Financial topics

[vincecate]

So what's the solution? As I've mentioned, it's to break the country up into regions with more central authority within the regions or states and less in Washington. Let each region or state run its own monetary system and other utilities. If a region operates more efficiently, the adjacent regions will suffer and will have to compete and become more efficient. With computers and electronic money systems, multiple competing regional currency systems operating inside the US should be fairly easy to implement.

I think this is a key idea, breaking up government power and having competition between the regions. The countries that lasted a long time without government getting out of control seem to operate this way.

The intent of "The United States" was that each state was a Nation State, so there was less centralized power. If one state is messing up people can move out of that state and into others. But the central government granted itself the power to print paper money (not in the constitution) and also got an income tax amendment so it could collect a bunch of taxes and then bribe/blackmail the states to get them to do whatever it wants.

The European Union looked like it might have been going in the right way, but once the central bank rules and no-bailout rules have been tossed, it is not looking so good.

http://pair.offshore.ai/38yearcycle/#limitedgov

[OLD1953]

Don't let perfect become the enemy of good. We don't have to have a world that works in an ideal manner, it only has to work. What we have now doesn't work at all, it just has not completely fallen flat as yet.

[vincecate]

The Fed is paying 0.25% interest on excess bank reserves. When the Fed is loaning out money at between 0% and 0.25% and paying interest at 0.25% banks are happy enough to leave money at the Fed. If the money sits at the Fed it does not impact the effective money supply or general price level. But now that interest rates are going up banks will send their money off into other things which will increase the money supply more, unless the Fed raises this rate to match. But if the Fed starts raising rates it goes against their goal of holding down interest rates and will probably scare people badly. I think they are getting close to losing control.

http://blogs.forbes.com/michaelpollaro/ ... from-here/
http://www.federalreserve.gov/monetaryp ... lances.htm
http://www.federalreserve.gov/newsevent ... 01214a.htm
http://finance.yahoo.com/bonds/composite_bond_rates

[Higgenbotham]

http://blogs.forbes.com/michaelpollaro/ ... from-here/

"In other words, if private banks are game, we have the potential for an explosion in the money supply, even if that is affected simply through the purchase of securities."

This is the same type of thing they were saying in 2007 when MZM was exploding higher. Trouble was, they were counting all the ABCP as part of MZM when in fact auction failures were occuring and there was no rollover.

Second point would be if they lever up and interest rates continue higher, then the loss of principal will exceed the interest payments and cause greater insolvency. The only way to beat this game is to lever up when interest rates are peaking out, but the majority can't accomplish that. They will try, though, and that's why the rebound bubble happens.

The sovereign crisis started 13 months ago when Dubai needed a bailout. Since then several sovereigns have been bailed out. But yesterday it was reported that Dubai World is sinking (literally) and also being required to sell assets.

[Higgenbotham]

http://www.bloomberg.com/news/2010-12-2 ... banks.html

“Banks are badly short of cash,” said Qu Qing, a bond analyst at Shenyin Wanguo Securities Co. in Shanghai. “Given the cash squeeze, the central bank probably won’t announce any tightening measure by the end of this year.”

“The market is desperate for cash,” said Chen Liang, a bond analyst at Guohai Securities Co. in Shenzhen. “It’s too costly to park money with debt at such a price given the seven- day repo rate has risen above 5 percent.”

[vincecate]

“Banks are badly short of cash,” said Qu Qing

As we head into hyperinflation people will think there is not enough cash and that the central bank needs to print more. Here is a quote from the URL below (the math is not hard and I recommend the URL):

"It is surprising but explainable that the monetary authorities during episodes of hyperinflation have the feeling that there is a shortage of money. The monetary authorities compare the amount of money in circulation to the price level and it seems that there is relatively little money in circulation. They are looking at the real value of the money supply, M/P. In fact, the real value of the money supply does become small during a hyperinflation and the equation of exchange explains why. "

http://www.sjsu.edu/faculty/watkins/infldynamic.htm

[vincecate]

http://www.bloomberg.com/news/2010-12-2 ... banks.html

Most people expect that the Yuan will go up relative to the dollar (I do too). If you can get a higher interest rate in Yuan and it is does appreciate relative to the dollar, then you are doubly ahead. Not clear who will be left to invest in dollars.

If China stopped accumulating dollars and started putting their reserves into gold, I bet plenty of people would bet on the Yuan. At some point I predict that some country will move to some kind of gold backing for their currency. I think they will see such support from the market that other countries will move to do it too. The first to move will get the best prices for gold. The last to move will pay much more.

[John]

Dear Higgie,

> I've been purchasing put options on the March S&P 500 over the
> past week. I bought 38% of the total this morning. That's all I
> will do. This is the first time I've bought any options since
> 2007. I bought some then, but not as many. I put about 0.7% of my
> money in these. That may not seem like a lot, but it is. If a
> person does this on a regular basis and the market doesn't crash,
> they will lose most of their money. So I'm not recommending
> anybody try this. The odds are that I will lose all of this money.

You're an incredibly gutsy man, Higgie.

John

[Higgenbotham]

http://www.bloomberg.com/news/2010-12-2 ... banks.html

Most people expect that the Yuan will go up relative to the dollar (I do too). If you can get a higher interest rate in Yuan and it is does appreciate relative to the dollar, then you are doubly ahead. Not clear who will be left to invest in dollars.

If China stopped accumulating dollars and started putting their reserves into gold, I bet plenty of people would bet on the Yuan. At some point I predict that some country will move to some kind of gold backing for their currency. I think they will see such support from the market that other countries will move to do it too. The first to move will get the best prices for gold. The last to move will pay much more.

The facts are:
1. Chinese currency will probably appreciate relative to the dollar.
2. Chinese t-bills pay good interest rates.
3. The Chinese t-bill auction failed. Not enough buyers.
Why? Because even if I wanted to buy a Chinese t-bill, I can't. There is no way for me to buy one. Same with a Singapore t-bill. Or a Canadian t-bill. It's not possible for an American to buy any of these.
Second point. The Chinese would love to buy 10,000 tons of gold, but tell me where they would be able to buy even 1,000 tons of gold in the next year.
On the other hand, if someone wants to sell US stocks today, the transaction must be settled in US dollars. This is why the British pound stayed strong for 15 years after their economy was a basket case.

[vincecate]

The facts are:
1. Chinese currency will probably appreciate relative to the dollar.
2. Chinese t-bills pay good interest rates.
3. The Chinese t-bill auction failed. Not enough buyers.
Why? Because even if I wanted to buy a Chinese t-bill, I can't. There is no way for me to buy one.

I predict China will soon let the world buy their debt. And after that point, is there any reason people should not then all move from US dollars to yuan?