The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

[raja]

Re: Gold Bears on thin Ice?

This seems to mean that gold prices would rise even while nominal rates rise, perhaps even while real interest rates rise.

I would like gold to rise . . . but it might be awhile.

We're headed for a global slowdown, and I think everything is going to get cheaper due to demand destruction, Deflation is coming.

At some point, the governments will start "printing" in earnest to "fix" the problem.
They are printing right now to repair the banks' balance sheets, and the money's not having much effect. But when the printed money starts creating big inflation, gold will go up.

Gold will go up under two conditions: 1) the value of the dollar goes down, and/or 2) investors fear a catastrophic event is coming, or has occurred.

[ocelotl]

Re: EJ/GAGFO on Financial Sense/Puplava ?

Are you trying to say Mexico is headed for a sudden stop? I am not sure how good Mexico looks on the medium to longer term because of their rapid depletion of domestic oil.

More like the whole OECD is headed for a sudden stop... And I'm not sure we down here in Mexico can avoid it...

[Polish_Silver]

Gold Bears on thin Ice?

What can the U.S. do to improve the GAGFO status of the USD, resulting in a reduction of the gold price on reserve account of central banks?

The U.S. can lower its budget deficit by generating more tax revenue from economic growth while reducing federal government spending.

It can be relatively less frightening a place to invest than other countries in absolute terms.

It can reduce its oil trade deficit by producing more oil domestically.

In the event the U.S. has done all three of these things since 2011.

--EJ

All three of these things look very ephemeral to me:

Good place to invest?
With Zirp policy, we have over-inflated asset values. When rates (even nominal rates) rise, what happens to property and stock values?

Budget deficit:
This will also be massively impacted by higher nominal rates. The population is still aging, and we are not a bit closer to medicare or general medical cost reduction. (I am leaving out MIC for brevity)

Oil trade deficit: '
Oil prices will rise, just because the world is depleting reserves. Meanwhile, domestic production will decline for these reasons:

a) most of the "new production" is just accelerated use of existing reserves.
b) higher rates won't support the profit free oil and gas production
c) Market enthusiasm for tight oil will subside as the depletion rate becomes public record.

This seems to mean that gold prices would rise even while nominal rates rise, perhaps even while real interest rates rise.

[BadJuju]

Re: EJ/GAGFO on Financial Sense/Puplava ?

At least the cartels offer excellent employment opportunities in Mexico. Although I've heard the work can be killer.

[ProdigyofZen]

Re: EJ/GAGFO on Financial Sense/Puplava ?

So, this is it. The sudden stop is imminent... Reminds me of past related articles.

http://www.itulip.com/forums/showthr...-a-Sudden-Stop

and additional research ones...

http://www.ucema.edu.ar/publicacione...ume1/calvo.pdf
http://dev3.cepr.org/meets/wkcn/1/15...hutchinson.pdf
http://www.econ.umn.edu/~tkehoe/papers/SuddenStops.pdf

When all this unfolds, the question is not about whether if any particular currency is "less bad" or "more competitive than the rest. The reference is surely going to shift from currency to exchange goods... As it develops, many world currencies will have to retie to gold in some way or another. How long is this going to take? I'm considering it a matter of several years, since there are many cultural ties with the FIRE culture in many countries. We will have to reeducate ourselves to a less profligate world...

So far I've avoided to even mention the media hype about the so called "MeMo" or "Mexican Moment". I had been waiting to see if it had any basis, if we have our so much awaited "Pacto de la Moncloa". It has been a matter of waiting to see real changes, that are taking just too much to happen, and with 60% of population outside of formal capital generation, it may take a lot longer to happen.

Are you trying to say Mexico is headed for a sudden stop? I am not sure how good Mexico looks on the medium to longer term because of their rapid depletion of domestic oil.

[ocelotl]

Re: EJ/GAGFO on Financial Sense/Puplava ?

So, this is it. The sudden stop is imminent... Reminds me of past related articles.

http://www.itulip.com/forums/showthr...-a-Sudden-Stop

and additional research ones...

http://www.ucema.edu.ar/publicacione...ume1/calvo.pdf
http://dev3.cepr.org/meets/wkcn/1/15...hutchinson.pdf
http://www.econ.umn.edu/~tkehoe/papers/SuddenStops.pdf

When all this unfolds, the question is not about whether if any particular currency is "less bad" or "more competitive than the rest. The reference is surely going to shift from currency to exchange goods... As it develops, many world currencies will have to retie to gold in some way or another. How long is this going to take? I'm considering it a matter of several years, since there are many cultural ties with the FIRE culture in many countries. We will have to reeducate ourselves to a less profligate world...

So far I've avoided to even mention the media hype about the so called "MeMo" or "Mexican Moment". I had been waiting to see if it had any basis, if we have our so much awaited "Pacto de la Moncloa". It has been a matter of waiting to see real changes, that are taking just too much to happen, and with 60% of population outside of formal capital generation, it may take a lot longer to happen.

[EJ]

Re: EJ/GAGFO on Financial Sense/Puplava ?

Perhaps the oil trade dwarfs the other items and they would just represent noise in the equation.

Yes. Japan's food imports are 8.7% of total merchandise imports whereas oil and fuel are 35.1%. Only manufactured goods are a larger portion at 45.2% but most of these are non-essential.

[porter]

Re: EJ/GAGFO on Financial Sense/Puplava ?

Appreciate the though, however I think the theory is too complex for a mass audience. We are scripting a GAGFO video along with PCO and PCC videos as part of the endless iTulip re-do project.

I'd personally love to see these videos. Is the new website actually coming out soon? I don't mean to be cynical, but I've been hearing that the new website launch is "right around the corner" for roughly 3 years now....


Do you need help? I'd be willing to pitch in and I know at least one other member here with some web development chops who would too.

[charliebrown]

Re: EJ/GAGFO on Financial Sense/Puplava ?

Have you thought about the use of gold as reserves for other traded commodities such as wheat, iron etc. For example Japan imports a lot of food.
Perhaps the oil trade dwarfs the other items and they would just represent noise in the equation.

[EJ]

Re: EJ/GAGFO on Financial Sense/Puplava ?

I am wondering of EJ has considered presenting basic GAGFO theory on financial sense.

The objectives would be:

1) reassure frightened bugs about the real reasons for the gold price decline.

2) EJ gets public recognition for the GAGFO idea. In my opinion, his most original yet, and one of the most important.

One problem might be that explaining it and justifying it might be more tricky than
PCO , MAD, or "toxic assets". That's EJ's problem. He's a good explainer.

Appreciate the though, however I think the theory is too complex for a mass audience. We are scripting a GAGFO video along with PCO and PCC videos as part of the endless iTulip re-do project.

[DSpencer]

Re: The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

"How could the EU unilaterally revalue gold at $28,000/oz?"

the fed posts prices at which it will buy or sell gold, i.e. a bid and asked for gold. bid 27950, asked 28050. who now will accept less than 27950 for the oz of gold they want to sell, since they know that's what the fed would pay? who now will pay more than 28050 since they can buy an oz from the fed at that price? qed.

This is a bit confusing since we're talking about the EU, the price of gold in dollars and the Fed. For the sake of simplicity I'll assume that we're talking about a central bank pricing gold in their own currency.

What happens next? It seems there are two possible outcomes:

1. The Fed ends up buying essentially all the gold in the world as people rush to trade in their gold for this high price. Sort of the opposite of what led to the closing of the gold window. The price stays so far above the value that rational people will not hold or buy gold.

2. The value of the currency gets pushed down until it reaches an equilibrium point. Where the market value of gold is $28,000, but now everything costs more in dollars. At this point people stop trading in their gold in droves because $28,000 is the new market price at which other people would be willing to buy gold.

I've heard it estimated that there is roughly 5-6 billion oz of gold mined in human history. That would mean about 150 trillion dollars at $28,000 per oz. So I assume that number 2 would happen. My belief is that the value of gold in today's dollars would jump some, maybe to 3-5k per oz, but would never approach 28k.

Does this logic and math make sense to anyone else?

[jk]

Re: The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

"How could the EU unilaterally revalue gold at $28,000/oz?"

the fed posts prices at which it will buy or sell gold, i.e. a bid and asked for gold. bid 27950, asked 28050. who now will accept less than 27950 for the oz of gold they want to sell, since they know that's what the fed would pay? who now will pay more than 28050 since they can buy an oz from the fed at that price? qed.

[coolhand]

Re: The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

"How could the EU unilaterally revalue gold at $28,000/oz?"

That is very easy: just demand the gold held in NY to be delivered in 7 weeks, instead of 7 years. All of it.

Not going to happen though, there is a reason there are US troops in Germany (not, it is not the Soviet Union threat ).
Also, most of that EU (and US) gold is probably gone, leased out.

How could the EU unilaterally revalue gold? The Fed does it every single day with Treasuries...that's the whole point of QE.

[BlackVoid]

Re: The Post-Market Economy - Part I: Chaos on Planet ZIRP - Eric Janszen

"How could the EU unilaterally revalue gold at $28,000/oz?"

That is very easy: just demand the gold held in NY to be delivered in 7 weeks, instead of 7 years. All of it.

Not going to happen though, there is a reason there are US troops in Germany (not, it is not the Soviet Union threat ).
Also, most of that EU (and US) gold is probably gone, leased out.

[Polish_Silver]

EJ/GAGFO on Financial Sense/Puplava ?

I am wondering of EJ has considered presenting basic GAGFO theory on financial sense.

The objectives would be:

1) reassure frightened bugs about the real reasons for the gold price decline.

2) EJ gets public recognition for the GAGFO idea. In my opinion, his most original yet, and one of the most important.

One problem might be that explaining it and justifying it might be more tricky than
PCO , MAD, or "toxic assets". That's EJ's problem. He's a good explainer.