Fed's Irresponsiblity = High Gold Silver Prices?

Howdy folks,

Great discussion. I concur with much that has been said. I am confident that Uncle Ben has done the things he thought best at the time and place. History will tell. Indeed, most public officials sincerely believe they're doing the right thing.

That said, they've been dealt a nasty hand. The Unfunded Liabilities [social security, medicare/aid, various trust funds, debt service, etc.] are now around $100 trillion freakin dollars. There is no politicallly viable combination of benefit reductions and tax increases that can pay this off. Ergo, they are forced to monetize it [i.e. print new dollars to pay it with]. This process of adding excessive currency into the economy is being called Quantitative Easing. Supposedly, QE2 is coming to an end and no mention has been made of needing QE3 [let's not talk about earthquakes, tsunamis and a lot of the middle east in large scale uprisings . . . oh, we're now fighting three wars]. feh. I've read that they need to halve the value of the dollar over the next decade, to make the problem of Unfunded Liabilities manageable. Oh, and they have to do this while avoiding hyperinflation or some sort of finanical meltdown.

Was it Bilbo or the Gaffer that said it wasn't wise to mess in the affairs of dragons?

I can't fix any of that stuff. All I can do it attempt to insulate me and mine from any nasty events as best I can. I try to look at each of the possible outcomes and assign probabilities to each. Right now I see 10-15 years of stagflation - high unemployment and serious, but not critical, price inflation - as being the most likely future. Give it 60%. I see the Fed turning things around in the short to intermediate term as perhaps a 20% probability. I see meltdown at about the same - 20%.

Oh, and you asked about sell triggers and decision points.

With stocks you can set Stop Limits which are automatic sell points. Alas, you can't do that with a roll of gold or silver eagles. But you can set a mental stop loss on your holdings.

I've been using 10% during this bull run. If we have a correction in the prices of silver or gold, I will start to reduce my paper holdings in retirement accounts WHILE ADDING MORE PHYSICAL BULLION. Should the price fall another 10% I would sell more of my paper holdings. Further and I'm out. I add to a position the same way - scaling in, rather than scaling out. If I feel I want to own some investment and have a goal of $10K, I buy $2.5 and wait and see if it grows. If it does, I buy another $2.5. If it sits flat, I wait. If it drops 5-10%, I sell and look for something else or a different time. Exiting is basically the same in reverse. With this you never get on the train at the first station and you don't get off at the last. But you don't need to when you're riding a 9 year trend like most of have been.

peace,

rono

 

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Watch the value of the dollar. As it drops, the price of gold and silver goes up. Once we see interest rates rise, there is also a chance gold and silver could drop, but don't bet the farm on that one yet because there are a lot of variables at play. As I said, the biggest mover for the price direction of gold and silver today is the value of the dollar.

 

awesome,, great info from all and thanks for sharing. you guys know a lot about money and economics! LOL glad to read everyone's opinions

 

Spending my tax dollars to save failed (and crooked) business models, and debasing the money in my pocket with inflation does not benefit me. I would prefer to renegotiate a loan than to have my wealth undermined. My friend's grandfather was a millionaire before the Great Depression. They didn't just freeze his money, it was gone, and we know banks today are facing insolvency as well. Sure, the Fed did what it had to do to maintain the status quo, and they didn't force our leaders to indebt future generations, but if it were up to me I say let things hit the fan at the first sign of trouble. Let market forces hash things out instead of throwing more debt on the pile, which was the problem to begin with. Otherwise it's just postponing and exacerbating it. So many people are in debt though, that you are right about the points you make for the average person. However, we all pay for it with the loss of purchase power by the dollar.

As I am not the expert that you are I may be on the wrong track here, but if everybody is printing money, wouldn't everybody have inflation? I'm not spending my dollars on yen, I'm spending them on food and commodities. You can't conjure wheat out of thin air.

 

Korea,,, your logic still appears backwards and rewards crooks imo...
...."Anyone who has a checking, savings or brokerage account, mortgage or credit facility at one of the top-15 financial institutions benefitted directly from the bailout"

Can you add content to the above statement ?

Here's my thought.
1 - Let those accounts vapor lock (checking, savings, brokerage, and credit),,,,, I don't understand the reference to mortgage here but will guess at what you are tying to say in a second.
2 - After all accounts are locked, run each banks net... Here's where we find they have overleveraged and raped thier shareholders and common folks account and now have a net negative value of some 9T or more.
3 - That's a bankrupt bank, so:
1 - close the doors.
2 - dole out the 100k fed insurance to all individual account holders.
3 - ACCOUNTABILITY - seize all the banks assets
4 - ACCOUNTABILITY - seize all the bank owners and bank primary's assets
5 - Sell it all,,,, just like ol' Made-off...... the banks really did the same thing.
.... my guess is that one of the smaller banks out there, with strong books, could have stepped in and purchased one of these bailed out companies stock at the huge discount they would have sold for.
Take all the money from the banks sale (buildings, computers, etc...), and refund it to the account holders.
Take all the money from the bank owner's asset liquidation and refund it to the account holders.
Take all the money from the banks corporate primary's assests liquidation and refund it to the account holders.
...... wouldn't that be nice ? just like 48hrs with Eddy Murphy,,, to see ol' Winthorp and his brother held accountable for crooked business practices ?
Instead ol' Winthorp and company just dial up a few senators and congressmen and fed buddies,,, and viola >> QE , which in essence is a tax on the people for Winthorp's excessive greed. What we'll have now are 10,000 Winthorp's out there as everyone knows the required elements for Free money and the preceident has been established for it's dispersement.... Which is why I say we'll see QE become a standard line item in the US budget....

Now, back to your mortgage reference,,,,, The only logical line I can think of for my mort benefiting from QE may be the debasement of the dollar,,, meaning my hypothetical 100k mortgage will eventually be inflated to only 50k in today's dollars (that should happen naturally in 10-20 years anyway),,, so maybe QE will make it happen in 5-10 years..... I'd be happy as a clam to see the value of my mort sink as fast as possible !!, but it only works if my income matches the same rate of inflation....... that would be nice to see I guess. Heck, I'd kinda like to see hype-inflation and see my paycheck rise to 1,000,000 a week.... would love to go pay off my house with one paycheck !!!
.... now if that's the road we're on,,,, BRING IT ON ; ) Let's pay off these houses folks !!

 

That's where things were headed again without intervention. The intervention wasn't fair and it is a black mark on the economic history that it occurred. But the alternative of letting the free market hash it out would probably have been worse [we'll never know for sure]. One thing to keep in mind is that the problems were great, and the free market would have ruthlessly destroyed most debt and perhaps all derivatives. Most non-FDIC savings and investments would be gone. For several years there would have been no credit cards, no car loans, no banks, no food on grocery store shelves since just about every chain finances inventory, etc... Sometimes it is better to give a free pass to a few of the guilty rather than gut the innocent to make sure everyone gets the correct punishment.

 

That sounds like Russia in the 1920s, not a solution.

 

I think it will drop back down to the 18-23 range at least

 

"For several years there would have been no credit cards, no car loans, no banks, no food on grocery store shelves since just about every chain finances inventory, etc... Sometimes it is better to give a free pass to a few of the guilty rather than gut the innocent to make sure everyone gets the correct punishment..."

.....sorry, but BS.
no credit cards - ok, maybe.... probably a good thing imo. and as a cash cow for any financial institution, would be the 1st thing back into play when solid banks took over the game.
no car loans - as above...
no food on grocery store shelves - flat out BS.. maybe a few high flying chains would dry out, but farmers markets have more than enough to keep folks fed. And companies with cash not exposed to deriv's and speculation could finance the game on the books with markets until the fed distributed cash in normal fashion to get the wheels on the bus rolling again.

"That sounds like Russia in the 1920s, not a solution." < no, that was economic governance change..... but if your referring to the methods employed to deal with the crooks... well, I like the way Russia, and also China, deal with criminals.. white collar and blue.
You go out in the US and kill 20 people in daylight with 100 witnesses and it takes 5 million in legal fees and 35 years to hang your ass.
You go out in the US and steal a Trillion dollars+ from people and you get rewarded with the same amount of money given to you from the government for doing so well at it.
Do either of those in Russia or China and they spend $5 on the judges time and 25 cents for the bullet, and it done in a few weeks.
.... I know folks who've worked and do work in China,,, the common preception I hear is that the place in run much better than the US from an economic and judicial perspective,, definitely not what the media wants you to hear....

 

Aside - a Better way to bail out -

Since the US citizens will eventually have to pay back the 9T in bailouts and QE to make the BANKs whole again. Why not let them share in some of the direct benefit.
Assuming 9T (trillion) is the number.
Assuming 250M (million) folks in the US.
That's $36,000 each that the folks will eventually have to pay back via taxes for the $ given to the Banks on thier behalf so none of the "scary" things happen.

So, here's what I'd make every bank do.
1 - every mort they serviced or owned would have 36k deducted from it's ballance... essentially giving to everyone actually being taxed and paying for the bailout some direct benefit.
2 - everyone with no mort would receive a 2.4k credit from each of the 15 banks to be spend as they desire.

So banks get 9T in bailout cash to keep "scary" things from happening.
Banks have to pay everyone with not mortgage 2.4k, or give it back to the gov't to be dispersed in form of a tax credit for non-mort holders.
And all the mort holders get the full 36k credit for the tax money they provided to thier bank..... and the bank gets to keep that 36k bailout cash to keep "scarrrrry" things from happening.

... would never happen,,, that would be like letting someone put thier clothes back on after raping them,,, the rapist likes to keep the cloths.

 

So do I. A coworker of mine came over just a few years ago. She had an accounting job in China. A company bus would pick her up at 5am for the three hour ride to the office. She worked from 9 to 9 six days a week, then got back on the bus for the 3 hour ride home. After getting home around midnight, she tried to get a few hours of sleep before getting up to catch the bus again at 5am. She told me that many days, she was so tired that she fell asleep at her desk. She lived with her husband and his parents in a one bedroom apartment. Now, she is only in her 30s so this isn't ancient history. My company does business there. I don't know a lot about the operation, but I know there are a lot of hidden costs imposed by the government, such as forcing our company to maintain a large office in a city of their choosing [to keep down the vacancy rate] even though we don't conduct business there. Some people in China are no doubt doing better than this, but nobody should doubt how bad it is for the average person.

 

Whahuh?

I live in an urban-ish area -- total population a bit over 1.5 million, at a density of a few thousand per square mile. I'll wager that all the farmer's markets in the area could not meet the most basic caloric needs of even 10% of the population. There just isn't that much locally-raised food.

Now, if you think starving out 90% of the country's urban population would solve a lot of our problems, we can discuss that. Let's just be clear what we're discussing.

 

I guess I'm (maybe naive) not of the opinion that letting things fail at the FIRST sign of trouble would have been as big a deal as some of you say. You let the 'too big to fail' institutions hit the floor, and a different institution with a sound business model will gladly swoop them up for cheap. Yes, it would have been a major hit, but I don't think services would have gone away. The sound businesses would have survived and then thrived without competition from giants who only survive because of their parasitic nature. As I see the current situation none of the problems have been solved. They've just been spread out among the population instead of those who deserve to be held responsible, while they continue to do what they have always done. And yes, we all share in the responsibility to some degree.

 

JeffB - yeah, farmers markets won't do the trick for major metro's..... but if you really buy that loss of short term credit would result in all the big food distributors setting thier trucks on idle and letting thier food stocks parish and rot, then I think you miss my point. There is such thing as company to company credit lines from suppliers/vendors to shelf..... every company tracks this.... and they could roll along fine putting debits and credits on internal books until the "scarrrry" stuffed line out. At the bottom of the vertical integrations, workers in fields picking food, etc... could also probably meet payroll from large corp's petty cash drawer for a few weeks... My main point is that in crisis, folks can keep the bus rolling without virtual short term cash transactions between banks. The "scarrrry" stuff assumes that everyone would simply sit down in place, cross their legs, and sing no pay no play.... There are an infinite number of solutions to keep that bus rolling..... assuming everything vapor locks and everyone starves to death is a joke.

 

Tell that to our homeless & disabled & jobless vets..... all countries have exceptions that can be pointed to while everyone gasps,,,,,, at least yours is employed.

 

I'll let the other members of the forum read your posts above and evaluate your opinions for themselves. Good luck to you.

 

I think you underestimate how connected things are now. The "sound businesses" are only as good as the economy they operate in. Their cash balances depend on the soundness of the banks they deal with. Many sound businesses rely on lines of credit from the institutions you would let fail. And many smaller banks deal with the large banks on a regular basis. Their assets are largely securitized loans from institutions that you would let fail. Their receivables are only as good as their customers ability to pay. Their inventories depend on the ability of their suppliers to operate, and for their suppliers to operate. Sales can only be generated from customers, many of whom buy on credit. But you are correct that the problems have not been solved, just deferred. One difficulty is that people are looking for simple solutions to a complex problem, and complex problems don't have simple solutions. It would have been much better if the country never got to this point, but it did. So we have to play the hand that has been dealt.

 

"..think you underestimate how connected things are now"

I think you overestimate the importance of the connection.
Also, I hate to hear how 'bad' the China experience has been for your company.... I'm sure it more than pays for the hardship via deferred taxes and cheap labor. For what's it's worth, my Asian working peers over there enjoy great food, friendly people, good pay for the local costs, have loving families, take nice vacations,,,, and in general live a very flavorful life.... and I've heard of more than a few that go over from the US and Europe.... and stay. Sounds to me like your view of that country is like your view of QE and this topic... ie. - media driven.

 

I think you should go there to live.

 

LOL....

Checkmate !

nice answer,, hard to retort that one. :arguing:

I'll stay..... I like to chat openly on these boards,,, unsure if I could do that in either Russia or China.

No one every made money betting against the USA !! - Uncle Buffet.

I can only enjoy the Chat,,, and as I've said, I think the bailouts and QE were not required to prevent "spoooky, scary,,, dooooom", I think they were deals made to keep a few very rich politically connected from personnal bankruptcy, I think they reward the same folks who got us here and will encourage more of the same, I think QE will become a standard line item in the budget (maybe renamed.. I think they are currently using "stop gap funding" in quarterly increments),,,, and for all I know it may in fact be the best thing to do..... but if it is, I don't get it,,,, and your explaination of do it or else "scary" doesn't make any more sense to me than my recommendations of what we could have done instead.