- Money Morning Australia

European Central Bank and its USD$1 Trillion Bailout Plan


Written on 11 May 2010 by Kris Sayce

The Bank of Japan? Check.

The Reserve Bank of Zimbabwe? Check.

The United States Federal Reserve? Check.

The Bank of England? Check.

The European Central Bank? Check.

The Reserve Bank of Australia? [Silence].

Not yet, reader. Will its time come to openly and brazenly print money?

We know it and the retail banks do it behind closed doors. But it hasn’t yet announced a multi-billion dollar plan to monetise debt obligations. Of course, so far it hasn’t had to because thanks to the “we’re different” mentality, Australians have continued to make sure private sector debt continues to rise.

For instance, according to the Reserve Bank of Australia (RBA), as of March 2010 residential loans by banks stood at $935.2 billion.

That’s compared to a paltry $634 billion when the economy last peaked in October 2007.

In other words, household debt obligations have increased by about 50% over the last two-and-a-half years. An increase which has occurred almost without stopping for breath.

Who needs a central bank bail-out when it’s easier to just convince the population into believing “Australia is different.”

But anyway, back to the European Central Bank and its EUR40 billion bailout… [murmur, murmur] HOW MUCH?!

[Hehem] Right, well, what I should have said is, the European Central Bank and its USD$1 trillion bailout plan. Or to put it another way, $1.1 trillion – more than the annual output of the Australian economy.

Where did the trillion come from? We’re sure this all started off as a EUR40 minor problem. I mean, that was the reason behind the mainstream’s argument about Greece being irrelevant.

OK, we did note over the last couple of weeks that the number had ratcheted up quietly to EUR130 billion. That’s a pretty big number by itself.

But then, whammo! At 3.15am in Frankfurt, the ECB announced to the world – but not to the Europeans because they were all asleep [Shhhh!] – that it was using its “nuclear option” of monetising the debt in order to fight the “wolfpack.”

Yep, that’s right, the free market gets the blame for problems ultimately caused by… that’s right, the politicians, bureaucrats and central bankers. Even though the free market – or ‘wolfpack’ as they call it – had nothing to do with it.

But what are the chances of the ECB’s money printing plans working any better than the money printing strategy of the Fed, the Bank of England and the Reserve Bank of Zimbabwe?

No chance, we’d say.

In fact, it rather reminds us of Mission Gainsborough

General Melchett: Field Marshall Haig has formulated a brilliant new tactical plan to ensure final victory in the field.

Captain Blackadder: Ah, would this brilliant plan involve us climbing up out of our trenches and walking very slowly towards the enemy sir?

Captain Darling: How could you possibly know that Blackadder? It’s classified information.

Captain Blackadder: It’s the same plan we used last time… And the seventeen times before that.

General Melchett: E-e-exactly! And that is what is so brilliant about it. It will catch the watchful Hun totally off-guard, doing precisely what we’ve done eighteen times before is exactly the last thing they’ll expect us to do this time…

And the Watchful Huns in the markets certainly were caught unawares. Hence the French CAC40 climbing 9% and the Spanish market surging 14%.

The market obviously wasn’t entirely convinced that the ECB would be so stupid to just print a bunch of new cash in order to pay off debts. I mean, it’s obviously the kind of crass thing the Americans would do… but not the Europeans.

And the British with their Anglo-Saxon ways are just as bawdy as the Yanks. But surely the sophisticated French, the sensible Germans, and the, erm, er, Belgians would have a more balanced plan of attack.

It appears not.

In fact, based on the numbers bandied around over the last few weeks it seems to have been more like a central bank version of Deal or No Deal rather than the thoughtful deliberation of supposedly intelligent men.

We can only think that they’ve been frantically opening briefcases with numbers inside. As the ‘Bank’ spun the numbers and offered the magic trillion, the finance ministers leapt with joy, “Voila! Nous etre rich!”

And so today the European printing presses whirr into action.

But wasn’t it nice of them to do all this in the early hours of the European morning. What dedicated public servants they are. And obviously it was so urgent, that they had to release the news before Fritz in Cologne, Francois in Lyon and Giuseppe in Milan had woken from their slumber – “Don’t wake them, they need the sleep, they’ll have to work twice as hard to pay this off! Ha, ha, ha…”

Or maybe they were more eager to rubber-stamp it before Stavros and Effi in Athens had woken up. You remember what happened last time they got mad!

It still startles us how our Keynesian friends can’t grasp how illogical it is to just print money. Look at the number again, it’s the equivalent of $1.1 trillion or greater than the entire yearly output of the Australian economy.

Think of it this way. It will take the European Central Bank about, ooh, a tenth of a second to create the billions of Euros needed.

Yet it will take 10.9 million Australians working an average of 35 hours per week for 52 weeks to produce the same output.

Got that? One-tenth of a second versus one year.

One-tenth of a second versus a combined 19.8 billion hours or 71.4 trillion seconds [Ed note: we just wanted to keep going until we notched up a trillion].

The obvious question is why bother going through all that effort if when push comes to shove the central bankers will just print the money anyway?

Naturally, the reason you have to go through all that effort is because you know there’s something illogical and not right about a bank just creating money from thin air.

You don’t need to be a Doktor der Wirtschaftswissenschaften from the Ludwig-Maximilian-Universität München to work out that even as a short-term measure printing money doesn’t actually solve the initial problem.

All it does is shift the problem. It wipes debt from one bunch of people and plops it onto another bunch.

Because guess what, instead of the Greeks having to come up with a way of repaying their debts or just defaulting, the ECB is just handing over the Euros in exchange for Greek government bonds.

In return, the ECB and European taxpayers get a bunch of crappy Greek debt that no-one else wanted. Well, they would take it on, but only at an 18% interest rate. In fact, so little did anyone want it that the ECB actually has to create the money to buy it.

The issue now is what happens to the billions that will be handed out to the Greeks, Portuguese, and anyone else that needs it? The answer is that the national governments will feed the cash out to their favoured industries and pet projects.

Some will gain by the increased money supply – those that get the new money first, but others will lose out. And because the new money is in effect unearned income, like a handout, it will be wasted and squandered in exactly the same way as any other type of handout.

Not forgetting the moral hazard of having bailed them out once, is it really likely the ECB will tell them to get stuffed if they ask for more? And what about other governments? It can only be a matter of time before they play the “where’s our free money” card.

As we’ve pointed out several times, the most honourable action would have been for the Greeks and other European tin-pot governments to just default on the debt obligations.

There would still be losers of course, we’re not claiming that there wouldn’t. But at least the losers would have been investors. Investors who should always enter into an investment with the risk that they’ll lose money.

Instead, at 3.15am Frankfurt time, the European Central Bank decided it was much more important that they and their political paymasters kept their jobs. The result being that the average German, French and Italian – and every other European – will pay via the devaluation of their savings and their wages.

All just to ensure the governments are saved, central bankers are saved, and bond investors receive back 100 cents on the Euro for their crappy Greek bond investment.

What are the odds that in a year’s time we’ll hear that Goldman Sachs or JP Morgan made a motza from buying cheap Greek debt two weeks ago and then selling it to the ECB this week?

We can see the headline now, “Evil Bankers Profited as Greece Burned.”

The free market will be blamed again, and capitalism will be accused of being out of control. Of course, what the bankers and politicians will conveniently forget is that without the money printing those profits – if they exist, and we’re sure they do – wouldn’t have happened.

The odds on that story making it to the front pages are pretty good we’ll guess.

Cheers,
Kris.


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46 Comments For This Post

  1. GB Says:

    Supposing the ECB does print the $1 trillion worth of money to pay out investors. Where do the investors then invest their $1 trillion? The money has to go somewhere….

  2. GB Says:

    There are two types of depressions

    Deflating Depression: No income so cant buy food = bread lines
    Inflating Depression: Income but cant afford food = bread lines

    An inflating depression is caused by hyperinflation. Can we get hyperinflation now that a few trillion has been printed or are we simply replacing the money supply that was destroyed?

    I swear I am missing something in all this

  3. AB Says:

    Kris,

    You really need to have a look at the data from the RBA. When you say that the housing debt has increased by 50% big deal. That is about the norm. When you plot house loans from 1977 to 2010 it appears to follow an exponential curve. Loan assests held by Aussie banks increases by phenomenal rates. I calcualted on average the home loan assets of banks in Australia increase by 16% per year. That makes the 50% increase form 2007 seem quite normal. Nothing to see here. Move along now.

    The bears way of looking at it would be that the housing bubble actually started more than thirty years ago and the trend continues for now. Thus it is not surprsing that majority perception in Australia is that houses always go up in value because the banks have been pumping money into the system for the past 30 years, increasing the cash available to buy houses by 16% per year on average, year in year out for 30 years. Bloody amazing really. Thirty years is a generation of adults seeing the same trend.
    So if you are a housing bull then nothing to wory about. In 10 years time banks will have 4 trillion dollors worth of home loans on the books. That will probably be 200% of GDP maybe 250% depending on growth. House prices will be double maybe even more and everyone will be happy.
    On the other hand if banks can’t get the cash to keep growing there loan book for houses then what? They need to find another 3 trillion over the next ten years to keep things chugging allong. Maybe the Euro mob or the US can help out. They seem to like dishing out the cash.

    Apologies if this has already been discussed. It was new to me.

    AB

  4. Ralph Says:

    It’s hard to see how an additional 1 trillion euros in the system won’t ultimately cause rampant inflation. Unless there is no appetite for new debt, which is unlikely.

    But I really can’t see how this ‘bailout’ will fix the problem at all. From my reading of it, all it means is that the PIIGS can pay their creditors now. Assuming this bailout is a loan and not a gift (is it?), the PIIGS will have to pay it all back at some point in the future with interest. And if they can’t meet their debt obligations now, how are they going to meet them in a few years time? It seems to me that some mild austerity measures just aren’t going to cut it. Particularly when they’ll probably result in less revenue and therefor reduced ability to repay their debts. So we’re just going to be at this point again in a few years time. Unless these countries can overhaul their economies, they are essentially insolvent.

    Perhaps the creditors will be forced to take a haircut and the PIIGS default anyway. But if that’s going to happen, I don’t understand why they don’t just do that now and get it out of the way. I suppose the other alternative is mass debt forgiveness. The whole thing seems rather pointless to me.

  5. OREO-ruddxpin-BASHER-BUMMER Says:

    ralph u couldnt have put it more perfect

  6. GB Says:

    Ralph
    I cant see how it wont cause inflation unless it doesn’t go into the economy. But will banks want to lend in high inflation? E.g. Would you want to hand over $300k capital when you know it wont be worth much when you get it back because of inflation? I suppose you could claim higher interest rates to make up for the loss of purchasing power when your capital is returned but then who is going to borrow money at double digit rates?

    You wont want to leave it in cash because it will become worthless very quickly

    So where will the investors put their money? Stocks? Are we going to see a decade of boom/bust on stock exchanges like we have in the past 10 years? Money supply seems to have outpaced the global economies ability to absorb it so maybe – more dollars to buy the same amount of stocks

    Commodities – in this case price rises would more likely be caused by high inflation than investors buying it to store in their garage

    Precious metals – i think a person who doesn’t want his hard earned dollars in cash would be looking for a place to store his wealth and so gold is viable. Now if you multiply that person across all Americans, Europeans, Brits, Aussies etc… you have the makings of a super bubble in precious metals.

    But I think I am missing a piece of the puzzle that will help explain what will occur. I just cant fathom the governments would knowingly push the world into hyperinflation and so cause a depression which is exactly what they are printing money to prevent!!!

  7. Nick Says:

    When I was at Uni many years ago, I was being told of a plan called “the New World Order” (NWO). Where there would be one world currency and that there will no longer be “sovereign countries” but rather the world would be run by one world government. Fanciful stuff and anyone who remotely entertained this thought was considered a “conspiracy theory nut”. I was told that to achieve this, “they” first must create the problem, and then offer the solution. Of course by the time they are offering the solution we, the ordinary folk, will be in such desperation that we will blindly accept anything “they” offer us.
    The Copenhagen Climate change fiasco last November was an instrument to implement such a proposal, i.e. NWO. This is now quite public knowledge thanks to Lord Monkton.
    Now, most of what I was told has come to fruition. In addition to this, the exact scenario explained to me back then is unfolding before our very eyes. I have heeded these warnings for many years and acted accordingly , just in case. You know what? I’m glad I did. For my children’s sake.
    Here is a passage out of the poem called “Desiterata”. This is a policy that I have adapted most of my life…and it has worked.
    “Go placidly amid the noise and the haste, and remember what peace there may be in silence. As far as possible without surrender be on good terms with all persons. Speak your truth quietly and clearly; and listen to others, even to the dull and the ignorant, they too have their story. Avoid loud and aggressive persons, they are vexations to the spirit.”

  8. Nick Says:

    GB…add China to you list of gold buyers. You may recall China recently told it’s people to go and buy gold and lots of it. That’s a lot of people. That’s a big demand for gold. Then add to this the bottom falling out of the artificial suppression of the gold price, which is gaining momentum, and you have a gold price that will reach “spiritual levels”.

  9. GB Says:

    cb, you argued before that bears shouldn’t want the property market to collapse because of the damage it would do. Hyperinflation would be that collapse x 1000. Shelves in coles would be empty, you would work and race down to buy stuff before your salary couldn’t and you would do that everyday. In brazil i think it was so bad that they did this every few hours.

    The last hyperinflation is zimbabwe and yugoslavia – its pretty nasty. But these countries never affected the gold price but if the US and EU went hyper then i think it would.

    Nick – yeah i meant the whole world. In a manner of speaking gold would become the global currency

  10. OREO-ruddxpin-BASHER-BUMMER Says:

    “”Avoid loud and aggressive persons, they are vexations to the spirit.”

    yeah nick so all those “real loud people ” like the bushes ,cheneys, blairs, goreys ,ricers,colons ,powells ..they not loud but have pulled down the system …
    u have to watch out for the “quiet sheep in wolves cloths”
    also

  11. Nick Says:

    etch…don’t worry mate, I’m a keen hunter. I can smell these buggers coming.

  12. OREO-ruddxpin-BASHER-BUMMER Says:

    so u reckon the amero is NOT a furphy??/

  13. Nick Says:

    I’m no expert etch, however, I do believe that the USD is past the point of no return. When it collapses, 1, 3, 5, 10 years from now. Something will need to replace it. So the arguments I have heard that support the formation of an Amero (or something similar) seem very feasible to me.

  14. Nick Says:

    Why is the likes of JP Morgans positioning itself to “play” with gold?
    http://www.reuters.com/article/idUSSGE6490MF20100510

  15. Fitch Says:

    Just like the old westerns, when the shooting stops get out from under the tables, crank up the music and get the girls dancing.

    Nothing has changed at all. More counterfeit money, wealth without the exertion. We find ourselves in a political and ideological void, the left and right are indiscernible. Who’s drinking, who’s picking up the tab…who cares?

  16. OREO-ruddxpin-BASHER-BUMMER Says:

    thats it,, its like ,cant beat ,then join ‘em

    hey isnt that wat “they ” want?

  17. Nick Says:

    Even the “experts” are toying with the idea of going back to a gold standard? If this is not a blatant admission that they not only wouldn’t have the foggiest of what is going on, nor had they, and worst still, that the game is over and they need to run for cover, then, I don’t know what is.
    http://online.wsj.com/article/SB20001424052702303695604575181693906532202.html?mg=com-wsj

  18. Greg Says:

    Banking 101: It’s not the money Europe prints that will cause problems – it’s the money the banks create out of it that will do the damage. For every dollar that is printed, the banks create another $10 through fractional reserve lending. In other words, for every $1 that is printed, another $10 of DEBT is created. How can any country extricate itself from debt by going deeper into debt?

    We really need to end the fractional reserve banking system before the whole world collapses under the weight of its combined debt.

  19. GB Says:

    Nick – “The second step is allowing the market, in the run-up to that date, to find and fix a dollar price of gold that would encourage other nations to replace dollar reserves with gold holdings ”

    How would you do that? I did some calcs on it – China has $800 bill in treasuries, and the biggest holder of gold is the US with 700 tonnes. So my calculations use the amount of gold China could get their hands on realistically by using Americas holdings

    Treasuries held by China Tonnes Ounces Price
    $800,000,000,000 7000 224,000,000 $3,571

  20. GB Says:

    PF – bought any gold yet?

  21. Nick Says:

    GB…question is, does the US actually have, or should I say, OWN that amount of gold?

  22. Nick Says:

    …..Fort Knox hasn’t been audited for over 50 years..this is what the current cufuffle is about over there with Ron paul at the helm.

  23. GB Says:

    http://docs.google.com/viewer?a=v&q=cache:sIf56y-XxuIJ:www.ppic.org/main/publication.asp%3Fi%3D503+housing+shortage+in+california&hl=en&gl=au&pid=bl&srcid=ADGEESj1_JROiWLb3aegENpAs0AwFnvPqg-xGkLFMtsook07S-6o-ht5x2SVmMnMLdcLvSCvPAFOhv_H2S8QYokqYGEBWWhetGLrXX9uadBqzkCBjgduRvgilK_IOzoZA5Jl2FlvfkWd&sig=AHIEtbTKuBLKkINhJKv0t4fn42Lu_bZJyA

  24. GB Says:

    geez that was a big link, i like the first sentence. It reminds me of something

    Nick – I hope not, if the world finds out there is no gold in fort knox then gold would fly

  25. Peter Fraser Says:

    GB _ I have for many years held physical gold via 18K and 24K jewellery, and lately shares in a gold miner. But I consider physical gold to be an armegeddon hold for a future catastrophe rather than a performing investment.

    That is why all jewellery in Asia is 24 Carat.

  26. GB Says:

    It seems readers of business spectator now think Keen is onto something – What the ****? Have I woken up in a parallel universe?

    http://www.businessspectator.com.au/bs.nsf/Conversations/Property_BL8G8?OpenDocument&src=blb

  27. The Wolf Says:

    GB…from latest World Gold Council Mar10 update:
    Can’t vouch for the veracity of this data, am not in tune with this organization (is it the REIV of gold data…I don’t know!?)

    Country / Tonnes held / % of reserves

    1 United States 8,133.5 70.4%
    2 Germany 3,406.8 66.1%
    3 IMF 3,005.3 1)
    4 Italy 2,451.8 64.9%
    5 France 2,435.4 65.7%
    6 China 1,054.1 1.6%
    7 Switzerland 1,040.1 27.1%
    8 Japan 765.2 2.5%
    9 Russia 641.0 5.1%
    10 Netherlands 612.5 53.4%
    11 India 557.7 6.9%
    12 ECB 501.4 25.2%
    13 Taiwan 423.6 4.1%
    14 Portugal 382.5 84.9%
    15 Venezuela 360.8 36.8%
    16 United Kingdom 310.3 16.5%
    17 Lebanon 286.8 25.6%
    18 Spain 281.6 35.7%
    19 Austria 280.0 54.6%
    20 Belgium 227.5 33.7%
    34 Australia 79.9 6.7%

  28. puntpal Says:

    when bread goes up to $5 a loaf, watch what happens. Inflation will not be accepted by the public. Hyper inflation has only existed in countries that are democratically weak or politically unstable (Zimbabwe and Weimer Germany).

    UK, US and Aus voters will put pressure to lower inflation well before that happens.

    Its not infltion that is the immediate concern, its the lack of risk that these bailouts are producing that concern me

  29. The Wolf Says:

    Funny…and probably true…

    Barron’s, by Alan Abelson, May 10, 2010:
    ”The real villains behind last week’s crazy crash”

    WHATEVER YOU DO, PLEASE, DON’T MESS with those teeny tots or there’ll be hell to pay. That warning was writ large in last Thursday’s horrifying break in the stock market. Around 12:30 p.m., Yahoo! published an AP piece headlined ‘Feds Investigate Baby Bottom Complaints,’ delicately detailing a scattering of reports of severe rashes afflicting poor little tykes who happened to be wearing a new type of Pampers diaper made by Procter & Gamble.

    Wall Street being Wall Street — where rumor rules, but parsing actual news stories makes traders’ lips grow tired — two hours passed before the Pampers problem made the rounds. Once it did, though, it didn’t take but five minutes — literally — for P&G’s stock to shed 22 points to under 40 and help send the Dow screaming 998 points lower.

    Happily, cooler heads — or, conceivably, more tranquil bottoms – prevailed, and by the scary session’s close, all but 348 points had been recovered and P&G closed back over 60. But for bears, after the usual strong Monday, it yielded a trifecta — three consecutive down days, including a couple of triple-digit losses that sliced 632 points off the poor old Dow. On Friday, moreover, investors were still reeling, and the market fell another 140 points.

    There were the usual excuses by the usual suspect sources. You know, stuff like human error caused by somebody’s wayward finger or some fancied computer glitch, but they always say that. For ourselves, we remain utterly convinced that what did such a demolition job on stock prices was the infants’ intifada.

  30. GB Says:

    PF – “But I consider physical gold to be an armegeddon hold for a future catastrophe rather than a performing investment.” You are right, physical gold doesn’t bring in any cash flows and even though I own some I would hate to have to cash it in because of what it means (and because I have too much family and not enough gold)

    I do think the governments are making some bad decisions though on the belief that they can control the economy, which they cant, so I feel better having a bit of insurance against bumbling pollies.

  31. Nick Says:

    I’ve been hearing for years, how gold is a dead, lame, relic, inert investment. Those telling me this had clearly a shallow vision and and understanding of the bigger picture. They showed me graphs on their laptops, made complicated explanations of how growth is calculated and that I would retire on amounts of money that today would barely buy me a house. They bragged to me, of their portfolios and how they would be retiring early and “living the good life”.

    My humble parents kept it simple.
    Only take out debt on something that will help pay the debt off.
    Pay that debt off as fast as you can, sacrificing all other “luxuries” until you have paid it off.
    Your house is just your home, fill it with love and memories, not junk.
    Throw all your efforts and resources into your work or business. It will be THAT which will feed you. What’s the use of spending a fortune on the stable and not feeding the cow. The cow will bring you milk, not a fancy stable.
    When you have accumulated excess cash, buy gold for the future.
    Above all, be patient. Stop occasionally to smell the roses and contemplate how far you have come. It will revitalise you and keep your mind clear to battle the journey ahead.

    Now who of these two made the most sense??

  32. cb Says:

    Nick – You asked why JPMC would want to “play” with gold, referring to this newsitem: JPMorgan to store precious metals in Singapore.

    I assume that it is a rhetorical question, but it may not be a waste answering it: JPMC is the biggest short in silver on the COMEX. But guess what: It is also the CUSTODIAN of the siver ETF, SLV, meaning that it is supposed to be holding and warehousing physical silver on behalf of SLV investors. This is the incredible but classic case of the fox being the custodian of the henhouse. Now, it seems that the same fox wants to build a similar henhouse to house the chooks of the East.

    If this analysis is anywhere near right, then the question translates to: Why would the fox want to be the custodian of the farmer’s hens? The answer to be is pretty obvious, but the qestions that should concern the people and the farmers of the area is whether their chickes are safe with the fox, and whether they should trust the fox’s word that all their chooks are there.

    It is the cruelest of jokes, and any dupe that is going to have their PM holdings with the biggest short seller deserves everything that is coming to them.

  33. GB Says:

    Gold might correct soon, the run up since mid march has been strong

  34. cb Says:

    If I recall this right, GATA estimates that about half of the officially still claimed US gold reserve is in fact gone. They continue to claim all the leased gold, which was borrowed and then sold by the bullion banks as part of the gold suppression scheme over the past decade and a half or so. While techinically, the bullion banks, such as JPMC owe this gold to the people, in reality they are never going to be able to buy it all back, but will either go bust, or will be allowed to settle the debt in cash, probably borrowed for next to nothing from the Fed. Either way, the people lose out. Their gold is gone and they will never see it again. It has been sold, consumed (jewellerey, electronics, etc.), or held in private hands. Puff …. there goes the people’s wealth.

  35. Nick Says:

    GB…#2..I hope so. It would create another good buying opportunity.

  36. GB Says:

    cb @ 33
    What forces JP’s to show their cards so to speak? Maybe a mad rush by people wanting physical gold?

  37. cb Says:

    PF – I have a question for you. Joye and others have been claiming that dwelling construction has been lagging population growth, and that this is what principally explains property price increases. But Keen’s latest article claims the opposite, except for the past couple of years. What do you make of it all? See here:

    “The average number of people living in each dwelling in Australia in the year 2007 was around 2.6 (the black line) – and this figure was higher in earlier years. To keep the ratio of people to dwellings constant, we would need to build a new dwelling for every 2.6 new people. In fact, on average between 1986 and 2009, we’ve been building a new dwelling for every 1.8 new Australian residents. Only in the last couple of years – after the GFC hit – has population grown more rapidly than we’ve added accommodation.”
    http://www.businessspectator.com.au/bs.nsf/Article/Lets-bury-the-housing-shortage-myth-pd20100510-5B62B?OpenDocument&src=srch

  38. cb Says:

    And so the matals are off to the races again:
    http://www.perthmint.com.au/metalPrices.aspx
    Print baby, print. If you are well positioned, these bankers can actually make you rich.

  39. cb Says:

    GB – I forgot to mention, I was writing a long response to your question last night, but then the whole thing froze and I had to hit the sack. The essence of it was that uncertainty and volatility in the currency, or prices, or whatever, is bad for the economy and bad for busieness, regardless of which way the line is tilted. I also agreed with you that hyperinflation would be far worse than severe deflation, and expressed the hope that we can avoid both extremes. If you want to pursue this question further, you are more than welcome.

    In fact, I just thought of pointing out again the following: China has a lot of USD reserves, which it needs to spend overseas before its value evaporates through the accellerating printing machines. Chances are that they will want to continue to dump as much of that paper over here as they reasonably can, and if so, the resource sector will probably be the primary channel for that moneyflow. Your thought on this, and its implications?

  40. GB Says:

    cb – what causes the famine? Asia popping then printing? The Europeans are desperately buying gold because they think the euro is dead

  41. cb Says:

    Ah, here is a good analysis of the fox’s business I have described above:
    GLD and SLV: Disclosure in the Precious Metals Puzzle Palace
    By Catherine Austin Fitts and Carolyn Betts

    “We believe the disclosures regarding GLD and SLV are inadequate. Given the conflicts of interest of the Custodian banks and the general state of standards and ethics within the bullion banking community, we believe the market discounts of GLD and SLV to silver and gold melt value are more than warranted. At best, GLD and SLV are simply a bank deposit priced in spot prices without the benefit of government deposit insurance. At worst, GLD and SLV are vehicles by which investors provide the banking community with the resources to control and manipulate the precious metals market without adequate compensation.”
    http://solari.com/archive/Precious_Metals_Puzzle_Palace/

  42. GB Says:

    with the EU bailout hyperinflation is becoming more possible but again it depends on if the money makes it into the economy. What do they then do to stop hyper? 30% interest rates?

    Chinese reserves cant be dumped into other countries because governments block it so i guess they will to a point. I have noticed that copper volumes on the LME have been going down and the baltic dry is rising so maybe they are buying again.

    Are reserves worthless though? Look at Japan, they have huge public debts, deflation and no growth – why not use their reserves and spend like crazy people or give it to their citizens and bring on some inflation?

  43. cb Says:

    GB – Famines are typically caused by a lack of rain, or some other natural disaster, combined with poor management and misallocation of resources, resulting in an inability to mitigate the effects of the disaster. Similarly, with reference to the example, a loss of confidence in the currency would qualify, whereby food could not be bought with fiat money, but would be exchanged for other food, for instance, so that you could get a sack of potatoes in exchange of five egg laying chooks, only if you could get the fox to give them to you, if he has them at all. But chances are that the fox sent your chooks to the slaughter house a long time ago, or ate them, and the barn is literally empty, but for the few he has kept for showing off to maintain confidence in his business/scam.

  44. OREO-ruddxpin-BASHER-BUMMER Says:

    cb@ 33 -why dosnt that surprise me one sceric?..i dont know

  45. Peter Fraser Says:

    cb @ 36 – I don’t have a simple answer for that. Many organisations have research showing shortages in areas where the houses are needed.

    If things got really desperate we could all cram into half the houses we currently have, but will that happen?
    Will our needs and occupation rates change as people live longer?
    What will the effect of the Boomers retiring make?
    What effect will migration levels have?
    What effect will a mining boom have on our wealth levels and thus our demand for houses?
    Will there be a mining boom?

    Too many unanswered questions, so I go with the majority of research rather than just take a punt on sheer guesswork.

  46. OREO-ruddxpin-BASHER-BUMMER Says:

    its all part of the introduction of a new world currency saga

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