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The above is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the author alone on the current and future status of the markets and various economies. It is subject to error and change without notice. The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.
20 comments:
price was true to his name!
Haha! Here is a different Price. One worthy of our respect.
SNIP:
"...Since that fatal day, there has been no settlement at all of international debts.
We are led to believe that payment in dollars constitutes settlement, but that is a total fallacy. There is no settlement except settlement in gold. The proof is that when Central Banks receive dollars, they exchange them for US Treasury Bonds and other American securities deemed credit worthy. (The Euro is now in on this game, also). The debt created by Trade Deficits is not extinguished in today’s world. It remains on the books of Central Banks as Reserves, in the form of Bonds, which are debt instruments.
Please notice the contrast in the graph, between the period before 1971, and the period since then to our time. Reserves have exploded!
Reserves have exploded because there was no need to “settle” trade imbalances. Since the world accepted Nixon’s decision not to settle with gold, but to accept dollars in supposed “payment” of Trade Deficits, a complete disorder set in. So-called “Reserves” are huge - $7.2 Trillion – and yet nothing goes right. All these “Reserves” are debts owed, principally by the US...."
Great article. Read it with FreeGold in mind!
"...When you ask what a systemic failure of OTC derivatives would look like, consider a financial world full of promises of performance such as paying you if you lose money on a bond position due to bankruptcy that simply says to you get lost when you ask for payment. Now think of hundreds and thousands of different obligations to you that simply say buzz off when settlement in your favor is requested. Think of bankruptcy everywhere in every type of corporation from a GMAC type to your local town and village because in search of better returns and bigger profits they entered into items they did not understand, accepting the distributor’s academic presentation of a fool proof investment. That picture would approach what a failure of the OTC derivative market would look like. It would be the end of the world financially, leaving what remains after a star goes super nova – a black hole.
Since the Fed and Treasury have moved to insulate the financial industry from the above, knowing the present recovery to be at best shallow but more likely an illusion, understand that the West is on a path to HYPERINFLATION that cannot be altered no matter what. Any talk, such as today of draining liquidity or what the G20 will say soon, a united world bank effort to fight inflation is total hot air designed to keep the social order.
The die is cast. This time they have done it and we are all screwed.
Unfortunately (and I mean it most sincerely) there is no practical method of reversal, nor is there any real will to reverse QE procedures, but rather there is a pressing need now to do more and more of what has already taken place.
We have passed the threshold of "This is it." All statements to the contrary are well intentioned lies.
Now that I am on the subject I might be able someday in the future to tell you the real inside on why China novated the OTC derivatives sold to their parastatal corporations. They are in the right even though it is hard to understand without knowing the facts of the matter. The situation either has been, or will shortly be negotiated to closure.
Respectfully yours,
Jim Sinclair"
"Hourly Action In Gold From Trader Dan
Posted: Sep 24 2009
By: Dan Norcini
Dear CIGAs,
There appears to be a deadly contest occurring in the Dollar market over the 76 level on the USDX. As I have mentioned in my prior commentary, a closing downside breach of 76 and the USDX will promptly drop to 74. That will be enough to allow gold to shoot to $1,030 and take out that level. Once that level gives way on a close, momentum funds will flood into the gold market overwhelming the ability of Goldman and Morgan to suck down all the gold bids into their magic price capping box and we should see an acceleration higher. I am not sure who is supplying the bid to the Dollar to attempt to prevent this but their footprint is evident on the hourly charts. There was nothing in yesterday’s FOMC statement that was the least bit Dollar friendly..."
so what of that precipitous decline in Au price today?
The idea that foreign trade can be settled in gold instead of Dollars is total nonsense. If foreign trade can not be settled in paper Dollars, then it can not be settled in gold either since gold and Dollars are both money.
The only way to settle foreign trade is by insisting on a trade balance at any given point in time. That idea was proposed a few years ago by Warren Buffett. In other words, you can import something into the US only if at the same time somebody else is exporting from the US into abroad something of similar economic value. Taken together, both transactions would balance out and there would be no need to settle the trade in any form of money.
Imagine the US would have an unlimited amount of gold in storage. Would that mean that we could go on for the indefinite future to import everything from abroad and not export anything of value abroad except for gold? That idea is total crap in my opinion. Foreign trade must balance in the long term. It can be unbalanced in the short term and then the trade balance can be settled in either Dollars or gold. The present problem is that the US has a growing unbalanced foreign trade since 1971. That year marks the year of peak US oil production.
Question: How much of the accumulated foreign trade imbalances is due to the growing import of oil into the US? Recall that today we import more than 70% of the oil we need from abroad. I suspect that a large percentage of the trade deficit is simply the cost of foreign oil which we can not really afford to pay for.
The monetary difference between dollars and gold is that one is limited and the other is unlimited. With a limited money supply, any trade imbalance causes a monetary imbalance in the other direction, which will become self-balancing. In an unlimited monetary system, that deficit is simply filled by the printing press and the imbalance goes parabolic. (See Hugo Price's graph)
Theoretically, if the trade imbalance continued in a limited money supply, all the money would end up on the surplus side. But this will never happen. As money gets scarce on the deficit side, exports are forced to increase to bring in more money at the same time as less imports can be afforded.
Freegold deals only with the marginal trade. It only settles the surplus and deficit, not all trade. Fiat currency works just fine for that. If trade is balanced between two countries, there would be no net transfer of gold. Also, Freegold does not need to be settled at the CB level as imbalances are settled now with the PBOC buying TBills from the Fed.
In Freegold, each individual producer who generates a personal surplus will find that surplus settled in gold, as gold will be his savings par excellence. And each consumer, who consumes more than he produces will have to part with some gold. If he has none to part with, he will not be able to consume above his ability to produce.
Fiat currencies that settle all the trade back and forth will also be self-balancing as they will each be measured against gold. Without a dollar to "manage" the price of gold, it will float against all currencies. A currency zone that prints too much will find it has a weak currency which will make it difficult to run a trade deficit.
ANON 6:47 : I suspect it has to do with the dollar looking "strong" during the G20.
Anon at 7:19:
I'll let others more learned than myself explain to you why foreign trade not only CAN be settled in gold, but also why foreign trade MUST be settled in gold.
I just want to point out one thing. You mention 1971 as the year that began The US's growing trade imbalance, i.e., the same year that just so happened to mark the last year in which gold was formally used to settle trade imbalances with the US (ended of course by virtue of Nixon closing the gold window). Not a coincidence. Gold is not money in the same sense as the US dollar, as you seem to assume. Rather, gold is the ultimate extinguisher of debt; it is the ultimate final payment.
Also, it is not a coincidence that imported oil makes up such a large portion of the US trade imbalance. Among other points made on this blog relevant to this issue, FOFOA's posts regarding Lindsay Williams come to mind.
Finally, did anybody notice the oddities in the NYMEX gold futures today? http://www.nymex.com/gol_fut_cso.aspx
Looked like backwardation to me, but I haven't seen anybody else talking about it. Several of the nearer months were trading at a premium to the later months. For example, around 11:30am EST the September 2009 contract was trading at $1,002 versus $997.90 for the October 2009 contract. November 2009 was $999.00 while December 2009 was $998.90. Never really saw the basis go negative with the spot price, though it seemed close at times ($997.40 bid price at 11:30). Anyway, did anybody else see this? It last for most of the day, in various forms.
FOFOA,
You were way ahead of me - I'm a slow typer. Excellent answer to Anon at 7:19, by the way.
check out Warsjh comments this am. The full scale ministry of truth is out trying to jawbone the dollar. Such a move to raise interest rates would be meaningful sentiment wise buit it wo9uld simply be tightening the noose. Romer is out saying way to early to talk seriously about pulling back fiscal stimulus. For the Japanese to be steadfast in allowing the Yen to appreciate they have tasted the end and they are preparing for it. Can we now look back on that Italy/Switzerland incident a tad differently?
The Fed is cornered. The MM swap/reverse repo proposal is interesting if only for what the end game is. It seems increasingly clear that the a liquidity suck could be coming and used as a catalyst to destroy debt somewhow - which would likley include some sort of deposit destruction. With every passing day it becomes clear that there is simply no alternative. The question is how they till the soil for it. This terrorist story is interesting to watch -- per Richard Clarke: "the closest we have come to 9-11"
Simply stated, the FRN dollar cannot extinguish a debt because it is debt.
Every dollar that is in your pocket or your bank account is a promise to pay. A dollar bill is a note, a promise that you are owed something and will be paid.
If you owe some certain lending party a debt and you offer them Federal Reserve Notes in payment, your obligation may be fulfilled.
But, the debt is not extinguished because that certain lending party now holds promises to pay from somebody else.
The debts accumulate exponentially with fiat money.
A gold coin in your pocket is wealth, it is not a promise to pay.
If you settle that debt with a gold coin, the debt is extinguished.
Not sure how this will show up format-wise, but just wanted to run this by everyone. Looks like backwardation (nearer months trading at premium to further months) and a negative basis (nearest month trading at discount to spot bid price) to me. Just haven't seen anybody else talking about it, and per AE Fekete this is supposed to be a big deal (if I'm reading the quotes correctly and this is indeed what he is talking about).
9/25/2009 Session Overview
Last
Sep 2009 986.70
Oct 2009 990.30
Nov 2009 994.10
Dec 2009 991.20
Feb 2010 992.30
April 2010 995.40
http://www.nymex.com/gol_fut_cso.aspx
New York Spot Price MARKET IS OPEN(Will close in 6 hrs. 5 mins.)
Metals Date Time(EST) Bid Ask
GOLD 09/25/2009 10:53 990.90 991.90
http://www.kitco.com/market/
Hi Anonymous @7:19
It does seem that using gold for settlement would be total nonsense. On the flip side, it seems that using dollars for settlement is complete nonsense.
You’re reference to Sir Buffett’s idea of insisting on a trade balance fits right in with the idea of using Gold to help with the trade balance. When you look closer at the meaning of ‘trade’ you find that it’s the exchange of goods (things that are real) between two countries (individuals). If one country can’t keep up with the exchanging of real things, the other country builds up a collections of receipts (promises to pay) that entitle them to goods in the future. At that point, we can ‘see’ the trade imbalance.
I’m sure that if you think about it a bit more, you’ll agree that a trade is a settlement process for real goods (not excluding gold). Basically, someone becomes productive to acquire a currency. Then, they use that currency to buy real goods (and services). If there is currency left over, there is an imbalance – the productive person gave more real goods (or services) into the economy than they requested settlement for. Make sense?
If this line of thinking makes sense, just about any real good (or service) is what settles the debt.
Along that same line, gold is a real good.
Now, reflecting back to what you wrote, I’m being a little nit-picky, but only (really) with regards to how you use the word settlement. You wrote: “The idea that foreign trade can be settled in gold instead of Dollars is total nonsense.” I would write: The idea that foreign trade can be settled using anything other than real goods and services is total nonsense.
Now my question to you is: if a country is overlay productive to the point where they simply can’t find enough real goods and services with their trading partners to settle their debts, what should they use to settle the surplus that will increase the value of their surplus over time?
May your days be more than fair for the Ender is back to crystal ball gazing – I see -5.5% on the dollar horizon.
look a little deeper into your crytal ball there ender :) -5.5%? that's it? :) so it's 72 on $.
No King,
Intraday you can see anomalies because reporting comes in at different times.
FOFOA
@ SatyaPranava,
-5.5% is not a final destination. It is just an awe inspiring shell-shock event. Has nothing to do with 72 – has everything to do with emotional impact.
At http://www.jsmineset.com today is linked an excellent IMO audio interview, about 28min, featuring Jim Sinclair on King World News.
SOME KEY POINTS:
Says stock market is political, supported by false accounting, fake earnings approved by FASB.
Says derivative problem will grow worse.
Says dollar will go much lower.
Says we are now in hyperinflation, reflected in growth of credit and monetary aggregates(includes near zero IR's).
Higher commodity prices are resulting from hyperinflation and safe haven flight from currency debasement.
Government fascist-like tactics will continue in the west such as IRS, public health measures, printing money for banks and bonuses.
Sees no exit from banker controlled world.
Says best business opportunities will be in China.
Says living standards in the west will continue to erode and expects social unrest.
Says currency controls would not work so would not be attempted.
Says confiscation of gold will not happen.
Says few Americans have any gold.
Says silver could rocket higher but doesn't have large enough market volume, liquidity nor the cash market that gold has.
Says silver is a paper market and gold is a cash market and thus have different levels of control.
Says the world gold (cash) market is "infinitely larger than Comex".
I would not recommend holding quality gold stocks such as he pretty much did as part of a good portfolio, he said it should include about 33% physical.
Due to possible confiscation (especially if Fort Knox is empty or depleted) I don't own PM stocks.
Time will soon tell whether it was a blessing that I didn't have time or motivation to research and track them.
I don't expect very many of the mining equities to come close to gold's performance and safety for many years.
Jim's commentary on news articles continues to evolve and expands upon many of these same economic and social issues. For instance, the excerpts FOFOA posted above.
Right-Click here and select "save target as" to save Jim Sinclair's interview to your hard drive.
Or just click to listen.
That Jim Sinclair interview is excellent. He is on fire! It gets my top recommendation.
On the subject of the future, though, I am much more optimistic than Jim Sinclair.
Adam Smith (1723-1790) said that economies are the result of bottom-up spontaneous self-organized order that naturally arises from social interactions, as opposed to top-down bureaucratic design.
And since we are about to hit "reboot", this means Freegold!
Gold: Hyperinflation: Millions, Billions, Trillions And Then...
John Ing
"...History is full of examples of countries that failed to pay their debts, opting instead for hyperinflation to pay their bills. Inflation simply reduces the value of debt, hurting creditors and postpone the inevitable adjustment. History also shows that deficit spending and printing money is so addictive and politically expedient that governments rarely manage to reverse the downward spiral. Hyperinflation is a greater evil that wipes out savings and destroys more economies than depressions. Right now, hyperinflation is a greater risk than the 1930's style depression that so many fear..."
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