aliveandkicking

Very informative, thanks

Copper can also be found as the metal. The following piece of almost pure copper weighed 17 tons

Other metals can also be rarely found

http://en.wikipedia.org/wiki/Native_metal

Interestingly from that link there was an ancient civilisation mining copper around lake superior where that copper in the photo was found.

Indeed it does put things in context.

 

Which is why I think the refrain often expressed here of doom, gloom, despair and dire warnings that everything is about to unravel is just a wee bit overdone. There is plenty of scope to increase government income if they start to get tough with certain people.

 

New Labour's answer was endless debt. The Coalition are continuing in the same vein but, if we do have a crisis (which, as far as I can see, will mean a bond crisis) then they'll have no choice but to start to collect the tax evaded and avoided by the rich and multi-nationals.

 

This could yet end up with exchange controls.

taxes for rich foreigners and exchange controls will hammer the hell out of london property however.

In the scenario you outline, money would have no value. You're into wheel-barrow territory.

In the scenario you outlined money doubled in price relative to house prices, and you claimed this would collapse the banking system.

You are outlining a hugely deflationary period

Where would the government get the money from to recapitalise the whole banking system? I don't think you grasp the scale of the problem. This is not one bank that is in trouble that needs the BOE to step in as the lender of last resort.

 

In 2008 we were half an hour away from the cash machine network being closed down. This is a crisis - not a blip.

 

If house prices fell by 50% - the whole things going down the pan.

I dont think you can be serious.

The government cannot be short of money to lend to nationalised banks in a deflationary crisis.

2008 was a bank run. There cannot be a shortage of government cheques to satisfy all depositors.

Okay so we end up with one giant nationalised bank that is bankrupt - that has loans of (say) £2 trillion backed by assets worth £1 trillion. Whichever way you look at it, a banking system running under the Basle rules cannot exist.

 

Why do you think NatWest and Lloyds were bailed out? Why do you think the BOE provided a safe haven for 'troubled assets'?

The nationalised banks would be recapitalised according to tried and tested principals

Banks were bailed out because nobody other than the government would lend to them.

The BOE is lender of last resort to enable banks to trade out of difficulty or enable orderly transition of ownership

It seems few people are willing to face the simple fact that if the housing market crashes and there are mass repossessions - the BANKING SYSTEM WILL GO DOWN WITH IT.

Why will the banking system collapse?

It would just involve a transfer of ownership to the tax payers

Given that MZM is at an all time high, can you explain this in more detail and how your "sucking of money" leads to higher money supply measures? (Sounds ridiculously counter-intuitive, or doesn't it?)

 

 

And you must be aware that I am not talking of literal paper notes, but the monetary base. So, what is this here then?

 

 

 

Last time I studied the Fed's balance sheet it said "face value". Not "face value after haricut".

 

 

Can you back this up?

 

 

(i) What do you mean by "has gone due to refinancing"?

 

(ii) I can't believe that they first create money out of nothing, and then they don't destroy it when it comes back! This is highly inflationary.

A few days ago you showed that MZM was just barely rising above the 2007 levels?

The fed bought agency mortgages and in many cases people then refinanced due to the lower rates and the feds got the money back. Rather than reducing the QE amount they bought treasuries to keep the QE amount the same. Google to find agency mortgages are being put back to the banks where fraud was found.

As for monetary base it is still not clear to me the exact situation about regulations applying to Reserves. It appears that under bank rules this is money that can not be used by them for private purposes other than the amount that is part of their capital. If there are rules, then since this money is always in fed accounts on behalf of the banks it can be easily scrutinized.

On the money sucking, as you know the banks are being required to get more capital - which is a trend against greater loan creation.

How is that a replacement if the debt is still outstanding? Makes no sense IMHO.

 

If Deutsche Bank holds an MBS of turd quality and the Fed creates Federal Reserve Notes and buys this MBS off Deutsche Bank at an artificially high price, how can this not increase money supply? It does in itself, but now on top of that DB can increase the money supply even more as they can lever the Fed cash they get by 1:50 or so (whatever the non-existing reserve ratio is...).

You are mixing things up. 1:50 leverage is a sign of a massive deflation pressures until banks with this kind of leverage have sucked money from the economy or become state owned and recapitalised. The example being Japans zombie banks which were kept alive rather than being killed off and recapitalised.

As you must be aware the Fed is not creating a large number of FRN's.

MBS bought by the Feds was not of terrible quality other than that which has to be bought back by the banks via the discount window. the purchase involves a haircut. MBS found to be fraudulent and not meeting requirements is going back to the banks.

QE included 1.25 T of agency mortgage purchases. A chunk of that has already gone due to refinancing and the receipts are being used to buy treasuries.

The buying of debt with fiat does not increase the money supply, it just replaces credit with fiat plus the amounts are relatively small compared to the amount of debt out there.

I mentioned this kind of thing before and talked it over with Ziknik on his blog since nobody was interested here.

It is true that if you are a bond holder with a million pound bond then you are wealthy and you have spending power. And if these bonds trade in a cash like manner (as they do) they are like money but they are not money.

Even so before this crisis there was an amount of wealth in the world and the total amount of wealth in the world must influence the amount of price pressure that creates the bubble that all prices exist in our current money system.

Once the crisis began many of these money like things began to revert to more traditional 'things' where for example an auction rate security simply became a bond that might pay you back in 30 years time rather than a 'cash like instrument'. So huge wealth, or a wall of liquidity that was existing in the world before 2007 was an illusion created by the perception of absense of risk or the perception a person could move to safety before the music stopped. A return to risk is itself a massively deflationary event.

QE has replaced a small amount of the evaporated wealth. Credit appears to be still rising.

QE swaps the wealth of the bond holder for an amount of similar wealth while the central bank holds the previously existing circulating wealth. If you argue the bonds are worthless then you arguing for an event that is deflationary creating because at the very least the perception of wealth that existed has been destroyed, and now all that has happened is the destroyed deflationary creating wealth has been replaced by a new deposit which you might argue is not worthless today. If you argue a deposit is worthless today then that is just more deflationary.

You can always argue they will produce yet more and more money to prevent deflation, but so far the amount produced is not so large in the context of so much wealth distruction.

Instead of playing the antagonist, why don't you offer some odds and then some justification?

Sounds like you think it is possible.

I have still over 50% of my SIPP money to invest. It would be great to get a 7xx price, but I just can't see it.

At sub 800 I would be buying with both hands too but I can't really see that happening either.

 

At 824 I got the same feeling as I had at 750 in Aug 2010 and 569 in July 2009... time will tell...

Anybody want to give me some odds on XAUGBP not going below 780?

May be it's Egypt; it's making alot of hot news.

And then on to the rest of the area. Oil spikes up, agricultural costs spike up. People begin starving. The west invades to keep oil flowing. Russia moves South. China moves west. My family heads back to NZ. Definately a possibility even for somebody as conservative as me.

I've shown you a chart that refutes your claim and you've chosen to ignore it for a second time...

How about you allow me to see this chart a second time before you begin making claims like that.

If you like my SILVER bottom you should see my crystal balls.

 

I've shown you a chart which shows gold goes up when IR's rise, heading towards positive real interest rates, but you failed to reply.

What i am saying is that gold will not keep going up at the rate it is going up if the Feds demonstrate they are going to pay some attention to inflation - Long term gold is always going to be going up since devaluation of our money is built into the system over time

This is just a game of bluff, the problem is the FED's cards are there for all to see.

I admit i have had my eye on your bottom and it has been pretty impressive so far. It might be gone by the morning however.

As for the Feds cards interest rates rises are not so very far away.

Is there any major support for over a hundred dollars once this support fails?

So, your thinking that inflation fears are being tackled and the flight to PM's as a traditional safe haven is reducing. The latest GDP figures for the UK would surely suggest a likelihood that additional QE may be required to support the economy thereby exacerbating inflationary pressure. I don't think the US really know how to stop QE, it seems to be supporting the whole system.

 

I have read extensively with regards to JPM and silver manipulation, do you think that the weakness in PM's is purely down to changing perspectives by the markets?

USA QE could be in run off mode by early next year with maturing bonds having to be balanced by a lesser amount of QE so that QE eventually fades and rates rise. If QE2 had not been announced then maturities from the MBS alone would have reduced QE by 200B over just 2010? For 2011 and onwards, treasury maturies will reduce QE annually by about another 100-200B?, that would create a massive drag on the economy so a new amount of QE seems likely to reduce the impact of the run offs while even so QE is reduced and rates rise. One alternative possibility is that China india and Brazil have hard landings and mean the west has to keep an easier policy for longer - but this is not particularly inflationary if the other economies crash because most people are living there.

I have no idea of the real silver story but you can see also other things happening which do seem real which may account for market moves today.

And call me a cynic but i suspect there there is an entire industry of creative writing out there designed to ensure people want to buy metal they have no purpose for whatsoever.

OK, I just don't understand this, so I'm going to have to ask. I feel like the dumb kid at the back of the class but here goes.

I am also the dunce at the back of the class.

But if you avoid complexity the simplest explanation for a fall in prices is that the countries that matter for the gold and silver trade like china india korea and i suspect Brazil and so forth are raising interest rates because they have inflation problems. If their inflation rises higher than western inflation and they dont deal with it then it is going to impact their competitiveness. The west meanwhile is pretty economically weak overall and likely to remain there for a while to come. You can argue our inflation will moderate if these other countries inflation moderates

India today raised the repo rate - not much change. Base rates held steady at 6%. China is 5.81% after two rises in two months with the last christmas day with more to come and with reserve ratios at 19%. Brazil raised by .5% a few days ago to 11.25% Korea is at 2.75% and just raised .5% a few days ago. The Brits will be raising before the end of the year? The USA before mid 2012? One year Euribor is suggesting a .25% raise as far as i can see from the way it is fairly rapidly going up. On top of all of this China is being seen to very publicly support the USA and Europe which sends a big signal the west is going to come thru this one way or another, where the reason for holding gold and silver for many is as a hedge in uncertain times.

Meanwhile if you have a big silver position to unwind you need people to buy and spreading stories about default is as good a story as any. What for example would be todays prices of a selection of silver dealers if you phone them up and you say you have 1000 oz to sell and you can deliver today? would you get 24USD per oz?

I appreciate the reply, but I completely disagree. Silver is in backwardation extending 12 months in to the future, has this ever happened before...?

It appears to have happened last year.

Silver in backardation only means that if i want to do some silver soldiering today i will have to pay higher prices for silver than the market says i will have to pay in one years time. So who today is buying silver because they require it even though prices are expected to be lower? Industrials? Speculators who cannot believe silver will be lower in a years time?

The market might for example be expecting that China will slow down in the future while demand today remains strong and the higher export quotas for silver that china has set will actually mean more silver on the market rather than less as it was for 2010.

if you continue to look at the silver market as a normal S/D market

I would guess that industrial demand for silver swamps whatever demand there would be from what appears to be a small investor community viewing silver as money.

All the information that i can find suggests to me that food inflation is being caused by rapidly expanding developing economies rather than by greater money supply. If that is correct then silver could easily be showing that it has come too far too fast and now buyers in the future are less enthusiastic for it.

you've misunderstood my 3 questions in bold.

 

I'm not asking if the Fed has the means and motive to intervene in the Fed funds rate. (obviously they do!)

 

I'm asking if the Fed has the means and motive to intevene in the Fed Funds futures market.

I admit given the improving situation in the US economy that it did not occur to me that the Fed was altering the fed funds futures for their purposes. i am sure though that the fed will want definate indications that the recovery is not going to fade away before it begins attempting to persuade people rates are going to rise if nobody thinks they are as you are suggesting with manipulation of the futures. Either way I cannot be the only person in the world who thinks that the fed funds rate is going to be higher next year.

You asked earlier why an improving house market meant a firmer self sustaining recovery. It means that people with cash doing nothing or people saving for worse times are more likely to spend money on the usual things that increase economic activity. The US has exceptionally low rates and it is pretty clear they will not be held exceptionally low for very much longer even if they continue to be low for many years.

But it is easy to talk, how about i bet you 100 pounds that the USD will not be repudiated by July 2012?

I disagree it's ZIRP for the foreseeable future, anything else will cause a financial catastrophe. Irrespective of what you think is coming, you can bet your last dollar the government will keep bending the rules to keep the plates spinning.

If the government could alter the long term interest rate structure why did all those millions who lost their homes have to pay 4.5% interest? Obviously the future is going to have higher inflation in it than the last few years of near economic death. With higher inflation comes higher interest rates.

Even so, like International rockstar, you can be confidant that interest rates will not be raised sufficiently to prevent inflation.

[*]how reliable is that indicator?

[*]does the Fed have a motive to intervene in that market (as they do in the US gov't debt market)?

[*]does the Fed have the means to intervene in that market (as they do in the US gov't debt market)?

The Fed funds rate is a calculated rate produced when the banks lend to each overnight between each others Reserve Account at the Fed where each bank with spare reserves attempts to lend them profitabily to the banks short of reserves.

The Fed can attempt to lower that rate by buying assets from the banks at whatever price it wants so that the banks have more reserves. But in that case and when inflation is very high the banks who already have plenty of reserves will lend at a rate that makes their loans profitable in an inflationary environment and the fed will be powerless to get the fed funds rate lower unless it deals with inflation.

In a similar manner once inflation rises the fed has no power to reduce yields on US treasuries, other than by acting to reduce inflation, since the yield is what the buyer receives annually after he buys the treasuries at the price he thinks is reasonable with his set of inflation expectations.

If fed fund futures are showing higher rates and higher rates dont come then the fed loses credibility and banks expect more inflation and rates rise more anyway.

no they're not. higher rates means large commercial banks would fail. it's pretty clear that the central bankers have decided not to let these banks fail.

Fed fund futures are showing expectations of a quarter point rise by april 2012 and almost 1.25 by end of 2012.

http://www.cmegroup.com/trading/interest-r...deral-fund.html

Obviously rates can go higher than the current 0.15% typical daily rate.

Even Citi bank is making a profit.

Today Brazil lifts rate 0.5% to 11.25%, meeting expectations.

You are confused.

 

If people have money in savings, and use it to go out and buy Property,

that pushes up Property prices.

 

Indeed, we say that in 2009, and the early part of 2010.

You are now mixing apples with pears. Earlier you were saying that property lending reduces lending for other projects. The reduction in lending is very small as i explained.

Now you are talking about how purchases with cash or even with debt can push up prices. Which really is an issue related to velocity of money as much as anything else. Clearly if there is easy credit or large amounts of 'cash' then the velocity of money is likely to be increased. But in deflation there can be vast amounts of cash and no velocity.

But back to the earlier point money cannot go into gold or any purchase. The seller of gold does not get their money out of gold but rather from the purchasor of gold. They may however say 'i took my money out of gold'

Also when you say people have 'money in savings' you are saying that these people are bank creditors. These people are investing in a bank to take advantage of the banks money making activities and doing so in a speculative manner. If these 'cash buyers' buy property somebody else becomes the bank creditor or investor.

Bold,

 

If savers cannot earn a real rate of interest on their savings, they will shift their money elsewhere...

 

Like into buying property. And that will mean less savings for various lending activities.

Bubb

You have said this sort of thing before.

I have said a few times before that money cannot go into property. The money just passes to the next person and is still available for lending to others apart from a small percentage that is retained for capital adequacy purposes, where only a small amount is required to be retained for capital adequacy on property lending and larger amounts would be required for say an unsecured buisiness loan.

The only way you can get significantly less savings available for lending via a purchase is if the new person requires the money in cash and he retains it in a private safe where it cannot be lent to anybody.

Fundamentally in our money system today there cannot be a shortage of savings providing there are sufficient assets because the banking system creates our savings when it creates loans. Ie you walk into a bank with your title deeds and get a loan and the bank gets a loan asset and you get some created money savings where the bank only needs a small amount of capital to legally create that loan for you. Once you spend the money you have only a debt to the bank and the bank owes somebody else those savings it just created for you when it created your equal amount of debt.

We just do not live in a world where there can be a shortage of savings providing there are good ideas or good assets. The only thing constraining savings creation is the rate of inflation that can be allowed or tolerated.