The Housing Bubble

More people would save if it actually paid to do so. I save nearly 30% of my take home, but even I wonder why I bother with interest rates less (by FAR) than inflation (and taxed at that!). Maybe if the Fed would stop, in effect, paying people to borrow money things would get better around here.

With the brilliant minds of Wall Street and Washington, we’re lucky to still have any Lights and running Water.

Now heating oil and Gas this Winter maybe …another Problem.

Welcome to the Hotel Baghdad…Amerika

Brilliant minds indeed. Now, Greenspan is decrying the excesses of Fannie and Freddie, but out of the other side of his mouth, he lauded “financial innovation” (read: opaquely structured financial sludge) and the use of ARMS in a speech to the fed during the height of the bubble.

Other so-called experts were cheerleading the madness and collecting massive fees and salaries.

Now we’re supposed to believe any of the prognostications from these people about anything?

I know of an internet blog with random posters doing a better job of identifying the financial realities of the time than the highly paid experts.

The corp’se is a dead man walking anyway…

I liken them to Giant Sequoia Trees, massive hunks of wood, the largest things on the planet~

Sequoias are fire-resistant and typically succumb on account of their shallow root systems (employees) and as they grow too big and top heavy (management) they tend to fall over, and horizontal is the new vertical.

To extend your analogy a little further, Aladin, the decaying mass of those toppled trees becomes a fertile landscape for a host of smaller organisms, including new sequoias on-the-rise.

Destruction breeds opportunity.

Unless the govt wastes resources on propping up the old trees which would otherwise be used for new growth.

Absolutely…

On our most recent backpack trip, we were on the Chagoopa Plateau, nearbye Sky Parlor Meadow and Moraine Lake.

The far side of Chagoopa burned up 10 years ago, and I was there perhaps a month after the fire. Everything was as black as the ace of spades.

5 years ago it was slowly coming to life, but slowly.

On this trip, all the blackened bark had fallen off of dead trees, and they were yellow in color, and Aspens by the thousands were crowding out one-another, (which trees will emerge triumphant in 40 years?) in the ongoing saga of Mother Nature starting over again.

Agreed. Some things I don’t, but this one.. But will the usa Gov with a big G pay any attention to Mr Omaha? Or just watch what his co is investing into instead.

I don’t get it, what exactly is your problem with Buffet? He has proven to be a consistent winner and super smart financial investor for over 40+ years, a feat none of us can ever hope to replicate in 4 lifetimes. I don’t see how he is encouraging more gov’t entitlement programs by sponsoring this film.

Please explain.

I’m skeptical of the motives at work here. Besides, it’s not so much the man…as it is the myth that arouses that skepticism. His undeniable prowess as a successful capitalist would be very useful to those pushing certain agendas.

In this case, by agendas I am specifically referring to the notion that we’re all in this together. Nope, not buying it, “everyone” did not cause this so “everyone” need not pay for it.

I agree not everyone did something to cause this. For example I did not purchase an overprice house that I could not afford nor did I rack-up credit card debts. However we are all in this together in the sense that if the US economy crashes, none of us is completely immune from it. The solution require pain, just different amount of pain depends on your own circumstances. Maybe that’s what he was saying and not that everyone has to pay an equal price to fix whatever is wrong?

I don’t think Buffet needs any more money personally by trying to advance an agenda to benefit himself.

Babe Ruth 1938

Warren Buffett 2008

john,
I doubt there is any agenda with Buffett, in fact he has donated his entire fortune over to charity already. It seems your only argument is that since he’s rich, he must have some greedy intent. In fact, he has warned everyone about the housing crash, danger of derivatives, and even the tech crash before that. If anything, Buffett has always come off as the opposite of the moneyed elite, the anti-Gordon Gecko if you will. He’s a modest person, living in a modest house in Omaha, and seems genuinely concerned about our world of finance/government. While he is certainly someone with an incredible amount of influence, I can’t think of an instance where he endorsed a politician, policy, or law to further any agenda. In fact he has been pro-inheritance tax and many other items that seem to go against what a wealthy person should want.

Anyhow, he is always interesting to listen to, even if I don’t always agree. I’ll check this out when I can.

“There’s a savings account”

and it’s slam full of IOU’s

The point of taking the money in advance was to prevent the need to create the debt in the future. If we were just going to create IOU’s in the future then we wouldn’t have needed such a “regressive” tax over the past 25 years.

Imagine if we had not collected all of that extra tax revenue from the boomers, then we would have had to report the true deficit over the past 20 years. All of that extra money would have stayed in the economy causing it to grow more than it did with the tax.

So, there is NO savings account. We would be in the EXACT same spot today even if the tax was never raised… only instead of Social Security holding the IOU’s foreigners and private citizens would be holding them. Either way we have no choice but to raise taxes today to pay back the IOU’s. The whole point of raising taxes in the 1980’s was so that we wouldn’t have to do it today (because today we cannot raise them high enough to pay it off).

In 1980 social security was an unfunded liability/promise (an IOU) so they raise taxes to fund it. Then they spend those taxes and replace it with an unfunded liability/promise (treasury notes).

A brilliant scam that only 1 in 100 even understand…

Even in the best case this was a regressive tax that had the lower 90% of the population funding the general budget for the past 25 years with the promise that the upper 20% would pay it back through general income taxes when they pay off the treasuries. Remember that SS only taxes the first 50-90K of income (increased over the past 25 years).
Therefore, someone in the 25% tax bracket pays 40.3% after social security… but someone in the 33% tax bracket only pays 35% after social security because the 15.3% social security tax only applied to 10-15% of their income yet 100% of the income from someone in the 25% bracket.

Politicians are going to keep spending until something breaks.

Only significant pain will change American habits.

In 1979, it looked like Japan’s economy would reign supreme, no? A decade or so later: ouch. History is a convoluted thing.

I for one have been listening closely as both sides paint their respective doomsday scenarios.

“I for one have been listening closely as both sides paint their respective doomsday scenarios.”

Agreed. The loony moonbats of all persuasions have been very busy casting predictions of a catastrophic event.

“Man is a strange animal. He generally cannot read the handwriting on the wall until his back is up against it.”

Adlai E. Stevenson, Jr.

Agreed. The loony moonbats of all persuasions have been very busy casting predictions of a catastrophic event.

Because of the historic, systemic instability we’re now seeing, I’m hesitant to characterize most bears, naysayers, tea-readers, gold bugs, contrarians, curmudgeons and deflationistas as “loony,” even if some of their predictions seem extreme or far-fetched at the moment.

Anyone who’s been a Housing Bubble Believer for a while has been called loony — or worse. And we all know how that panned out.

(Sometimes, of course, a loon is a loon, even if they’re dressed up real nice.)

I read the predictions with interest, although I’m not certain myself which scenario(s) may come to pass.

I understand ET. However, whenever I encounter someone who is so convinced they know the future so well that the forecast becomes fact, I’m very skeptical. Very. I’m not suggesting there aren’t problems as I believe we’re in uncharted waters from an economic and fiscal perspective, we’ve been in uncharted waters before. At the same time I figure a trend reversal is always part of the play and the outfall of that reversal is a question of severity. How severe is the question. At least for me.

I am only allowed to say what my Chinese-made* Crystal Ball tells me to…

* ex-Wal*Mart store #3628

“Gold bugs” - that’s a good one.

Gee, that whole gold run’s kinda lookin’ like a mini-bubble all on its own, eh?

However, whenever I encounter someone who is so convinced they know the future so well that the forecast becomes fact, I’m very skeptical.

Your skepticism is both healthy and prudent, IMO.

When a strong conviction is artfully or rationally articulated — as some here manage quite well — it does make me take notice, though.

Here’s a little intel on the gold and silver “bubble” popping. This excerpt from Ted Butler.

“These facts speak for themselves. Here are the facts. As of July 1, 2008, two U.S. banks were short 6,199 contracts of COMEX silver (30,995,000 ounces). As of August 5, 2008, two U.S. banks were short 33,805 contracts of COMEX silver (169,025,000 ounces), an increase of more than five-fold. This is the largest such position by U.S. banks I can find in the data, ever. Between July 14 and August 15th, the price of COMEX silver declined from a peak high of $19.55 (basis September) to a low of $12.22 for a decline of 38%.

For gold, 3 U.S. banks held a short position of 7,787 contracts (778,700 ounces) in July, and 3 U.S. banks held a short position of 86,398 contracts (8,639,800 ounces) in August, an eleven-fold increase and coinciding with a gold price decline of more than $150 per ounce. As was the case with silver, this is the largest short position ever by US banks in the data listed on the CFTC’s site. This was put on as one massive position just before the market collapsed in price.

This data suggests other questions should be answered by banking regulators, the CFTC, or by those analysts who still doubt this market is rigged. Is there a connection between 2 U.S. banks selling an additional 27,606 silver futures contracts (138 million ounces) in a month, followed shortly thereafter by a severe decline in the price of silver? That’s equal to 20% of annual world mine production or the entire COMEX warehouse stockpile, the second largest inventory in the world. How could the concentrated sale of such quantities in such a short time not influence the price?

Is there a connection between 3 U.S. banks selling an additional 78,611 gold futures contracts (7,861,100 ounces) in a month, followed shortly by a severe price decline in gold? That’s equal to 10% of annual world production and amounts to more than $7 billion worth of gold futures being sold by 3 U.S. banks in a month. How can this extraordinary concentrated trading size not be manipulative?

Because prices fell so sharply after the short sales were taken (with the appropriate dirty tricks as I have previously explained) holders of known physical silver in the world suffered a decline in value of more than $2.5 billion and long COMEX silver futures holders suffered a similar $2.5 billion decline in the value of their contracts. In gold, because the dollar value held is much greater than silver, investor losses were much greater, on the order of hundreds of billions of dollars on their physical holdings. Declines in the value of mining shares adds many billions more. Was this loss of value caused by the concentrated short selling of 2 or 3 U.S. banks?

What real legitimate business do 2 or 3 U.S. banks suddenly have for selling short such quantities of speculative instruments over a brief time period? Do we want banks to be engaging in this type of activity? If the manipulation was not successful, would U.S. taxpayers be called on to bail out yet another bank speculation gone bad?”

Anyone here who doesn’t believe that the gov’t is up to their ass in manipulating this market is absolutely blind.

1979..was dancing at Studio 54 and…

Today…much different.

So the same with our economies?

Good post auger.

It might be said that the banks are forcing the price of PM’s down for now. But how does it end?

1) The banks end up having to fulfill the contracts, thereby creating a large increased demand in gold and moving the price back up to the extent the shorts pushed it down.

2) The banks CAN’T cover. Go bankrupt, whatever. That makes the paper go bad. That deflation of the supply of gold then cause the price to go up. BUT WAIT, there are surely a hell of a lot more people buying gold right now than before. So if that event causes all the people that are “investing” in gold now but who had stayed away before to go away, the decreased demand applies a downward force on the price of gold.

So which force is of greater magnitude? Perhaps there has been a massive bubble of gold in it’s (fake) paper form, feuled by pundits, MSM, financial analysts, etc. When that goes away the downward force on price exceeds the upward force applied by the “unwinding” of the inflated fake gold.

Always tempted to go up behind one of those ’side hatters with droopy drawers and pull em down or give em a wedgie. That’ll teach em..always a kid!

pull em down or give em a wedgie. Better be packing a sidearm if you try that, the ’side hatter or one of his buddies most likely is.

Exeter, I believe the point of the commentator (and the show was a while back) was that the benefit caps are related to the pay caps and to lift one cap and keep the other isn’t how the system works. You don’t grab several hundred thousand a year from some guy only to cap him at 40K/yr in benefits. The system wasn’t set up to be a welfare system with means testing, at least that is my understanding of the guy’s point.

Auger, That is precisely how risk pools work. Does an insurance company owe me because I’ve never filed a claim? Of course not. By chance Mr. Gates falls on hard times, guess who is going to be there?

“If you look at SS on the aggregate, the boomers have already spent their entitlement (through high government spending, undertaxation for the past couple of decades).”

BINGO. It’s time to go after the tax cheats.

Boomer’s parents are alive and collecting SS in large numbers. Boomers are getting a bad rap on this matter. However, this does not solve the shortfll problem that we are facing.

Boomer’s parents are alive and collecting SS in large numbers. Boomers are getting a bad rap on this matter. However, this does not solve the shortfall problem that we are facing.

How is that advocating for government intervention? My point is that people should take responsibility for their own retirement and not ask for “taxing the rich” to fund one’s own retirement. In an insurance pool, if I had a $5 million house I would pay a lot more in insurance rates than someone who owns a $500K house, which is totally legit because in case of fire I would be due a $5 million check. Higher payout = higher risk = higher premium. Is Bill Gates gonna get a much larger payout from SS if he pays $100 million / year in SS tax? If not it just goes to pay for other people’s retirement and that is what I oppose: depending on other people to fund your own retirement. Save and invest wisely yourself beats soaking the likes of Bill Gates for extra SS checks.

The question that people have largely forgotten to ask is “what is Social Security for?”

It shouldn’t be a retirement plan.

It should be a safety net.

This argues for means testing and if we want to encourage savings (primarily by changing the mentality of the masses), we should seriously consider some sort of automatic retirement accounts.

Go the direction of many companies–rather than needing to “opt-in” to a plan, you need to actively decide to “opt-out”.

Cougar.. Bill Gates thanks you for pandering to his interests and shouldering his portion of tax burden.

I wonder if he’d trade places with you?

Its not only Bill G - according to this article, the US has a teacher shortage and is being forced to import teachers

http://www.spectator.org/dsp_article.asp?art_id=13678

THE SINGLE-BIGGEST user of H-1B visas among school districts is located
right in the suburbs outside the Beltway, in the Prince George’s County
school system in Maryland.

I am surprised that there is a lack of educated Americans in Prince George’s County. I had thought it was one of the most educated counties in the country.

Prince George? are you sure you don’t mean Fairfax or Montgomery? PG is where the ghetto moved when DC got too expensive.

Saw some TLC show where they mentioned it was the richest county in the nation with an African-American majority.

My wife is a Prince George teacher….there are now a lot of recent H1B Asian teachers…they tightened up sandards a few years ago.

Your comment confuses cause and effect.

Deflation

A general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can be caused also by a decrease in government, personal or investment spending. The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression.

Declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals. To counter deflation, the Federal Reserve (the Fed) can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation. Rising prices provide an essential lubricant for any sustained recovery because businesses increase profits and take some of the depressive pressures off wages and debtors of every kind.

Notice how the Investopedia lexicographers have bought into the Keynesian-inspired mythology that the Fed can fix the economy under all circumstances by creating inflation.

Cambo, respectfully, I think you are confusing yourself on this issue.

Deflation refers to vanishing money, which is what is currently happening.

If you consider inflation/deflation to be a measure of the money supply, then a “real pay cut” in this context does NOT mean deflation. “Pay” is not part of the money supply. In this case, when there is inflation (an increase in the money supply) and no corresponding rise in income, inflation causes the purchasing power of your income (and dollar denominated savings if you have any) to be decreased. That purchasing power still exists, its just in someone elses hands.

On the other hand some people use the terms inflation/deflation to refer to overall price levels. I personally reject this notion, as I consider the change in prices to be symptom, not the illness itself. However, for those who do…

The odd thing about PB’s statement:

High inflation + paltry wage increase = real pay cut

If he considers “inflation” to refer to overall increase in price levels, then how can you have “high inflation” with “paltry wage increase” (for simplicity, let’s call it stagnant nominal wages) if wages themselves are also prices (which they certainly are)?

So perhaps he should have said “high non-wage inflation + paltry nominal wage increase”? If that’s the case and you subscribe to the “inflation refers to price levels not money supply” school, then I guess this would indicate some other force is pushing down wages specifically, independent and to a degree offsetting whatever force is pushing up the price level generally.

But this couldn’t said to be deflation either because overall (wages being the exception) prices in PB’s scenario are increasing.

There are certainly multiple independent forces acting on prices simultaneously. Technology and production advances for example will tend to push prices down.

That’s one of the interesting things about inflation and what the CPI doesn’t measure well. If technology advances tend to push the price of a thing down, and inflation (increase in money supply) simultaneously acts as an upward force on the price of the same thing, how do you evaluate what has happened when the price hasn’t changed? Does that mean there is no inflation?

In fact, it means that the effects of inflation are not only the increasing prices (of other goods lets say), but also the lost decrease. Or the decrease in price that should have happened but didn’t. The CPI doesn’t measure this obviously, and evaluates such a situation as “no inflation” when really we have lost what would have been an increase in purchasing power of dollars.

————-
“Declining prices, if they persist, generally create a vicious spiral of negatives such as falling profits, closing factories, shrinking employment and incomes, and increasing defaults on loans by companies and individuals. To counter deflation, the Federal Reserve (the Fed) can use monetary policy to increase the money supply and deliberately induce rising prices, causing inflation. Rising prices provide an essential lubricant for any sustained recovery because businesses increase profits and take some of the depressive pressures off wages and debtors of every kind.”

This is idiotic and propaganda that is widely believed.

During the period of the greatest economic progress in the US, 1870-913, the US had frequent deflation and no Federal Reserve to create artificial money supply. Actually, Western Europe, especially, the UK, did very well during the period of deflation-inflation-deflation…, i.e., very low to negligible long-term inflation.

Deflation is good for workers and bad for bankers and financiers! Also, there is no such thing as hyper-deflation and deflation is self-correcting.

Jas

Deflation is good for workers and bad for bankers

Unless those workers are in debt up to their eye balls. Curious things would work out that way…

Deflation is good for workers and bad for bankers and financiers! Also, there is no such thing as hyper-deflation and deflation is self-correcting.
———————

Amen, Jas!

Deflation is the cure for inflation.

The problem is that Greenspan fought deflation so hard that we got (one of?) the largest, most-distorted, inflationary bubbble in history.

Greenspan has a lot of blood on his hands.

“Wages will only start to rise once people with hard assets can sell them at very inflated prices.”

Yes, the wages of real estate agents, construction workers, mortgage brokers and Wall St. Bankers have clearly risen with the housing bubble.

Do we need yet another bubble in order for wages to increase? I think there are more sustainable ways to achieve that, which involve de-emphasizing investor and CEO returns in favor of more investment in infrastructure and R&D.

aladinsane,

please, do not “muddy the water”, ie, do not provide a smoke screen to let Prof. Bear avoid the question.

I think it is important that new bloggers get “beaten over the head” from those that have contributed to this website for a long time. Not PC, just impolite.

“not”

I’ll blow you a smokescreen if you still need it, Professor…

It’s 4:20 Mountain Standard Time here, on the left coast.

I sincerely apologize if I came off as brutal. Generally speaking, I try to directly respond to the content of other posters’ comments without getting whatsoever personal.

Sir,
I accept your apologizes. May I accept mind.

Wish you the best.

IMHO

Prof. Bear,
“Bad wording” on previous post.

Please accept my apologizes.

lostcontrol

I am flattered, but I am pretty sure he does not read nor post here. Last time I saw him, he was off riding his motorcycle…

Have we fallen that far, yet?

No, just you.

And here’s the number for the Jerry Springer show:

877-836-3414

After all, trashing your country is like like trashing your own family.

Look up Youtube and type in Minuteman + Flag and you will see what I am talking about. Some Mexican person was flying Mexican flag on top of US flag and generated a lot of threats from those border watchers.

Yeah, it has already gotten to that point.

I think for illegal alien to protest American immigration policy in THIS COUNTRY and to fly a Mexican flag above the US flag in THIS COUNTRY is beyond rude. It was intended to insult, and to rile people up, and got exactly the response desired.

Not to worry…

Hundreds of people drive by every day, and nobody has ever noticed.

Loving one’s country means sometimes leaving clues about how you feel about the state of things, for others to decipher and think about.

Lad, for a person who is a most conspicuous consumer of this country’s great resources (backpacking trips in the far reaches), and who has lived to tell the tale (try going out alone in the far reaches of places which are evidently more to your liking), you have an astonishing blindness about the benefits you receive from the country you trash.

I call hypocrisy, hubris and ignorance.

Go pull that crap somewhere else. I’d love to hear you whining, for years, from whatever hole you are summarily thrown into. Assuming, of course, that your hands haven’t been subject to progressive nerve damage.

Well, I don’t like it. I’ll b*tch and complain and shout angrily about the state of things here in America as enthusiastically as anyone, in fact I do it all the time, but to me our flag represents the best of what we are. Passion, and will, and courage, and terrible sacrifice. Glory, and hope, and all that.
I think it’s disrespectful to mis-treat it. If someone wants to visibly ‘leave clues’ about how they feel about things, I think they oughtta shoot someone who deserves it–the list of those who deserve it is very long–shoot them full of a whole bunch of bullets carefully engraved with ‘You suck, and you’re NOT a patriot! So there!’

Huh? Huh?! Yeah! Now THAT’S a ‘visible clue.’

Exeter, living in the epicenter of diminished outcomes -despite prodigious application of personal intellectual capital - has begun to make you bitter. Time to man up and get out. Your outlook about the U.S. may improve when you are in a position to see some marginal gains from your efforts. Go somewhere — FAST — where there is growing demand for what you do. Just MHO - the geographic cure worked for me, and I followed a host of others in your situation.

Nice country, America. What takes people in other places a couple of generations to accomplish can be done here in a year with a move to another region.

markets not dysfunctional. participants expectations and perspectives are.

markets doin exactly whats its supposed to do. By allowing participants to guage risk exposure by raising or lowering position size based on observed panic and capitulation among other participants.

I actually took the trade with a reduced size exposure of moneys I was willing to simply throw away.. for these reasons….it seemd like panic, it felt like capitulation, obsevable movements and information pointed to massive and overly excesive short positions…..well you get the picture..

its just a game Hoz. If you cant have fun, why play?

True, true.

The two forms of money. One you live on, one you play with.

ya gotta remember, I said it was ok to short it to 3 bucks, but no lower, not but one month ago.

I dont make this up as I go Hoz, and I wont lie to ya.

Actually all of the USA used to be risk-free…

If Mother Nature laid a hand on us, the government was always there to bail us out.

Katrina showed how bare our cupboards were, compared to just a decade ago, and the floods in the midwest are already forgotten and not talked about anymore.

“I do know quite a few peoples that believe there is no longer any safe investment in US backed debt whether GSE or Government issued. The Risk/Reward is not good and the Value at Risk is large.”

question; so why is gold down these days ?

The people I know are traders. Traders look at Risk/Reward ratios. PMs are an insurance policy for non active participants.

question; so why is gold down these days ?

According to an article posted yesterday (or the day before?) the big banks and exchanges don’t really trade gold (this makes sense), they trade “paper” that represents gold stored somewhere. The article claimed that the financial institutions weren’t really holding the gold they claimed to be holding. Meaning that paper wasn’t really “backed” by anything physical as once claimed.

If that gold isn’t really stored, then what you may have is a situation where the “supply” of paper is growing in excess of the rate that gold is actually mined, i.e. inflation.

Since the “price” (the spot price) of gold isn’t really just for physically traded metal (it includes these promises or “paper” which make the total quantity traded exceed the actual quantity of gold on the market) then the “gold” being traded is essentially being subjected to inflation, thereby lowering it’s real value in terms of other assets (e.g. dollars). So that could cause a gradual or sudden decrease in the price of gold.

Alad’s suggestion that two markets are forming, the electronic/paper one and the physical market such as coin dealers, the mint, i.e. people who are acutally buying and selling gold physically, would reinforce this phenomenon.

One might project from this that the nominal price (in dollars) of the electronic variety may collapse (even collapse slowly) even as the price of the physical would increase. I suppose that event would depend on the ability of the PTB to continue the charade.

I don’t think anything I’ve said so far is really into “tinfoil hat” territory but I like to go there too.

Consider the message about gold in the last few years. It’s a good store of wealth (true imo), its a hedge against inflation (also generally true) and is a good part of your portfolio.

BUT, most financial advisors, pundits, govt officials, etc would tell you that it’s not wise to own physical gold. It’s too risky. It’s much better to own something else, like Perth or an ETF, etc.

Also consider what I proposed a few days concerning the U.S. Mint. It only makes sense for them to stop coining gold coins if they feel (or know) that the price of gold is going to drop dramatically in the future. The price would have to drop at a rate which would create a loss larger than they can recoup from selling the physical coins. A slow decline in price shouldn’t be a concern for them if the premium they charge for physical will cover that loss (plus coining costs).

So put all that together: The PTB persuaded lots of people to invest in gold, but not the real kind, just the paper/electronic that is supposedly backed by holdings in a trustworthy bank somewhere. They devalue that paper by issueing paper not really backed with physical gold and meanwhile sell off the physical gold (since the price of physical is still closely tied to the paper/electronic and thereby affected by the paper manipulation) and accumulate dollars.

The large banks/financial institutions are holding dollars knowing its all gonna come out in the wash; the bad paper/electronic is gonna get cleaned out eventually. The physical and electronic markets won’t come totally unhinged (they wont let it) but when everything is cleaned up the new price of gold will be lower. Someone will be a scape goat but not much will come of it primarily because of the corporate veil.

All the “investors” lose their ass on the worthless paper, the banks keep the green cash and start buying the yellow when the price gets back down. A good way to sheer a little more wool.

Meanwhile, the Mint knows (or has been told to stop coining by someone who knows) to expect a drop in the nominal price of “gold” as its traded on normal exchanges, so it too is just hanging out waiting.

What other signs would indicate something like this? Don’t large (and small I assume) mining operations hedge against price changes? Let’s say in the current environment they would normally sell forward contracts to deliver gold for $x/oz. But they know this is about to happen, so wouldn’t they increase the number of contracts they sell? I don’t really know how those types of contracts work, but is it normal to enter into a contract in which they have the option to sell the gold, like buying a put? I would think an increase in that activity for the large gold mining operations might reinforce this theory. Also I would think an abnormal decline in the amount of gold held in reserve by those same companies would also be an indictor.

Ok, that’s enough. Now back to your regularly scheduled program.

Just bored…

I should know better than to pick @ 100 year old scabs, er Cubs.

“I truly believe that this is a long term washout and that the US will end up stronger.”

Ditto. Watcher and Aladin are gambling on Uncle Sam’s untimely demise. To which Uncle Sam might rightfully respond (after ten years or so), “The reports of my death have been greatly exaggerated.”

“I truly believe that this is a long term washout and that the US will end up stronger.”

Double ditto. Along with this washout will be offered an excellent buying opportunity for quality stocks at washout prices.

Those with knowledge and money will buy on the cheap from those with neither.

How do you know them spot gold prices won’t be manipulated into a large loss for anyone foolish enough to buy when prices are historically high?

I must live a sheltered life…

I’ve never heard of Hulbert, and i’ve only been messing around with mellow yellow for around 30 years now.

I apolgize Prof. Bear,

but the economics affects the questions that I ask. You can not accept the economics without considering the intended and untended consequences upon the lives of the individual, the family and the community.

And I agree with you, I do not have answers to my own questions.

JMHO.

Lostcontrol