Tuesday, January 6, 2009

Blogger ate this title

I got to thinking on the dreary commute in, which is always dangerous, and one of those smack-yourself-in-the-head insights occurred. Bush knew this was coming much earlier than the rest of us. Now the "economic stimulus check" program from Feb '08 was before I fully "woke up" so details from my memory are a bit hazy.

The recession started Dec '07, but the public wasn't told this until Nov '08. I'm willing to bet Bush was told in late January what the numbers were like, and where we were heading. He dropped the bread & circus check on us to try to delay the problem. But when Bob six-pack (Joe's second cousin) gets a check for $600 bucks he buys himself a $2000 big screen, the rest, if not all of it on credit. The $600 check being used for bills, or more likely beer. Such is how we average Americans think.

So the stimulus check did stimulate the economy, but the oil bubble wiped that out. Many, many people around the office here changed plans from Aruba to the cape. Or from Europe to Aruba. Everyone's vacation plans got cut down quite a bit. So all summer we watched the economy tank. At least we got a good laugh (or cry) from the incompetent elected officials try their best to slap another band-aid on an economy already held together with spit and bubblegum.

You must have seen ads by companies selling gold. Other survivalists are screaming for you to invest in gold. I don't have the money to do that so I haven't bothered really looking into it. My father tried to get a scam going where he was a dealer in gold, so I basically look at alot of the articles and such telling us to buy gold as hucksters. I rather invest in canned food and shotguns these days, anyway.

But one of the warning signs of a economic collapse is the price of gold skyrocketing. Here is a quote from a very informative article on how the governments have dicked with the price of gold after WWII. That's another reason I never bothered investing in gold. I want a fair market, not something so easily manipulated.
The global paper currency system is very young. It depends for its continued functioning on the belief that the debt upon which it is based will, someday, be repaid. The one thing, above all others, that could shake that faith, and therefore the foundations of the modern financial system itself, is a rise (especially a sharp rise) in the U.S. Dollar price of Gold.
In the article it goes a long way in explaining how the central banks use paper gold to manipulate the price of gold. Mines "forward sell" the gold to brokers who sell to the public leased gold from central banks. Then there are a bazillion derivatives based on the price of gold going up or down. Forward selling is selling gold still in the ground. Central banks lease the gold, but the possession of it never changes hands. If I buy something I want it in my hands. All the "paper" gold is worthless, just like all the treasuries being bought with a 0.01% rate of return. Mining company forward sells gold to a broker, for $500 an oz., delivered in 2010. Broker sells gold "for immediate delivery" and then leases the gold from the central bank, handing the customer a worthless chunk of paper.

I just checked and the US dollar index is at 83. How can this be? How can the dollar be strong against the myriad of issues devaluing the dollar right now. Nothing is making sense to me, so I'm assuming someone's got their finger on the scale, tipping the balance.

We are printing money faster than a roomful of drunk monkeys can throw shit. The damn Chinese want to make the Yaun the global reserve currency, and since they are one of the only countries to export more than import, they might pull it off. We have half our state governments in line for phase III, or is it phase XVIII of the bailout because they are all going bankrupt. We got Russia dropping 20% of it's US dollar based assets in the last year, with more to come.

Every stinking indication is the dollar should be weaker than it is, but somehow it's at 83 where in the summer it dropped as low as 70. Someone's cooking the books. By the way, if it stays below 70 for long, it's one of Rawles' warning signs of a economic crash. I wonder if this is part of the collective holding of breath as Obammy is about to be sworn in. Once the honeymoon is over I expect to see a huge swing in numbers in a very short amount of time.

I wholeheartedly recommend that as soon as you get your W2 you do your taxes and file electronically. You cannot let uncle sugar screw you over with an IOU like they might do in California. That's it for now, I need a few beers to try to figure all this out. Keep your eyes open, watch this: US Dollar index Maybe set up an alert or something if it drops below 70. Do the same for the price of gold to break $1100. I got to look into how to do that. If I can I'll add it as a widget-thingy to the right!


Anonymous said...

The gold and oil markets work alot like the housing market. People buy up assets on credit and when margin call gets made they have to pay up.

In the housing market we foreclose. In the oil and gold market we sell at a loss. That selling in turn drives the price down.

What is happening is the leveraged speculation is unraveling. And there was a lot of it. Once it hits bottom it will again begin to rise. But until then you can expect a spiral downward. This is often called deflation and there really isn't much that can stop it from occuring once it gets going.

Its very similar to whats heppening in the real estate market. Some foreclose flooding this market with homes which drives down the prices on others further pushing more into negative equity which continues to force foreclosures further pushing down prices. The principal difference is that you can't foreclose a leveraged trade..

The downward trend in gold/oil began due to the housing market and the credit crunch.

Natog said...

I'm not leaning towards deflation these days. The dollar has nothing to prop it up. Check out
this article

I can't see the dollar holding value enough to be deflationary with the items pointed out by the article. I had to read it three freaking times to make sense of it. I can rewire a server with my eyes closed but hand me a wall Street Journal and I'm a babe in the woods!

Mayberry said...

Good post Natog. I'm with ya, most of that financial mumbo jumbo makes me go crosseyed and hurts my brain.... Something so inherently complicated simply must be riddled with corruption. Someone is indeed "cooking the books", and people better wake up to it pretty quick, lest they find themselves homeless, penniless, helpless, and hungry. Screw gold, buy preps! You can't eat gold. Though I suppose you could throw a brick of it at a rabbit or something.....

Anonymous said...

To understand deflation one must udnerstand the means by which money is created (sometimes refered to as running the printing presses). The reality is no printing press is ever run. Its all balance sheet stuff.

Our system is fractional reserve meaning that banks may loan money based on a fraction of their reserves. However, the money they are loaning is really CREATED. But they can only CREATE X amount of money based on that fraction rule.

Note its many times what they actually hold is savings. So every time anyone takes out a loan they CREATE money. The lower the interest rates the more likely people will take out a loan.

Problem is that at present its much more than just the rate dictating how much is barrowed. Thus the creation of new money is actually slowing down even though the Fed rate is rediculously low.

At the same time existing CREATED money aka that created to service the existing loans, is being paid off and or defaulting. Thus the money supply is contracting.

If the amount of debt defaulted on/paid off is greater than the amount of new money being created (aka loaned) then you have deflation.

Now the Fed is barrowing money left and right. And I know its hard to fathom. But the paltry $2 trillion is nothing compared to the nearly $24 - $55 trillion this economy typically generates and the over $5 trillion in circulation on home loans alone.

Deflation is very real. And the Fed is doing everything it can to try and re-inflate the currency but is failing mostly because the banks have become very cautious to whom they will loan and the people/businesses have become very cautious as to how much debt they take on.

Anonymous said...

Good post.

You know what's gonna happen in about a week? Anyone who has a 401k or 403b with an employer (50%+ of Americans?) is going to get their statement for Q408. It was the worst quarter since the Great Depression.

What will be the psychological fallout from that? Are we going to see millions dumping stock? Tightening the belts some more?

Also, how will the Feds get the banks to lend again? Devalue the currency. No bank will hold funds as long as the money is going down in value. It's the only way the Feds can get the banks to inject liquidity.


Staying Alive said...

Add the widget thingy! Best idea in a long time. We need all the indicators we can find. And your post explains the manipulation of market and prices very well. It's all a scam and it is going to fall.


Mayberry said...

Blogger ate the title??!!

Natog said...

yeah the original title of the post was somehow eaten by blogger, and it was listed as "untitled"

It's happened before...

western mass. man said...

I saw an article awhile back, I think on JWR's site, that said the Fed's are using TARP money to buy treasuries to keep the dollar propped up.
I'm looking for it as we speak.