28-Jul-11 News -- Washington follows Brussels in fraud

[John]

28-Jul-11 News -- Washington follows Brussels in fraud and extortion

A warning about gold

** 28-Jul-11 News -- Washington follows Brussels in fraud and extortion
** http://www.generationaldynamics.com/cgi-bin/D.PL?xct=gd.e110728b#e110728b


** 28-Jul-11 World View -- Britain expels Libya's ambassador
** http://www.generationaldynamics.com/cgi-bin/D.PL?xct=gd.e110728#e110728


India swoons over Pakistan's hot new Foreign Minister


Contents:
"Washington follows Brussels in fraud and extortion"
"Fraud and extortion in Washington"
"The war on ratings agencies"
"A warning about gold"
"Moody's puts 5 states on notice for possible downgrade"
"S&P lowers Greece's ratings"

### World View - Britain expels Libya's ambassador
"India swoons over Pakistan's hot new Foreign Minister"
"Britain expels Libya's ambassador, recognizes rebel government"
"Mayor of Kandahar Afghanistan killed by suicide bomber"
"Syria: Every day is Friday during Ramadan"
"Russia announces that it will sink space station in Pacific in 2020"

Keys:
Generational Dynamics, fraud, extortion, Greece, Jean-Claude Juncker,
Ben Bernanke, Eric Dinallo, price/earnings ratios, operating earnings,
Charles Minter, Comstock Partners, Moody's, S&P, Fitch,
ratings agencies, gold bubble, Maryland, New Mexico, South Carolina,
Tennessee, Virginia
`
Keys:
Generational Dynamics, Hina Rabbani Khar, Pakistan, India,
Libya, National Transitional Council, Kandahar, Afghanistan,
Syria, Ramadan, Russia, International Space Station

[OLD1953]

While I agree that the outlook for the US and the world economy is grim, the US still has options. Greece, Spain, Ireland, Italy and Portugal do not. The US has low taxes for a developed nation, a working infrastructure and still has a large working population. The problem lies in the fact that the people of the US are acting like spoiled brats, and they are electing spoiled brats to congress. Nearly half of Republicans in the House say they will not vote to raise the debt ceiling limit under any circumstances. They don't care about default, they don't care about the economy, it's not real to them. It's driving a car off a cliff, and realizing there might be a problem about halfway down.

Boehner's cuts are a joke, BTW, 2.7 trillion sounds like a lot, until you realize it's for a period of a decade, 270 billion per year, and he wants more tax cuts too. That's not even sane. Obama's position is more balanced but it doesn't go far enough either, and he's counting on that V shaped recovery the CBO keeps predicting. They need to cancel a number of pretty worthless programs, cut back on others, and raise taxes across the board. And that's about as likely as meeting Santa Claus.

[vincecate]

As it shows, the long-term trend price of gold is about $500 per ounce. Gold is currently around $1600 per ounce, and applying the Law of Mean Reversion to the current bubble, its price is going to fall well below $500. This means that anyone investing in gold right now is expected to lose a great deal of money.

That you could get a hot dog from the corner stand for 5 cents for 100 years does not mean we should expect to get hot dogs for 1 cent to make up for the recent higher price of hot dogs. Your logic is flawed.

From 1486 till 1965 the "thaler" and then dollar was 1 oz of silver and gold was about $20 per oz from 1486 to 1933 then $35/oz till 1971. So the long term trend for gold is really $20/oz. With gold at $1615 now to get the average back down to $20/oz we will need prices like $1/oz for the next 100 years. Not going to happen. So something is wrong with your logic. The flaw is that the value of a paper dollar is not constant when they are printing $100 billion new paper dollars every month. If you measure the value of 1 oz of gold compared to 1 oz of silver then you could use the Law of Mean Reversion.

The value of your paper dollar yard stick is shrinking. You need to adjust for inflation somehow. The problem is that the CPI is rigged, so it is not so clear how you should do so. But even using the CPI to adjust the price of gold now is like in the 1970s.

In the 1930s they were making about $1 billion new paper dollars per year. Now they are making over $1 trillion new paper dollars per year (some in computers). You should not expect the price of gold in paper dollars to remain constant.

http://www.gold-eagle.com/editorials_05 ... 71906.html

http://howfiatdies.blogspot.com/2010/10 ... ollar.html

http://www.financialsense.com/contribut ... h-one-word

[mannfm11]

John, I have looked at gold and recognized the price to be around $500 in real terms. Things are so crazy that I don't know if it will revert or not, but it should. It is merely one more bubble at the end of many, just as sovereign finance is a bubble. Devaluing the dollar is going to be more difficult than many assume. The world needs the US market or it all falls apart. Also, the dollar is bank money, not government money as is supposed. The Roosevelt government only decreed it as legal tender for all debts, public and private. The world can't abandon the dollar because the world has used it so that they can have their investments and their money too. Banks love treasuries, whether foreign or domestic for the same reason. They are accepted as collateral for all kinds of trades, so you can own treasuries and own a like amount of stocks or treasuries and junk bonds at the same time, leveraging your money. This is why they are all upset about the debt limit not being raised. Otherwise they would have to invest in less liquid securities and thus not have as much leverage. They are the money behind the money, not only for Wall Street, but for China, Europe and most other countries around the world. This unique property of US debt isn't going away without some kind disaster beyond the US governments debt being too high. Look at Japan, which has lost its top rating years ago, is twice the US in debt and still trading at 1.5% on a 10 year basis.

There will be an adverse reaction to Bernanke's policies. It will be deflationary, as the market will force Bernanke's hand. His reasoning for the Great Depression is a tale told by an idiot. The Bubble that Broke the World tells what happened. What happened was another's debt was the creditors money and they used Ponzi financing to keep the game going, to avoid taking the loss. Something eventually broke and those with money suddenly didn't have it either. If the system of treasury collateral broke down, every one in the world would suddenly go broke. The US won't default any time soon (in the next 90 seconds as some people state) merely because its debt is used as the money for the world. There isn't any system where the world could refuse the business of the US because of this fact. The same holds true for the oil producers, because sans the US, there isn't an oil market.

Back to gold. Rich people never sell anything, they merely loan it out. The average Joe is buying gold from G. Gordon Liddy and others on the TV. The average Joe will have to sell to eat first. Rich people create markets where they can sell on the way up. Tons of gold sold at $500 an ounce. The sellers look stupid right now, but they were the ones with the gold at $250, so they made 100% from that price. But, what they sold at $500 was very little compared to what they had. They are still selling. The central bankers are starting to buy. Are they buying for security or buying their buddies out at the top, just like they sold at the bottom? Just like they are doing in other facets around the world in putting money out there so the bankers can continue to loot?

I won't wait for $500 to buy this time around, even though I suspect it is going there. Once in awhile, I have the urge to buy some at these prices, because it does look like a total collapse coming. My fear at times is that the rest of the world gets so many dollars, they decide the US is getting their stuff for nothing and just decide to stop. But, this isn't Wiemar Germany, which was a country in ruins from the war and had its substance taken from it to the point they could only print bills in an effort to stay afloat. Bernanke is buying collateral out of the economy, to put money into the system to keep the banks and prices from collapsing. His trade can be unwound.

[Higgenbotham]

Man had been advancing exponentially for about 5 centuries and as man advanced the trend in the real prices of commodities was down.

Looking at a chart of the real silver price over the past 5 centuries, it made a 5 century low in 1993 far below the trend line. This is a chart I happen to have because I've studied this market more. I don't have a chart of the real gold price going back 5 centuries. And the gold price was fixed by governments so it's more difficult to get an accurate read.

There are 2 possible ways to look at the trend line. One is to use the whole 5 centuries of data. Another is to use the data since the industrial revolution began. The second down trend line is steeper. The first comes in at about $30 and the second at about $15.

For gold, pick your preferred ratio.

The next question is whether the trend really matters. It's a very difficult question to answer.

If someone is of the opinon that man's upward progress reversed in the past few years and things are headed into a long period of decline, then silver may be a very long term hold. The real price of silver was close to $1000 before Columbus set sail. If, on the other hand it's believed that man is about to embark on another phase of advancement, then silver is horribly overpriced. During a next phase of advancement it's likely that metals will be nearly worthless, as it will be possible to mine abundant amounts from the ocean at very low cost.

[Higgenbotham]

From 1486 till 1965 the "thaler" and then dollar was 1 oz of silver and gold was about $20 per oz from 1486 to 1933 then $35/oz till 1971. So the long term trend for gold is really $20/oz. With gold at $1615 now to get the average back down to $20/oz we will need prices like $1/oz for the next 100 years. Not going to happen. So something is wrong with your logic.

The real price of gold in 1486 was multiples higher than it is today. I'll see if I can find something to back that up.

Edit: Not multiples, but about double ($2400 in 1998 dollars is $3300 today if you believe the BLS). Chart of the real gold price going back to 1486 and before.

http://www.sharelynx.com/chartsfixed/600yeargold.gif

Wow, he has a silver chart too. This guy does great work.

http://www.sharelynx.com/chartsfixed/600yearsilver.gif

Truthfully, I had no idea gold was this expensive on a historical basis. Very extreme recent price. However, the gold silver ratio may need to be taken into account, as it has also risen for 5 centuries.

[vincecate]

http://www.sharelynx.com/chartsfixed/600yeargold.gif

Wow, he has a silver chart too. This guy does great work.

http://www.sharelynx.com/chartsfixed/600yearsilver.gif

I am not able to access these.

[Higgenbotham]

http://www.sharelynx.com/chartsfixed/600yeargold.gif

Wow, he has a silver chart too. This guy does great work.

http://www.sharelynx.com/chartsfixed/600yearsilver.gif

I am not able to access these.

http://www.chartsrus.com/

Try going here and then to the links. It's under "Notable Charts Found on the Web". There's an update for the silver chart.

[vincecate]

From 1486 till 1965 the "thaler" and then dollar was 1 oz of silver and gold was about $20 per oz from 1486 to 1933 then $35/oz till 1971. So the long term trend for gold is really $20/oz. With gold at $1615 now to get the average back down to $20/oz we will need prices like $1/oz for the next 100 years. Not going to happen. So something is wrong with your logic.

The real price of gold in 1486 was multiples higher than it is today. I'll see if I can find something to back that up.

Edit: Not multiples, but about double ($2400 in 1998 dollars is $3300 today if you believe the BLS). Chart of the real gold price going back to 1486 and before.

http://www.sharelynx.com/chartsfixed/600yeargold.gif

Wow, he has a silver chart too. This guy does great work.

http://www.sharelynx.com/chartsfixed/600yearsilver.gif

Truthfully, I had no idea gold was this expensive on a historical basis. Very extreme recent price. However, the gold silver ratio may need to be taken into account, as it has also risen for 5 centuries.

Looks like the real price of gold, as viewed by Europeans, went down when the Spanish took huge amounts of gold from the Americas. But viewed from the Americas the real price of gold went up when the Spanish started taking it all away. When viewed over the whole world the value is probably even more constant than these graphs show. In any case, a factor of 2 in 600 years is nothing. The paper dollar has dropped by about a factor of 50 in the last 80 years. There have been many decades where the value of paper dollars dropped by more than a factor of 2. I really expect more than a factor of 2 drop again soon.

That 600 year price of silver makes the current price look very low. I am much more invested in silver than gold.

[OLD1953]

With silver, you get into the issue of relative supply. Since the discovery of the Comstock Lode, where miners took out nearly a billion ounces in the 1800's, and is still producing, silver hasn't been at that historical price ratio, for the reason that they mined so much of it that the price went down like a rocket. For silver to approach that 15 to 1 ratio would indicate to me that either someone had found a new industrial use for the metal that was sucking up all the supply, or that silver was in a bubble.