Topic: Gold: I smell a trap - page 12. (Read 90826 times)

Its not me, even he admited his prediction failed. He was predicting a deflationary collapse that did not happen. Yes there was movement in the stock market and commodities that they recovered "quickly" and the CPI hardly touched the negative. If the government had not done anything it would have happened as he predicted. But a lot of people told him how governments would react and he ignored it. I dont really know why he only looks at the credit part while ignoring the rest.

His theory of credit is great to know because it describes the present system correctly, but thats it.

we agree


come on hugolp.  how can you say he fails?  the story has just gotten started.  first of all he was right about the deflationary shot over the bow we got in 2008.  the story is not nearly over b/c of the only partial retrace we've gotten since as evidenced by the S&P 500 which has resumed its rollover.  when it undercuts the 3/09 low you'll be singing a different story about Keen's deflationary predications.  also look at the hook downs in all the economic charts i just put up.  deflation is going to be here for at least half a decade or more.

Yes, the facts are clear and we agree.

The issue is what are the effects of such contraction of credit and if it is good or bad that it happens. To some degree its "good" or at least necessary that happens because its the effect of removing bad business out of existance. If you dont allow that process to happen you will only prolong the depression.


Steve Keen has a very interesting theory of credit and everybody should read it. In fact, I learned about it reading him. Its the same theory of credit that chartalist have adopted.

But he fails big time on the rest. The proof is that he was predicting big deflation and it has not happened. When asked why his predictions failed he answered that we have seen an unsual government reaction that has avoided the deflationary collapse. The problem is that he knows its just an excuse, that the reaction of governments is not unusual and that a lot of economists had told him thats exactly what governments would do, because its what they do everytime a bubble pops. I dont understand why he takes so much care to understand one side of the monetary system (the relation between the banks and the central bank) but likes to ignore the other part (the relation between the government and the central bank). I really dont understand why he does that.

Also, the use of aggregates and in general the heritage from keynesian economics hurts him as well.

Yes, for now. That's how Bernanke got away with his first few helicopter drops - there was still some leeway. The window is now closed; most governments are backed into a corner and the reciprocating effects of competitive devaluation (it hasn't gone away, just slowed temporarily - the Swiss fired their salvo while everyone else is reloading) are coming back to drag on the US economy.

It's impossible to cause even a minor financial disturbance without international markets being affected to some extent. With the various bailouts, enough displacement occurred to further damage the underlying financial structure (esp. confidence and reliability of counterparty security). Politicians and monetary overlords have excused themselves from adhering to a "do no harm" credo.

The banks may have offloaded a portion of their worst liabilities, but it was tossed onto the plate of the institution they were bailed out by. Gov't has its back even further against the ropes because of that. If the losses were realized, that would be one thing - instead, by been shuffled elsewhere they're festering.


Right there - no responsibility on behalf of the banks; moral hazard.


Yes, yes and yes; dominant for the past few months.


Not merely "is going to" - is being forced to because of cause & effect. The banks figured out how to effectively monetize debt and until the debt instruments are unwound, it will remain as long-term, illiquid money. For an individual, this would be like having a retirement account - you have an asset, but it's locked up. If the Fed doesn't formally monetize the debt, there's no way it can be reverted back to simple loan structures in a timely manner.

How long does it take to unwind these instruments? Legal proceedings must take place to determine who the defendants and plaintiffs are in each case. With many securitized instruments having dozens or even hundreds on both sides, determining who is associated with what and collating that across multiple sets of records becomes daunting. It's like trying to figure out the path a dollar bill takes as it's used in various exchanges to understand how to reverse that exact series of transactions.

The task is daunting, to say the least. On top of that, how many lawyers have sufficient expertise and technical knowledge to properly navigate these financial instruments? How many disputes will there be? How will market value be determined? What about counter-claims and tertiary suits and on and on?

The debt cannot be unwound fast enough to ensure that business and the economy will function when deflation takes full hold. It may take a decade to make that happen. In the meantime businesses continue to fail, banks keep bleeding and government is still in panic mode. How many goods and services will remain? The power dynamic would shift entirely away from the current hegemony.

We cannot just look at the US. Fed-initiated QE forced other nations to follow suit. That disruption has finally percolated throughout the world. Each monetary authority that inflated alongside the US added to the problem. Sure, the banks have been rescued for now and some of the non-performing debt has been transferred to gov't books, but moving it around doesn't solve the problem of excess debt.


Why do they have to loan out money? In order to make up for the crunch, they'll become more aggressive in other aspects. Encouraging the average Joe to deposit funds for trading will bring an influx. Proprietary trading desks are still all the rage. Not to mention the ongoing returns they're getting from gov't bonds. Kick leverage higher to allow for more flexibility.

Forget the banks, how much more will the government have to keep paying out to prevent the banks from deciding they can get better, reasonably risk-free returns by unleashing what reserves they can? In other words: if the banks keep being crimped, what is the threshold where they'll be forced to search for cash elsewhere unless the rates paid on reserves rise? How much further does deflation have to squeeze them for that situation to arrive?


I agree. However, from the Shillings chart you posted earlier, it's rather obvious that gov't is picking up the slack where consumers are falling off. More recent information might show a different picture. I don't know of a more current data series or chart offhand - do you have one?




Again, slack in financials is being picked up by gov't. Also note that lending is still occurring, it just isn't at as rapid a rate as it was at the peak. It isn't as though everything freezes up all at once.


Absolutely. One question: what happens when large numbers of students aren't occupied with studies and are unable to find jobs? Panacea? I'd lean toward unrest. Maybe those loans will continue after all...


Rising, but nowhere near what we saw in 2008. Maybe that's because the stress is on the European side this time?


Rehash of consumer slack being picked up by gov't.


Yes, there are flow disturbances. This was acknowledged.

It must be kept in mind that the gold market is tiny compared to most others. Bonds, currencies and equities all dwarf the gold cap. Thus only a very small amount of flow needs to find its way to gold in order for major price moves to occur. There is also an entire world outside the borders of the US.


Yes, although a stronger term might be necessary - terrified perhaps. A lot of capital is in the hands of non-professionals. These are people who don't understand exactly what's going on. They're the people who hear gold blasted in the news and get advice from their domestically-educated investment advisers whom have likely lost a good chunk of their own wealth as well. It's the blind leading the blind.

After taking stock of what's going on, those people will eventually dip a toe back in the water. It's a gradual process.


This distinction is extremely important: monetary inflation is not the same as asset price inflation or economic growth. Businesses do not manage the money supply (derivatives and securitization by banks notwithstanding). Monetary inflation can provide room for business (and economy in general) to grow, but there is not a 1:1 relationship. Asset price inflation can result from monetary inflation, but only due to underlying supply/demand fundamentals.


Pay attention to the increasing volume at the bottom of the chart. Either HFT has progressively gone haywire, or rising amounts of capital are flowing into the sector. I will point out again that a $300 drop from $1,000/oz to $700/oz in 2008 was a 30% correction while the same $300 drop from $1,900/oz to $1,600/oz last month was only a 15% correction.

The price does not show the supply/demand fundamentals. Those are set up in almost exactly the same bullish formation as in 2008. At that time, price was also the only piece of data that was bearish for precious metals; misdirection.



Monetary inflation triggers asset price inflation, then wage inflation. Monetary inflation has been held in check, so now the crunch hits. Those are domestic factors. If that was the only concern, I might consider deflation a possibility. There are numerous external factors, so deflation is not an option.



Maybe a detailed explanation is due, based on more than price action. Vague and intermittent associations offer tenuous arguments.


Again, pay attention to silver volume. Magnitude increases in volume suggest increased capital flows from rising demand. There is also a severe drop-off in volume on the second spike down as compared to the May 2011 decline. This suggests that there are very few longs bailing out.

The same numbers behind the scenes reflect another bullish setup, just as with gold. One more time: price is the only bearish data.


A simple strategy is good, but I think you've gotten a bit too simple. The inverse association is intermittent.

For this thread supposedly being about global economics, there sure was a lot of gold-related sentiment in these recent posts.

I have to say, it was refreshing to see all of the STL Fed data sets displayed - thank you. So we've agreed again that deflation is the dominant force at the moment. This series started off very nicely. When it came to the price charts, there was no real explanation for why the price action in gold and silver are occurring aside from deriving meaning from the price actions themselves. Circular reasoning is a fallacy.

Let's take a look at some technical price analysis versus fundamentals.

What about lumber? It looks like it's in a range, but that's heavy. Deflation is in vogue.



Perhaps more paper will be needed for the myriad new legislation and IRS forms coming down the pipe? In all seriousness, there are so many uses for lumber (construction, repair, fuel, paper, etc.) that there really isn't any argument against it.

Still not convinced? Try AT&T on for size. Recession? Depression? Where? Business as usual, go back to your daily lives.



Would it stand to reason that the company is consistent because it's part of critical infrastructure?

No? Alright, I think Genesco's price chart looks great. So much for deflation, right? I mean, price is everything.



Or maybe this is due to the fact that brand recognition still counts, or at least because people still wear shoes.

I haven't seen a reply from you on the issues of:

• Open Interest
• Volume
• Commitment of Traders reports
• COMEX/NYMEX deliveries
• COMEX warehouse inventories
• SPDR ETF (GLD/SLV) trust holdings movements

I suggest we just see how things play out this month. After that, we can reassess what's going on and adjust our theories.

I'll leave with the news that over 1 million silver eagles have been sold by the US Mint as of October 3rd, following a near-30% drop from September 21st through the 26th. Silver coins sales were immediately halted for "repricing" purposes. Even with a similar decline of nearly 30% in price, gold coins are still being sold.

Silver sales are about 200,000 away from hitting a new record, and there is still one more quarter left in the year. It isn't as lofty, but gold is high also. I would think it safe to assume the fundamental of supply and demand is the cause. Where is the bubble? Participation is still low, and these buyers won't be letting go unless substantial profit is involved. If they view precious metals as insurance, they probably won't let go for any fiat price.

Got physical?

* And farewell, Steve Jobs.

Recession is not a statistic, Recession is a process.
   -- Lakshman Achuthan, ECRI

...contagion http://www.bloomberg.com/video/76372300/ (who linked this earlier?)

in this particular time, deflation is definitely occurring via the contraction of credit which is the vast majority of the money supply.

i just showed you the graphs to prove it.

Steve Keen would even argue its the rate of change thats important.  a slowdown in the rate of change is all thats required to throw everything into reverse.

No. The relation between economic prosperity and prices is way more complicated than that. Some economist like to make easy relations based on short periods of history, but they are just wrong.

You can find in history periods of deflation and economic prosperity, deflation and crisis, inflation and economic prosperity (although you might have a lot of problems trying to find this ones, becuase they are usually bubbled times, not real economic prosperity) and inflation and crisis (called stagflation).

deflation=a decrease in the amount of money + credit marked to market.  answer:  yes.

Subscribing to this thread

I don't have the economic insight that the main posters on this thread have, but all those charts would seem to be indicative of one thing.. recession?  Economic growth is declining.

So does a recession and deflation go hand in hand?

now this ones a little harder.  flip all the other charts over top to bottom and what do you get?

10yr weekly chart.  just to make this argument complete, guess what chart this is and compare it to the above economic charts.

now look at this 15 yr weekly chart of the S&P 500.  stocks lead the economy.  see that hook DOWN over at the far right?  what does this tell you about where we're headed?  we've formed a huge downsloping head and shoulders formation over the last 10yrs which is extremely bearish.  again, if the economy and stocks tank, what will happen to gold which is also hooking down?  

this is precisely why Whirlpool looks as sick as it is.  no manipulation of this price chart.
lines up pretty nice, eh?