Author Topic: Gold, the Fed and the Economy  (Read 17502 times)

0 Members and 1 Guest are viewing this topic.

Offline adamc4

  • Trade Count: (0)
  • Sr. Member
  • ****
  • Posts: 616
  • Karma: 2
Gold, the Fed and the Economy
« on: September 25, 2011, 07:28:57 PM »
"with all the money pumped into the economy I agree with Jim Rogers on where the price of Au will go"

Zero money is being pumped into the economy. "Operation Twist" doesn't alter net financial assets in the private sector. The Fed is simply financing the purchase of long term Treasuries by selling an equal amount of short term Treasuries. It is not expanding its balance sheet, it is altering the duration of its assets. Purpose? To reduce long-term yields. Why? To encourage longer term borrowing and lower rates for businesses/homeowners to refinance at.

Also, QE2 was neither inflationary or the printing of money. QE2 did not help housing prices, reduce the rate on a 30 year mortgage, change corporate bond rates, cause the consumer to go out and buy, cause businesses to spend, increase loans from commercial banks, or cause real GDP to surge. It didn’t affect the balance sheet of the private sector at all. QE2 did ramp up speculation in the markets with NYSE margin debt increasing and equities rallying. Commodity prices also surged because investors felt they needed to hedge against inflation. Inflation that was never going to come. Commodities went up when there was no real demand from a growing economy. Investors actually caused inflation to occur by buying up commodities in fear of a QE2 induced inflation, what actually happened was cost-push inflation because investors drove the prices up and THEN the goods became more expensive. Markets are horrible reflections of the real economy.

QE2 had zero transmission mechanism through which it could help the real economy. The equity market wealth effect was overrated. QE2 caused real interest rates to decline but consumers don’t care about real interest rates, they care about prices relative to their earnings. Consumers’ earnings went down during QE2 as prices went up so consumers didn’t spend. Consumers walking in the door cause businesses to spend. No consumers spending = no businesses spending or financing projects. Bernanke’s job is to stabilize prices and keep employment high. QE2 failed at both. 

QE2 was not inflationary because zero net financial assets were added to the private sector. The Fed just swapped reserves for bonds. If commercial bank A had a 5 year note paying 1.3% they could sell that note to the Fed and get in exchange reserves that payed 0.25%. They received a more liquid security with a lower yield. The only thing that changes on a bank’s asset page was the duration and amount of interest earned on their holdings. The composition of the balance sheet was unchanged. QE2 didn’t give anybody more firepower. The Fed gained new assets (treasuries) and handed out the same amount of liabilities (reserves). Actually, the private sector loses assets in this scenario because they lose the higher yield they were receiving on their treasuries. So why was QE2 pursued? Because the Fed thought banks now full of reserves paying 0.25% would go out and buy risk assets. Cocoa went up 70% from the start of QE yet the Starbucks CEO said fundamentals had not changed at all and speculators drove up the prices. They drove up the prices because they were afraid of inflation. QE2 just manipulated markets.

Offline pandayo

  • Trade Count: (0)
  • Jr. Member
  • **
  • Posts: 150
  • Karma: 0
Gold, the Fed and the Economy
« Reply #1 on: September 25, 2011, 07:30:03 PM »
since you're talking about resealing, is coin like this resealed? see the double plastic on the seal?

I posted this question before, can someone give me answer please? Let's educate our self than keep fighting haha...chill people chill...if you don't like the dealer then simply don't do business with them or do only if you have to :P.
 

Underbidder

  • Guest
  • Trade Count: (0)
Gold, the Fed and the Economy
« Reply #2 on: September 25, 2011, 07:34:07 PM »
Hard to tell from a photo. I would want a fine tip instrument to tease the plastic and some loops.  I've seen that same type, and REALLY good reseals lately.
Its disturbing, like the improvement in counterfeits coins recently.

Offline GDG's

  • Trade Count: (+4)
  • Sr. Member
  • ****
  • Posts: 648
  • Karma: 45
Gold, the Fed and the Economy
« Reply #3 on: September 25, 2011, 07:35:46 PM »
"with all the money pumped into the economy I agree with Jim Rogers on where the price of Au will go"

Zero money is being pumped into the economy. "Operation Twist" doesn't alter net financial assets in the private sector. The Fed is simply financing the purchase of long term Treasuries by selling an equal amount of short term Treasuries. It is not expanding its balance sheet, it is altering the duration of its assets. Purpose? To reduce long-term yields. Why? To encourage longer term borrowing and lower rates for businesses/homeowners to refinance at.

Also, QE2 was neither inflationary or the printing of money. QE2 did not help housing prices, reduce the rate on a 30 year mortgage, change corporate bond rates, cause the consumer to go out and buy, cause businesses to spend, increase loans from commercial banks, or cause real GDP to surge. It didn’t affect the balance sheet of the private sector at all. QE2 did ramp up speculation in the markets with NYSE margin debt increasing and equities rallying. Commodity prices also surged because investors felt they needed to hedge against inflation. Inflation that was never going to come. Commodities went up when there was no real demand from a growing economy. Investors actually caused inflation to occur by buying up commodities in fear of a QE2 induced inflation, what actually happened was cost-push inflation because investors drove the prices up and THEN the goods became more expensive. Markets are horrible reflections of the real economy.

QE2 had zero transmission mechanism through which it could help the real economy. The equity market wealth effect was overrated. QE2 caused real interest rates to decline but consumers don’t care about real interest rates, they care about prices relative to their earnings. Consumers’ earnings went down during QE2 as prices went up so consumers didn’t spend. Consumers walking in the door cause businesses to spend. No consumers spending = no businesses spending or financing projects. Bernanke’s job is to stabilize prices and keep employment high. QE2 failed at both. 

QE2 was not inflationary because zero net financial assets were added to the private sector. The Fed just swapped reserves for bonds. If commercial bank A had a 5 year note paying 1.3% they could sell that note to the Fed and get in exchange reserves that payed 0.25%. They received a more liquid security with a lower yield. The only thing that changes on a bank’s asset page was the duration and amount of interest earned on their holdings. The composition of the balance sheet was unchanged. QE2 didn’t give anybody more firepower. The Fed gained new assets (treasuries) and handed out the same amount of liabilities (reserves). Actually, the private sector loses assets in this scenario because they lose the higher yield they were receiving on their treasuries. So why was QE2 pursued? Because the Fed thought banks now full of reserves paying 0.25% would go out and buy risk assets. Cocoa went up 70% from the start of QE yet the Starbucks CEO said fundamentals had not changed at all and speculators drove up the prices. They drove up the prices because they were afraid of inflation. QE2 just manipulated markets.

Now this is meat and potatoes for me but wrong forum. Good Luck Trading :)

Underbidder

  • Guest
  • Trade Count: (0)
Gold, the Fed and the Economy
« Reply #4 on: September 25, 2011, 07:38:01 PM »
"with all the money pumped into the economy I agree with Jim Rogers on where the price of Au will go"

Zero money is being pumped into the economy. "Operation Twist" doesn't alter net financial assets in the private sector. The Fed is simply financing the purchase of long term Treasuries by selling an equal amount of short term Treasuries. It is not expanding its balance sheet, it is altering the duration of its assets. Purpose? To reduce long-term yields. Why? To encourage longer term borrowing and lower rates for businesses/homeowners to refinance at.

Also, QE2 was neither inflationary or the printing of money. QE2 did not help housing prices, reduce the rate on a 30 year mortgage, change corporate bond rates, cause the consumer to go out and buy, cause businesses to spend, increase loans from commercial banks, or cause real GDP to surge. It didn’t affect the balance sheet of the private sector at all. QE2 did ramp up speculation in the markets with NYSE margin debt increasing and equities rallying. Commodity prices also surged because investors felt they needed to hedge against inflation. Inflation that was never going to come. Commodities went up when there was no real demand from a growing economy. Investors actually caused inflation to occur by buying up commodities in fear of a QE2 induced inflation, what actually happened was cost-push inflation because investors drove the prices up and THEN the goods became more expensive. Markets are horrible reflections of the real economy.

QE2 had zero transmission mechanism through which it could help the real economy. The equity market wealth effect was overrated. QE2 caused real interest rates to decline but consumers don’t care about real interest rates, they care about prices relative to their earnings. Consumers’ earnings went down during QE2 as prices went up so consumers didn’t spend. Consumers walking in the door cause businesses to spend. No consumers spending = no businesses spending or financing projects. Bernanke’s job is to stabilize prices and keep employment high. QE2 failed at both.  

QE2 was not inflationary because zero net financial assets were added to the private sector. The Fed just swapped reserves for bonds. If commercial bank A had a 5 year note paying 1.3% they could sell that note to the Fed and get in exchange reserves that payed 0.25%. They received a more liquid security with a lower yield. The only thing that changes on a bank’s asset page was the duration and amount of interest earned on their holdings. The composition of the balance sheet was unchanged. QE2 didn’t give anybody more firepower. The Fed gained new assets (treasuries) and handed out the same amount of liabilities (reserves). Actually, the private sector loses assets in this scenario because they lose the higher yield they were receiving on their treasuries. So why was QE2 pursued? Because the Fed thought banks now full of reserves paying 0.25% would go out and buy risk assets. Cocoa went up 70% from the start of QE yet the Starbucks CEO said fundamentals had not changed at all and speculators drove up the prices. They drove up the prices because they were afraid of inflation. QE2 just manipulated markets.

Great post. Some measures of money are expanding, some are falling. Credit is falling. My take is also that the Fed did nothing this time around. My understanding is too that nothing can be done again until they meet again in November? That means several weeks of financial hurt. Deflation seems to be underway again, with asset liquidation to try to throw water on the debt fire.  Throwing good money into the fire in an effort to put the fire out.
This topic is so good it deserves its own thread, can the mods separate it so we get away from the trainwreck?

Offline peng_you

  • Trade Count: (0)
  • Full Member
  • ***
  • Posts: 240
  • Karma: -1
Gold, the Fed and the Economy
« Reply #5 on: September 25, 2011, 07:43:01 PM »
I would love to comment on post made by adamc4 also but please move mod.
Peng_you

Offline PandaCollector

  • Supporter
  • Trade Count: (+5)
  • Hero Member
  • *****
  • Posts: 2848
  • Karma: 96
  • Gender: Male
    • Pandacollector.com
Re: Gold, the Fed and the Economy
« Reply #6 on: September 25, 2011, 07:47:19 PM »
Abrakadabra - dead horse transformed into new topic.

Best wishes,
Peter Anthony
http://www.pandacollector.com

Offline pandayo

  • Trade Count: (0)
  • Jr. Member
  • **
  • Posts: 150
  • Karma: 0
Re: Gold, the Fed and the Economy
« Reply #7 on: September 25, 2011, 07:49:30 PM »
so gold went up because of investors? Then why did china hoard all gold as much as they can?

Offline exchange

  • Trade Count: (0)
  • Hero Member
  • *****
  • Posts: 1178
  • Karma: 20
Re: Gold, the Fed and the Economy
« Reply #8 on: September 25, 2011, 08:04:42 PM »
so gold went up because of investors? Then why did china hoard all gold as much as they can?

In order to become the next reserve currency of the world, the fiat currency needs to be backed by gold which is one of the main reason why the dollar became the world reserve currency in the first place. China knows what they are doing, patience is a virtue while the US is destroying itself. The Chinese will just have to pickup the pieces. I hate what is going on in our country but I cannot ignore reality and need to protect my Family.

The 16th century belonged to Spain, the 17th century belonged to France, the 18th century belonged to the UK and its sterling, the 19th century belonged to the US and the dollar, the new century will belong to China and the Remnimbi. We are the biggest debtor Nation in the history of mankind. changes happen for a reason.

Also I suggest to buy some Remnimbi at your local bank. The fees are about 8%. I bought Remnimbis in denomination of 100's two years ago when the exchange rate was something like $1 = 9 Yuan. Now $1 = 6.3 Yuan. I forsee at some point both currencies to be at parity.

sincerely,
exchange

 

Offline badon

  • Trade Count: (0)
  • Hero Member
  • *****
  • Posts: 4486
  • Karma: -84
Re: Gold, the Fed and the Economy
« Reply #9 on: September 25, 2011, 08:20:08 PM »
Abrakadabra - dead horse transformed into new topic.

Best wishes,
Peter Anthony
http://www.pandacollector.com

Could you please post links to and from where the split was made, so people can follow the action a little easier? It looks like some of these posts belong back in the old thread. You want to try merging them back in? It's a bit tricky, so I can do it if want, but I think it's good practice :)

Offline BChung

  • Trade Count: (+3)
  • Sr. Member
  • ****
  • Posts: 672
  • Karma: 17
Re: Gold, the Fed and the Economy
« Reply #10 on: September 25, 2011, 10:10:00 PM »
Regarding China on Gold:

Beijing screw up big time this time. Despite being seen as being steered cleared of the 2008-9 financial crisis, but its nothing more than being delusional.Beijing let the banks loose and encourage mindless lending, now the banks are in line to screw up AGAIN after god knows how many times. Local governments unable to issue bonds and borrow from banks created thousands of vehicles to do so. China is in for a semi hard landing. Gold as a percentage of its reserves its minimal. Dehli slap beijing in the face when it bought Tons of Gold for USD 1050, and Beijing for face reason did not follow suit, now they look even more like idiots. Basically in other words there is a lot of debt in the market.

The only good news is the General population is vividly trying to protect themselves. Buying gold and silver is being encourage by Beijing but Chinese doesn't really need encouragement, they remember the 1940's hyper inflation, they remember Mao stupidity, these memories is more than enough to drive the ordinary chinese to buy precious metals to protect themselves, especially in times of uncertainty. But IMO most importantly Chinese knows that they can't trust governments. So maybe perhaps when China goes for even a hard landing, the population is much more prepared than say the western population. I do believe that this century will belong to China but just before that happens IMO my country needs to screw up one big time and get rid of the bad apples once and for all for it to proclaim this Century theirs.

Offline adamc4

  • Trade Count: (0)
  • Sr. Member
  • ****
  • Posts: 616
  • Karma: 2
Re: Gold, the Fed and the Economy
« Reply #11 on: September 26, 2011, 02:22:45 AM »
I try to refrain from posting about short term fluctuations... but precious metals are really getting slammed tonight. Volatility through the roof. Sub $1600 gold, $26 silver, sub $1500 platinum. For those who have been wanting a buying opportunity and have little silver exposure I would start averaging in now ($26). The average yearly correction for gold is roughly 15% from peak to low but this year has been anything but average, so... if you took profits earlier this year in gold and want to get your feet wet I'm not against an entry position around $1575. By no means should you go all in at any price level.

I'm glad platinum and palladium are finally fundamentally adjusting.

P.S. Watch the gold/silver ratio. It's getting extended like it did back in fall of 2008. If it continues to widen out to say 70 or so I would be very attracted to a long silver/short gold spread trade.
« Last Edit: September 26, 2011, 02:30:44 AM by adamc4 »

Offline BChung

  • Trade Count: (+3)
  • Sr. Member
  • ****
  • Posts: 672
  • Karma: 17
Re: Gold, the Fed and the Economy
« Reply #12 on: September 26, 2011, 04:01:12 AM »
I hope silver goes below 20 and Gold below USd 1300.... so i can just get them cheaply.

Offline davidt3251

  • Trade Count: (+6)
  • Sr. Member
  • ****
  • Posts: 497
  • Karma: 5
Re: Gold, the Fed and the Economy
« Reply #13 on: September 26, 2011, 10:44:47 AM »
Who said short gold. I posted here I was shorting gold at over $1800. Not a warm reception, ha ha, but a very cuddly trade.

Offline exchange

  • Trade Count: (0)
  • Hero Member
  • *****
  • Posts: 1178
  • Karma: 20
Re: Gold, the Fed and the Economy
« Reply #14 on: September 26, 2011, 11:36:24 AM »
Who said short gold. I posted here I was shorting gold at over $1800. Not a warm reception, ha ha, but a very cuddly trade.

Yes absolutely.
100% of my acquisition for Chinese coins in the last couple of months have been paid by selling some gold and silver bullion.

exchange