Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

[shiny!]

Re: Bugs are the enemy, not Gold!

Plus, not many of us own gold. There's a relatively small number of us who own some dozens or a few hundred ounces at most.

Exactly why the politicians will target and scapegoat gold owners: to score points with the vast majority of angry, poor, envious have-nots.

And then there are those super-wealthy and powerful people who may own a great deal of gold, and are connected like the banksters were (and likely the banksters privately own a lot of gold themselves) and can influence their friends in Congress not to penalize them for owning gold.

They'll find a way out. They always do.

[metalman]

Re: Bugs are the enemy, not Gold!

I am sympathetic to the view that envy will drive populist politicians to point the finger at whoever benefits greatly by whatever measures are taken in an emergency. When oil prices exploded in the 1970s, Jimmy Carter got a windfall profits tax put on the oil companies.

But there's a difference between that situation and the situation of gold prices exploding. First, oil profits were going to a very small number of people/companies in very large amounts. The average citizen owned no oil and was not going to benefit from a high oil price. A lot of people own a little bit of gold, though - a wedding ring, some jewelry, maybe a coin inherited from a relative - and would like to see that gold suddenly worth a lot more money. Look at how many people are already selling their gold to the "we buy gold" people.

Plus, not many of us own gold. There's a relatively small number of us who own some dozens or a few hundred ounces at most. And then there are those super-wealthy and powerful people who may own a great deal of gold, and are connected like the banksters were (and likely the banksters privately own a lot of gold themselves) and can influence their friends in Congress not to penalize them for owning gold.

So I don't think the case for a windfall profits tax is as simple to make as it was in the 1970s when the nearly universally-hated "big oil" people were making big profits on something that the average guy felt was hitting him hard in the pocket when he went to the gas pump.

i'm with raja on this...

we live in a usa of boomers who 'forgot' to save for retirement... save a pathetic sum in a gov't managed account with their ss# on it.

bubble days greenspan testified to congress... proposes to raise the age of joe working his ass off building homes class... donating to his gov't managed retirement plan... & watching jim cramer to fluff his gov't retirement account... & there's greenspan... sucking his wall street clients' units... begging the congress critters to raise the ss bar to 70 or 100 or 300 yrs old... yeh, when these ferkers are done only yoda collects his gov't managed pension.

haven't heard the greenspan plan for raising the entitlement redemption age since the greenspan economy sh*t the bed.

promises made... promises to be paid... see portugal?

where's the $$$ to come from?

modern monetary theory... what a a sheetload of lefty dreamer bs.

tax gold... tax property... tax anything that moves.......

[Mn_Mark]

Re: Bugs are the enemy, not Gold!

Political needs will trump the economic needs . . . and a windfall profits tax on gold "profiteers" wil be enacted.

I am sympathetic to the view that envy will drive populist politicians to point the finger at whoever benefits greatly by whatever measures are taken in an emergency. When oil prices exploded in the 1970s, Jimmy Carter got a windfall profits tax put on the oil companies.

But there's a difference between that situation and the situation of gold prices exploding. First, oil profits were going to a very small number of people/companies in very large amounts. The average citizen owned no oil and was not going to benefit from a high oil price. A lot of people own a little bit of gold, though - a wedding ring, some jewelry, maybe a coin inherited from a relative - and would like to see that gold suddenly worth a lot more money. Look at how many people are already selling their gold to the "we buy gold" people.

Plus, not many of us own gold. There's a relatively small number of us who own some dozens or a few hundred ounces at most. And then there are those super-wealthy and powerful people who may own a great deal of gold, and are connected like the banksters were (and likely the banksters privately own a lot of gold themselves) and can influence their friends in Congress not to penalize them for owning gold.

So I don't think the case for a windfall profits tax is as simple to make as it was in the 1970s when the nearly universally-hated "big oil" people were making big profits on something that the average guy felt was hitting him hard in the pocket when he went to the gas pump.

[BadJuju]

Re: Bugs are the enemy, not Gold!

Again, too optimistic . . . .
That might be the way it plays out in the Fed's dreams -- that they will always maintain control, and everything will be OK.

But if there is a run on the dollar, and the Fed/Treasury can't stop it, and the US Gov needs to take the drastic measures such as those suggested by Rickards, your Fed informant's strategy will not prevail.
Political needs will trump the economic needs . . . and a windfall profits tax on gold "profiteers" wil be enacted.

What political will would there be against people holding gold? I don't see it. And the US Gov would be shooting itself in the foot with a tax on it. I wouldn't sell mine if they did. And if they tried to come to my door to force it out of my hands, it would long be gone having been buried in a hidden location. And that hypothetical situation is ridiculous. Even in 1933, they did not forcefully arrest people's gold. There is simply no way a tax would ever benefit any party, whether the government or the gold holder, involved. Like the others here, I think they would encourage the sell of gold by reducing taxes on it because they are inevitably going to revalue it to their benefit anyway.

[raja]

Re: Bugs are the enemy, not Gold!

. . . No high taxation as I have been discussing here since 2001. The expectation is that a high gold tax rate will criminalize gold and create a black market, the opposite of what they want. They want an optimal tax rate on gold that generates the highest tax receipts for the IRS but without creating a black market. He pointed me to this paper. In fact there is concern, he said, that the existing classification of gold as a collectible may cause the tax rate to be too high if the gold price keeps rising; as the gold price rises, so does the incentive for gold holders and dealers to conspire to evade taxes.

Again, too optimistic . . . .
That might be the way it plays out in the Fed's dreams -- that they will always maintain control, and everything will be OK.

But if there is a run on the dollar, and the Fed/Treasury can't stop it, and the US Gov needs to take the drastic measures such as those suggested by Rickards, your Fed informant's strategy will not prevail.
Political needs will trump the economic needs . . . and a windfall profits tax on gold "profiteers" wil be enacted.

[FrankL]

Re: Bugs are the enemy, not Gold!

It's a confusing concept. Capital flight means foreign capital and reserves flowing out of a country, and the countries own currency flowing back in - that is a currency crisis.


Dumping USD means they come home as they are exchanged for something else....

I see a huge problem for the US treasury and FED in case of a poom event, which requires them to act really fast:

They'll want to restrict foreign ownership of assets even more, as to prevent a complete foreign takeover of American companies, and of inflating values for things that are essential to US citizen.

Maybe they'll expand the restriction on foreign ownership of certain assets (publicly traded companies?) from the current restrictions on companies active in 'strategic sectors' (as they Chinese have discovered in the past).

The double-edged sword is that the more they restrict foreign ownership, the less remaining assets can be bought, and resultantly, the more USD will chase them and inflate their value. I guess it's in the FED's interests to direct inflowing USD into those markets where they like to see inflated prices (i.e. real-estate), and prevent it from flowing to arable land, infrastructure and the energy sector.

In other words, will they need to quickly install some form of capital controls before poom really takes off, and come up with a sensible way to defend the USD (like repegging to gold at a credible USD:gold ratio)? To what degree will the poom phase go before they need to do this?

[rogermexico]

Re: Bugs are the enemy, not Gold!

the definition of poom

Yes

[jk]

Re: Bugs are the enemy, not Gold!

Dumping USD means they come home as they are exchanged for something else....

the definition of poom

[rogermexico]

Re: Bugs are the enemy, not Gold!

I think that's silly, Mark. If people lose confidence in the dollar, money will flow OUT of the country, not in. In the 70s people lined up to buy gold and dump USD for CHF. Hyperinflation begins with capital outflows

It's a confusing concept. Capital flight means foreign capital and reserves flowing out of a country, and the countries own currency flowing back in - that is a currency crisis.


Dumping USD means they come home as they are exchanged for something else....

[metalman]

Re: Bugs are the enemy, not Gold!

Bretton woods: $ pegged to gold at $35/oz and other currencies pegged to $ at fixed rate. I call this a gold standard. It appears you don't. Potato/tomato.

It was a gold standard b/c it was a check on fiat generation, which is evidenced by its breakdown in the 1970's: the standard was working to prevent US from inflating unilaterally and inordinately, so it was abandoned. Recall the US did transfer several thousand tons of gold in redemption to foreigners with dollars before closing the gold window.

To your last point, under BW, $35 to an american was worth 1oz of gold which bought a fixed amount of other currencies - there was limited dollar depreciation, only gold redemptions.

national gold standard = national gov't issues currency made out of gold & paper currency can be redeemed for gold by any citizen on demand.

pre 1933 international gold standard = national gov't #1 accepts currency in payment for trade from national gov't #2 IF the #2 guarantees that #1 can redeem #2's currency for gold on demand @ $24/oz or trade settled in gold bullion.

until 1933 most countries operated a national gold standard & all were on the international gold standard of the time.

after wwii no country operated a national gold standard & all were on the bretton woods international gold standard = trade settled in us$ with the us$ redeemed gold on demand @ $35/oz.

national gold standard = citizens don't trust the gov't with the currency.

international gold standard = gov't #1 doesn't trust gov't #2's currency.

now we got neither because all gov't can be trusted 100% with the currency

& they trust the usa 100%

http://blogs.wsj.com/economics/2012/...o-buying-gold/

lying... stealing... cheating... has consequences.

usa is the example for the world... if not the usa, who???

[vinoveri]

Re: Bugs are the enemy, not Gold!

You clearly aren't reading what I posted, because Bretton Woods was not a gold standard for anyone but central banks, and even then it wasn't a gold standard so much as a standard to exchange excess foreign reserves for gold.

You as an individual could not trade dollars for gold at a fixed price with the government, nor could a foreign central bank trade its own currency into gold at a fixed price, although a central bank did have to buy its own currency and pay in gold.

In fact as an American, you couldn't even own gold as bullion. How can you have a 'gold standard' when Americans couldn't even legally own bullion until 1974? Which incidentally is after Bretton Woods was abrogated.

Bretton woods: $ pegged to gold at $35/oz and other currencies pegged to $ at fixed rate. I call this a gold standard. It appears you don't. Potato/tomato.

It was a gold standard b/c it was a check on fiat generation, which is evidenced by its breakdown in the 1970's: the standard was working to prevent US from inflating unilaterally and inordinately, so it was abandoned. Recall the US did transfer several thousand tons of gold in redemption to foreigners with dollars before closing the gold window.

To your last point, under BW, $35 to an american was worth 1oz of gold which bought a fixed amount of other currencies - there was limited dollar depreciation, only gold redemptions.

[c1ue]

Re: Bugs are the enemy, not Gold!

Sorry if I wasn't clear; not sure which terms you think I'm mixing; Bretton Woods was a gold standard reinstituted post WW2; then off in 1971-73 when gold window closed by nixon. Now we're preparing to go back on one. If you bothered to read the rest of my post (the part you didn't quote) perhaps this would have been clear:
"When ready, Fed and other government announce new global currency system gold valued at $15,000/oz. System allows governments to excahnge gold but not citizenry, similiar to Bretton Woods."

You clearly aren't reading what I posted, because Bretton Woods was not a gold standard for anyone but central banks, and even then it wasn't a gold standard so much as a standard to exchange excess foreign reserves for gold.

You as an individual could not trade dollars for gold at a fixed price with the government, nor could a foreign central bank trade its own currency into gold at a fixed price, although a central bank did have to buy its own currency and pay in gold.

In fact as an American, you couldn't even own gold as bullion. How can you have a 'gold standard' when Americans couldn't even legally own bullion until 1974? Which incidentally is after Bretton Woods was abrogated.

[EJ]

Re: Bugs are the enemy, not Gold!

The government already has gold - if you believe them. And making the dollar domestically redeemable is unnecessary to stabilize the IMS. Confiscation is unlikely to yield much if any gold voluntarily and draconian taxes would be detrimental as it would drive gold out of the country or underground. What purpose is there to confiscation other than to pinch the middle class of what little remaining wealth they have managed to retain through the inflation, and, as HK mentioned, foment a political crisis. But why stir up trouble when you are already in charge? It makes no sense. Without some sound reasoning this all seems like doomer porn.



100K an ounce gold would have certainly have an impact on cost of electronics. Likewise certain medical treatments would become very expensive.

I've discovered at the various meetings I've had with Fed economists and others who attend meetings there that there is no faster way to clear the table after dessert than to bring up the topic of gold.

They really, really, really do not like to talk about gold.

But over the years some have learned that I'm not a journalist but an analyst; I'm not going to quote them on my web site to create controversy and traffic for me and headaches for them. That's not our business model. So one or two have opened up a bit.

One official gave me his personal and unofficial thoughts on what might happen in the highly, no extremely, no next to impossible event that the USD is officially associated with gold in some fashion some day off in the nearly infinite future. With all of those qualifications preceding his comment, he went on to give his opinion. It was an enlightening conversation and a window into a thought process.

It was not what I expected. Hint: No high taxation as I have been discussing here since 2001. The expectation is that a high gold tax rate will criminalize gold and create a black market, the opposite of what they want. They want an optimal tax rate on gold that generates the highest tax receipts for the IRS but without creating a black market. He pointed me to this paper. In fact there is concern, he said, that the existing classification of gold as a collectible may cause the tax rate to be too high if the gold price keeps rising; as the gold price rises, so does the incentive for gold holders and dealers to conspire to evade taxes.

I'm glad to take the subject up over in the subscriber area now that we've finally published Part II of this article here... $ubscription.

[radon]

Re: Bugs are the enemy, not Gold!

The discussion here has been assuming there will be a fixed peg to gold and we've been figiuring out the implications of that: how will the government get the gold that it will peg the dollar to? Will they confiscate all of the citizens' gold? Will they buy the gold from the citizens, encouraging them to sell with tax incentives? Will they punish citizens who try to hold on to their gold by implementing a 90% windfall profits tax? How will they decide what the exact dollar peg will be? Will they set it above the price they expect the market to demand? How much higher?

The government already has gold - if you believe them. And making the dollar domestically redeemable is unnecessary to stabilize the IMS. Confiscation is unlikely to yield much if any gold voluntarily and draconian taxes would be detrimental as it would drive gold out of the country or underground. What purpose is there to confiscation other than to pinch the middle class of what little remaining wealth they have managed to retain through the inflation, and, as HK mentioned, foment a political crisis. But why stir up trouble when you are already in charge? It makes no sense. Without some sound reasoning this all seems like doomer porn.

It can be priced at $50,000 or $100,000 an ounce without upsetting any other part of the economy. No other "commodity" could do that.

100K an ounce gold would have certainly have an impact on cost of electronics. Likewise certain medical treatments would become very expensive.

[Mn_Mark]

Re: Bugs are the enemy, not Gold!

I think that's silly, Mark. If people lose confidence in the dollar, money will flow OUT of the country, not in. In the 70s people lined up to buy gold and dump USD for CHF. Hyperinflation begins with capital outflows

If the international community loses faith in the dollar, the people around the world holding dollars will want to get rid of them and buy something real. The only place left that will take dollars is the citizens and government of the U.S., since dollars are our legal tender. So picture those vast quantities of dollars from all over the world trying to buy something, anything, from the U.S., the only place left that they can get rid of the dollars. Suddenly no one else in the world wants dollars in exchange for their stuff. You can't buy that French wine anymore, or the Argentine beef, or the Chinese labor, or whatever. They don't want dollars, they want to get rid of them. In the U.S., prices for any foreign good skyrocket. Meanwhile, all those dollars come flooding back, trying to buy something, anything - and all those repatriated dollars compete with our own dollars when we go to the store or want to buy real estate or whatever. Hyperinflation.

The beauty of gold is that it is not used for anything else, like say oil or soybeans. And people all over the world are happy to take gold. So the dollar price of gold can skyrocket, soaking up all those excess dollars flowing back into the country. What is important is that U.S. citizen holders of physical gold are willing to take it down to the coin shop and sell it, accepting paper dollars in return for their precious physical gold. When the price is high enough, they will do that....and that flow of American-citizen-held-gold then flows out of the country in exchange for that massive inflow of unwanted dollars, taming the hyperinflation and reassuring foreigners that they can get something of real value for those dollars.

So I disagree. In a dollar confidence crisis, the dollars will massively flow INTO the U.S.. It will be very hard for U.S. citizens to get them to flow OUT, because foreigners will not want to give up anything of real value for hyperinflating dollars. Were foreigners interested in taking hyperinflating Weimar deutschemarks in 1924? Nope. They wanted "hard currency" in return for their imports, not worthless Weimar money.