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The Forum > General Discussion > Aust asks for Gold Audit from London.

Aust asks for Gold Audit from London.

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Dickybird, why do you think a crisis when it comes to repaying the debts is inevitable?

You say the way households, businesses and governments is "too much debt" but have you really considered what that means? The limiting factor is not the actual amount of debt but the ability to service it, which in turn depends on the interest rate. When interest rates are low, we can afford to service much more debt than when interest rates are high. So in the subprime crisis, households did go broke in a "new" way, being able to service the debt at the low introductory interest rate but not the high ongoing rate.

Financially sovereign nations have never defaulted on debts in their own currency for purely financial reasons.

You say that more debt has never fixed the problem, but it did in the 20th century. And what do you mean by "only pushing the solution further down the road"? What do you imagine the solution is? Indeed what exactly do you imagine the problem is?
Posted by Aidan, Thursday, 15 January 2015 10:59:11 AM
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Aidan your post is harder to answer. But Yes a crisis is inevitable as the only cure offered for our present problems is more of the same, more Q.E.. The only other choice left is default for the US$, but I sincerely hope it will never get to that

Second para is absolutely right. But I think we cannot service the current level of debt, even at 1% interest rates. Govts are borrowing to pay the interest and we all know where that leads

Sovereign nations when in trouble borrow from overseas and then default. Zimbabwe might qualify for your statement as it defaulted on its own currency so badly that it had to change its currency to the US$. Perhaps it isn’t “sovereign”.

Lastly the problem to put it shortly, is that the world is insolvent. Interest rates cannot be raised as was done in the past by Paul Volcker as we already cannot pay at 1%. The solution proposed is to borrow more money to pay the interest. This way lies disaster and default. You are asking me what the solution is. I am asking you too. I just want to have some idea so that one can position ones assets so that there are at least some of those assets left when we get through the crisis. The only answer I have is to buy Gold or gold miners. This is really desperation advice. Gold doesn’t pay any interest as we are so often informed but when nothing pays any appreciable interest without running an enormous risk like junk bonds, and the value of the dollar is shrinking every year intentionally then for safety you go back to gold for the security it has been ever since Midas!

You give me your solution or are you too happy to ignore the evidence
Posted by Dickybird, Friday, 16 January 2015 7:41:39 AM
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Pericles "someone who has no money"…could be any bankrupt financial outfit "charging it to someone else's account"…usually the Fed and "pocketing a good part of the cash” is $11 million as CEO salary + continuing bonuses for top staff<<
In your next sentence “ you” meaning presumably Dickybird is mentioned 3 times. Try and take the personal out of your comments. We all are trying as far as I am concerned to think about what is going to happen in the world in the next month, 6 months or perhaps a year. All the comments have nothing to do with me, or for that matter you, personally. You may be investing in bonds paying minimal interest or equities with a current Median P/E of nearly 20 and shrinking earnings, but that is your business. On this related segue you might note that Gold is up considerably from its November lows. Is this significant or not ?
Finally I can congratulate you – neither debits or credits can be made from thin air. If you were a company accountant and did that the SEC or ASIC would be after you double quick
However the Fed and the ECB and the Japanese central bank all think they can do this via Q E and do it with impunity because legally they can. It is left to the market to catch up with the sins - eventually

“40 years of living beyond our means in a world ruled by credit peddlers has created an embedded attitude of entitlement”. Another quote from someone who has foresight but I see you have your head buried in the sand and feel “entitled” if only the stupid people like me would keep quiet. I doubt if you will even look at the evidence
Posted by Dickybird, Friday, 16 January 2015 7:45:45 AM
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Dickybird, our present problems of economic stagnation would not be solved by default. The best cure is more government spending until the private sector recovers. Other possible ways of addressing the problem are lower taxes and lower interest rates.

Your opinion that "we cannot service the current level of debt, even at 1% interest rates" is based not on facts but incorrect assumptions. Governments are borrowing because tax income is enfeebled by the reduced economic activity. Once the level of economic activity gets back to normal, there will be plenty of tax revenue (plus more scope to raise taxes or cut spending). So servicing the level debt is not a problem at all. But I do find it rather amusing that you advocate luxuries (gold) when you think we can't afford the basics (servicing debt).

When Zimbabwe was financially sovereign (i.e. when it had its own currency) it did not default. Default and debasement are two very different things. And it certainly wasn't the need to service debt that caused the latter!

The world is not insolvent. When the economic situation justifies it, interest rates will be raised (though perhaps in smaller increments than before).

As an investment, gold is probably OK – but don't get caught in the hype! Personally if I had more money to spare I'd go with shares, but I'm really not the best person to ask.
Posted by Aidan, Friday, 16 January 2015 10:38:23 AM
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Aidan. We agree, I think, that we have the start of a problem of economic stagnation. I think more Govt spending would be fatal and tip us over and anyway would only be a temporary measure until your second cure is put into place. Lower taxes and low interest rates and of course a balanced budget which means heavily reduced expenditure. Will even Campbell Newman dare to do it ?

Next para. Govts are borrowing because reduced economic activity is producing less taxes and so far they have not cut expenditure nearly enough to make it balance. Then more delightful optimism from you --- “economic activity gets back to normal, there will be plenty of tax revenue” ---- No, economic activity cannot get back to normal under the present fiscal regime. You are getting it arse about ! As you are in treating Gold as a “luxury” Gold jewellery is a luxury and only a small amount of the gold in the world is made into jewellery. Gold is an insurance policy only, NOT a luxury. As soon as the world gets it all right again and has credit backed by serious assets, not promises printed on paper, then the gold can be sold and the proceeds invested in profit making companies making something there is a demand for. Or some other alternative reform of the currency as mentioned before

I consider default as occurring when no one will accept your currency as it is so debased. Two sides really of the same coin

What are your views of the Swiss Bank reversal. I think they were only waiting until their referendum on gold was voted down. If this had come before, the referendum might well have passed, and the results would have been considerable and world wide. This is the Swiss returning to having a proper hard currency whatever the cost, as that has proved so profitable in the past. And they are in effect saying that Mario Draghi is going to do it all wrong and they are not prepared to be dragged along any longer.
Posted by Dickybird, Friday, 16 January 2015 3:02:00 PM
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Oh, Dickybird. Could this be the tender fledgling sprout of some common sense?

>>Finally I can congratulate you – neither debits or credits can be made from thin air. If you were a company accountant and did that the SEC or ASIC would be after you double quick<<

Which enables you to now retract both of these:

>>...we have to return to a system that uses as “money” something that cannot be created out of thin air<<

and

>>Pericles. Perhaps you should be the one to study debits and credits. When they are created out of thin air, they tend to evaporate<<

But what's this? You go and spoil it all with this...

>>However the Fed and the ECB and the Japanese central bank all think they can do this via Q E and do it with impunity because legally they can.<<

We should by now at the very least, you and I, have agreed that "creating debits and credits out of thin air" simply does not - can not - happen.

Can.

Not.

Happen.

The example you use - QE - creates real financial transactions, with both real debits and real credits.

And because you still fail to grasp these simple concepts, this isn't going to wash either:

>>In your next sentence “ you” meaning presumably Dickybird is mentioned 3 times. Try and take the personal out of your comments<<

"You", as in "you, Dickybird", are the only correspondent left standing here who still adheres to these unfounded perceptions.

As such, "you" are the one who remains in need of instruction, advice and correction.
Posted by Pericles, Friday, 16 January 2015 3:16:02 PM
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