By Joe Weisenthal, Business Insider The big story today (and actually for awhile) is the collapse in gold, which has just fallen below $1500/oz. If you look on Twitter, or anywhere else econ types chat, there's a lot of glee over this news. Why should the decline of a relatively irrelevant commodity creating such a reaction? There's two reasons for this: - Gold bugs are frequently jerks. - This vindicates the economic ideas of the economic elites. The latter point is the most significant. To respond to the economic crisis, economists and mainstream policy makers have favored highly unusual policy measures (massive Fed balance sheet expansion, massive stimulus, etc.). These ideas are usually based on years of traditional economic research (Keynesianism, monetarism, etc.). All of these ideas have been slammed by heterodox types like Austrian economists, who have warned of hyperinflation, and gold going to $10,000. So the collapse in gold is not about gold, but about vindication for a large corpus of belief and economic research, which has largely panned out. It's great that our economic elites know what they're talking about, and have the tools at their disposal to address crises without creating some new catastrophe. Things aren't great in the economy, but the collapse/hyperinflation fears haven't panned out, and the decline in gold is a manifestation of that. http://www.businessinsider.com/the-gold-collapse-is-great-news-for-the-elites-2013-4
This smells a bit like 'The World's Greatest Treasurer' getting up and strutting over the GFC and it's lack of impact on Australia, or about the strength mining construction pipeline. It's all in the timing, Wayne. Money is being pumped into the World's financial system under high pressure at all points - the Markets love it. As has been pointed out, only a fraction of this QE has actually been drawn down into the banking system - the demand for loans is weak. Meanwhile, the printers have effectively displaced any other Treasury bond buyers, and have set monetary targets of 'less than 6% unemployment' in the US or 'elevating inflation to 2%' in Japan to the QE programmes. We also know that inflation and uneployment numbers are at best synthetic, and at worst actively manipulated downwards. So all this unburnt fuel is accumulating in the front end of the system. Some of it is leaking out under pressure; it seems pretty obvious that the holders of Japanese Treasuries would be dumb to hold a asset with fractional interest return in a currency being driven down as a policy measure, so the tsunami of $trillions of Japanese corporate savings (which, by the way, is also used as equity for borrowing cheap money) is washing around the World joining the yield hunt. So inflation is 'under control' (so far), but surely that's just a matter of timing, not cleverness; Japan is actively trying to create it! The hubris of the 'economic elites' is the idea that the genie of inflation can be tamed and controlled (this time is different); that complex and chaotic systems involving humans can be controlled by one monetary lever and a whole lot of spin; and that you can fool most of the people most of the time (that last one may be right ). We tend to blame the banksters for manipulation for profit; but various institutions are helping out - whether their motivation is to save the World by retaining the status quo I know not. But you cannot stabilise a chaotic system by gripping it tightly. There is a great deal of energy in the system; grab it and hold it and it is likely to remove a finger or two. Take an earthquake analogy. If the two continental plates rub smoothly together you get losts of manageable micro-quakes. If they stick, energy builds until eventually the resistance releases, you have one great big quake and lots of aftershocks, and cities are levelled. Might be days, could be years; but some of the faces in the roller-coaster car are smug-happy, some are happy-scared, and others are grimly hoping to eveolve flight before the bottom of the hill. Others of us are huddled in the back constructing escape mechanisms, throwing ropes and sewing parachutes; and fending off the 'elitists' with the Kool-Aid.
So with international trade settlement abandoning the USD, reducing its demand and value, and the FED printing at least $85 Billion new dollars every month, increasing its supply and hence reducing its price, interest rates should be increasing. But, if interest rates increase, the US economy would be instantly in the toilet, along with the Australian and all other US aligned economies. However, in a world of competitive currency debasement, there is only one monetary yardstick buy which to independently measure the USD value and that is GOLD. If they don't smash gold, inflation rises, USD based economies are in the toilet and the US can no longer afford its military! If you own gold you are adding to their problems and by the doctrine of "if you're not for us, you're against us", you are not just collateral damage in this war against the light of reality gold shines on their monetary manipulations and economic fragility, but you are the targets in their sights. For if the people loose faith in their fiat currency as money, then their games, their wealth, their power and control is over as a hyperinflation removes all the pillars of the existing societal paradigm. This manipulation of gold lower while central bank purchasing of physical bullion is increasing and while gold production costs are increasing is just a confirmation of the level of desperation they have. How long do you think they can keep it up for, though? What was that Ayn Rand quote about not being able to ignore the effects of ignoring reality? :lol: Measuring your wealth in dollars might be a mistake here.
Good post Gino. Starts to make sense when you put the pieces together and the timing of certain events...their plan becomes more transaparent; To quote a blogger in the blogasphere below; "Make the people not trust that their deposits are safe and they will move their money into something else. While we trash the hell out of Gold and Silver not only in the Main Stream Media but trash the price at any cost in the Market. All the while letting the Main Stream Media talk about the rise in value in this new electronic currency BitCoin." A massive Con on an unimaginable scale Private banks are still massive buyers of gold....why would you sell when they aren't ?
I agree with the writers assessment of the pundits attitudes and celebratory back-slapping. But cannot agree with his final proclamation - "they were right". A broken clock is right twice a day. Fundamentals haven't changed. But as with so much of the 21st century - the war is for your mind, so let them fight of ideological positions - in the end it will be useless and those holding tangible assets, not reliant on a complex web of ponzi financial manipulation will be vindicated.
They had to dump 500 tons of Gold for that little party to take off last night. Meanwhile, the Chinese bought around 800 tons so far in 2013. The West is so fu^%@ed.
An increase in the amount of money available in the system, in a free market, would make the cost of borrowing money fall, not rise. A shortage in the amount of money available would make money more expensive to borrow.
An increase in central bank printing means the amount of return investors in government bonds require to loan money to the government increases. That is, the interest rate on government debt increase in terms of the currency they are printing. When investors get a better return buying government debt, all other interest rates have to follow the rise to entice market participants. Rates on saving accounts in banks rise, mortgage costs rise, etc. ZIRP or ultra-low interest rate policies, in the face of money printing is not normal and can only be sustained for as long as investors can not get a better return elsewhere, which means they have to supress and control other independent measures of inflation and value, such as gold. Perhaps I should have used "value" instead of "price".
Ah, I see where we have diverged I was thinking printing and spending (not via bonds) as opposed to the US Centric way.
