Last week produced news that the US economy expanded in the previous quarter. It went up at a 1.8% annual rate, far below the 3% consensus estimate of economists.
That returned it to ’07 output levels, but at what cost? The feds have added $6 trillion in new debt to regain some $600 billion in annual output. Whoa!
My guess is that consumer spending will weaken further as the bear market in housing gets worse. December house sales were the worst in nearly half a century. About 302,000 new homes were sold last year. That's less than the 323,000 sold in 2010, making last year's sales the worst on records dating back to 1963. And it coincides with a report last week that said 2011 was the weakest year for single-family home construction on record.
Savings rates have recently fallen… to 3.5%, down from 5.7%. They will probably go back up and the Great Correction continues.
Which will mean… housing will fall, maybe by 20% more.
Source: Moneyweek
Monday, 30 January 2012
Sunday, 29 January 2012
Greenspan on Capitalism
I had a sneaking suspicion that Alan Greenspan, former Fed chief, was not as dumb as he pretended to be. When he was on the job he could barely say a straight sentence. Probably because he didn’t really believe what he was saying.
Since he’s been unemployed, he’s begun to speak more clearly. In the Financial Times he has an opinion on capitalism which is actually among the best in the series. In it, he makes a good point. Anti-capitalists are not really annoyed at capitalism. What bothers them is “crony capitalism”:
“Crony capitalism abounds when government leaders, usually in exchange for political support, routinely bestow favours on private individuals or business. That is not capitalism. It is called corruption.”
Or you could call it zombification... or geriatric capitalism... or, as Kurt Richebacher used to call it, “degenerate capitalism”. But it’s not real capitalism.
The ‘greed’ that preoccupies Occupy Wall Street demonstrators is not a feature of capitalism, Greenspan points out. It’s a feature of human nature. He might have pointed out that socialists are just as greedy as capitalists. They are just more corrupt. Rather than get their gains by honest deception, they get it by brute force – by using the police power of government to take it from others.
Greenspan provides an example of a corrupt system, designed to protect the wealthy from competition – immigration law. It keeps out qualified foreigners willing to work for less:
“The H1B programme is in effect a subsidy for the wealthy, a policy that is anathema to the supporters of capitalism.”
He goes on to suggest that “improvements” to capitalism, such as those to be considered at Davos, are not likely to be good ones.
Good on you, Alan.
Bill Bonner
Since he’s been unemployed, he’s begun to speak more clearly. In the Financial Times he has an opinion on capitalism which is actually among the best in the series. In it, he makes a good point. Anti-capitalists are not really annoyed at capitalism. What bothers them is “crony capitalism”:
“Crony capitalism abounds when government leaders, usually in exchange for political support, routinely bestow favours on private individuals or business. That is not capitalism. It is called corruption.”
Or you could call it zombification... or geriatric capitalism... or, as Kurt Richebacher used to call it, “degenerate capitalism”. But it’s not real capitalism.
The ‘greed’ that preoccupies Occupy Wall Street demonstrators is not a feature of capitalism, Greenspan points out. It’s a feature of human nature. He might have pointed out that socialists are just as greedy as capitalists. They are just more corrupt. Rather than get their gains by honest deception, they get it by brute force – by using the police power of government to take it from others.
Greenspan provides an example of a corrupt system, designed to protect the wealthy from competition – immigration law. It keeps out qualified foreigners willing to work for less:
“The H1B programme is in effect a subsidy for the wealthy, a policy that is anathema to the supporters of capitalism.”
He goes on to suggest that “improvements” to capitalism, such as those to be considered at Davos, are not likely to be good ones.
Good on you, Alan.
Bill Bonner
Wednesday, 25 January 2012
When will silver reach a new high?
Given the magnitude of the correction that started last September, it may take until May 2012 for gold to reach a new high.
It's a commonly known fact that silver is more volatile than gold. Already in this decade, silver has risen by a factor of 12 from its ten-year low ($48.70 vs. $4.07), while gold has seen about a sevenfold climb ($255.95 vs. $1,895).
This volatility holds for corrections as well. On average, silver's retreats have been deeper and longer than gold's. The three big gold corrections averaged 22.8%. Take a look at the three biggest for silver, along with how long it's taken to recover and establish new highsThe three biggest silver corrections in the current bull market average to 42.1%.
Our recent correction is the second biggest on record since 2001, but what really makes it stand out is the duration. The 2004 and 2006 declines took only five and four weeks respectively to reach their low points. And it was 31 weeks after the crash of 2008 that silver bottomed. Our current decline, measured from the peak reached on April 28, 2011 to its December 29, 2011 low, spans 35 weeks… quite the determined downtrend.
It also takes silver longer to recover than gold: gold's three biggest corrections required an average of 57 weeks and 6 days to regain their old highs, while it's taken silver's three biggest falls an average of 98 weeks and 4 days to catch up.
So how long will it take to recover from the 2011 slump? We don't know the future, of course, but the current correction is close to the average of the three, so let's apply the average recovery time to our current situation. The average 42.1% correction took 98 weeks and 4 days to recover; using the same ratio, a 46.3% correction would take 108 weeks and 3 days. Counting from the previous peak of April 28, 2011, we wouldn't break the $48.70 high until May 26, 2013 (based on London PM Fix prices).
It shouldn't come as a surprise that silver will take longer to return to its old high than what we found with gold in last week's article. Why? Half of silver's use is industrial, so a weak economy can drag down its demand. We certainly saw that in 2008.
An exact date is pure conjecture, of course, and ignores fundamental factors that directly influence the price. 2011 is not 2008. In fact, we've already seen an interesting shift in investment activity in both gold and silver markets. The Silver Institute pointed out in a recent market report that "investor activity" was the biggest contributing factor to both last April's rally as well as September's selloff. Meanwhile, demand for physical metal has not only held firm but was projected by GFMS to reach a new record high in 2011.
Investment demand is rooted in the metal's monetary characteristics. It's not a stretch to say that we expect silver to regain its currency appeal soon, given the amount of worldwide fiat currency destruction. This will be perhaps the strongest catalyst for prices going forward. We wouldn't want to be without any silver.
If there's anything that sticks out from this bird's-eye view of the past ten years of data, it's that corrections are normal. And just as obvious is the fact that corrections end.
As with gold, the silver bull market is far from over, regardless of any weakness we may see in the near term. Don't be the impatient investor who gives up too early. Trying to time the market for a short-term profit shouldn't be the strategy in the midst of a long-term bull market. Instead, keep silver's fundamentals in mind: its industrial uses are growing and, like gold, silver is money.
That said, we believe that the window for buying silver at $30 won't be open for too long. The profit you someday realize from silver will be made buying now, when the price is low.
Andrey Dashkov
It also takes silver longer to recover than gold: gold's three biggest corrections required an average of 57 weeks and 6 days to regain their old highs, while it's taken silver's three biggest falls an average of 98 weeks and 4 days to catch up.
So how long will it take to recover from the 2011 slump? We don't know the future, of course, but the current correction is close to the average of the three, so let's apply the average recovery time to our current situation. The average 42.1% correction took 98 weeks and 4 days to recover; using the same ratio, a 46.3% correction would take 108 weeks and 3 days. Counting from the previous peak of April 28, 2011, we wouldn't break the $48.70 high until May 26, 2013 (based on London PM Fix prices).
It shouldn't come as a surprise that silver will take longer to return to its old high than what we found with gold in last week's article. Why? Half of silver's use is industrial, so a weak economy can drag down its demand. We certainly saw that in 2008.
An exact date is pure conjecture, of course, and ignores fundamental factors that directly influence the price. 2011 is not 2008. In fact, we've already seen an interesting shift in investment activity in both gold and silver markets. The Silver Institute pointed out in a recent market report that "investor activity" was the biggest contributing factor to both last April's rally as well as September's selloff. Meanwhile, demand for physical metal has not only held firm but was projected by GFMS to reach a new record high in 2011.
Investment demand is rooted in the metal's monetary characteristics. It's not a stretch to say that we expect silver to regain its currency appeal soon, given the amount of worldwide fiat currency destruction. This will be perhaps the strongest catalyst for prices going forward. We wouldn't want to be without any silver.
If there's anything that sticks out from this bird's-eye view of the past ten years of data, it's that corrections are normal. And just as obvious is the fact that corrections end.
As with gold, the silver bull market is far from over, regardless of any weakness we may see in the near term. Don't be the impatient investor who gives up too early. Trying to time the market for a short-term profit shouldn't be the strategy in the midst of a long-term bull market. Instead, keep silver's fundamentals in mind: its industrial uses are growing and, like gold, silver is money.
That said, we believe that the window for buying silver at $30 won't be open for too long. The profit you someday realize from silver will be made buying now, when the price is low.
Andrey Dashkov
Tuesday, 24 January 2012
Silver starting to look interesting again
Silver’s starting to look interesting again. After nearly hitting $50 in April last year it’s had a nasty fall… right back to around $26 just before New Year.
But since then, silver’s put in an impressive 25% rally that could signal the start of a new bull run. It’s up around 10% in just the past week.
When you get a big correction like we did in silver last year, followed by a strong rally, it can be a good sign that the trend has changed. And it strikes me that a near-on 50% retracement followed by a strong showing over the past three weeks could be just what we’re looking for.
Long-term silver holders are still doing very nicely. But they’ll have suffered some almighty pullbacks along the way.
And it’s these sorts of pullbacks that can offer the perfect opportunities for people wanting to buy into a bull market.
But I reckon there are two key questions we need to ask before thinking about joining the silver rise. First, is the bull set to continue? Second, have we seen the bottom of this retracement?
Is the silver bull still with us?
I’ve made my feelings pretty clear about why I think Western currencies are due a reboot. Modern fiat money (paper without gold backing) seems to have a lifespan of about a working man’s life. That’s not an academic theory, but it looks about right.
There was a reboot after WWII. That was when the dollar became as ‘good as gold’ for international trade. That lasted until 1971 when the dollar lost its gold credentials. Since ‘71 the dollar (and Western currencies as a whole) has only been as good as the Fed’s promise to keep it stable.
I suspect we’re reaching the endgame for this approach... we’re due a system reboot. What can we expect to come next? Who knows... but by my reckoning the transition period is likely to be good for precious metals and tangible assets.
For me that means gold. I’m sticking with my long position. And where gold goes, silver tends to follow. It’s just that she’s a little more volatile.
Of course, volatility can lead to some tidy profits… if you get your timing right.
Is now the time for a punt?
Until last week, sentiment on both gold and silver was on the floor. Talk about the end of the bull market in precious metals was all over the New Year press. And that’s great. Because, as the saying goes, bull markets need a wall of worry to climb.
Think back to last year, before the fall. Silver was racing up almost every day. There was no wall of worry. Punters were throwing their money down with wild abandon. And that’s what made me worry.
I suspect there’s a good chance that the ‘worry bottom’ has passed. Last week was the first time in a long time that I saw greed replacing fear in the silver market.
Everything I see going on in the real world backs up my opinion on regime change in paper currencies. The currency war is still on. Fiat currencies are being destroyed – and that’s good news for precious metals.
Silver may well fall back a little after last week’s cracking run. But if you’re happy to live with the volatility then now could be a good time to get some exposure to silver.
Normally I would say that for precious metals physical possession is best. But unlike gold, you need to pay VAT on silver – that’s a 20% trading fee we can do without!
Though I have some silver tucked away in my safety deposit box, the larger part of my exposure is through spread bets and exchange traded funds (ETFs).
And I’m always very careful not to get carried away with using leverage to bulk up my position when I spread bet. Silver’s volatility will almost certainly knock out any tight stop losses. Spread betting companies won’t ask you to put down the full amount of your exposure – that means you could be on the hook for more than you put into your account.
Be careful. Work out your exposure first. Most providers quote silver by the cent. With the current price at around $32, that’s 3,200 cents. On that basis every pound you bet on silver, gets you an exposure of £3,200 (yes, that’s sterling not dollars).
Of course, you don’t have to spread bet to get exposure to silver. In the past, I’ve looked at buying silver plates. The trick here is to try to buy as close to the spot price as you can.
You have to pay VAT when you buy this physical silver from dealers and yes, you may have to give your stash a good polish every once in a while. But then again, there’s plenty of pleasure to be had here.
Sunday, 22 January 2012
Gold bull market still firmly in place
One of the most critical challenges for cycles investors is recognizing the signs that the market is turning. One sign that we probably are somewhere in the second phase of both the gold and silver bull markets is the ubiquitous “cash for gold” and “cash for silver” advertisements. When those ads become “We Sell Gold” and “We Sell Silver” that will be a sign that the bull market has taken a turn into its next—and final—phase.
Rarely a day passes without at least one full-page “We Buy Old Jewelry” ad in the local newspaper, or “Jewelry for Cash” commercials sandwiched between daytime soaps and talk shows. YouTube videos explain how you can generate cash for cars and vacations just by emptying out your jewelry box, and Google is plastered with “sell old jewelry” pay-per-click ads. Even luxury jewelers display tasteful “We Buy Estate Jewelry” placards, and new “Cash for Gold” storefronts and pawn shops spring up daily. One gold buyer sprang for a Super Bowl ad; spokespersons from talk show hosts to Mr. T signed onto lucrative promotional deals.
Gold and silver prices have been on an upward trajectory since 2002, with some peaks and valleys along the way. " This bull market is still firmly in place." Said Mike Maloney
Saturday, 21 January 2012
Capitalism in Crisis? No way....
The Financial Times continues its series on “Capitalism in Crisis.” I'm getting a little tired of it. We were hoping at least one of the writers might tell us what the crisis was. Instead, we’ve gotten a variety of opinions; none offering much light on the nature of the crisis and several offering more darkness about how to make it worse.
In yesterday’s instalment, for example, we discover that in 2008, “leaders of rich and rising nations sidestepped their differences to avert a worldwide slump.”
Really? If the writer had any appreciation for capitalism at all he’d know that the politicians did no such thing. Instead, they sidestepped their differences to prevent capitalism from doing its job. In 2008, after the fall of the House of Lehman, capitalism was aiming its wrecking balls at the House of BAC, the House of Deutsche Bank, the House of Goldman…and many others. But the feds stepped and stopped the wrecking balls in mid-air. The process of price discovery halted.
Instead of allowing capitalism to fix the problem, the feds made it worse. They gave more money to the very institutions and managers who had proved they couldn’t be trusted with it.
We don’t want to rehearse the whole sequence of events that got us to where we are. But it’s important to understand what happened.
The FT writers – along with practically every financial journalist, economist and two-bit big mouth – get the whole story wrong. They seem to think that Lehman Bros. was a failure of capitalism. Symptomatic, they say, of a larger failure, which almost all believe came from a lack of effective regulation.
“Too much capitalism…” is how one sage put it.
“The big lesson from all this is the extent to which globalised capitalism has outstripped the ability of governments to manage it,” says the FT.
Manage it? They must be dreaming. If the guys who ran Lehman Bros. couldn’t manage their own business, how were a group of bureaucrats going to do so? On the evidence, the feds had even less idea of what was going on than the ‘capitalists’ themselves.
The real problem was not too much capitalism. Instead, there was too little, especially when we needed it in 2008. The financial industry had been corrupted by government. Federal subsidies to the homebuilding industry… along with artificially low interest rates from the Fed… created a bubble in the economy and a frenzy on Wall Street. The financial industry became obsessed with fast profits. Bank managers learned that they could earn fees by making loans; who cared about collecting them?
Also, most Wall Street firms had ceased to be genuinely capitalistic. The benefits and the control were no longer in the hands of real capitalists, but in the hands of the managers. Over the last ten years, for example, the owners of financial industry stocks have made zero. Not a penny. But the managers – employees – have gotten rich. Goldman Sachs alone transferred $125 billion of shareholders’ money to its labour force over the same period that the shareholders themselves made nothing.
This left the employees with nice pads in the Hamptons, but it left the shareholders will little in real value. Today, many major banks have equity of less than 2% of their assets. That means, if their holdings of government debt – for example – go down 2%, they are broke. And it leaves them vulnerable to the next crisis…. just as they were to the last. When the crisis came in 2008, there was not enough equity – real shareholder value – to prevent bankruptcy.
This was not a crisis of real capitalism. It was a problem of geriatric capitalism… a simple problem that real capitalism knew how to fix. Left to do its work, these banks would have gone out of business… as they should have.
Bill Bonner
In yesterday’s instalment, for example, we discover that in 2008, “leaders of rich and rising nations sidestepped their differences to avert a worldwide slump.”
Really? If the writer had any appreciation for capitalism at all he’d know that the politicians did no such thing. Instead, they sidestepped their differences to prevent capitalism from doing its job. In 2008, after the fall of the House of Lehman, capitalism was aiming its wrecking balls at the House of BAC, the House of Deutsche Bank, the House of Goldman…and many others. But the feds stepped and stopped the wrecking balls in mid-air. The process of price discovery halted.
Instead of allowing capitalism to fix the problem, the feds made it worse. They gave more money to the very institutions and managers who had proved they couldn’t be trusted with it.
We don’t want to rehearse the whole sequence of events that got us to where we are. But it’s important to understand what happened.
The FT writers – along with practically every financial journalist, economist and two-bit big mouth – get the whole story wrong. They seem to think that Lehman Bros. was a failure of capitalism. Symptomatic, they say, of a larger failure, which almost all believe came from a lack of effective regulation.
“Too much capitalism…” is how one sage put it.
“The big lesson from all this is the extent to which globalised capitalism has outstripped the ability of governments to manage it,” says the FT.
Manage it? They must be dreaming. If the guys who ran Lehman Bros. couldn’t manage their own business, how were a group of bureaucrats going to do so? On the evidence, the feds had even less idea of what was going on than the ‘capitalists’ themselves.
The real problem was not too much capitalism. Instead, there was too little, especially when we needed it in 2008. The financial industry had been corrupted by government. Federal subsidies to the homebuilding industry… along with artificially low interest rates from the Fed… created a bubble in the economy and a frenzy on Wall Street. The financial industry became obsessed with fast profits. Bank managers learned that they could earn fees by making loans; who cared about collecting them?
Also, most Wall Street firms had ceased to be genuinely capitalistic. The benefits and the control were no longer in the hands of real capitalists, but in the hands of the managers. Over the last ten years, for example, the owners of financial industry stocks have made zero. Not a penny. But the managers – employees – have gotten rich. Goldman Sachs alone transferred $125 billion of shareholders’ money to its labour force over the same period that the shareholders themselves made nothing.
This left the employees with nice pads in the Hamptons, but it left the shareholders will little in real value. Today, many major banks have equity of less than 2% of their assets. That means, if their holdings of government debt – for example – go down 2%, they are broke. And it leaves them vulnerable to the next crisis…. just as they were to the last. When the crisis came in 2008, there was not enough equity – real shareholder value – to prevent bankruptcy.
This was not a crisis of real capitalism. It was a problem of geriatric capitalism… a simple problem that real capitalism knew how to fix. Left to do its work, these banks would have gone out of business… as they should have.
Bill Bonner
Bubble being blown in Government bonds
Jan. 20 (Bloomberg) -- Marc Faber, publisher of the Gloom, Boom & Doom report, talks about the outlook for stocks versus bonds and his investment strategy. He speaks with Sara Eisen and Erik Schatzker on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
View Marc Faber here
View Marc Faber here
Friday, 20 January 2012
The Party is over
Ben Bernanke in 2006, just as the housing and finance bubble was reaching its zenith:
“I think it would take a very strong decline in the housing market to substantially derail the strong momentum for growth that we are currently seeing in the economy.”
“Capital markets are probably more profitable and more robust than they have perhaps ever been,” added fellow Fed governor Kevin Warsh.
A year later, the great ship hit the rock that was clearly visible to anyone who cared to look – subprime mortgage debt.
Captain Schettino will probably never be asked to take command of another cruise ship. But Captain Bernanke and his crew are still at the controls of the US economy. Apparently, they still have no idea where they are… or where they are going.
They think we’re coming out of a recession. But the recovery is so slow and so hesitant, that the press has begun referring to it as a “Great Recession.”
"Wrong on both counts in our opinion." Said Moneyweeks Bill Bonner. It’s not a recession. And certainly not a great one. It’s not a recession because it is not a temporary setback for an otherwise healthy economy. Instead, it is a turning point… a major turning point.
Besides, a ‘great recession’ is self-contradictory. It’s oxymoronic. Like ‘prudent banker’ or ‘honest politician,’ the words don’t go together.
If it were a recession, it might end soon, and then the economy could go back to what it was. But that can’t happen. Because the economy pre-2007 depended on a couple of myths and more than a few frauds.
The biggest myth was that housing would rise forever. This is what allowed households to go further and further into debt, confident that they were getting richer all the time. And it allowed Wall Street to package up mortgage debt, slice it, dice it, and spread it all over town. The combination of rising housing prices and financial engineering produced the biggest bubble in human history.
But once a bubble like that explodes, there is no question of going back… or recovering. It’s over. You might as well try to put a suicide bomber back together as to recover the bubble economy of 2006. You can’t go back. You have to go forward to something new.
What we are going forward to? That’s the big question. No one knows the answer.
“I think it would take a very strong decline in the housing market to substantially derail the strong momentum for growth that we are currently seeing in the economy.”
“Capital markets are probably more profitable and more robust than they have perhaps ever been,” added fellow Fed governor Kevin Warsh.
A year later, the great ship hit the rock that was clearly visible to anyone who cared to look – subprime mortgage debt.
Captain Schettino will probably never be asked to take command of another cruise ship. But Captain Bernanke and his crew are still at the controls of the US economy. Apparently, they still have no idea where they are… or where they are going.
They think we’re coming out of a recession. But the recovery is so slow and so hesitant, that the press has begun referring to it as a “Great Recession.”
"Wrong on both counts in our opinion." Said Moneyweeks Bill Bonner. It’s not a recession. And certainly not a great one. It’s not a recession because it is not a temporary setback for an otherwise healthy economy. Instead, it is a turning point… a major turning point.
Besides, a ‘great recession’ is self-contradictory. It’s oxymoronic. Like ‘prudent banker’ or ‘honest politician,’ the words don’t go together.
If it were a recession, it might end soon, and then the economy could go back to what it was. But that can’t happen. Because the economy pre-2007 depended on a couple of myths and more than a few frauds.
The biggest myth was that housing would rise forever. This is what allowed households to go further and further into debt, confident that they were getting richer all the time. And it allowed Wall Street to package up mortgage debt, slice it, dice it, and spread it all over town. The combination of rising housing prices and financial engineering produced the biggest bubble in human history.
But once a bubble like that explodes, there is no question of going back… or recovering. It’s over. You might as well try to put a suicide bomber back together as to recover the bubble economy of 2006. You can’t go back. You have to go forward to something new.
What we are going forward to? That’s the big question. No one knows the answer.
Wednesday, 18 January 2012
The best buying opportunity in Gold could be immanent
Its going to be a bumpy ride for gold this year but could we see an early opportunity to buy?
Toby Connor thinks so
Toby Connor thinks so
How will GOLD perform in 2012
The institutional Gold Price forecasts for the year ahead are finally in.
We have the London Bullion Market Association's (LBMA) annual forecasting competition, the Thomson Reuters GFMS annual gold survey, and the PriceWaterhouseCoopers 2012 Gold Price Report.
What do the professionals think gold is going to do in 2012?
"Mildly Bullish"
Full article Moneyweek
Tuesday, 17 January 2012
Will the 20th March be Europe's tipping point?
Thats when Greece has to repay €14.4 billion followed by billions more over the coming months. It equates to over 6% of national GDP.
It was clear last year that Greece was insolvent but still the bailouts carried on. Even Germany is now beginning to realise that they are throwing good money after bad, about €100 billion should do the trick!
Meetings drag on trying to avoid Greece going bust and dragging Spain, Italy and France with her. Suggestions of negotiated default or voluntary default do not disguise the fact that they can not pay their bills.
Hold on tight because 2012 could be a bumpy ride
Monday, 16 January 2012
Easy to understand Financial Jargon Buster
Is jargon like 'Quantitive Easing' or 'derivatives' hampering your efforts to understand the financial markets?
Follow this link to The BBC and have it all explained in their A-Z guide
Follow this link to The BBC and have it all explained in their A-Z guide
France loses AAA rating
France was stripped of its top credit rating by Standard & Poor's and banks suspended talks with Greece over debt restructuring, the first blows this year to efforts aimed at stemming Europe's fiscal turmoil.
France's AAA rating will fall by one level at S&P, Finance Minister Francois Baroin told France 2 television today. Slovakia, Italy, and Austria are among other countries to be downgraded, European officials said. Germany will keep its top rating, a person familiar with the matter said. S&P may release its report later today.
The decisions came at the end of a week in which signs grew that Europe's woes may be cresting as borrowing costs fell, evidence of economic resilience emerged and the European Central Bank said it had quelled a credit crunch at banks. The immediate impact on French and Italian borrowing costs was limited, with the yield on 10-year government bonds rising three basis points and one basis point, respectively.
"It's a reduction of one level, it's the same level as the U.S.," Baroin said. "It's not a catastrophe."
The euro today fell to its weakest in 16 months against the dollar, declining to $1.2665. The yield on Germany's benchmark 10-year bund slipped seven basis points to 1.759% and earlier touched a record low.
"We've had a few calmer weeks with sentiment improving, but the situation was vulnerable to re-escalation," said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. "There are enough challenges ahead which could be fresh triggers for the crisis."
Third Year
European leaders are struggling to tame a crisis now in its third year and convince investors they can restore budget order. Greece's creditors today announced they had failed to agree with its authorities about how much money investors will lose by swapping the nation's bonds, increasing the risk of the euro-area's first sovereign default.
While confirmation that Germany, Europe's biggest economy, retains its top rating could lessen fallout, the French and Austrian downgrades threaten the potency of the region's main bailout fund, which currently has 440 billion euros ($558 billion) to spend.
The European Financial Stability Facility, which is funding rescue packages for Greece, Ireland, and Portugal partially with bond sales, owes its AAA rating to guarantees from the region's top-rated nations.
The French downgrade and refusal by governments to provide more credit enhancements would reduce the fund's lending capacity by around a third to 293 billion euros, Trevor Cullinan, S&P's director of sovereign ratings, said last month.
EFSF Power
"It will be interesting to see what the strategy will be regarding the EFSF," said David Schnautz, a fixed-income strategist at Commerzbank AG in London. Downgrades could "limit the volume of AAA rated EFSF paper that could be issued, or the EFSF could begin to issue non-AAA."
Downgrades sometimes lack bite. The yield on the benchmark U.S. government bond fell to a record 1.6714 percent on September 23, seven weeks after S&P withdrew its AAA rating for the first time, citing the nation's political process and a failure to tackle a record budget deficit.
Today's impasse in Greece comes three months since officials and creditors agreed to implement a 50% cut in the face value of the country's debt, with a goal of paring Greek's borrowings to 120% of gross domestic product by 2020. Unresolved is the coupon and maturity of the new bonds to determine the total losses for investors.
Greek Impasse
Proposals put forward by a committee representing financial firms have "not produced a constructive consolidated response by all parties," the Washington-based Institute of International Finance said in a statement today. "Discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach."
The government said the two sides will reconvene discussions in five days. European governments have been pushing for the Greek debt to carry a coupon of 4%, a person with direct knowledge of the negotiations said this week. Private bondholders said they would accept those terms for a period of time if they were able to get a bigger payout later as Greece's economy recovered, the person said.
The Greek bond due October 2022 rose, pushing the yield six basis points lower to 34.36% at 5:20 p.m. London time. The price climbed to about 20.5% of face value.
France's AAA rating will fall by one level at S&P, Finance Minister Francois Baroin told France 2 television today. Slovakia, Italy, and Austria are among other countries to be downgraded, European officials said. Germany will keep its top rating, a person familiar with the matter said. S&P may release its report later today.
The decisions came at the end of a week in which signs grew that Europe's woes may be cresting as borrowing costs fell, evidence of economic resilience emerged and the European Central Bank said it had quelled a credit crunch at banks. The immediate impact on French and Italian borrowing costs was limited, with the yield on 10-year government bonds rising three basis points and one basis point, respectively.
"It's a reduction of one level, it's the same level as the U.S.," Baroin said. "It's not a catastrophe."
The euro today fell to its weakest in 16 months against the dollar, declining to $1.2665. The yield on Germany's benchmark 10-year bund slipped seven basis points to 1.759% and earlier touched a record low.
"We've had a few calmer weeks with sentiment improving, but the situation was vulnerable to re-escalation," said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. "There are enough challenges ahead which could be fresh triggers for the crisis."
Third Year
European leaders are struggling to tame a crisis now in its third year and convince investors they can restore budget order. Greece's creditors today announced they had failed to agree with its authorities about how much money investors will lose by swapping the nation's bonds, increasing the risk of the euro-area's first sovereign default.
While confirmation that Germany, Europe's biggest economy, retains its top rating could lessen fallout, the French and Austrian downgrades threaten the potency of the region's main bailout fund, which currently has 440 billion euros ($558 billion) to spend.
The European Financial Stability Facility, which is funding rescue packages for Greece, Ireland, and Portugal partially with bond sales, owes its AAA rating to guarantees from the region's top-rated nations.
The French downgrade and refusal by governments to provide more credit enhancements would reduce the fund's lending capacity by around a third to 293 billion euros, Trevor Cullinan, S&P's director of sovereign ratings, said last month.
EFSF Power
"It will be interesting to see what the strategy will be regarding the EFSF," said David Schnautz, a fixed-income strategist at Commerzbank AG in London. Downgrades could "limit the volume of AAA rated EFSF paper that could be issued, or the EFSF could begin to issue non-AAA."
Downgrades sometimes lack bite. The yield on the benchmark U.S. government bond fell to a record 1.6714 percent on September 23, seven weeks after S&P withdrew its AAA rating for the first time, citing the nation's political process and a failure to tackle a record budget deficit.
Today's impasse in Greece comes three months since officials and creditors agreed to implement a 50% cut in the face value of the country's debt, with a goal of paring Greek's borrowings to 120% of gross domestic product by 2020. Unresolved is the coupon and maturity of the new bonds to determine the total losses for investors.
Greek Impasse
Proposals put forward by a committee representing financial firms have "not produced a constructive consolidated response by all parties," the Washington-based Institute of International Finance said in a statement today. "Discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach."
The government said the two sides will reconvene discussions in five days. European governments have been pushing for the Greek debt to carry a coupon of 4%, a person with direct knowledge of the negotiations said this week. Private bondholders said they would accept those terms for a period of time if they were able to get a bigger payout later as Greece's economy recovered, the person said.
The Greek bond due October 2022 rose, pushing the yield six basis points lower to 34.36% at 5:20 p.m. London time. The price climbed to about 20.5% of face value.
Source: Bloomberg
Sunday, 15 January 2012
A look at the last Silver bubble
With smoke still rising from the ruins of the recent silver crash, I thought I’d touch base with a wizened and grizzled old veteran who still remembered the last time a bubble popped for the white metal. That would be Mike Robertson, who runs Robertson Wealth Management, one of the largest and most successful registered investment advisors in the country.
Mike is the last surviving silver broker to the Hunt Brothers, who in 1979-80 were major players in the run up in the “poor man’s gold” from $11 to a staggering $50 an ounce in a very short time. At the peak, their aggregate position was thought to exceed 100 million ounces.
Nelson Bunker Hunt and William Herbert Hunt were the sons of the legendary HL Hunt, one of the original East Texas wildcatters, and heirs to one of the largest Texas fortunes of the day. Shortly after president Richard Nixon took the US off the gold standard in 1971, the two brothers became deeply concerned about financial viability of the United States government. To protect their assets they began accumulating silver through coins, bars, the silver refiner, Asarco, and even tea sets, and when it opened, silver contracts on the futures markets.
The brother’s interest in silver was well known for years, and prices gradually rose. But when inflation soared into double digits, a giant spotlight was thrown upon them, and the race was on. Mike was then a junior broker at the Houston office of Bache & Co., in which the Hunts held a minority stake, and handled a large part of their business. The turnover in silver contracts exploded. Mike confesses to waking up some mornings, turning on the radio to hear silver limit up, and then not bothering to go to work because knew there would be no trades.
The price of silver ran up so high that it became a political problem. Several officials at the CFTC were rumored to be getting killed on their silver shorts. Eastman Kodak (EK), whose black and white film made them one of the largest silver consumers in the country, was thought to be borrowing silver from the Treasury to stay in business.
The Carter administration took a dim view of the Hunt Brothers’ activities, especially considering their funding of the ultra-conservative John Birch Society. The Feds viewed it as an attempt to undermine the US government. The proverbial sushi hit the fan.
The CFTC raised margin rates to 100%. The Hunts were accused of market manipulation and ordered to unwind their position. They were subpoenaed by Congress to testify about their motives. After a decade of litigation, Bunker received a lifetime ban from the commodities markets, a $10 million fine, and was forced into a Chapter 11 bankruptcy.
Mike saw commissions worth $14 million in today’s money go unpaid. In the end he was only left with a Rolex watch, his broker’s license, and a silver Mercedes. He still ardently believes today that the Hunts got a raw deal, and that their only crime was to be right about the long term attractiveness of silver as an inflation hedge. Nelson made one of the great asset allocation calls of all time and was punished severely for it. There never was any intention to manipulate markets. As far as he knew, the Hunts never paid more than the $20 handle for silver, and that all of the buying that took it up to $50 was nothing more than retail froth.
Through the lens of 20/20 hindsight, Mike views the entire experience as a morality tale, a warning of what happens when you step on the toes of the wrong people.
And what does the old silver trader think of prices today? Mike saw the current collapse coming from a mile off. He thinks silver is showing all the signs of a broken market, and doesn’t want to touch it until it hits the $20’s. But the white metal’s inflation fighting qualities are still as true as ever, and it is only a matter of time before prices once again take another run to the upside.
Friday, 13 January 2012
The Great Correction Continues
Yesterday’s trading revealed nothing of importance. Small moves in stocks and gold. And oil dipped below $100.
But the news has been generally 'good' ever since the European Central Bank made it clear that it will print money, rather than see major banks or minor nations get what is coming to them. Like its US counterpart, the ECB will not permit a major bank or sovereign debtor to go bust.
“ECB sees signs of let-up in debt crisis,” is today’s headline in the Financial Times.
Let’s see… the news report goes on to tell us that Spain and Italy were able to sell €22bn of debt yesterday, proving that they can still finance their deficits… and that, therefore, we have nothing to worry about.
To whom did they sell their bonds? We don’t know, but we presume the buyers were banks who were investing money they got on favourable terms from the ECB. So, you see, dear reader, that their willingness to buy the debt does not necessarily mean that either buyer or lender is solvent. Probably, neither is…
But with fears of a debt debacle in Europe off the front page headlines… the financial world has seemed rather benign, especially in America.
US stocks have rallied since October. The latest unemployment report from the feds was surprisingly upbeat. The dollar is strong. And US consumers are now re-leveraging, going deeper into debt in order to buy things.
Does this mean the Great Correction is over and done with?
"Nah"…Says Moneyweeks Bill Bonner
Europe is either already in recession… or entering recession. Leading indicators in the Old World are plunging sharply…
Manufacturing in the US is softening… And European sales affect 20% of US corporate revenue… A strong dollar actually makes it harder for US companies to sell their products overseas, and it reduces the contribution made by foreign subsidiaries to US earnings reports.
Oil, meanwhile, has remained near $100 despite a sell-off in commodities and ‘risk–on” assets. This leaves both business and consumers with little free cash to spend… and squeezed profit margins. Already, corporate profit margins are beginning to come down… as they should.
The Fed came out with its “Beige Book” this week. Our reading of the report – which includes updates from ten districts around the country – is that conditions haven’t gotten any worse… but that they haven’t gotten any better either.
Most important, the two key ingredients in household wealth – wages and housing values – remain in a slump. None of the ten districts reported much improvement in either area.
So, even if consumers do go on a bit of a shopping spree over the holidays, it is unlikely to continue. Because there is nothing behind it.
Remember, this time it IS different. This time there is nowhere to go but down.
Households could increase their debt levels in the ‘80s, ‘90s and ‘00s only because 1) they began at a fairly modest level, and 2) housing prices were going up. While household debt has come back down to levels of the early ‘00s… they have a long way to go before they are back to the long-term averages of the ‘60s, ‘70s and ‘80s.
As for employment, the latest numbers were better than they had been but hardly a sign of a real recovery. From the “WonkBlog” at the Washington Post:
On Friday, we got the December jobs number: +200,000. That's good, but not good enough. I posted a graph from the Hamilton Project showing that, at that rate, the labor market wouldn't recover till 2024. But perhaps that's too pessimistic. The Economic Policy Institute took a look at the same numbers and concluded that a growth rate of 200,000 jobs per month would lead to a full recovery in seven years or so. That's nothing to celebrate, but it's better than the Hamilton Project's estimate of 12 years. It's also a bit odd: Isn't this a simple matter of taking job losses and dividing by monthly job gains? Well, no. The date of our eventual recovery depends on some crucial unknowables about the future of the American labor force.
The blogger doesn’t mention it, but even while the unemployment rate might go back to ‘normal’ in seven to 12 years, the latest figures show household income still going down. That’s not going to do much for household budgets or purchasing power. Or their borrowing power, for that matter.
Who’s going to lend to households when both their ability to repay (their wages) and their collateral (their houses) are going down?
And what are ageing baby boomers going to retire on, if they continue to borrow against declining collateral?
My verdict: The higher borrowing and spending at the household level in December was a fluke, I believe, not a sustainable trend. The Great Correction continues…
But the news has been generally 'good' ever since the European Central Bank made it clear that it will print money, rather than see major banks or minor nations get what is coming to them. Like its US counterpart, the ECB will not permit a major bank or sovereign debtor to go bust.
“ECB sees signs of let-up in debt crisis,” is today’s headline in the Financial Times.
Let’s see… the news report goes on to tell us that Spain and Italy were able to sell €22bn of debt yesterday, proving that they can still finance their deficits… and that, therefore, we have nothing to worry about.
To whom did they sell their bonds? We don’t know, but we presume the buyers were banks who were investing money they got on favourable terms from the ECB. So, you see, dear reader, that their willingness to buy the debt does not necessarily mean that either buyer or lender is solvent. Probably, neither is…
But with fears of a debt debacle in Europe off the front page headlines… the financial world has seemed rather benign, especially in America.
US stocks have rallied since October. The latest unemployment report from the feds was surprisingly upbeat. The dollar is strong. And US consumers are now re-leveraging, going deeper into debt in order to buy things.
Does this mean the Great Correction is over and done with?
"Nah"…Says Moneyweeks Bill Bonner
Europe is either already in recession… or entering recession. Leading indicators in the Old World are plunging sharply…
Manufacturing in the US is softening… And European sales affect 20% of US corporate revenue… A strong dollar actually makes it harder for US companies to sell their products overseas, and it reduces the contribution made by foreign subsidiaries to US earnings reports.
Oil, meanwhile, has remained near $100 despite a sell-off in commodities and ‘risk–on” assets. This leaves both business and consumers with little free cash to spend… and squeezed profit margins. Already, corporate profit margins are beginning to come down… as they should.
The Fed came out with its “Beige Book” this week. Our reading of the report – which includes updates from ten districts around the country – is that conditions haven’t gotten any worse… but that they haven’t gotten any better either.
Most important, the two key ingredients in household wealth – wages and housing values – remain in a slump. None of the ten districts reported much improvement in either area.
So, even if consumers do go on a bit of a shopping spree over the holidays, it is unlikely to continue. Because there is nothing behind it.
Remember, this time it IS different. This time there is nowhere to go but down.
Households could increase their debt levels in the ‘80s, ‘90s and ‘00s only because 1) they began at a fairly modest level, and 2) housing prices were going up. While household debt has come back down to levels of the early ‘00s… they have a long way to go before they are back to the long-term averages of the ‘60s, ‘70s and ‘80s.
As for employment, the latest numbers were better than they had been but hardly a sign of a real recovery. From the “WonkBlog” at the Washington Post:
On Friday, we got the December jobs number: +200,000. That's good, but not good enough. I posted a graph from the Hamilton Project showing that, at that rate, the labor market wouldn't recover till 2024. But perhaps that's too pessimistic. The Economic Policy Institute took a look at the same numbers and concluded that a growth rate of 200,000 jobs per month would lead to a full recovery in seven years or so. That's nothing to celebrate, but it's better than the Hamilton Project's estimate of 12 years. It's also a bit odd: Isn't this a simple matter of taking job losses and dividing by monthly job gains? Well, no. The date of our eventual recovery depends on some crucial unknowables about the future of the American labor force.
The blogger doesn’t mention it, but even while the unemployment rate might go back to ‘normal’ in seven to 12 years, the latest figures show household income still going down. That’s not going to do much for household budgets or purchasing power. Or their borrowing power, for that matter.
Who’s going to lend to households when both their ability to repay (their wages) and their collateral (their houses) are going down?
And what are ageing baby boomers going to retire on, if they continue to borrow against declining collateral?
My verdict: The higher borrowing and spending at the household level in December was a fluke, I believe, not a sustainable trend. The Great Correction continues…
America's Zombies
No sector has more zombies in it than America’s ‘national security’ industry. Dwight Eisenhower warned the nation in 1961 to watch out for the ‘military-industrial complex.’ He might have saved his breath. The zombies had already taken over. The US was already spending more on ‘defence’ than the net income of all American corporations put together.
“In the years since,” writes Todd Purdum in Vanity Fair, “the trend has warped virtually every aspect of national life, with consequences that are quite radical in their cumulative effect on the economy, on the vast machinery of official secrecy, on the country’s sense of itself, and on the very nature of national government in Washington. And yet the degree to which America has changed is noticed by almost no one – not in any visceral way. The transformation has taken hold too gradually and over too long a period. Almost no one alive today has a mature, firsthand memory of a country that used to be very different…”
“You may have noticed not much difference between Obama’s military policies and those of George W Bush. Why? Because a zombie military is almost impossible to cut down to size. It has already corrupted the political process. Now, the zombies cannot be stopped or controlled,” said Moneyweeks Bill Bonner
A bankrupt government can cut almost anything else. But not its military. National security industry insiders glide easily into the seats left by politicians who try to stop them. Ex-generals counsel wimpy Congressmen. Flies and flakes buzz around the trillion-dollar ‘defence’ honey pot.
Military spending rose about 70% during the George W Bush years. Today, the US spends 43 cents of every dollar of military spending anywhere in the world. And now, with the hysteria of “terrorism” and a “nuclear Iran,” who will oppose it?
Many of America’s biggest manufacturers are weapons producers – Lockheed Martin, Raytheon, Northrop-Grumman, L3 and KBR. The jump in employment numbers was largely the result of government hiring. We have seen a figure over 40% for the portion of domestic manufacturing devoted to the zombie defence industry. Among the most profitable businesses in the country are surely the 2,000 corporations getting money for counter-terrorism, homeland security, military intelligence and other boondoggles.
In Washington itself, 33 new building complexes have been put up since 2001 whose occupants are somehow involved in top-secret activities.
Yes, dear reader, the armed zombies pretend to protect the ‘land of the free’. But they are its biggest enemies. In 2011, they put through a new defence spending bill which removed Americans’ ancient habeas corpus rights. The Commander in Chief also asserted, and exercised, the right to kill anyone, anywhere on his own say-so. And both the president and Congress continued to spend money they didn’t have on cockamamie boondoggles even though it is obvious that the nation is going broke.
It is only a matter of time now. The US Empire will be stabbed in the back by its own protectors.
Wednesday, 11 January 2012
Oil could out perform Gold this year
Iran is the the 3rd largest oil producer. A third of global tanker traffic passes through the Strait of Hormuz which Iran has threatened to close in retaliation for global trade sanctions which includes a fifth of global oil production.
If bombs start falling on their nuclear facilities you can bet your last penny they will make good on that threat and oil could well double in price
If bombs start falling on their nuclear facilities you can bet your last penny they will make good on that threat and oil could well double in price
Monday, 9 January 2012
Emerging Markets, safe haven?
Emerging markets have seen double digit growth for many years now and are constantly out performing the West with their flat lined economies. These power houses have great resources and workforce capacity which operate in pro business environments. There are also great long term factors underpinning EM stocks.
So should we all be rushing into EM stocks as a safe haven for your money in these times of uncertainty?
Definitely not. While Emerging Markets own most of the manufacturing the west owns most of the finance. So when Western institutions need cash to cover loosing bets they pull it out of EM and put it into US dollars. America sneezes and we all catch a cold.
But this can offer opportunities because the true value will out in the end so be patient.
So should we all be rushing into EM stocks as a safe haven for your money in these times of uncertainty?
Definitely not. While Emerging Markets own most of the manufacturing the west owns most of the finance. So when Western institutions need cash to cover loosing bets they pull it out of EM and put it into US dollars. America sneezes and we all catch a cold.
But this can offer opportunities because the true value will out in the end so be patient.
US Debt problem made simple
This appeared on Facebook a little while ago but is excellent for high lighting the depth of the problem.
US tax revenue $2,170,000,000,000
Fed budget $3,820,000,000,000
New debt $1,650,000,000,000
Total debt $14,271,000,000,000
BUDGET CUTS $38,500,000,000
Converted in to a families house hold bills by removing 8 zeros
Income (wages) $21,700
Family spend $38,200
New debt(credit cards) $16,500
Total debt $142,710
BUDGET CUTS $385
Dont think I need to say anymore...
US tax revenue $2,170,000,000,000
Fed budget $3,820,000,000,000
New debt $1,650,000,000,000
Total debt $14,271,000,000,000
BUDGET CUTS $38,500,000,000
Converted in to a families house hold bills by removing 8 zeros
Income (wages) $21,700
Family spend $38,200
New debt(credit cards) $16,500
Total debt $142,710
BUDGET CUTS $385
Dont think I need to say anymore...
Saturday, 7 January 2012
Origins of Currency
The use of gold as money has been traced back to the fourth millennium BC when the Egyptians used gold bars of a set weight as a medium of exchange. The British pound was originally defined as a one pound mass of silver.
The term gold standard is often thought to refer to a currency where notes were fully backed by and redeemable in an equivalent amount of gold. The British pound was the strongest, most stable currency of the 19th Century and often considered the closest equivalent to pure gold, yet at the height of the gold standard there was only sufficient gold in the British treasury to redeem a small fraction of the currency then in circulation.In 1880, US government gold stock was equivalent in value to only 16% of currency and demand deposits in commercial banks. By 1970, it was about 0.5%.Through much of the 20th Century until 1971, the US dollar was ‘backed’ by gold, but from 1934 only foreign holders of the notes could exchange them for metal.
Fiat money refers to money that is not backed by reserves of another commodity. The money itself is given value by government fiat(Latin for "let it be done"). In 1971 the United States finally switched to fiat money indefinitely. At this point in time many of the economically developed countries' currencies were fixed to the US Dollar (see Bretton Woods Conference), and so this single step meant that much of the western world's currencies became fiat money based. When governments produce money more rapidly than economic growth, the money supply overtakes economic value. Therefore, the excess money eventually dilutes the market value of all money issued. This is called inflation. So as we are currently seeing in western economies, inflation driven by quantitive easing or money printing.
Fiat currencies nearly always end disastrously. Governments resort to extreme measures to prop up failing currencies. US made gold ownership illegal in the in the 70’s and the French government of the 17th century forced acceptance of its failing currency through fear. Execution was top of the bill for anyone refusing it!
The term gold standard is often thought to refer to a currency where notes were fully backed by and redeemable in an equivalent amount of gold. The British pound was the strongest, most stable currency of the 19th Century and often considered the closest equivalent to pure gold, yet at the height of the gold standard there was only sufficient gold in the British treasury to redeem a small fraction of the currency then in circulation.In 1880, US government gold stock was equivalent in value to only 16% of currency and demand deposits in commercial banks. By 1970, it was about 0.5%.Through much of the 20th Century until 1971, the US dollar was ‘backed’ by gold, but from 1934 only foreign holders of the notes could exchange them for metal.
Fiat money refers to money that is not backed by reserves of another commodity. The money itself is given value by government fiat(Latin for "let it be done"). In 1971 the United States finally switched to fiat money indefinitely. At this point in time many of the economically developed countries' currencies were fixed to the US Dollar (see Bretton Woods Conference), and so this single step meant that much of the western world's currencies became fiat money based. When governments produce money more rapidly than economic growth, the money supply overtakes economic value. Therefore, the excess money eventually dilutes the market value of all money issued. This is called inflation. So as we are currently seeing in western economies, inflation driven by quantitive easing or money printing.
Fiat currencies nearly always end disastrously. Governments resort to extreme measures to prop up failing currencies. US made gold ownership illegal in the in the 70’s and the French government of the 17th century forced acceptance of its failing currency through fear. Execution was top of the bill for anyone refusing it!
Friday, 6 January 2012
Thursday, 5 January 2012
Is Capitalism Finished?
Firstly lets look at Wikipedia's definition of capitalism:
"A free-market economy is one within which all markets are unregulated by any parties other than market participants. In its purest form, the government plays a neutral role in its administration and legislation of economic activity, neither limiting it (by regulating industries or protecting them from internal/external market pressures) nor actively promoting it (by owning economic interests or offering subsidies to businesses or R&D)."
Now let us consider how the governments have acted:
*They have bailed out insolvent banks with Taxpayers money rather than leave them to the natural laws of economics and now own most of them.
*They continue to inflate currency supply by both printing £'s and $'s (quantitive easing) and manipulating the price of gold in paper markets to prop up their failing currencies. Put quite simply when investors look to protect wealth, gold is seen as a safe haven as it can not be plucked out of thin air. If the price of gold starts to fall then those investors might buy dollars instead so it is in the governments interests to suppress it.
So, is capitalism finished? lets hope not because this is not free market capitalism and free market capitalism is probably the only thing that will sort this mess out
"A free-market economy is one within which all markets are unregulated by any parties other than market participants. In its purest form, the government plays a neutral role in its administration and legislation of economic activity, neither limiting it (by regulating industries or protecting them from internal/external market pressures) nor actively promoting it (by owning economic interests or offering subsidies to businesses or R&D)."
Now let us consider how the governments have acted:
*They have bailed out insolvent banks with Taxpayers money rather than leave them to the natural laws of economics and now own most of them.
*They continue to inflate currency supply by both printing £'s and $'s (quantitive easing) and manipulating the price of gold in paper markets to prop up their failing currencies. Put quite simply when investors look to protect wealth, gold is seen as a safe haven as it can not be plucked out of thin air. If the price of gold starts to fall then those investors might buy dollars instead so it is in the governments interests to suppress it.
So, is capitalism finished? lets hope not because this is not free market capitalism and free market capitalism is probably the only thing that will sort this mess out
Monday, 2 January 2012
How will the Euro crisis end?
Seeing as we have looked at how it started we all need to know the most important issue...the end game!
No one can be certain, Politicians have a track record in changing the rules as they go along however this time its different and I for one cant see many hiding places from the markets. At very best I see a much smaller union with Germany and France at a core of maybe 2 others. At worst a complete Financial collapse with a run on the banks and civil unrest.
Play with this interactive chart and decide for yourself.http://t.co/a6Skwlea
No one can be certain, Politicians have a track record in changing the rules as they go along however this time its different and I for one cant see many hiding places from the markets. At very best I see a much smaller union with Germany and France at a core of maybe 2 others. At worst a complete Financial collapse with a run on the banks and civil unrest.
Play with this interactive chart and decide for yourself.http://t.co/a6Skwlea
What really caused the eurozone crisis
Vey difficult to explain clearly in a blog but this easy to understand chart from BBC News is worth a look at. It breaks down the roles each member state had leading up to the current crisishttp://www.bbc.co.uk/news/business-16301630
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