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Don't hold your breath waiting for Bernanke to raise rates - Eric Janszen

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  • #16
    Re: Don't hold your breath waiting for Bernanke to raise rates - Eric Janszen

    With the run in to the first budget of the new government under way here in the UK the same debate applies to us as well. Here, I expect to see a move towards forcing the executive to work within the tax income which will be reduced by a measure for repayment of debt. So here also, there would be no incentive to drive raising the rate.

    But there is another aspect to this that is worth remembering. Low interest rates are a prerequisite for long term equity investment. Once savers realise they cannot see a return to banking their savings and earning an income above inflation, then the drive becomes irresistible to find a better home for the savings. In past times, that would have been "markets" of one form or another. But this time, that route will diminish as regulatory effects take hold and suppress the use of the savings in that sphere.

    It will soon dawn on many that the one place they might see a reasonable return will be from what are normally described as most risky, local community investment of equity capital into local small and medium businesses. Not for the expectation of a rising asset value for the share which will not trade on any market. But instead, from the dividend income. If such SME's realise they can gain friendly local investment if they provide a reasonably secure 8% annual return from their annual dividend; then a new phase of investment will start. But that will not be under FIRE rules, but true free enterprise rules.

    Policy makers need to realise the potential. But that will in turn bring them a downside. If savings start to run into such investments; then they stop flowing into the FIRE coffers and are not available for the use of the government. The more established bond markets will dry up if the flow of savings changes direction.

    The next few months will show us where the regulators want the flow to go.


    • #17
      Re: Don't hold your breath waiting for Bernanke to raise rates - Eric Janszen

      Originally posted by LargoWinch View Post
      TPC, do you believe that the Wocu will have a gold component?

      For my part, I think it will be essential in order to sell this new currency to the masses.
      The Wocu does not have a gold component at present, as others have noted above. I don't see any way that the Wocu could be directly modified to contain a gold element and maintain its current selling strengths, as an apolitical meta-currency weighted against a basket of all the worlds major national currencies.

      The Wocu isn't sold to the masses; individual nations (or regions, perhaps, with the Euro) keep their national currencies. The Wocu is only "sold" to major players in the Forex markets, such as national central banks and big energy and transportation interests.

      The Wocu would hope to become the world's reserve currency, the meta-currency, the currency in which national central banks settle accounts and hold reserves, and the currency in which major inter-national contracts for transportation and energy might be written, replacing the Dollar in its reserve currency role.

      Gold comes into the scene indirectly, as holdings of various national central banks, in varying degrees and as "insurance" (the same reason you or I hold gold in the long term) for the day that such international fiat currency arrangements collapse.

      P.S. -- When and if gold is commonly quoted in Wocu rather than Dollars, we will likely hear familiar sounding allegations from us gold bugs that the price of gold in Wocu/gram is being "managed" by the GIS/IMF/G20 and their central banks, in order to lend credence to the sustained value of Wocu. I'd expect we'd see the Wocu/gram price of gold fall for a decade or two, as we did with the Dollar/ounce price after the early 1980's Dollar crisis.

      P.P.S -- Ultimately it would be this falling price, in Wocu/gram, of gold, over a period of a decade or more, that would drive a substantial quantity of gold from smaller private hands back into central banks. That re-centralization of gold is something I also anticipate, and mentioned IIRC yesterday in some other post somewhere here on iTulip. Investors usually seek to hold what's increasing in wealth and to divest themselves of what is declining in value.
      Last edited by ThePythonicCow; 06-09-10, 04:24 PM.
      Most folks are good; a few aren't.


      • #18
        Re: Don't hold your breath waiting for Bernanke to raise rates - Eric Janszen

        P.P.P.S. -- Gold "backed" the Dollar in an indirect way in the two decades between the early 1980's and the early 2000's. It was commonly priced in Dollars, and its Dollar/ounce price was declining over that period, which us Conspiracy Cows Nuts blame on central bank and bullion bank manipulation. When you choose to price your product in units established by your "arch enemy" and when they have the power to manipulate that price, you're pwned. Gold was no longer the stronger money backing the Dollar; Gold was being abused by the Dollar Masters to the benefit of the Dollar. I am predicting this scenario will repeat, with the Wocu.
        Most folks are good; a few aren't.