Financial Crisis

[12DrinkMore]

Here is an interesting guy

http://bilbo.economicoutlook.net/blog/?p=5762

Almost at the end of that blog there is a reply from "Bill" pointing to a few links, which are a good place to start reading.

Deficit spending 101 – Part 1

Deficit spending 101 – Part 2

Deficit spending 101 – Part 3

Will we really pay higher taxes?

Will we really pay higher interest rates?

Fiscal sustainability 101 – Part 1

Fiscal sustainability 101 – Part 2

Fiscal sustainability 101 – Part 3

(sorry but the links did not survive the cut and paste)

Maybe its time to review the economic theories that you have? Why are we taxed? Why governments issue bonds? What determines interest rates?

One particular question that he addresses is government deficit spending. I have never quite understood why the government does not simply print off the deficit and have done with it. So at the end of the year Darling could proudly announce that another 300 Billion Quid was issued by the government to pay the bills. Why keep on accumulating this as debt and paying interest on it?

As Abrak has already stated, sovereign debt is not the same as household debt. Unless you are in the EUR-Club.

I suppose the big problem is that governments bloat themselves out of proportion and end up full of inefficient unproductive jobsworthies. The UK now reckons it needs 1 in 4 of the workers to administrate the country. There seems to be no control or restriction on the size of government, it grows like a cancer, strangling the productive industry and population with regulations and taxes.

[Gambles]

Please Note: While every effort has been made to ensure that the information contained herein is correct, MBMG International cannot be held responsible for any errors that may occur. The views of the contributors may not necessarily reflect the house view of MBMG International. Views and opinions expressed herein may change with market conditions and should not be used in isolation.

The bar for posting on this thread is so unbelievably low (actually it is well below ground) that attaching notes implying that a posting might contain errors or views that might be vague, variable or even lack coherency is definitely unneccessary and in fact implies a degree of credibility to other postings that do not contain this warning, which is totally inappropriate.

P.S. It would also seem natural to assume your proviso given the statement that 'But 2010 is the year when anything not only can happen but at some stage it probably will'

LOL, Abrak

but I think that you're totally unfair to the forum standard which throws up some interesting questions, lively discussions and good points, posted by people because they want to - not because they're being paid to. There's a lot of downright common sense on here (and a fair sprinkle of madness too sometimes (which helps to keep things interesting!)

If I sound a little jaundiced, that's probably because I am! - Having witnessed over the yearsthe kind of ideas that come from many of my fellow professionals, the saying about professionals building The Titanic while the ark was built by amateurs comes to my cynical mind too often these days.

[Gambles]

This topic has interested me for a while.

The obligations of holding tight fiscal policies is crushing the economies of Greece and Ireland. The required massive reduction in government spending, coupled with the need to deflate wages and prices in order to become more competitive with the Germans is a battle which will leave the countries desolate. In the rush and euphoria to join in the the big EUR-party, gaily abandoning sovereign currencies and acceding to the will of the humongous and hugely expensive Euro-Politicians, obviously too little consideration was given to the long term implications of holding a single currency, effectively removing the devaluation option.

From the Irish

http://www.sbpost.ie/commentandanalysis/sh...euro-46642.html

The ECB has published a paper on the "Withdrawal and Expulsion from the EU and EMU"

http://www.ecb.int/pub/pdf/scplps/ecblwp10.pdf

Although the transition would be fraught, at least I can now see how the mechanics would work.

1. Form a National Bank

2. Issue a National Currency

3. Insist on all taxes being paid in the National Currency

So even if the Euro was also in circulation, the new national currency through the taxation system would be credible and allow the government to regain control of its fiscal and monetary policies.

I wonder if the wannabee EU countries are reviewing their applications? Proabably not, as the politicians are, as usual, in it for themselves and their Euro-Parliament gravy train aspirations, and it must be so easy to sell the integration to the hoi palloi as "we'll be as successful as the Germans". Unfortunately to be as successful as the Germans you also have to adopt the German mentality, not just associate yourself with them....

I'd agree with a lot of that - The Euro is essentially politically motivated and always has been from the start. Germany and to a lesser extent France have mortgaged their futures on its success and they seem determined to double their stakes now.

You're going to love tomorrow's DU about the major currency inverse beauty pageant!

[ronz28]

French Finance Minister

no Franco-German aid plan for Greece....

http://www.businessinsider.com/france-says...eece-now-2010-3

and she's hot.

[Gambles]

Here is an interesting guy

http://bilbo.economicoutlook.net/blog/?p=5762

Almost at the end of that blog there is a reply from "Bill" pointing to a few links, which are a good place to start reading.

Deficit spending 101 – Part 1

Deficit spending 101 – Part 2

Deficit spending 101 – Part 3

Will we really pay higher taxes?

Will we really pay higher interest rates?

Fiscal sustainability 101 – Part 1

Fiscal sustainability 101 – Part 2

Fiscal sustainability 101 – Part 3

(sorry but the links did not survive the cut and paste)

Maybe its time to review the economic theories that you have? Why are we taxed? Why governments issue bonds? What determines interest rates?

One particular question that he addresses is government deficit spending. I have never quite understood why the government does not simply print off the deficit and have done with it. So at the end of the year Darling could proudly announce that another 300 Billion Quid was issued by the government to pay the bills. Why keep on accumulating this as debt and paying interest on it?

As Abrak has already stated, sovereign debt is not the same as household debt. Unless you are in the EUR-Club.

I suppose the big problem is that governments bloat themselves out of proportion and end up full of inefficient unproductive jobsworthies. The UK now reckons it needs 1 in 4 of the workers to administrate the country. There seems to be no control or restriction on the size of government, it grows like a cancer, strangling the productive industry and population with regulations and taxes.

Drink, you should apply for a job as a central banker, my friend! That's exactly what they are doing. Create money at exceptionally low rates, create inflation, increase nominal rates by less than inflation and you inflate your way out of debt.

In simple terms - imagine that you buy a house for $ 100,000 and take a $ 90,000 5% per year interest only mortgage (which you can just about afford) as your salary is $30,000 per year. It's a struggle but you can manage.

The house falls in value by 20% and you lose your job and the only new one that you can find pays $20,000 per year. You can't afford your mortgage any more, the mortgage is greater than the value of the house. All looks bleak.

But then inflation comes. Let's say it's really high inflation @ 20% per year. Interest rates rise to say 10% per year. Suddenly your mortgage interest doubles from $ 4,500 per year to $ 9,000 per year but your salary increases in line with inflation by $ 4,000 per year and your house increases from $ 80,000 to $ 96,000. Cashflow has become even tighter but at least you have equity in your house again.

Another year down the line, the house is now worth $115,200, the interest payments remain at $ 9,000 per year but your salary increases by $4,800.

After 10 years of this, you have a house worth almost $ 500,000 with a 'mere' $ 90,000 mortgage.

You have an income of over $ 100,000 per year and you can probably afford to pay off the mortgage pretty soon. Debt has fallen from 300% of income to less than 90%

While this is an extreme and highly simplified example, this appears to be the Bernanke-Geithner policy for America to clear it's debt problems (emulated in other countries too). Printing money should increase inflation, increase nominal interest rates but decrease real rates.

There are so many risks to this strategy that I don't know where to begin (China probably) but The Fed and other central banks have run out of ideas and room for manoeuvre now - it's this high risk strategy or nothing. Better pray that it works but I'm far from convinced.

cheers,

Paul

[Gambles]

French Finance Minister

no Franco-German aid plan for Greece....

http://www.businessinsider.com/france-says...eece-now-2010-3

and she's hot.

sorry Ron,

hate to party poop

that's not her

she isn't hot

[sokal]

The only point you might be missing Kuhn G. is that on this forum it is OK to take a whack at Dr. Ben Bernanke, Dr.Paul Krugman, Barney Frank, or PM Brown but if you were to refer to Dr. Gary North and his ilk as RW fundamentalist wackos the usual-suspects would be on the warpath.

Most Austrian or normal economists are not right wing wakos.

[sokal]

his topic has interested me for a while.

The obligations of holding tight fiscal policies is crushing the economies of Greece and Ireland.

Is not going broke considered a tight fiscal policy ?

If these countries where not in the Euro they would be in the exact same situation as Iceland. Collapsed economy and inflation. That is what happens when you can print your own money.

[jazzbo]

Most Austrian or normal economists are not right wing wakos.

quote Dr. Gary North:

Why Gold Owners Are Targets of the Governmen

t By Gary North

If you own gold, you are in a war. You are under assault. You had better figure this out early.

There is a full-scale war against you. The politicians and central bankers who are conducting this war against you are determined to see that you lose money on your investment.

You were saying ...

[midas]

Did April Fool's Day arrive 2 weeks early ?

USA is facing TRILLIONS of dollars in debt .........but they do this .........?

IRS visits Sacramento carwash in pursuit of 4 cents

Arriving at Harv's Metro Car Wash in midtown Wednesday afternoon were two dark-suited IRS agents demanding payment of delinquent taxes. "They were deadly serious, very aggressive, very condescending," says Harv's owner, Aaron Zeff.

The really odd part of this: The letter that was hand-delivered to Zeff's on-site manager showed the amount of money owed to the feds was ... 4 cents.

Read more: http://www.sacbee.com/2010/03/13/2604016/i...l#ixzz0iNPWgzvc

[AlexLah]

The beginning?

[12DrinkMore]

If these countries where not in the Euro they would be in the exact same situation as Iceland. Collapsed economy and inflation. That is what happens when you can print your own money.

Not quite correct.

The economy of Iceland was destroyed by the banks taking out massive debt in foreign currencies. As summarized here

http://www.oecd.org/document/59/0,3343,en_...1_1_1_1,00.html

The global financial and economic crisis has struck Iceland with extreme force. Iceland’s three main banks, accounting for almost all of the banking system, failed in October 2008. They were unable to resist the deterioration in global financial markets following the failure of Lehman Brothers. The banks had pursued risky expansion strategies – notably borrowing in foreign capital markets to finance the aggressive international expansion of Icelandic investment companies – that made them vulnerable to the deterioration in global financial markets. They had also grown to be too big for the government to rescue. When access to foreign capital eventually closed, the banks failed. Non-financial firms and households were also vulnerable to the deterioration in global financial conditions, having taken on a lot of debt in recent years based on inflated collateral values. In some cases, the debt was foreign-currency denominated, without matching foreign currency assets or revenues. In the wake of the banking crisis, the government obtained an IMF Stand By Arrangement to provide favourable access to foreign capital markets and creditability for the recovery programme. Even so, the recession is likely to be deeper in Iceland than in most other OECD countries owing to the seriousness of the banking crisis and the weakness of private sector balance sheets.

If Greece and Ireland still had their sovereign currencies they could

1. pursue the devaluation path that the UK took

2. issue their own currency to create (low paid) employment opportunities

All countries outside the EU can issue their own sovereign currencies and retain control over their fiscal and monetary policies. The ability to create bank balances (the term "printing money" is a bit misleading) does not necessarily lead to a collapsed economy and inflation. The PIIGS went on a binge of spending cheap credit with the EUR and lived beyond their means. They did not accept the fiscal responsibility that was implied when they joined the EU.

[Gambles]

Part 2 -

Dear all,

Please find below the latest daily update from MBMG International.

Yesterday we wrote of the long term expectations of gold; However, there are risks to gold, governments could try to regulate the ownership of gold as FDR’s America or Vietnam currently do. Or they could simply attempt to control the price again as they did for most of the last century. Also, central bank gold reserves risk being replaced in the long term by a basket of currencies according to Bob Lyon, portfolio manager on the Smith & Williamson Global Gold and Resources fund, who recently warned that special drawing rights could be used to diversify currency exposure in central bank reserves instead of resorting to gold as a safe haven. The most under exposed central banks in general are those of Emerging markets. EM’s have mooted using special drawing rights widely post financial crisis, as quantitative easing has caused fears over the status of the US Dollar. This would remove the major driver from gold markets.

In the near term, Bob Lyon views a rise in real-term interest rates as the main risk to the gold prices. Higher interest rates in the US would make the dollar more attractive, lessening demand for gold as a replacement reserve currency (as of course would the weakening of any other majopr currencies such as Euro, Sterling, Yen - and don't even get me started on the Aud - the potential biggest basket case of late 2010 in to 2011)

Enjoy your day!

Once again, very best regards,

MBMG International

Please Note: While every effort has been made to ensure that the information contained herein is correct, MBMG International cannot be held responsible for any errors that may occur. The views of the contributors may not necessarily reflect the house view of MBMG International. Views and opinions expressed herein may change with market conditions and should not be used in isolation

[12DrinkMore]

Drink, you should apply for a job as a central banker, my friend! That's exactly what they are doing. Create money at exceptionally low rates, create inflation, increase nominal rates by less than inflation and you inflate your way out of debt.

While this is an extreme and highly simplified example, this appears to be the Bernanke-Geithner policy for America to clear it's debt problems (emulated in other countries too). Printing money should increase inflation, increase nominal interest rates but decrease real rates.

There are so many risks to this strategy that I don't know where to begin (China probably) but The Fed and other central banks have run out of ideas and room for manoeuvre now - it's this high risk strategy or nothing. Better pray that it works but I'm far from convinced.

cheers,

Paul

To provide a decent answer to that would take a lot of effort, so here is a quick reply

Sovereign states after the gold standard was taken out of the equation, have been able to create money free by simple bookkeeping entries. This is not necessarily a bad thing and, as long as the money not frittered away on useless stuff, is essential to modern economies.

Bernanke is the anti-deflationist warrior, "it will not happen here", his policies are aimed at helping out his banking colleagues by preventing a collapse in asset prices. But moving to the inflating off the debts solution, the current environment is hugely deflationary, the peeps are paying off debt and debt is harder to take out (I hate using the phrase "taking out credit", which sounds in some way positive, when "taking out debt" is much more realistic. "credit cards" should be called "debt cards"). There is between 10 and 20% of the workforce sitting idle or part time idle. It is difficult to see where an inflationary push can come from which will cause substantial inflation and a corresponding rise in salaries, allowing a process of inflating off the private debt to start.

In the US I think that we are looking at a prolonged period of low interest/low inflation which will enable the debtors to pay off their debts to the banks and screw the depositors. After all, Bernanke is not looking out for the interests of the people, but solely the interests of the banks. And I would put those as keeping debtors slaving away just to pay off their debts whilst paying depositors as little as possible. And as long as the debtors keep up the payments, why would Bernanke want to supply the bankers with depreciated USDs?

[sokal]

If these countries where not in the Euro they would be in the exact same situation as Iceland. Collapsed economy and inflation. That is what happens when you can print your own money.

Not quite correct.

The economy of Iceland was destroyed by the banks taking out massive debt in foreign currencies. As summarized here

http://www.oecd.org/document/59/0,3343,en_...1_1_1_1,00.html

The global financial and economic crisis has struck Iceland with extreme force. Iceland’s three main banks, accounting for almost all of the banking system, failed in October 2008. They were unable to resist the deterioration in global financial markets following the failure of Lehman Brothers. The banks had pursued risky expansion strategies – notably borrowing in foreign capital markets to finance the aggressive international expansion of Icelandic investment companies – that made them vulnerable to the deterioration in global financial markets. They had also grown to be too big for the government to rescue. When access to foreign capital eventually closed, the banks failed. Non-financial firms and households were also vulnerable to the deterioration in global financial conditions, having taken on a lot of debt in recent years based on inflated collateral values. In some cases, the debt was foreign-currency denominated, without matching foreign currency assets or revenues. In the wake of the banking crisis, the government obtained an IMF Stand By Arrangement to provide favourable access to foreign capital markets and creditability for the recovery programme. Even so, the recession is likely to be deeper in Iceland than in most other OECD countries owing to the seriousness of the banking crisis and the weakness of private sector balance sheets.

If Greece and Ireland still had their sovereign currencies they could

1. pursue the devaluation path that the UK took

2. issue their own currency to create (low paid) employment opportunities

All countries outside the EU can issue their own sovereign currencies and retain control over their fiscal and monetary policies. The ability to create bank balances (the term "printing money" is a bit misleading) does not necessarily lead to a collapsed economy and inflation. The PIIGS went on a binge of spending cheap credit with the EUR and lived beyond their means. They did not accept the fiscal responsibility that was implied when they joined the EU.

Yes, so if Greece and Ireland still had their own sovereign currencies then they could print their own money and buy their own debt until they have million dollar bills like Zimbabwe does. Then we call all watch youtube videos of Greek and Irish people panning for gold in their nearest river.

Edited March 16, 2010 by sokal

[sokal]

Drink, you should apply for a job as a central banker, my friend! That's exactly what they are doing. Create money at exceptionally low rates, create inflation, increase nominal rates by less than inflation and you inflate your way out of debt.

While this is an extreme and highly simplified example, this appears to be the Bernanke-Geithner policy for America to clear it's debt problems (emulated in other countries too). Printing money should increase inflation, increase nominal interest rates but decrease real rates.

There are so many risks to this strategy that I don't know where to begin (China probably) but The Fed and other central banks have run out of ideas and room for manoeuvre now - it's this high risk strategy or nothing. Better pray that it works but I'm far from convinced.

cheers,

Paul

To provide a decent answer to that would take a lot of effort, so here is a quick reply

Sovereign states after the gold standard was taken out of the equation, have been able to create money free by simple bookkeeping entries. This is not necessarily a bad thing and, as long as the money not frittered away on useless stuff, is essential to modern economies.

Bernanke is the anti-deflationist warrior, "it will not happen here", his policies are aimed at helping out his banking colleagues by preventing a collapse in asset prices. But moving to the inflating off the debts solution, the current environment is hugely deflationary, the peeps are paying off debt and debt is harder to take out (I hate using the phrase "taking out credit", which sounds in some way positive, when "taking out debt" is much more realistic. "credit cards" should be called "debt cards"). There is between 10 and 20% of the workforce sitting idle or part time idle. It is difficult to see where an inflationary push can come from which will cause substantial inflation and a corresponding rise in salaries, allowing a process of inflating off the private debt to start.

In the US I think that we are looking at a prolonged period of low interest/low inflation which will enable the debtors to pay off their debts to the banks and screw the depositors. After all, Bernanke is not looking out for the interests of the people, but solely the interests of the banks. And I would put those as keeping debtors slaving away just to pay off their debts whilst paying depositors as little as possible. And as long as the debtors keep up the payments, why would Bernanke want to supply the bankers with depreciated USDs?

The bond market will explode soon, high interest and high inflation in terms of fiat, deflation in terms of gold.

[flying]

Yesterday we wrote of the long term expectations of gold; However, there are risks to gold, governments could try to regulate the ownership of gold as FDR’s America or Vietnam currently do. Or they could simply attempt to control the price again as they did for most of the last century. Also, central bank gold reserves risk being replaced in the long term by a basket of currencies according to Bob Lyon, portfolio manager on the Smith & Williamson Global Gold and Resources fund, who recently warned that special drawing rights could be used to diversify currency exposure in central bank reserves instead of resorting to gold as a safe haven. The most under exposed central banks in general are those of Emerging markets. EM’s have mooted using special drawing rights widely post financial crisis, as quantitative easing has caused fears over the status of the US Dollar. This would remove the major driver from gold markets.

In the near term, Bob Lyon views a rise in real-term interest rates as the main risk to the gold prices. Higher interest rates in the US would make the dollar more attractive, lessening demand for gold as a replacement reserve currency (as of course would the weakening of any other majopr currencies such as Euro, Sterling, Yen - and don't even get me started on the Aud - the potential biggest basket case of late 2010 in to 2011)

Well no rate increase again today out of the FED....

But I do not agree that a raise in rates will lessen the demand for gold... because I do not believe the demand these days is based in thoughts of gold as a new reserve currency.

Nor do many who physically hold, worry about what colored paper is to be added to any basket of other various colored papers

As for controlling of price as they have done in the past by leasing/shorting & slight of hand...I don't see how long that will hold up when folks turn more & more to physical holdings & away from paper representing gold/silver. In the end supply & demand of the actual not the represented will again have its way.

IMHO of course & if that set the bar too low.... kor tort

[Naam]

...and don't even get me started on the Aud - the potential biggest basket case of late 2010 in to 2011

what is the definition of "potential biggest basket case" pray tell?

[Gambles]

Bernanke is the anti-deflationist warrior, "it will not happen here", his policies are aimed at helping out his banking colleagues by preventing a collapse in asset prices. But moving to the inflating off the debts solution, the current environment is hugely deflationary, the peeps are paying off debt and debt is harder to take out (I hate using the phrase "taking out credit", which sounds in some way positive, when "taking out debt" is much more realistic. "credit cards" should be called "debt cards"). There is between 10 and 20% of the workforce sitting idle or part time idle. It is difficult to see where an inflationary push can come from which will cause substantial inflation and a corresponding rise in salaries, allowing a process of inflating off the private debt to start.

I totally agree - the weakness in the approach of all montarist arguments from Friedman through to Bernanke is that they generally fail to recognise that however much encouragement you give, you can't force people to take on to in order to spend. The 'circuit theory of money' makes much more sense from an empirical point of view. I certainly wasn't saying that they could achieve this but rather that they have tied their entire economic policy to trying to achieve this. I'm extremely sceptical about their ability to do so. The biggest lesson that they be learned from the current economic experiment in America is the exposure of the inherent fallacy in Bernanke's statements that it's always possible to prevent deflation/create inflation.

In the US I think that we are looking at a prolonged period of low interest/low inflation which will enable the debtors to pay off their debts to the banks and screw the depositors. After all, Bernanke is not looking out for the interests of the people, but solely the interests of the banks. And I would put those as keeping debtors slaving away just to pay off their debts whilst paying depositors as little as possible. And as long as the debtors keep up the payments, why would Bernanke want to supply the bankers with depreciated USDs?

It's very difficult to repay debt in a low inflation environment (becoming even more difficult in a deflationary environment). The only real proven way to expunge debt has been inflation. This is very consistent with Bernanke's stated beliefs. The dangerous thing is that Bernanke completely buys the monetarist take that you can totally control spending patterns precisely through money supply policy.

Don't forget that the debtors who most struggle to maintain payments may well be sovereign states. Liabilities remain the problem now - inflating away debt is the policy response that the Fed appear to have irrevocably committed themselves to.

[Gambles]

The bond market will explode soon, high interest and high inflation in terms of fiat, deflation in terms of gold.

I believe that's very much the policy intention but there's no evidence that this is happening or will happen. The 1930s and other epsidoes since then have provided evidence that you can't force people to spend.

[Gambles]

Well no rate increase again today out of the FED....

But I do not agree that a raise in rates will lessen the demand for gold... because I do not believe the demand these days is based in thoughts of gold as a new reserve currency.

Nor do many who physically hold, worry about what colored paper is to be added to any basket of other various colored papers

As for controlling of price as they have done in the past by leasing/shorting & slight of hand...I don't see how long that will hold up when folks turn more & more to physical holdings & away from paper representing gold/silver. In the end supply & demand of the actual not the represented will again have its way.

IMHO of course & if that set the bar too low.... kor tort

Good points but there's become a very clear inverse relationship between Gold and Dollar.

With the Dollar inversely correlated to risk assets that explains how gold has re-invented itself as a risk asset. So in general, negative events for Dollar will generally be short term positive for goldand positive events for Dollar (other currency weaknesses, equity market falls) will generally be short term negative for gold

However these are shorter term correlations - after such an event I still ultimately expect a break to the upside based on demand both speculative investor demand and central bank demand but I still see the key as Asian and other emerging central banks making the decision to increase gold holdings as a 5 of reserves from their current typical levels of perhaps <5% to something more inline with some of the established markets many of which are >70%. Whether central banks diversify currencies or buy gold would very much appear to be the biggest medium term driver of the gold price. Gold is the most logical but remember that you're talking about central banks here!

Cheers,

Paul

[Gambles]

...and don't even get me started on the Aud - the potential biggest basket case of late 2010 in to 2011

what is the definition of "potential biggest basket case" pray tell?

That, Lieber Herr Naam, would be the major currency with the greatest potential to fall in value.

A detailed study of the official trade figures reveals how important the carry trade has become to the Australian Dollar. Hence the value of the currency could be adversely affected in 2 ways:

any fall of exports to China (there's a great deal of speculation about this)

any relative strength is USD (i.e. weakness in Sterling, Euro, Yen etc) could hurt the AUD - once the AUD falls it's virtually a given that the carry trade will inevitably implode and it's very easy to see precipitous falls. The RBA has been continuing to attract hot money by raising interest rates, repeating the policy errors of South East Asian central banks of the mid-90s. It may end up having to face the consequences.

[sokal]

The bond market will explode soon, high interest and high inflation in terms of fiat, deflation in terms of gold.

I believe that's very much the policy intention but there's no evidence that this is happening or will happen. The 1930s and other epsidoes since then have provided evidence that you can't force people to spend.

Inflation in the context I am using it in is not an economic event, its a currency event. Inflation or hyperinflation does not arise from too much bank lending.

[sokal]

...and don't even get me started on the Aud - the potential biggest basket case of late 2010 in to 2011

what is the definition of "potential biggest basket case" pray tell?

That, Lieber Herr Naam, would be the major currency with the greatest potential to fall in value.

A detailed study of the official trade figures reveals how important the carry trade has become to the Australian Dollar. Hence the value of the currency could be adversely affected in 2 ways:

any fall of exports to China (there's a great deal of speculation about this)

any relative strength is USD (i.e. weakness in Sterling, Euro, Yen etc) could hurt the AUD - once the AUD falls it's virtually a given that the carry trade will inevitably implode and it's very easy to see precipitous falls. The RBA has been continuing to attract hot money by raising interest rates, repeating the policy errors of South East Asian central banks of the mid-90s. It may end up having to face the consequences.

That was in 08. A repeat of 08 seems to be the most popular trade going these days.

[jazzbo]

but I think that you're totally unfair to the forum standard which throws up some interesting questions, lively discussions and good points, posted by people because they want to - not because they're being paid to.

Yes Kuhn MBMG -- I am sure also there is a lot of Wealth to be managed herein. For a busy Professional you sure seem to have a lot of time on your hands... signed, Limousine Liberal

BTW someone posted the other day Marc Faber's 2009 positions -- I was pretty close and use some of the same (snear) managed accounts

BTW2 Anyone who would write -- as one of the Usual Suspects did on the Bangkok Forum -- that he knows all about Thai women especially if one is not fluent in Thai and several dialects IMHO has zero credibility in that or anything else.

Edited March 17, 2010 by jazzbo

[jazzbo]

BTW3 If you pay much attention to what is posted here then you must be short The Universe and that takes a lot of time to cover all those positions

[Naam]

The bond market will explode soon, high interest and high inflation in terms of fiat, deflation in terms of gold.

I believe that's very much the policy intention but there's no evidence that this is happening or will happen. The 1930s and other epsidoes since then have provided evidence that you can't force people to spend.

Inflation in the context I am using it in is not an economic event, its a currency event. Inflation or hyperinflation does not arise from too much bank lending.

true! hyperinflation has arrived in Pattaya. top quality norwegian smoked salmon until recently 699/kg in Makro is less than half the price what i paid several years ago in Germany and the Greatest Nation on Earth™. now Makro has reduced the price to 599/kg (other local shops ask the same price for 350g) and the reason must be that they are all Keynesians who don't believe in the teachings of the Austrian/Canadian School of Economics who's scholars ingested economic wisdom with huge big ladles.

[Gambles]

The bond market will explode soon, high interest and high inflation in terms of fiat, deflation in terms of gold.

I believe that's very much the policy intention but there's no evidence that this is happening or will happen. The 1930s and other epsidoes since then have provided evidence that you can't force people to spend.

Inflation in the context I am using it in is not an economic event, its a currency event. Inflation or hyperinflation does not arise from too much bank lending.

Understood and respected.....but something has to cause the currency event - it can't happen in a vacuum. We each have our own realities but for me the old quantity X velocity of money generally remains the best indicator

[Gambles]

Yes Kuhn MBMG -- I am sure also there is a lot of Wealth to be managed herein. For a busy Professional you sure seem to have a lot of time on your hands... signed, Limousine Liberal

There probably are more rewarding things that I could do with my downtime but when I grab a few minutes then I happen to enjoy reading the forum. There's lots of good points and great questions on here.

BTW someone posted the other day Marc Faber's 2009 positions -- I was pretty close and use some of the same (snear) managed accounts

Well done.

In some, in fact, many respects we like Dr. Doom too although we don't ask him to manage any money.

BTW2 Anyone who would write -- as one of the Usual Suspects did on the Bangkok Forum -- that he knows all about Thai women especially if one is not fluent in Thai and several dialects IMHO has zero credibility in that or anything else

Interesting - mind you I'm not sure that even speaking ALL of the dialects would help anyone to know all about Thai or any other women; I heard an interesting thing last night on the TV - a female prosecutor said (and I can accept this) that women make better prosecutors than men do because men are easier to bribe. There's a lot of differences between the sexes irrespective of nationality and there's a lot of difference between nationalities and cultures as well. We're not all completely homogenised yet!

BTW3 If you pay much attention to what is posted here then you must be short The Universe and that takes a lot of time to cover all those positions

My Dear Jazz, I fear that you're failing to distinguish between a discussion forum and portfolio allocation advice. I hope that most readers here can tell the difference!!

cheers,

Paul

Edited March 17, 2010 by Gambles

[flying]

Good points but there's become a very clear inverse relationship between Gold and Dollar.

With the Dollar inversely correlated to risk assets that explains how gold has re-invented itself as a risk asset. So in general, negative events for Dollar will generally be short term positive for goldand positive events for Dollar (other currency weaknesses, equity market falls) will generally be short term negative for gold

However these are shorter term correlations - after such an event I still ultimately expect a break to the upside based on demand both speculative investor demand and central bank demand but I still see the key as Asian and other emerging central banks making the decision to increase gold holdings as a 5 of reserves from their current typical levels of perhaps <5% to something more inline with some of the established markets many of which are >70%. Whether central banks diversify currencies or buy gold would very much appear to be the biggest medium term driver of the gold price. Gold is the most logical but remember that you're talking about central banks here!

Cheers,

Paul

Thanks Paul

I agree that these are all short term correlations between dollar & gold/metals since priced in such.

But I am not positive or even worried whether or not Central Banks pretend to care or not.

So for me I am not talking about CB's...although I do not think they will not run ( maybe quietly) towards increased reserves soon enough.

I realize their impact even now but more so on the trading of paper gold.

I still think that ultimately the true value of free held physical metals will disconnect from paper traded all together.

In many ways it is even now as shown by premiums. But will make a large leap soon enough as the paper game is seen for what it really is....just another ponzi/shell game with folks shorting what they do not hold & others leasing out more than they do hold.

I realize this is not the gold thread so will stop there.......

btw.... this is a good site with interesting perspectives if you have time.... http://fofoa.blogspot.com/