In/Deflation Debate Summed Up
- Thread starter matt138_IHB
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Caveman like 1977-1978. Gov't suppresses interest rates for a couple years to float economy, inflation becomes more apparent, real interest rates become increasingly negative, fiat currency scrutinized, gold up, treasury investors require higher return, general public gets pissed off, gov't concedes and raises rates, gold falls.
CPI is government calculated. If you were the gov/t, would it make your life easier (short term) if you overstated or understated CPI?
In 1919 an ounce of gold was $20 and so was a nice suit. Now $20 won't get you the tie (although Ross has some sweet deals). That's gotta count for something.
Yes, Goldman+JPM+BAC controls anywhere from 50-60% of gold futures market for the last 18month. I mentioned in other thread couple days ago that everytime gold went above $1000, they will hammer it back down for the benefit of the Fed to print T-bonds at lower rate. Foreign investors will demand higher t-bond rates everytime they see gold went above $1000 to hedge against potential inflation and depreciation of dollar.Till we have very clear sign of inflation, gold won't be much higher than $1000.
That said, why the hell would anyone want to be long gold right now? I don't get it. You're just setting yourself up to get crushed when it snaps back. Could the popping of the bubble in treasuries fire this off?
They could care less if JPM and GS "hammmer" the gold price back down.
How can you get crushed if you bought at $400?
Consider this, for all the manipulating JPM and GS have done, and all the money they have made with said manipulation, the price of gold has gone from $250 in 2002 to $1000 presently. What is that figured into annual rate of return?
Has anybody here done better?
How would JPM and GS have done if instead of leasing and shorting, they had just gone long and held for the last 7 years?
And at some point, JPM and GS will either get caught in a short squeeze or they will be long at the correct time. My guess is the later. And all the smart shorts will get "hammered".
And to answer your other question, when the Treasury bubble breaks, gold will go higher.
When the treasuary bubble breaks, won't the treasuary be forced to raise rates?
The Treasury Dept. does not set interest rates. It sells bonds with interest rates on them, but they sell in a free market and the market decides how much they are worth, therefore the market sets the rates.
When the treasury bubble breaks, interest rates will rise.
The Fed has been selling treasuries in a effort to keep rates down.
Who has been buying?
China has been a net seller the last couple of months.
Some institutions also participate in creating transactions through OTC interest rate swaps, creating the appearance of demand.
Since we are in agreement the Fed will need to continue to sell T bills, when rates go up, its academic the Fed will have to increase the yeald on the t-bonds to be competitive. If they price them above "free market derived rates" al la Volker (and they'll probably have to) the dollar will strengthen and gold will get kneecaped.
Where did I get this wrong?
I am not sure what you are trying to say or ask.
If you think the dollar will strengthen as interest rates rise, then gold will become less valuable in dollar terms.
But, the whole idea is that interest rates rise because the dollar becomes less valuable.
Volker decreased the money supply and increased the overnight rate, the opposite of what Bernenke is doing. And what happened with gold as a result of Volker removing the punch bowel?
Do you think Bernenke will have the cojones to do the same now that the economy is "improving"?
And when answering that last question consider the following: 6.7 million jobs lost (and underreported), personal income tax receipts are down 21%, corporate tax receipts are down 58%, the deficit is tracking at $1.8 trillion this year alone (and $9 trillion more predicted over the next decade), government is now spending nearly 200% of taxes taken in, 13% of mortgages are either delinquent or in foreclosure, more than 20% of all FHA loans are delinquent or in foreclosure, home prices have fallen by half in many places.
Hilariously, the Fed is buying back treasuries from the dealers at POMO, just weeks and somtimes days after the auctions.
And the Fed is exchanging treasuuries for agency debt with other central banks.
Can you imagine if Ron Paul's bill goes through and we get to see what is on the Fed's books?
More than half of national debt is short term now, which it wasn't back in Volcker's time. An increase in rates would have a much more instant and devastating effect seeing as how most of the debt matures in less than a year. BB will do everything he can to keep short term rates down.
Well, let me put it this way, what's the last time Fed/Treasury actually did the right thing at the right time.
1. They could raise the rates during the doc com bubble, they didn't
2. They again, could raise the rates to curb speculation during housing bubble, they didn't
3. They could stop printing and raise the rates right now to stop dollar from falling further, they definitely won't do that until probably late next year.
The fact is, they were always behind the curve and what makes you think they will be in front this time? Those are smart people up there, they just can't get out the habit of creating one bubble after another, because in their minds, we need a new bubble to dig us of the misery created by the old one.
Sometime before Greenspan showed up.
Shamelessly plagiarized from Wikipedia:
I'm not saying they are going to do the right thing, simply I'm saying there is no reason they can't do the right thing. Quite the Faustian dilemma they have in front of them. If only we hadn't...
The Fed ran the Federal Funds rate to nearly 20% in the early 1980’s to bust inflation. Whats to stop them from doing it this time, and whats to stop it from working again?
I agree with you, we knew and they knew what's the right thing to do, but they will not do it ahead of time to prevent creating another bubble, they are always too late to the game. Taking the current circle for example, the deleveraging and credit crisis started way ahead of the time Big Ben realized he needed to start lowering rates and QE. And now we lowered the fed funds rate to 0 and printing like crazy to try to get us out of a mess created by cheap money and lower rates.
Bottom line is they will do the right thing evenutally, but by then, our dollar will probably lose another 50% and we have double digits inflation and unemployment.
usctrojanman29_IHB
New member
Do you think Goldman is also "playing" on the "house" side in the gold and silver markets?BondTrader said:
matt138_IHB
New member
no_vaseline said:FairEconomist said:
Didn't we just get done "casino gambling" with housing?
Or with .com stocks before that?
Or with biotechs before that?
Or with computer tech companies before that?
I'm not trying to be an asshole here (who am I kidding? I am an asshole!) but I spend most of my time trying to not be the dumb guy. I cannot see any fundamental reason why gold/silver are as high as they are other than people are buying it, and I can't see a good reason to buy it other than to speculate.
I think we are seeing a pattern al la 1979 here. Does anyone think interest rates will stay this low forever? Look what happens to gold when they perk up!
Caveman like 1977-1978. Gov't suppresses interest rates for a couple years to float economy, inflation becomes more apparent, real interest rates become increasingly negative, fiat currency scrutinized, gold up, treasury investors require higher return, general public gets pissed off, gov't concedes and raises rates, gold falls.
CPI is government calculated. If you were the gov/t, would it make your life easier (short term) if you overstated or understated CPI?
In 1919 an ounce of gold was $20 and so was a nice suit. Now $20 won't get you the tie (although Ross has some sweet deals). That's gotta count for something.
BondTrader_IHB
New member
USCTrojanCPA said:
Yes, Goldman+JPM+BAC controls anywhere from 50-60% of gold futures market for the last 18month. I mentioned in other thread couple days ago that everytime gold went above $1000, they will hammer it back down for the benefit of the Fed to print T-bonds at lower rate. Foreign investors will demand higher t-bond rates everytime they see gold went above $1000 to hedge against potential inflation and depreciation of dollar.Till we have very clear sign of inflation, gold won't be much higher than $1000.
usctrojanman29_IHB
New member
When the printing presses blow up, they run of out ink, or inflation starts taking off.awgee said:
no_vaseline_IHB
New member
BondTrader said:
That said, why the hell would anyone want to be long gold right now? I don't get it. You're just setting yourself up to get crushed when it snaps back. Could the popping of the bubble in treasuries fire this off?
awgee_IHB
New member
Those who are long gold are smarter than JPM and GS.no_vaseline said:
They could care less if JPM and GS "hammmer" the gold price back down.
How can you get crushed if you bought at $400?
Consider this, for all the manipulating JPM and GS have done, and all the money they have made with said manipulation, the price of gold has gone from $250 in 2002 to $1000 presently. What is that figured into annual rate of return?
Has anybody here done better?
How would JPM and GS have done if instead of leasing and shorting, they had just gone long and held for the last 7 years?
And at some point, JPM and GS will either get caught in a short squeeze or they will be long at the correct time. My guess is the later. And all the smart shorts will get "hammered".
And to answer your other question, when the Treasury bubble breaks, gold will go higher.
no_vaseline_IHB
New member
awgee said:
When the treasuary bubble breaks, won't the treasuary be forced to raise rates?
awgee_IHB
New member
no_vaseline said:
The Treasury Dept. does not set interest rates. It sells bonds with interest rates on them, but they sell in a free market and the market decides how much they are worth, therefore the market sets the rates.
When the treasury bubble breaks, interest rates will rise.
The Fed has been selling treasuries in a effort to keep rates down.
Who has been buying?
China has been a net seller the last couple of months.
ukyo116_IHB
New member
awgee said:
Some institutions also participate in creating transactions through OTC interest rate swaps, creating the appearance of demand.
Harry Hedge fund in the Cayman Islandsawgee said:
no_vaseline_IHB
New member
awgee said:
Since we are in agreement the Fed will need to continue to sell T bills, when rates go up, its academic the Fed will have to increase the yeald on the t-bonds to be competitive. If they price them above "free market derived rates" al la Volker (and they'll probably have to) the dollar will strengthen and gold will get kneecaped.
Where did I get this wrong?
awgee_IHB
New member
The Fed can not price anything above free market rates.no_vaseline said:
I am not sure what you are trying to say or ask.
If you think the dollar will strengthen as interest rates rise, then gold will become less valuable in dollar terms.
But, the whole idea is that interest rates rise because the dollar becomes less valuable.
Volker decreased the money supply and increased the overnight rate, the opposite of what Bernenke is doing. And what happened with gold as a result of Volker removing the punch bowel?
Do you think Bernenke will have the cojones to do the same now that the economy is "improving"?
And when answering that last question consider the following: 6.7 million jobs lost (and underreported), personal income tax receipts are down 21%, corporate tax receipts are down 58%, the deficit is tracking at $1.8 trillion this year alone (and $9 trillion more predicted over the next decade), government is now spending nearly 200% of taxes taken in, 13% of mortgages are either delinquent or in foreclosure, more than 20% of all FHA loans are delinquent or in foreclosure, home prices have fallen by half in many places.
awgee_IHB
New member
Exactly and who are those hedge funds?ukyo116 said:awgee said:
Some institutions also participate in creating transactions through OTC interest rate swaps, creating the appearance of demand.
Harry Hedge fund in the Cayman Islandsawgee said:
Hilariously, the Fed is buying back treasuries from the dealers at POMO, just weeks and somtimes days after the auctions.
And the Fed is exchanging treasuuries for agency debt with other central banks.
Can you imagine if Ron Paul's bill goes through and we get to see what is on the Fed's books?
upperlowerclass_IHB
New member
awgee said:
More than half of national debt is short term now, which it wasn't back in Volcker's time. An increase in rates would have a much more instant and devastating effect seeing as how most of the debt matures in less than a year. BB will do everything he can to keep short term rates down.
BondTrader_IHB
New member
no_vaseline said:
Well, let me put it this way, what's the last time Fed/Treasury actually did the right thing at the right time.
1. They could raise the rates during the doc com bubble, they didn't
2. They again, could raise the rates to curb speculation during housing bubble, they didn't
3. They could stop printing and raise the rates right now to stop dollar from falling further, they definitely won't do that until probably late next year.
The fact is, they were always behind the curve and what makes you think they will be in front this time? Those are smart people up there, they just can't get out the habit of creating one bubble after another, because in their minds, we need a new bubble to dig us of the misery created by the old one.
Nude_IHB
New member
No_vas,
You are conflating two different events. Gold fell because it was bubbly, due in large part to the flood of dollars available for years prior to the spike, but it's largest rise was due to spikes in inflation. Volcker raised interest rates (to kill inflation) and simultaneous reduced the money supply (to strengthen the dollar) in his effort to end the "stagflation". It was the contraction in supply that took out the gold market. Treasury yields might (will) rise in response to the weaker dollar, but that doesn't necessarily equate to a contraction in the dollar supply.
You are conflating two different events. Gold fell because it was bubbly, due in large part to the flood of dollars available for years prior to the spike, but it's largest rise was due to spikes in inflation. Volcker raised interest rates (to kill inflation) and simultaneous reduced the money supply (to strengthen the dollar) in his effort to end the "stagflation". It was the contraction in supply that took out the gold market. Treasury yields might (will) rise in response to the weaker dollar, but that doesn't necessarily equate to a contraction in the dollar supply.
no_vaseline_IHB
New member
BondTrader said:
Sometime before Greenspan showed up.
Shamelessly plagiarized from Wikipedia:
I'm not saying they are going to do the right thing, simply I'm saying there is no reason they can't do the right thing. Quite the Faustian dilemma they have in front of them. If only we hadn't...
awgee said:
The Fed ran the Federal Funds rate to nearly 20% in the early 1980’s to bust inflation. Whats to stop them from doing it this time, and whats to stop it from working again?
BondTrader_IHB
New member
no_vaseline said:
I agree with you, we knew and they knew what's the right thing to do, but they will not do it ahead of time to prevent creating another bubble, they are always too late to the game. Taking the current circle for example, the deleveraging and credit crisis started way ahead of the time Big Ben realized he needed to start lowering rates and QE. And now we lowered the fed funds rate to 0 and printing like crazy to try to get us out of a mess created by cheap money and lower rates.
Bottom line is they will do the right thing evenutally, but by then, our dollar will probably lose another 50% and we have double digits inflation and unemployment.