Boom

[muldoon]

earlier today:

Yields of all the PIIGS (Portugal, Italy, Ireland, Greece, Spain)
Italy 2 year down almost 1 point, over 4%
Spain 2 year down 5/8th point, ~4.2%
Greece 2 yer down 3/4 point, 31%
Portugal 2 year down over 2 points, 18.3%
Ireland 2 year down 2 3/8th, 18.3%

Also earlier today:
http://www.bloomberg.com/news/2011-07-10/consob-may-ban-restrict-naked-short-selling-at-meeting-sunday-night.html
Italy banned short sellers, does that ring a bell, does that echo a 2008 moment to you?

"Italy cannot afford to pay the interest rates it's paying right now,"

tonight...

http://www.guardian.co.uk/business/2011/jul/12/greece-set-to-default-massive-debt-burden

"European leaders bowed to the inevitable and conceded that Greece is likely to default on its massive debt burden, which would be a first among the 17 countries using the euro."

---
there is a big boom being made tonight but only few people will hear it. 

[OlJarhead]

I've been trying to keep an eye on things but have learned over the past 5 or 6 years that each time I think I have a better idea of when something is likely going to happen, someone figures out a way to delay it.

So, with that in mind, I believe the PIIGS will all collapse as well as the Eurozone and the US but I won't even dare try to predict when and I pray later not sooner.

[Native_NM]

Could be the first domino in a global collapse.  As Thatcher said, "the problem with Socialism is you eventually run out of other people's money."  We are there in the US; we just won't admit to ourselves yet.

 

[rwanders]

We can often cure Pneumonia----but not a simple cold.

Greece and some of the other "progressive and enlightened" nations of Europe may have to experience some Pneumonia before they can be cured. We may get a whiff of it too before our progressives get on the road to recovery. 

As Robb Emanuel said; "Never let a crisis go to waste."
 

[muldoon]

jarhead, those are very perceptive comments.  They have kicked the can for so long it seems they will be able to kick it forever somedays.  However, along the way there are pivotal shifts.  swings in direction and momentum; the history of our planet is littered with them.  Things work, until they don't.  This was a eurozone boom; but just like any financial event - most will not understand the event at the time, and they will not see the ripples of it in their daily lives for months.  Then they will not correlate the event with the effects. 

Native, it wouldn't be the first domino, but it might be a momentum shift. 

rwanders, I'm pretty sure it's Rahm Emanuel - not Robb. 
But were not talking about something we can cure if we just got the progressives on track.  That money is gone, it was mostly never real in the first place.  It was fraud and theft and grift.  There and here.  If you want to use a medical analogy, think of a parasite that has 100% infected its' host.  To kill the parasite, you kill the host.  There is nothing left of either system if you remove the fraud but unfortunately the losses are simply to great to paper over and continue to cover.  Them admitting that, is why this is significant. 

[rwanders]

Realized I had typed Robb instead of Rahm but forgot to edit.  Used pneumonia metaphor because being in a little debt is not frightening to most people and they often don't know when it has turned into death by debt spiral (pneumonia) until too late.

I think Rahm will find it's not as much fun when he realizes Chicago has no mint to print money for him and they are already broke in a state that is broke too.  Alas, his old boss doesn't have any left for him either----yes sir, no fun at all.

[OlJarhead]

Hmmm....Personally I think FIAT money has to burn so many people (and it will I think) that nations no longer have the guts to allow it to exist again.

I pray American's wake up and ban it through the Amendment process (fat chance I know).

I believe a collapse is coming and history bares that out, however history has also taught me that some smart guys from time to time manage to outwit everyone else and kick the can a long ways off -- I don't think we're there, but I know we could be.

The Romans kept messing with the Byzant after all and it had lasted something like 800 years, yet in the end failed.

I believe we must go to a specie standard and allow TRUE free market banking because only then will the market drive where it goes.

If one looks at the few times the free market started to work in the USA past you will notice big banks lost there share and small banks flourished and provided better services.  Then when the central banks (any of them) were brought into being the big banks pocketed the profits, screwed the little guy and Uncle Sam got to do all manner of damage to the dollar.

It's simple really, in my uneducated opinion, let the free market be, well, FREE and let the chips fall where they may.

[rwanders]

Muldoon, If Europe doesn't pull down the whole house around us too, I think we still have the resources and economic basis to survive. It will take a real sea change in the thinking and habits of our citizenry and our governments, state and federal. A great deal of pain will be involved and like any addict, we will backslide more than once as we try to get well.

But, the world will still spin around the sun and like all things, the threatening clouds of this crisis shall one day pass and the sun will shine again---hope I live long enough to see it---or maybe it would be a blessing to not have to witness the pain.

RW

p.s.  I see no point in giving up and nowhere to go anyway. We have to ride this horse till it goes lame, I reckon. (it is limping though)  

[muldoon]

*IRELAND CUT TO JUNK BY MOODY'S, OUTLOOK REMAINS NEGATIVE
http://www.moodys.com/research/Moodys-downgrades-Ireland-to-Ba1-outlook-remains-negative?docid=PR_222257

the can is full of concrete. 

[Native_NM]

Anyone know how much gold would have to be worth today if we went back to the gold standard? 

[rwanders]

In the unlikely event of a return to the gold standard, the government would be almost forced to again make it's possession a federal monopoly. I doubt if current owners would be allowed to reap a windfall from such an action---the price of gold would again be set by statute and, other than jewelry, the only legal buyer would be the mint. They would still be able to control the money supply by doing so. Gold standard had it's own problems for our economy----that's why it was abandoned by, I think, the whole world.

Muldoon is our source for the arcane features of economic history and he may correct my memory.

[Native_NM]

That was my point.  There is not enough gold. The money supply in the US, for example, is estimated at $9.0 trillion. 

I don't see us going back, but in absence of some standard fiat money rules, and inflation and devaluation are a certainty.  I'm not sure what we do. 

[OlJarhead]

In the unlikely event of a return to the gold standard, the government would be almost forced to again make it's possession a federal monopoly. I doubt if current owners would be allowed to reap a windfall from such an action---the price of gold would again be set by statute and, other than jewelry, the only legal buyer would be the mint. They would still be able to control the money supply by doing so. Gold standard had it's own problems for our economy----that's why it was abandoned by, I think, the whole world.

Muldoon is our source for the arcane features of economic history and he may correct my memory.

You see the problem is that argument presents a view from those who do not want a specie money but rather prefer fiat money.  I see it as defeatism.  What you are saying is that returning to the gold standard means the government will not let it be free and THAT is the real problem.

Best solution?  Specie money under a true free market...it is the only way.

[OlJarhead]

That was my point.  There is not enough gold. The money supply in the US, for example, is estimated at $9.0 trillion.  

I don't see us going back, but in absence of some standard fiat money rules, and inflation and devaluation are a certainty.  I'm not sure what we do.  

I categorically disagree.  The amount of gold is not relevant.  What you are doing is thinking in terms of current value of US dollars.

Like him or not, Griffin explains this perfectly and so too does Woods.  Read The Creature from Jekyll Island or Meltdown (there are others as well) and at the very least you will see that there are solutions but the first is to return to the Constitution.  It does not give the Federal Government the power to print FIAT money nor to determine the value of gold but rather only the weights and measures of coinage and what metals can be used.  Yes we ignore that today, but the men who put it there had already gone through the collapse of fiat money and knew full well what we obviously don't today:  fiat money cannot survive and will always be abused.

By the way, the Byzant did last 800 years so clearly you CAN use gold as a stable currency.

[h0rizon]

Just to throw my 2 cents in, but...

Regardless of form of tender (fiat, specie, gold standard), I think the underlying problem is an overall lack of faith.  Market systems only truly exist when everyone believes that the form of currency they hold in their hand can be traded for some needed good (at said quantity) at some point.  This therefore infers that there will fluxes, severe or not, depending on what everyone decides to believe today.  Thus stable currency is not possible unless we, globally, dictate that 2 chickens = 1 pig for ever and always.  And we all know what happens when we do that - no one wants to produce any chickens.

The only way that any person or any political, market, government, constitution, or other governing body can stabilize this situation is to install confidence in the people of the world to get back to work and keep the machine going.  That it will all be OK.  That they will have food on the table every night and a bright future ahead for them and their children.  And when people do finally get back to work, things will self-correct.

I hope we can find said person in our next president.

[Native_NM]

So if we only mine a billion dollars worth of new gold in a year, the money supply can only increase by a billion?

I need to study the topic more.  

[OlJarhead]

Just to throw my 2 cents in, but...

Regardless of form of tender (fiat, specie, gold standard), I think the underlying problem is an overall lack of faith.  Market systems only truly exist when everyone believes that the form of currency they hold in their hand can be traded for some needed good (at said quantity) at some point.  This therefore infers that there will fluxes, severe or not, depending on what everyone decides to believe today.  Thus stable currency is not possible unless we, globally, dictate that 2 chickens = 1 pig for ever and always.  And we all know what happens when we do that - no one wants to produce any chickens.

The only way that any person or any political, market, government, constitution, or other governing body can stabilize this situation is to install confidence in the people of the world to get back to work and keep the machine going.  That it will all be OK.  That they will have food on the table every night and a bright future ahead for them and their children.  And when people do finally get back to work, things will self-correct.

I hope we can find said person in our next president.

To clarify 'specie' money is money that is based in some tangible thing which has intrinsic value.  So, the 'gold standard' just another way of saying 'specie money'.  Money that is backed by gold is specie.

The value of goods in a free market is based on factors that cannot be controlled by government dictating what something should or should not be worth. Having said that, a dollar being worth 1 oz of silver or 1/10th of an oz of silver is fine and is what 'specie' money is.  However, saying that a dollar is worth one oz of silver and 1 oz of silver is worth X amount of gold is not, because it utilizes government to decree what something is worth and this is not what a 'free' market is.

The answer is to have a single metal system (rather then a bimetal system) in which you use ONLY a specific metal to guarantee your money/dollar but in which you do not utilize 'legal tender' laws to force citizens to use silver, dollars or anything else to pay their bills.  You just say something along the lines of:  you may pay your bills and obligations using the dollar, or silver, or gold or anything else of perceived value however the US Government reserves the right to accept payment at the going rate of exchange and to refuse non-standard forms of payment (as defined standard forms of payment would be gold, silver, dollars, copper, etc but not chickens, eggs, milk etc).

This may sound silly or simplistic (it is simple actually) but in truth has worked well in the past when allowed to.  Our modern system is more then capable of handling it also.

I guess in the end I encourage anyone who doesn't quite believe in using specie money to read Meltdown or 'the Creature' because where you believe the ideas the authors propose or not, you will learn a ton about money and why today's system doesn't work, has never worked, and will end in failure.  Even if you change everything to a 'one world currency' it won't work in the end.

For the US the answer is simple, go back to hard money, real money, specie money, gold OR silver standard and money and the rest of the world will figure it out.

Oh by the way, doing so would end all deficit spending pretty much overnight.

[OlJarhead]

So if we only mine a billion dollars worth of new gold in a year, the money supply can only increase by a billion?

I need to study the topic more.  

Money supply isn't the issue actually.  That's one of the fallacies of today's politics and Keynesian economists.  And no, mining gold does not increase or decrease the 'money supply' per say, but perhaps would for a reason not usually thought of.  Just as growing wheat can.

You see in a free market based system with specie money the price of things pretty much always settles in the same place:  the amount of human effort it takes to produce something (and perhaps in the modern world you could add the amount of capital ass automation reduces labor but increases capital expenditures).

For example:  if building a solar panel was so easy the average guy could build one in ten minutes and once sold could make $100 from selling the panel what would happen?  Lots of average guys would get into the solar panel making business.  At first some of them would get pretty wealthy making solar panels as they'd earn over one million dollars in a year if they just worked 7 hours per day 5 days a week.

But as more and more of them joined the party the profits would have to go down.  WHy?  Competition.  Soon you'd only be making $10 per panel and then perhaps $5 each.  At $5 per panel if you made 42 panels a day you could make $54000 a year which isn't bad by today's standards right?  But what if lots and lots and lots of guys jumped in (no one wants to work at 7-11 right?) and the profits dipped to a paltry $2.50 per panel?  At that point people would leave the business and try something else and the panels would eventually settle at a rate that was about right for that specific item more or less based on the amount of human effort it takes to make them.

Take a suit, it's the age old gold standard argument but it works.  It takes something raising the sheep (if it's wool), sheering them, turning the wool into thread and fabric etc etc eventually the fabric gets to the tailor who measures you and makes the suit for you.  In the end, the amount of effort is said to be about the same amount of effort (which is considerable really) that it takes to dig into a mountain, blast away rocks, haul out dirt, rock and gold, smelt it (or whatever is done to purify and solidify) and send it off to someone who will grade it, melt it down, press it into a usable bar and send it to the bank or treasury who will melt it, make it into plugs and them stamp it with the stamp which took time to create and make etc etc etc...through in all the machinery, processes, accounts and everything else and you have a lot of human effort......the two are so close that in 1920 you could have purchased a fine suit with ONE OUNCE of gold.

Well guess what?  At $1580 per ounce today you can bet your behind you can purchase a fine suit.

So what changed?  Not gold obviously, and not the suit either....the DOLLAR changed and THAT IS IT.

If you actually look at the cost of things in gold and silver over the last 100 years it hasn't changed much though most things have actually come DOWN in price which they well should (manufacturing processes are better, more automated, mass production, computers, robots etc etc) but EVERYTHING takes MORE DOLLARS to buy.  Why?  Because THE DOLLAR HAS LOST VALUE so you need more of them to buy the same thing.

What happened to the dollars value?  It is the greatest (and most evil and despicable) tax of all time:  inflation.  The government took the value folks and left you with something worth about 3 cents.

Yes that's right, your dollar is no longer really a 'dollar' as it was originally conceived but rather THREE CENTS disguised as a 'dollar'.

The dollar has lost over 97% of it's value but gold has not.  Silver has not and things priced in gold and silver are slightly LESS then they were in the past which is in fact the natural course of things.

We've just forgotten that, or been taught the lie which we now believe: that inflation is normal.

It isn't.

[OlJarhead]

I should add this:  to increase the 'money supply' you must increase the labor/production of society in a free market system.

[rwanders]

Ol Jar, I'm having hard time understanding what the gold standard would accomplish----unless we stopped all paper money and lugged gold coins around it would just mean that we would need to have faith that we could actually go to govt and exchange a dollar for the amount of gold it represented. Unless we drastically reduced the amount of money in circulation it could mean that a dollar would only represent an extremely small speck of gold---almost microscopic in size. And, why gold? Other than a few minor industrial uses and jewelry there are few reasons to have it. Iron or aluminum  has more intrinsic value then gold.

If we instead, drastically reduced our money supply to match the gold we may or may not have, it would probably result in catastrophic deflation which would wipe out your savings since you may only get a few "new dollars" in return for thousands of your "old ones". Yes, prices would fall also but so much that a merchant with an inventory he has 100,000 dollars in would suddenly be worth a very small fraction of that. You may be able to buy a car for 5 dollars but your cash available would also shrink at the same ratio.

Your constitutional question/issue may be interesting academic exercise but, I know of no authoritative sources who support that viewpoint. Ones wearing tin foil hats do not pass the laugh test. I know you are not a wearer of one of those.

I just don't see what it would accomplish other than chaos. Runaway deflation or inflation are just two sides of the same coin and it doesn't seem to matter if that coin is gold or tin.

Getting our collective financial house in order is what we need---if it is sound then "fiat money" is accepted at par and so it works just fine. Gold only has the value it does right now because people have faith that others will also think it does.

I'm open if someone can explain what the Gold Standard would do for us.

[rwanders]

OL Jar, per your own assumptions:

The human effort to produce that suit is Much less now than in 1920.

The human effort to earn the $1580 is also Much less now than in 1920.

Also, the value of most things is NOT based on "How hard somebody worked to build it. It's based on what a willing buyer will pay for it and what a willing seller will sell it for. When/if you sell a home you worked on for many years, that effort by you is not a relevant fact----you can only sell for what a willing buyer perceives it to be worth-----he will not care how much effort it took.

The argument you retold is accurate in many respects but, in the end it is a numbers game without any difference in the end.  As long as your income rises at about the same rate as price inflation for goods and services it is all the same. 

Seems to me anyway but, what do I know?

RW

[ScottA]

Fiat currency is fine, the problem is the interest attached to it when it is created. Why should a bank get paid to create money out of thin air? The government should create the money interest free. No more federal debt. Money is basically a store of the value of labor. A way for me to trade my work for your work. Every thing on the planet started out free, it is the work that has a cost and therefore a value. If the government made the money the value could be regulated by making more or less of it as needed. It could be kept stable if you could somehow get the crooks out of the loop. Problem is some people have access to the printing press and just make free money for themselves to enjoy and use without having done any work.

[h0rizon]

Gold or any other metal has intrinsic value only because we believe it does.  It is not edible, it does not build a house on its own, it does not download a free new app for you.  It is worth something only at the time it is traded, for what the perceived value of the good it is being traded for is.  Until then it is useless.  This value fluctuates in tandem with normal free market supply/demand principles, as does any other trade mechanism. 

Now what i can agree on is that we need to go back to a hard system - even just dollars/cash.  Credit/debt, and moreover credit cards, are the sure-fire way to guarantee the collapse of any monetary system.  It permits you to trade with something you might have in the future.  Not only is the creditor putting faith on the credit note being paid, but that what they are paid with will be worth at least what it was worth at the time of the trade (inflation adjusted).  When this fails, faith is lost not only on the payer (credit score) but the payee (return-on-investment growth).  This stacks exponentially, as the underlying tender system MUST be sharply re-valued in response to the loss of anticipated future value (because tender essential vanished).  This feeds back into the credit system and thus the downward spiral.  Essentially Credit backs tender which backs credit. 

I have not yet read the books mention, so I am sure there is much more I can learn on this subject.  This is how I currently interpret the tender/market systems.

[h0rizon]

Also, the value of most things is NOT based on "How hard somebody worked"

Actually that's what the whole services industry is based off of    It's the "Cost of goods sold" part of the equation.  No, the buyer doesn't really care how much effort was put in, he'll care about the overall value.  But the seller does.

Perceived value of man hours + Perceived value of materials = Cost of Goods sold.

COGS + Perceived supply + Perceived demand = Perceived value, is how it generally goes I think. 

And then you can stack:

Perceived current value of tender + Perceived anticipated value of tender + Perceived value of good = Amount paid.

It gets confusing real quick 

[archimedes]

I'm open if someone can explain what the Gold Standard would do for us.

Absolutely nothing.

And it will never,  ever,  happen,  so what's the point.  It's like arguing about how many fairies you can fit on the head of a pin.