You usually close your eyes.
Select your favorite caption for this photo.
1. I hate getting soap in my eyes.
2. I hate being surprised when the bubble pops.
3. I hope this doesn’t ruin my hairstyle.
4. Crap, I think we are in a bond bubble, debt bubble and a housing bubble, oh my.
Enjoy!
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Special thanks to Jerome Favre of European Pressphoto Agency.
This sounds selfish but this is the only solution to prevent a world-wide recession.
There are two possible solutions to the problem of the high dollar value and low gold price. But before discussing the solutions, we need a little background information.
The Federal Reserve, the European Financial Organizations and the largest banks in the world have agreed to keep the US Dollar as the monetary standard. To do that they need to manipulate the price of gold so it does not replace the dollar. This means keeping the dollar high and the price of gold low.
Keeping the dollar high has the added advantage of keeping imports low which improves the US trade deficit. Having a good trade deficit and a strong dollar gives the impression of a strong US economy.
One problem is Russia and China. They are not happy with the high dollar value and low gold value. Consequently they are creating their own monetary standard and creating exchanges in their own currency. This allows them to avoid the US dollar completely.
Another problem is the largest banks such as JPMorganChase are dealing in large quantities of gold derivatives which is lowering the price of physical gold. See this:
http://www.zerohedge.com/news/2015-07-09/are-big-banks-using-derivatives-suppress-bullion-prices
The real problem is the amount of debt of many countries around the globe. Greece and the US are just 2 of 12 countries out of 64 whose debt is greater than their country’s Gross Domestic Product (GDP). That means almost 20%of the largest countries in the world are in debt as seen in this website:
https://en.wikipedia.org/wiki/List_of_countries_by_public_debt
Now to discuss the solutions to the problems of high debt and the high dollar value and the low gold price.
One solution is to let the nations in debt exchange their US dollars for gold. But this could result in the depletion of US gold reserves and then the world would find out that the paper gold value does not equal the physical gold value. That would cause a run on banks, a rush to cash and possibly a global recession.
Chris Powell of the Gold Anti-Trust Action Committee said, “The system may end when one country pulls the plug on it, exchanging U.S. dollars and government bonds for more gold — real metal — than is available, or when ordinary investor demand exhausts supply, which is more or less how the London Gold Pool ended in 1968.”
So a better solution is to raise the price of gold to eliminate the debt around the world. Some people are proposing a 7 fold increase in price.
Chris also said, “… a study in 2006 by the Scottish economist Peter Millar concluded that to avert such a catastrophic debt deflation, central banks would need to raise the gold price by a factor of seven to 20 times in order to reliquefy themselves and devalue their currencies and society’s debts…”
For more information on what Chris Powell said, read the following website:
http://www.gata.org/node/14839
Okay. I admit I own GLD and UDN and this would benefit me. But now I am giving you the chance to also profit from this information. here is some more useful information:
https://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Thanks
Both Lehman Brothers and Greece were denied a bailout.
Specifically the United States Government and the International Monetary Fund (IMF) refused to bailout Lehman Brothers and Greece, respectively.
Unfortunately close behind were/are lots of other troubled and unstoppable financial organizations and debt-ridden countries. [It is like trying to stop a bull run with your bare hands, oh yeah, and a red bandana.]
Countries like Italy, Portugal, Ireland, and Belgium all have public debt over 100 percent of their country’s GDP. Japan is over 200 percent. See the following for detailed statistics.
http://www.statista.com/statistics/268177/countries-with-the-highest-public-debt/
Unfortunately Greece had debt payments that looked like Mount Everest on a graph.
http://www.marketwatch.com/story/greeces-looming-debt-repayments-in-a-pair-of-charts-2015-06-02
The US Government and the IMF have been strict with Lehman and Greece, respectively. Like the US Government, the IMF can be expected to panic with the next oncoming overwhelming group of debtors.
To learn more about the Lehman Brothers bankruptcy, read this.
Thanks
Hidden in recent Fed remarks by Yellen, are fears that CDM and CRE are bubbles.
CRE stands for Commercial Real Estate. In terms of CRE prices and change, the above chart from Gerdau shows investments across the country are soaring.
For example the General Motors building just sold for an amount that values it at $3.4 billion, the most expensive office building in the United States.
Also William Ackman and other investors purchased a penthouse apartment at One57 in Manhattan for over $90 million, the highest price ever paid in New York City, as an investment to flip for a profit.
The CRE bubble did not burst in 2008, but evidently is bigger now.
CDM stands for Corporate Debt Markets also known as Debt Capital Markets. In terms of CDM, the above chart by Dealogic, dated February 5th, 2015, shows a 30% increase in the spread for the year.
Specifically, the average spread to benchmark on 30-year global debt issuance peaked at 193bps in January 2015, a 30% increase on January 2014 (148bps), marking the highest monthly average benchmark spread since October 2009 (206bps).
Here is exactly what the Fed minutes said on 2/19/2015.
“However, the staff report noted valuation pressures in some asset markets. Such pressures were most notable in corporate debt markets (CDMs), despite some easing in recent months. In addition, valuation pressures appear to be building in the CRE sector.”
At least the Fed is aware of the bubbles and not totally focused on interest rates.
This old expression for something obvious being ignored has a new take away from Mad Magazine.
“The only reason a great many American families don’t own an elephant is that they have never been offered an elephant for a dollar down and easy weekly payments.”
That says something about debt in the US.
If you are in debt, there is plenty of advice out there. I like Dave Ramsey’s advice (DaveRamsey.com) which I have included in the following:
1. immediately save $1000 for emergencies even if you have to sell something,
2. pay the smallest debt balance first,
3. create a budget using your previous expenses,
4. create envelopes of cash and pay from them,
5. eliminate duplicate insurance policies,
6. immediately pay your credit card balance if possible,
7. cut the cable or satellite cord via Chromecast or Amazon Fire,
8. build up an emergency fund to last 6 months.
You too can tackle that elephant.
Best of luck!
Like Poltergeist II, prepare for CDOs II.
(Here is Poltergeist II trailer – https://www.youtube.com/watch?v=rH-B6A04iK0 )
Remember those financial instruments known as Collateralized Debt Obligations that caused the 2008 Great Recession? Well they never went away. In fact they are baaack.
The Financial Crisis Inquiry Commission concluded that CDOs were one of the major causes of the 2008 Great Recession as shown at this website.
http://fcic-static.law.stanford.edu/cdn_media/fcic-reports/fcic_final_report_conclusions.pdf
For 2014, global CDO Issuance is back to 2004 levels valued at about $135 billion.
Collateralized loan obligations (CLOs) are CDOs based on bank loans. Many of the subprime loans have been packaged and sold as CLOs.
The following chart shows that Collateralized Loan Obligations (CLOs) in 2014 have reached the same level as 2007 or $35 billion. Total outstanding CLOs in the US amount to $300 billion.
Though the large financial institutions have backed away from collateralizing mortgages, they are now doing it for commodities such as gold, silver and oil. Here is one example.
https://www.google.com/search?q=jpmorgan+precious+metals+as+collateral&ie=utf-8&oe=utf-8
Another problem is not the collateral but the reselling of the same assets. In 2007 one financial firm sold 610 out of 3,400 CDOs more than once. That is nearly 18%. Let me repeat. More than once.
Because buyers are dealing with paper not physical assets, how do they know they are trading real, actual commodities? If the markets started to go down and everyone wanted their physical commodities such as gold, what if there was not enough gold to meet all the obligations? Would there be an international panic?
Update
Evidently CDOs were not selling as well as desired. So the banks have renamed them “bespoke tranche opportunities.”
BTOs are slightly different, as explained in this website.
Thanks
Shoot! That isn’t a peace pipe. Now we will have to start negotiating all over again.
So much for diplomacy. Must be time for Obama to step up to the plate.
SCOTTY, BEAM US UP!
Michael E Kelley 