Why (and How) China is Boosting the Price of Gold
The History of Gold Prices (and How We Got Here)
To get the full picture of the current price of gold we have to look back nearly 100 years. In the 1800′s and early 1900′s gold played a key role in international monetary transactions. The gold standard was used to back currencies. Each country determined a fixed exchange rates for its currency, i.e. how many ounces of gold each unit of currency was worth.
Trade imbalances (importing more than they exported or vice versa) could rectified via the exchange of gold reserves. A country with a deficit would have to ship gold to the country with an excess. Any country experiencing inflation would lose gold and therefore would have a decrease in the amount of money available to spend.
However, during WWI and WWII economic warfare was employed in an effort to combat poverty in ones own country by employing a policy called “Beggar Thy Neighbor”. This involved shifting demand away from imports onto domestically produced goods, either through government policy, rather than free markets. The primary vehicles were tariffs (or import taxes), import quotas, or by devaluation of the currency (i.e. changing it’s value in relation to gold). For example, During the 1930s, the British created their own economic bloc to shut out U.S. goods because they felt they couldn’t compete with cheap U.S. goods.
In July 1944, towards the end of the war 730 delegates from all 44 Allied nations gathered in Bretton Woods, New Hampshire. During this conference the U.S. held most of the cards because it was the least financially damaged by the War. The original plan presented by John Maynard Keynes was to establish a world-wide currency called the “Bancor”. Each nation’s individual currency would be pegged to the Bancor (rather than Gold) at a fixed rate. Governments would then be required to buy or sell Bancors in order to maintain the value of their currency at the pegged rate.
However, at Bretton Woods… Continue reading
If the Economy’s “Recovering,” Why is the Largest-Ever U.S. City Bankruptcy on the Horizon?
What’s really going on?
As pundits chatter about an economic recovery, 80 miles east of San Francisco you’ll find a city (pop. 292,000) facing bankruptcy:
Stockton is on the verge of becoming the largest city in the United States to declare bankruptcy…
San Francisco Chronicle (3/4)
Bloomberg reports (2/25) that it costs the city $175,000 just to get a consulting firm’s fiscal evaluation. Management Partners issued a report which said:
…the city took on a large amount of debt in anticipation of ongoing growth that now exceeds the city’s ability to pay.
Compensation packages exceeded sustainable levels and the city assumed a significant liability for improved retiree health coverage without sufficient recurring revenues to cover growing costs…
Stockton also has one of the nation’s highest home foreclosure rates and has been called “Foreclosureville USA.”
And Moody’s just downgraded Stockton’s rating to Ba2, which is two levels below investment grade.
In the same Bloomberg article, the California State Treasurer said “The reputational stain can bleed onto other local issuers and the state, and that can hurt taxpayers in the bond market.” Continue reading
Is Gold Backwardation Now Permanent?
By Keith Weiner, Casey Research
Worldwide, an incredible tower of debt has been under construction since President Nixon’s 1971 default on the gold obligations of the US government. His decree severed the redeemability of the dollar for gold and thus eliminated the extinguisher of debt. Debt has been growing exponentially everywhere since then. Debt is backed with debt, based on debt, dependent on debt and leveraged with yet more debt. For example, today it is possible to buy a bond (i.e., lend money) on margin (i.e., with borrowed money).
The time is now fast approaching when all debt will be defaulted on. In our perverse monetary system, one party’s debt is another’s “money.” A debtor’s default will impact the creditor (who is usually also a debtor to yet other creditors), causing him to default, and so on. When this begins in earnest, it will wipe out the banking system and thus everyone’s “money.” The paper currencies will not survive this. We are seeing the early edges of it now in the euro, and it’s anyone’s guess when it will happen in Japan, though it seems long overdue already. Last of all, it will come to the USA.
The purpose of this article is to present the early-warning signal and explain the actual mechanism to these events. Contrary to popular belief, it will not happen because the central banks increase the quantity of money to infinity. The money supply may even be contracting (which is what I expect).
To understand the terminal stages of the monetary system’s fatal disease, we must understand gold. Continue reading
Can We Trust Government Inflation Numbers?
Independant Inflation Tracking Numbers
Updated Feb. 27, 2012
By Tim McMahon~ editor
For some reason people don’t seem to trust the government. I can’t understand why. Surely the government only has our best interests at heart and wants to take care of us like good parents, and they are just protecting us from ourselves. And of course all politicians are honest, selfless, hard-working civil servants. Right?
Well, Okay maybe they don’t always have our best interests at heart. And maybe it would benefit the budget if they didn’t have to pay so much for cost of living increases but surely they aren’t fudging the Consumer Price Index are they?
I frequently get emails, and occasionally phone calls, asking just that question. Often the conversation will go something like this: I know that a few months ago when I went to the grocery store my favorite Arnold Oatnut bread cost $2.50 and only a few months later it is costing me $2.89 so lets see that’s a 15.6% increase in six months so annual inflation must be around 31% right? And the government is telling us that inflation is less than 3.5% so they must be lying!
Gasoline 20 Cents a Gallon?
By Tim McMahon, editor
Many of us aren’t old enough to remember Gasoline at 2o cents a gallon. I can remember gas during the 1960′s at 29.9 cents a gallon. The last time that gasoline averaged 20 cents a gallon was in 1942. That was during WWII ! But if you know us here at InflationData.com you probably know that we usually talk in inflation adjusted prices. So adjusting for inflation, the price of gas in 1942 would have been $2.78 if you are paying in January 2012 dollars. But that is still a long way away from the average price of Gas in 2011 of $3.48.
We track the inflation adjusted price of gasoline based on the annual average price using the Consumer Price Index (CPI) generated by the U.S. Bureau of Labor Statistics and a chart is always available from the menu bar above under Inflation Charts and Data / Inflation Adjusted Prices.
But this article isn’t about inflation adjusted prices using some artificially created index, and it isn’ t about prices of gasoline during WWII. How would you like to buy a gallon of gasoline for 20 cents today? Yes, two thin dimes! Well, I recently I read an interesting article called Why Gas Prices Are actually Falling and in it was this picture:
So there you have it a store that is currently selling Gasoline for 20 cents a gallon. And if you look at it closely you will find that he is actually making “excessive” profits as the monetarists might say. You see, today as I write this, Silver is trading for about $35.51 per ounce. A silver dime contains 0.0724 ounces of silver. So at current prices a Silver Dime is worth $35.51 x 0.0724 or about $2.57 so the guy who is selling gas for two silver dimes is actually getting $5.14 per gallon of gas!
So that leads to one of two conclusions Continue reading
The Doom of Wired Telecom
Advances in technology bring many changes to the business world, and certain industries that were once considered viable are now industries that should be avoided at all costs. One industry that is expected to shrink the most dramatically is the wired telecommunications carrier industry.
This industry has been rapidly shrinking in response to the increasing widespread use of cell phones and online forms of communication. The need for wired communications has become so low that 25 percent of all households do not even own a land line phone. Some even predict that by 2025, land line phones will completely disappear. Continue reading
“No QE3″, Retracement Level Stalls Financials
Since financial stocks make up 14% of the S&P 500 Index, it is difficult to sustain a rally without strength in banks and financial services firms. With the Fed and ECB opening up the liquidity fire hydrant in late December 2011, bank stocks experienced another in a series of monster bailout rallies. As outlined below, the Financials Select Sector ETF (XLF) may be poised to give back some gains over the coming sessions based on numerous factors including reduced odds of QE3.
Unfortunately in the debt-saddled world we live in, central banks may be the most important driver of asset prices. Dallas Fed President Richard Fisher told reporters after a speech Wednesday:
There will be no QE3. I will support no QE3, no additional mortgage-backed securities, no additional Treasuries. Wall Street keeps dangling QE3 out there – I think it’s a fantasy of Wall Street – it’s not going to happen, it’s not necessary.
As we outlined in a January 16 video, the Fed, via currency swaps, and the ECB, via unlimited three-year loans, are already keeping the money printers busy. While there is no formal QE, the Fed is still injecting new money into the global financial system in a “QE-like” fashion (see How QE Boosts Stocks).
It is not unusual for markets to hesitate at key Fibonacci retracement levels, such as 61.8%. Therefore, the comments below will take on more meaning if the financials ETF shows signs of a reversal. A close below 14.42 would increase the odds of more sustained weakness. The 61.8% retracement of the losses from the spring high to October low sits at 14.61 (see right side of chart below). One more push toward 14.91 would fit well into an intermediate-term topping process; the same can be said for an S&P 500 move toward 1,363. Continue reading
Exploring the Not-So-Altruistic Aspects of the “Buffett Rule”
By Robert Ross, Casey Research
This week, President Obama released his $3.8-trillion budget for fiscal year 2013. The plan calls for new taxes on the wealthy, a restructuring of the tax code, and short-term infrastructure spending aimed at boosting the economy (albeit artificially).
Also included in the budget are limitations on subsidies for oil and gas companies, an end to the Bush tax cuts, and a proposal to raise taxes on dividends, which could be as high as 39.6% for households making over $250,000 per year.
Although Senate Minority Leader Mitch McConnell (R-KY) dismissed the proposal as “a campaign document,” the White House claims the measure would generate $206 billion in revenue over 10 years.
One of the most interesting aspects of the plan is the inclusion of the Buffett Rule as a replacement for the alternative-minimum tax (AMT).
The AMT was originally implemented to ensure that high-income Americans paid their taxes. But, alas, the geniuses in Washington “forgot” to index the AMT for inflation, rendering it useless and unintentionally ensnaring an increasing number of middle-class taxpayers into a system meant for the wealthiest of Americans.
Unintended consequences abound, but I digress… Continue reading
The Fed Resumes Printing
By Bud Conrad, Casey Research
The Federal Reserve recently announced important policy changes after its Federal Open Market Committee (FOMC) meeting. Here are the three most important takeaways, in its own words:
- The Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions – including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.
- The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate. In the most recent projections, FOMC participants’ estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent.
- The Fed released FOMC participants’ target federal funds rate for the next few years.
Immediate Reactions Continue reading
How Does the Value of the U.S. Dollar Fit Into the Big Picture for the Economy?
Robert Prechter discusses his views on the credit crisis and the U.S. dollar
More credit is denominated in U.S. dollars than any other currency. What does this mean for the value of the dollar as the credit crisis continues its strangle-hold on the world economies?
Enjoy this video clip of Bob Prechter from an October interview with The Mind of Money host Douglass Lodmell, in which Bob discusses the debt implosion and the value of the U.S. dollar.
You can watch Prechter’s full 45-minute interview here — no sign up required!
 | Watch the full 45-minute interview FREEGet even more valuable insights as Mind of Money host Douglass Lodmell interviews Elliott Wave International’s President, Robert Prechter, about how to keep your money safe, the deflation versus inflation debate, and many more topics that are critical to your financial future. Start watching the free 45-minute interview now — no sign up required! |
