ;)

jerry said...

Hi there,

I see your point between savings and trading for daily economic needs. Currency versus gold. I see how one is for daily use and the other is for accumulating wealth. Thanks for the clear explanation. I appreciate the time taken. I will keep reading what you have to say.

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