CNBC: Gold to hit $11,000 per Oz on dollar collapse - Video

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Jason
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Re: CNBC: Gold to hit $11,000 per Oz on dollar collapse - Vi

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LoveIsTruth wrote:
Jason wrote:...its a nice talking point as he begs for "zero value" dollars to fund his campaign! LOL
What? You would rather he asked for donations in gold? Sometimes I think you are smart, but sometimes I just wonder... It's like there is a screw missing in your logic!
....nah it just went over your head! Nice change of topic by the way....just shout louder (guaranteed to cure the listening ailment)!
"Growing Your Way Out of Debt" Is A Fantasy

Add rising interest payments and higher taxes to declining assets and incomes and you don't get "growth," you get insolvency.

The Status Quo consensus is that "kicking the can down the road" a.k.a. "extend and pretend" will work because "Greece, Spain, Ireland et al. are going to "grow their way out of debt." That is a fantasy.

Here's why.

1. There's a funny little feature of debt called interest. The Status Quo solution for Ireland, Greece, Portugal, Spain et al. is A) increase their debt load with more loans and B) roll over their old debt into new loans, without the old lenders taking any "haircut" on the principal.

Both of these "solutions" add more interest costs. That means more of the national income stream must be diverted to pay the lenders their pound of flesh. That means there is less money in the national economy to buy goods and services, which means the economy must shrink to pay the higher interest costs.

This is why unemployment in Spain and Greece has skyrocketed and why 100,000 small businesses have closed in Greece in the past year.

2. A funny little feature of interest is that when people see you're at risk of default, they start charging you more to borrow their money. And it isn't a tiny bit more interest, it's a lot. Think subprime teaser loan at 3% shooting to 8%, or 28% if you're trying to sell new debt on the open market.

For the E.U. to "help" Greece and Ireland by rolling over their already crushing debt loads into new, higher interest loans is like "helping" a sick patient by sticking a knife into their back.

3. Governments over-promise future benefits to win elections in the here and now. This makes sense, of course, because you win the elections and power now and the problem of paying for these excessive benefits is left to future politicos and taxpayers.

But when the phony "growth" (think metasticizing cancer) fueled by rapidly rising debt is finally cut off, then the government has no choice but to raise taxes, and keep raising them, to pay for the extravagant past promises made to citizens.

That means more of the national income is diverted to taxes, only part of which flow through as cash benefits to consumers. Much of the tax revenues flow to cronies, fiefdoms and of course those higher interest payments on the ballooning debt.

4. Cheap abundant credit has a funny little consequence: asset bubbles. When everybody can borrow vast sums of nearly-free money at costs much lower than the outlandish gains being reaped by real estate speculators and punters pouring cash into stocks and commodities, then of course it is a perfectly rational decision to leverage yourself to the max, borrow as much as you can and join the speculative frenzy.

So assets bubble up to frothy levels, and McMansions sprout by the thousands on Irish and Spanish soil. The "demand" is not for shelter; it was all speculative demand for something to flip and churn.

So when the debt bubble pops, so too do all the asset bubbles.

5. Leverage has a funny little feature called collateral and that other peculiar feature, interest. The land and house are the collateral for a mortgage (debt). As the real estate bubble popped, then the value of the collateral plummeted. Now the collateral is worth less than the loan--the borrower is "underwater."

The lender foolishly reckoned this would never happen, and now taking the collateral when the borrower defaults is an unsavory option because the lender will have to absorb a huge loss ("haircut") if they take the property.

So they choose to "extend and pretend," offering the borrower new terms, lower payments, etc., anything to keep the loan value on the books at 100%.

All of this is just artifice, of course; the borrower is insolvent, and so is the lender. As long as the borrower has to pay interest and principal, then there is not enough income left to "grow" anything. As long as the lender keeps the impaired loan on the books at the bogus valuation, then the lender is treading on the thin ice of insolvency.

6. As the national income and asset valuations both decline, the government imposes "austerity" programs which further cut incomes. A funny little feature of government "austerity" is the cuts come from the citizen's side of the expense ledger, not from the crony/fiefdom side.

Here in the U.S., for example, the library hours are slashed and the parks are closed to save $22 million in a $100 billion annual budget (those are the numbers in California) while various favored fiefdoms continue to get their swag. The "pain" of austerity is anything but evenly distributed.

7. People facing financial uncertainty and duress have a funny little habit called saving. As the reality of instability becomes crystal-clear to all, then people rather naturally rally round and circle the wagons, i.e. start saving money to cushion them through the hard times. Trusting in future benefits and bubbles is obviously foolish, and the only avenue of relative safety is cash (or equivalent) in hand.

As people save more of their declining income, there is even less national income left to be spent on goods and services.

8. These forces are self-reinforcing. The worse times get, the more people save. the lower the national income, the more taxes will be raised. The more visible these trends become, the more interest lenders demand as they see the positive feedback loops leading to insolvency.

Once a household or nation is burdened with stupendous debt loads and stagnating earnings, "growing your way out of debt" is impossible. The E.U. may succeed in strong-arming Greece into swallowing even more debt, more austerity and higher interest payments, but that will only speed up the self-reinforcing dynamics of insolvency, and guarantee the losses kicked down the road for a few months will be even more devastating.

http://www.zerohedge.com/article/guest- ... bt-fantasy" onclick="window.open(this.href);return false;
Investors Pull The Most Money From Domestic Mutual Funds Since September As Margin Debt Deleveraging Begins

Two notable observations in market technicals: first, from the NYSE, May margin debt declined for the first time since the May 2010 flash crash, and after peaking at $320.7 billion in April, the May sell off saw hedge funds and other levered investors modestly contract their gross leverage to $315.4 billion. Additionally, net leverage, or total net credit aka investor net worth, increased modestly from an all time record low of ($75) billion to ($67) billion. Still, leverage is at very precarious level should the ongoing drop in asset prices be met with an actual cash outflow in the form of redemptions. Which brings us to the second observations: according to ICI, domestic equity mutual funds, saw an 8th straight week of outflows in the week ended June 15, with the mount hitting $6.9 billion, or the highest in not only 2011, but the highest since September of 2010. Year to date nearly $10 billion in redemption requests have hit funds, meaning the only saving grace to an all out liquidation would be an increase in asset prices, which however now that additional monetary easing is off the table, will be a very difficult accomplishment. Incidentally, since the beginning of 2010, equity mutual funds have seen total withdrawals to the tune of $108 billion: not a great amount in the grean scheme of centrally planned things, but quite substantial nonetheless.
http://www.zerohedge.com/article/invest ... ing-begins" onclick="window.open(this.href);return false;

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LoveIsTruth
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Re: CNBC: Gold to hit $11,000 per Oz on dollar collapse - Vi

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Ron Paul to Bernanke: "Is gold money?"
Financial Services Committee Hearing 7/13/2011


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