In short, a cheap yuan policy, using gold as the
intermediary, immediately inflates the value of the dollar
against the yuan. This makes American goods less competitive
both at home and in foreign markets, inducing a
Printing new dollars, of course, can reduce the value of the
dollar. However, if we print enough new dollars to match
China's cheap yuan policy, the dollar's credibility as the
world's reserve currency will be gone, and America's
signeurage profits will be gone too."
"If China increases the number of
yuan required to buy a troy ounce of gold, for example, the
USA must allow the dollar gold price to rise with it. If
not, the yuan will fall against the dollar. In other words,
China will determine the value of the US dollar on world
markets, not the USA. That shifts the power and leverage
away from Washington DC and toward Beijing, and will have a
dramatic effect on the financial strength of the US
Once China has enough gold, it will bid up the
yuan-denominated price into the stratosphere. Once it does
that, there are only three choices. First, maintain
credibility and the reserve currency status by refusing to
change the price of US dollar denominated gold. If it does
that, domestic industries will be crippled by Chinese
competition, because the yuan will become very cheap in relation to the dollar.
Second, allow the dollar denominated
price of gold to skyrocket in synch with the yuan
denominated price. That will end the US dollar's reserve
currency status. Third, kow-tow to Beijing, seeking a seal
of approval from China for any serious financial
"Markets trade on anticipation of where economic data will stand three to six months down the road. The big selloff in sovereign debt is telling us that global investors see major economies mired in the hangover of the 2008 crash indefinitely with deficit spending on infrastructure soon to replace Quantitative Easing (QE) as the new monetary tool to ward off deflation.
To think about this from another angle, recall what happened in the period from early November 2010 to mid December 2010 after the Federal Reserve announced QE2, its plan to buy $600 billion of longer term Treasuries. Because the Fed was going to be shrinking the supply by $600 billion, the market reaction should have been to drive yields down. Instead, from early November to mid December 2010, the yield on the 10-year Treasury spiked from 2.50 to 3.50 percent.
The market at that time was not looking at the quick fix from the Fed, it was focusing on an intractable problem of getting the U.S. economy off Fed life support and the mountains of sovereign debt that would result if there was no long-term solution to QE Infinity.
The global rout in sovereign debt markets is a collective epiphany that we’re six years and counting from the 2008 crash and we’re still on central bank life support."--Global Bond Rout: What’s Really Behind It
By Pam Martens: May 13, 2015
A buyer of 10-year German bunds last Friday was willing to accept an annual yield of 15 bps. That same buyer lost 210 bps of principal on those bonds this week, as yields surged 22 bps.
"Merryn: Are you still holding a lot of gold in your own portfolio?
Merryn: How much?
Tim: It’s a lot. I mean… it’s a lot. It’s more than I would advocate any other person or entity held. But, no, I’m perfectly relaxed, because I’m playing a long game.
Merryn: So, the average person – how much gold do you think they should be holding in their portfolio?
Tim: I think, for any asset, in the interest of true diversification you need to be at least, let’s say, 10% committed otherwise it’s meaningless, it’s completely marginal. So depending on people’s appetite, risk tolerance, requirement for income, I’d say anything from 10 to maybe 25-30% is prudent. It’ll look more prudent if the price clearly starts to recover, and I sense that we may be close to some kind of a low. Everybody hates this thing! So, you know, just from a contrarian perspective now is probably not a bad time to be buying either gold or gold miners.
Merryn: Brilliant. Tim, thank you very much.
Tim: Thank you."
Monkeyhammers never die--$250 to BGEIX today--I guess its all relative--down 85% compared to gold since 1996 (miners v. gold). If we go down to 90%, who will frigging care? Miners will not go away in a Ponzi money world.
- 0.0596 Apr-15
0.84311661 84.31% XAU:GOLD down since May 1996
We were at over 85% last month--worst bear in S&P was -86.2%--almost there.
"Muni bonds are issued by cities and states and are a source of tax free income to wealthy individuals. In a world hungry for income, why are millionaires avoiding these bonds? Simply because local and state politicians have been overly generous with their union employees’ pay and benefits, and now many, if not most local governments are near the point of insolvency.
Municipal bonds, like all bonds in 2015, have large derivative positions riding on them. The consequences of a bond debacle anywhere in the world would spread far and wide. The bull market in financial assets that began in the early 1980s could very well come to an end in 2015, providing the rocket fuel necessary to launch gold and silver into the stratosphere as trillions of dollars flee counterparty risk. I’ll tell you a little secret: Mr Bear is the biggest precious metals bull there is."
The only reason the Fed would need to inject massive amounts of Treasuries into the global banking system is because there’s an extreme shortage. A massive derivatives accident requiring massive amounts of collateral to be posted has developed. If Treasuries are not available to post as collateral, while at the same time a massive amount of hypothecated (Treasuries out on loan, several times over) collateral fails are occurring, it will cause the banking system to seize up. ..
Remember I suggested some time ago that the elitists like give us a warning before something bad is about to happen. As my colleague John Titus states: “the true elite aristocracy are polite criminals – they consider it gauche to flush the toilet while we’re in the shower without giving us a heads up.”
This is why the IMF issued this warning yesterday for the financial media to publish:
The so-called ‘flash crash’ on US bond markets last October and the collapse of the Swiss currency floor in January showed how quickly liquidity can vanish, acting as “a powerful amplifier of financial stability risks.”
A reverse repo is an operation which generally is thought of as being used as a tool to remove short term liquidity from the banking system...instead the massive operation was conducted to INJECT Treasury collateral into the global banking system. Treasuries are used as collateral against derivatives positions. It’s in a sense margin collateral for the big boys...
When the value of the derivatives bet declines because the value of the underlying asset declines (think: Greek debt, oil debt), more collateral has to posted. Eventually, the market runs out of collateral and there’s a collateral short squeeze...
Circling back to my postulation that a massive, ongoing derivatives melt-down has started, as the derivatives lose value, more Treasury collateral has to be posted. When the situation becomes extreme, collateral isn’t posted and counterparties begin to fail, especially if the counterparty can’t come up with the cash needed to remedy a derivatives bet gone bad. My bet is that the Greece situation ignited the problem and the collapse in the price of oil threw millions of gallons of napalm on the situation.