Collapsing confidence, civil unrest, anemic growth, massive sovereign debt, a fraudulent CPI, desperate monetary policy, artificially low interest rates, lack of capital formation, a depreciating dollar and the threat of higher interest rates. To this tableau I would add intractable deficits, slowing global growth and imported inflation through higher material and commodity prices effected by the Fed and QE beneficiaries seeking higher yields in equities, emerging markets and commodities. I don't know how this will play out but I'm inclined to believe the debt crisis in Europe and stagnating economic growth will be the catalysts for larger adjustments in whatever forms they might take.
The High Probability of an Irrational Gold Bubble [View article]
But I believe gold prices are moving higher due to the public’s opposition to fiat currency, fiscal stimulus and what is generally viewed as continued “money printing”. This is highly irrational in the long-term in my opinion and the potential for gold to turn into a bubble is looking increasingly high.
In the end, however, the Euro crisis will pass. That is unlikely to occur until European leaders recognize that their single currency system is inherently flawed (just as the gold standard was) and that means we could see substantially higher gold prices as investors continue to rush into gold with the belief that gold can serve as a viable reserve currency (something that has already been tested in a global economy and also something that has already failed). All of this increasing worry in Europe is likely to increase the odds of a gold bubble.
How do I see such a scenario unfolding? I believe there is a fairly high chance of an eventual defection and default in Europe. After all, there is no good solution in the region and the debt problems will persist until something forces the EMU’s hand. If this in fact occurs, gold prices could very well reach stratospheric levels. But ultimately, paper money will survive in its current form no matter what happens to the Euro. ______________________... Given the likelihood of your thesis playing out over two years at a minimum and more likely much longer, I think you are a bit head of yourself. Never underestimate the hubris and narcissism behind the drivers and architects of the ECU and eurozone, as they will exhaust every possible option before doing the right thing.
In the meantime, gold will be viewed as a surrogate currency and a substitute to vulnerable currencies with plenty of upside. And the profit window may remain open even longer than allowed by your thesis as I believe it's only a matter of time before the US must square off between the agencies and the capital markets.
This would extend the life as gold as an investment opportunity.
Hussman: Why Austerity Is Likely to Cause Further Dislocation [View article]
Hussman is stating the obvious financial truth which is that most of the global economies have either borrowed or directly monetized too much debt. There is a fundamental disconnect between levels of outstanding debt and the ability of countries to service same both because of its level and the condition of the global economy, meaning it's worth less than its notional value. But nobody is eager to accept this inconvenient truth knowing it would lead to haircuts.
Looking forward, current levels of debt and their respective relationship to GDP will constrain calls for additional borrowing to support additional stimulus. Slack in the labor force and surplus capacity have nothing to do with the need for fiscal constraint; it’s current debt levels and the prospect for additional debt. As we add on layers of debt it will retard economic growth and debt’s true economic will continue to sink below its notional value, aggravating Husman's concern. He is saying the structural debt problem must be addressed before the economy can regain footing, a message the Japanese would echo even though have not taken the medicine themselves.
Inextricbly linked to this is the notion of growing our way out of debt is near its end with an intellectual coffin within sight. Yesterday Pimco declared a Keynesian end for most countries as we have reached debt levels that capital market are not willing to tolerate; we have reacched a critical juncture between the desire to borrow, the ability to service debt and the demands of the capital markets. And the capital market are demanding both reform and austerity, while citizens are screaming for fiscal restaint.
Quoting Ed Harrison: For the US, it is this understanding – that stimulus has merely been used to maintain a malinvested status quo ante – that is causing people to turn to austerity in disgust...
The Obama Administration has effectively demonstrated that special interests are too entrenched to trust the government to apply effective stimulus. They gifted the financial services industry billions and are still bailing them out via Fannie and Freddie. Afterwards, they went on the Healthcare boondoggle which is rightfully seen as a giveaway to the healthcare insurance companies resulting from secret closed door agreements with the Obama Administration.
They have discredited stimulus as a policy tool. And even deficit spending via tax cuts is now seen as irresponsible because of their efforts. Americans are willing to go with fiscal austerity if only to stop this predatory transfer of wealth.
Let me add this to this list of concerns:
1) Fiscal policy can incorporate tax cuts or increased spending and we, in the interest of steering money to political ends, have predominantly chosen spending when many believe tax cuts offer higher fiscal multipliers.
2) Within fiscal spending, it's known some categories of spending offer higher fiscal multipliers (bridges, highways, ect) than others (transfer payments) yet we persistently choose to spend on the categories that offer the lowest fiscal yield. Combined with (1) above we consistently choose the worst of the worse for political ends yielding the lowest fiscal benefits.
3) There has been an argument around that higher deficits and debt can cause a contraction in spending out of a fear higher taxes will be levied to pay for the expanded debt; there is new fear simply related to the level of debt which could further restrain spending and investment. Last month there was a sudden increase in the rate of savings and finally
4) Once public debt reaches a certain level......say 90% of GDP.....it reduces structural growth by 1% point or more. We will cross that threshold by 2012 or earlier, making it very difficult to invoke the Keynesian call for additional stimulus to promote growth under the promise that the additional stimulus will be withdrawn upon arrival of growth. This an empty promise as now the additional debt will impose structural limits to additional growth.
As to the behavior of gold, gold is not increasing in price out of fear of inflation but out of fear currency debauchery through desperate expansionary policies and/or realization that the debt problem will need to be dealt with as Hussman has suggested. Investors view gold as a surrogate currency and an alternative to vulnerable fiat currencies.
Things Are About To Get Much Worse [View article]
The High Probability of an Irrational Gold Bubble [View article]
In the end, however, the Euro crisis will pass. That is unlikely to occur until European leaders recognize that their single currency system is inherently flawed (just as the gold standard was) and that means we could see substantially higher gold prices as investors continue to rush into gold with the belief that gold can serve as a viable reserve currency (something that has already been tested in a global economy and also something that has already failed). All of this increasing worry in Europe is likely to increase the odds of a gold bubble.
How do I see such a scenario unfolding? I believe there is a fairly high chance of an eventual defection and default in Europe. After all, there is no good solution in the region and the debt problems will persist until something forces the EMU’s hand. If this in fact occurs, gold prices could very well reach stratospheric levels. But ultimately, paper money will survive in its current form no matter what happens to the Euro.
______________________...
Given the likelihood of your thesis playing out over two years at a minimum and more likely much longer, I think you are a bit head of yourself. Never underestimate the hubris and narcissism behind the drivers and architects of the ECU and eurozone, as they will exhaust every possible option before doing the right thing.
In the meantime, gold will be viewed as a surrogate currency and a substitute to vulnerable currencies with plenty of upside. And the profit window may remain open even longer than allowed by your thesis as I believe it's only a matter of time before the US must square off between the agencies and the capital markets.
This would extend the life as gold as an investment opportunity.
Hussman: Why Austerity Is Likely to Cause Further Dislocation [View article]
Hussman is stating the obvious financial truth which is that most of the global economies have either borrowed or directly monetized too much debt. There is a fundamental disconnect between levels of outstanding debt and the ability of countries to service same both because of its level and the condition of the global economy, meaning it's worth less than its notional value. But nobody is eager to accept this inconvenient truth knowing it would lead to haircuts.
Looking forward, current levels of debt and their respective relationship to GDP will constrain calls for additional borrowing to support additional stimulus. Slack in the labor force and surplus capacity have nothing to do with the need for fiscal constraint; it’s current debt levels and the prospect for additional debt. As we add on layers of debt it will retard economic growth and debt’s true economic will continue to sink below its notional value, aggravating Husman's concern. He is saying the structural debt problem must be addressed before the economy can regain footing, a message the Japanese would echo even though have not taken the medicine themselves.
Inextricbly linked to this is the notion of growing our way out of debt is near its end with an intellectual coffin within sight. Yesterday Pimco declared a Keynesian end for most countries as we have reached debt levels that capital market are not willing to tolerate; we have reacched a critical juncture between the desire to borrow, the ability to service debt and the demands of the capital markets. And the capital market are demanding both reform and austerity, while citizens are screaming for fiscal restaint.
Quoting Ed Harrison: For the US, it is this understanding – that stimulus has merely been used to maintain a malinvested status quo ante – that is causing people to turn to austerity in disgust...
The Obama Administration has effectively demonstrated that special interests are too entrenched to trust the government to apply effective stimulus. They gifted the financial services industry billions and are still bailing them out via Fannie and Freddie. Afterwards, they went on the Healthcare boondoggle which is rightfully seen as a giveaway to the healthcare insurance companies resulting from secret closed door agreements with the Obama Administration.
They have discredited stimulus as a policy tool. And even deficit spending via tax cuts is now seen as irresponsible because of their efforts. Americans are willing to go with fiscal austerity if only to stop this predatory transfer of wealth.
Let me add this to this list of concerns:
1) Fiscal policy can incorporate tax cuts or increased spending and we, in the interest of steering money to political ends, have predominantly chosen spending when many believe tax cuts offer higher fiscal multipliers.
2) Within fiscal spending, it's known some categories of spending offer higher fiscal multipliers (bridges, highways, ect) than others (transfer payments) yet we persistently choose to spend on the categories that offer the lowest fiscal yield. Combined with (1) above we consistently choose the worst of the worse for political ends yielding the lowest fiscal benefits.
3) There has been an argument around that higher deficits and debt can cause a contraction in spending out of a fear higher taxes will be levied to pay for the expanded debt; there is new fear simply related to the level of debt which could further restrain spending and investment. Last month there was a sudden increase in the rate of savings and finally
4) Once public debt reaches a certain level......say 90% of GDP.....it reduces structural growth by 1% point or more. We will cross that threshold by 2012 or earlier, making it very difficult to invoke the Keynesian call for additional stimulus to promote growth under the promise that the additional stimulus will be withdrawn upon arrival of growth. This an empty promise as now the additional debt will impose structural limits to additional growth.
As to the behavior of gold, gold is not increasing in price out of fear of inflation but out of fear currency debauchery through desperate expansionary policies and/or realization that the debt problem will need to be dealt with as Hussman has suggested. Investors view gold as a surrogate currency and an alternative to vulnerable fiat currencies.