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Thread: German Gold to be pulled from foreign storage

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    Quote Originally Posted by JAD_333 View Post
    Do you do plumbing too?
    Ehh was a play on the tin haters claiming the UN is out to get us. Sorry should have been more clear.

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    Quote Originally Posted by JAD_333 View Post
    Good question--actually two questions. The first why IMF holds gold is explained here. Hope you can understand it. Monetary systems are a great mystery to most people and that includes a lot of smart people. About the IMF: Organization and Finances: Gold

    The other question is why is it listed along with sovereign countries. I assume it's because they are conglomerates made up of sovereign nations and the gold they hold is put in them by their member nations and presumably could be returned to those nations.
    Thank you for that find. It seems that the IMF insist that a countries loans to the 'syndicate' are backed by gold as a form of guarantee... though for the life of me I do not know by what 'right' they presume to sell the gold deposited with them unless they have the countries express consent. If I was sitting in No 11 Downing St (the residence of the British Chancellor/Treasury Minister) I would start now demanding our gold back. You see the thing is that paper money is quite likely to become worthless very soon. This is why Germany wants it's gold back.

    The problem is that Government bonds are at an all time high... there is a bond 'bubble' if you like. Never before have there has been so much invested in Government bonds at such low interest. The German Government is actually borrowing at a profit - that is to say a negative real interest rate: Say they borrow 1m for 10 years at 1%, well inflation is running at over 1% so they end paying back less in real terms than they borrowed. Even in the US where the debt continues to rise 10 year bonds are 3%, with inflation at 1.7% in real terms the US 10 year paper is worth 1.3%. In the UK 10 year bonds are around 3% and inflation is 2.7% so for every 1 the Government is borrowing it is paying 3 pence in real terms. This will NOT last and already we see speculation around the which has declined 2% against the $ and 3% against the euro this year already. Some will blame this on over uncertainty about the UK staying in the EU but it is nothing to do with that... The British debt is already over 1 trillion and continues to rise; when Cameron says he's 'cut the deficit' all he means is that he's not borrowing as much but they are still adding to the debt.

    This is all about to explode very nastily. The Japanese are about to start what amounts to a world currency war. "Premier Shinzo Abe has vowed an all-out assault on deflation, going for broke on multiple fronts with fiscal, monetary, and exchange stimulus." Revolutionary Japan is suddenly the centre of world affairs - Telegraph As the article says this was what Japan did in the 1930s and was one of the factors that caused protectionist policies of 'Imperial Preference' etc... Japan has had enough of deflation and will 'go for broke' effectively ending the independence of the Bank of Japan and printing money on a vast scale. Interest rates will rise but so what? They will be just be payed for with an bucket full of fresh worthless paper. Japanese goods and services will be 30-60% cheaper and the balance of trade will swing sharply in Japans favour. The Chinese will then impose controls...

    Now consider what happens in the UK and US... interest rates in the West will also rise, Governments will not be able to borrow for next to nothing. What to do? Print money... or 'quantitatively ease' as they quaintly call it. You have to just to pay the extra interest at first but sooner or later we shall also 'go for broke' or 'growth' as they will no doubt call it. What the eurozone does I have no idea - it may impose more protectionist controls (although by treaty it cannot exclude cheap/devalued British services) but doing so will make their austerity policy even worse as Greece and Spain no longer have catch up with just German competitiveness but now also the 'devalued countries' which even the 'competitive euro countries' (Germany and Holland etc) will then lag behind. In short a 'currency war' where paper becomes worthless is looming. That is why the Germans want their gold back and very sensible it is too. It is not that we are returning to the gold standard as such but in the coming 'currency war' where inflation will surely follow and some form of new protectionism is almost certain it is wise to have your gold in your pocket.

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    Quote Originally Posted by snapper View Post
    Thank you for that find. It seems that the IMF insist that a countries loans to the 'syndicate' are backed by gold as a form of guarantee... though for the life of me I do not know by what 'right' they presume to sell the gold deposited with them unless they have the countries express consent. If I was sitting in No 11 Downing St (the residence of the British Chancellor/Treasury Minister) I would start now demanding our gold back. You see the thing is that paper money is quite likely to become worthless very soon. This is why Germany wants it's gold back.

    The problem is that Government bonds are at an all time high... there is a bond 'bubble' if you like. Never before have there has been so much invested in Government bonds at such low interest. The German Government is actually borrowing at a profit - that is to say a negative real interest rate: Say they borrow 1m for 10 years at 1%, well inflation is running at over 1% so they end paying back less in real terms than they borrowed. Even in the US where the debt continues to rise 10 year bonds are 3%, with inflation at 1.7% in real terms the US 10 year paper is worth 1.3%. In the UK 10 year bonds are around 3% and inflation is 2.7% so for every 1 the Government is borrowing it is paying 3 pence in real terms. This will NOT last and already we see speculation around the which has declined 2% against the $ and 3% against the euro this year already. Some will blame this on over uncertainty about the UK staying in the EU but it is nothing to do with that... The British debt is already over 1 trillion and continues to rise; when Cameron says he's 'cut the deficit' all he means is that he's not borrowing as much but they are still adding to the debt.

    This is all about to explode very nastily. The Japanese are about to start what amounts to a world currency war. "Premier Shinzo Abe has vowed an all-out assault on deflation, going for broke on multiple fronts with fiscal, monetary, and exchange stimulus." Revolutionary Japan is suddenly the centre of world affairs - Telegraph As the article says this was what Japan did in the 1930s and was one of the factors that caused protectionist policies of 'Imperial Preference' etc... Japan has had enough of deflation and will 'go for broke' effectively ending the independence of the Bank of Japan and printing money on a vast scale. Interest rates will rise but so what? They will be just be payed for with an bucket full of fresh worthless paper. Japanese goods and services will be 30-60% cheaper and the balance of trade will swing sharply in Japans favour. The Chinese will then impose controls...

    Now consider what happens in the UK and US... interest rates in the West will also rise, Governments will not be able to borrow for next to nothing. What to do? Print money... or 'quantitatively ease' as they quaintly call it. You have to just to pay the extra interest at first but sooner or later we shall also 'go for broke' or 'growth' as they will no doubt call it. What the eurozone does I have no idea - it may impose more protectionist controls (although by treaty it cannot exclude cheap/devalued British services) but doing so will make their austerity policy even worse as Greece and Spain no longer have catch up with just German competitiveness but now also the 'devalued countries' which even the 'competitive euro countries' (Germany and Holland etc) will then lag behind. In short a 'currency war' where paper becomes worthless is looming. That is why the Germans want their gold back and very sensible it is too. It is not that we are returning to the gold standard as such but in the coming 'currency war' where inflation will surely follow and some form of new protectionism is almost certain it is wise to have your gold in your pocket.
    I need to bone up on bonds and how they can spell doom for paper currency. My only comment for now is that the paper currency of one or another nation is always seems to be failing and many have failed over time. I suppose every paper currency extant today will collapse sometime in the future. But, IMO currency is the tail and not the dog. That is to say, a failing state generally accounts for a failing currency.

    I agree with you on inflation, not the kind economists say is good for an economy in small does, but worse. I wouldn't be surprised if we are in double digit inflation within a year or two of the economic 'recovery'. I blame spending too far ahead of revenues.

    If one considers that there is a lot of similarity between wartime financing and spending to bring about an economic recovery after a major financial collapse, we might ask why, of all the key wartime measures that have been employed in the last 4 years, did we not raise taxes? We've employed deficit spending, printing currency, selling bonds and stimulus spending (akin to war production), but not more taxes, which is the least inflationary of all financing methods. Mind you, I am not fan of raising taxes, but a healthy economy is rather nice...
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    so, snapper,

    This is all about to explode very nastily. The Japanese are about to start what amounts to a world currency war. "Premier Shinzo Abe has vowed an all-out assault on deflation, going for broke on multiple fronts with fiscal, monetary, and exchange stimulus." Revolutionary Japan is suddenly the centre of world affairs - Telegraph As the article says this was what Japan did in the 1930s and was one of the factors that caused protectionist policies of 'Imperial Preference' etc... Japan has had enough of deflation and will 'go for broke' effectively ending the independence of the Bank of Japan and printing money on a vast scale. Interest rates will rise but so what? They will be just be payed for with an bucket full of fresh worthless paper. Japanese goods and services will be 30-60% cheaper and the balance of trade will swing sharply in Japans favour. The Chinese will then impose controls...

    Now consider what happens in the UK and US... interest rates in the West will also rise, Governments will not be able to borrow for next to nothing. What to do? Print money... or 'quantitatively ease' as they quaintly call it. You have to just to pay the extra interest at first but sooner or later we shall also 'go for broke' or 'growth' as they will no doubt call it. What the eurozone does I have no idea - it may impose more protectionist controls (although by treaty it cannot exclude cheap/devalued British services) but doing so will make their austerity policy even worse as Greece and Spain no longer have catch up with just German competitiveness but now also the 'devalued countries' which even the 'competitive euro countries' (Germany and Holland etc) will then lag behind. In short a 'currency war' where paper becomes worthless is looming. That is why the Germans want their gold back and very sensible it is too. It is not that we are returning to the gold standard as such but in the coming 'currency war' where inflation will surely follow and some form of new protectionism is almost certain it is wise to have your gold in your pocket.
    care to put a time table on this?

    i recall i made a butter cookie bet with some WAB folks whom thought we'd be in the middle of hyperinflation by now. heard this inflation-we-are-all-doomed since 2009, and anyone who's actually believed them have gotten taken to the cleaners the last few years.

    i'll be more than happy to do a butter cookie bet on this for the next few years. if the entire world hasn't hyper-inflated in a few years, can i trust that you'll 1.) pay up, 2.) re-think your economic analysis?
    There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

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    JAD,

    If one considers that there is a lot of similarity between wartime financing and spending to bring about an economic recovery after a major financial collapse, we might ask why, of all the key wartime measures that have been employed in the last 4 years, did we not raise taxes? We've employed deficit spending, printing currency, selling bonds and stimulus spending (akin to war production), but not more taxes, which is the least inflationary of all financing methods. Mind you, I am not fan of raising taxes, but a healthy economy is rather nice...
    can't stretch the metaphor too far. the financial collapse wasn't caused by the deficit, and unlike in a total war, there's no immediate need for cash on hand.

    similarly, this is why we don't institute capital controls, wartime-rationing, and tell everyone to grow their own victory garden...

    BTW, the US (as well as every other developed economy) -did- try raising taxes and massively cutting back government expenditures as a way to "solve" an economic recession before, back in the 30s. the geopolitical results, shall we say, were not good. how quickly you youngsters forget.
    Last edited by astralis; 22 Jan 13, at 05:40.
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    Quote Originally Posted by astralis View Post
    BTW, the US (as well as every other developed economy) -did- try raising taxes and massively cutting back government expenditures as a way to "solve" an economic recession before, back in the 30s. the geopolitical results, shall we say, were not good. how quickly you youngsters forget.
    So did Reagan I believe in 82? That worked out ok, as did HWBush/Clinton. Methinks the Great Depression example doesn't really fly.
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    Quote Originally Posted by astralis View Post
    so, snapper,
    care to put a time table on this?

    i recall i made a butter cookie bet with some WAB folks whom thought we'd be in the middle of hyperinflation by now. heard this inflation-we-are-all-doomed since 2009, and anyone who's actually believed them have gotten taken to the cleaners the last few years.

    i'll be more than happy to do a butter cookie bet on this for the next few years. if the entire world hasn't hyper-inflated in a few years, can i trust that you'll 1.) pay up, 2.) re-think your economic analysis?
    Well I actually had a bet on the last British General Election with a friend of mine in Canada - for cheese. I won the bet but we then found out that it is illegal to send cheese from Canada to Europe thanks to EU Regulations 178/2002 and 184/2002 which basically say that someone from Brussels has to go and check that the Canadian cows are ok before I can get my cheese. Butter cookies that contain butter also obviously contain a dairy product and as these regulations apply to all dairy products not produced in the EU then I am afraid your cookies would be impounded and destroyed... It's just one of the added 'benefits' of living in a Europe ruled by bureaucrats. Thanks to the wise men at the Ministry I must therefore decline your bet.

    Regarding the 'bond bubble' I refer you to this chart from June last year;

    Attachment 31680 Hmm the bond graph is in the Economist article linked below.

    It comes from an article in the Economist where it says "AMERICA can now borrow from the bond markets at a cheaper rate than at any time in the history of the republic. Germany has raised two-year money for a fraction of a percentage point. Even Britain, a weaker economy than either of those two, is enjoying yields on its ten-year bonds that are at an all-time low." You can find the article here; The bond market: To strive, to seek, to find, and not to yield | The Economist Yes it is true that rates have risen a little since last June but when you consider that US can sit on $16 trillion debt and add to by nearly $1 trillion per year and borrow for 13 cents in the $ while the UK can sit on 1.1 trillion debt and borrowed 15.4bn in December for 3 pence in every you can clearly see that while the bubble has grown it has not burst. The borrowing of Governments is still close to all - time cheap. How long do you expect this to continue? I mean that graph goes back to before the Napoleonic wars... Something has to give.

    Well the chances are that Japanese neo - Keynesian splurge will burst this 'bubble'. The Japanese have had a decade of 'deflation' (where goods and services get cheaper so there's no point buying today as it will be cheaper tomorrow, next week, month, year etc) and they've had enough. This Japanese 'splurge' is partly aimed at China I suspect where of course the US and others have consistently argued that the Chinese currency is artificially kept low to enable their export led economy. In effect the Japanese are calling the Chinese bluff and when Japan devalues (which we expect to start in April after a new head of the Bank of Japan is appointed) they will actively seek to undercut Chinese export prices - to steal the Chinese export markets particularly in the high end technology sector. The Chinese domestic demand/market is not yet ready for this... we've all seen the unused factories and empty flats that they keep building in China, so China will be in a pickle and none too happy. In effect when Japan devalues this will represent the start of a Sino - Japanese trade war. Let's hope the Japanese know what they're doing...

    Of course the other thing that follows from this Japanese 'splurge' is inflation in Japan. With alot more money in circulation the value declines and to counter this the Japanese will have to raise their interest rates - make it more expensive to borrow. That of course means it is also more profitable to lend to Japanese borrowers... Who then will lend to the British Government for 3 pence in the (in real terms) when they could get a greater return lending to Japan? What does Britain - and probably Germany and others do? They have to raise interest rates - agree to pay more for what they borrow and 'bond bubble' bursts. Of course it won't be a matter of 'agreeing to pay more' - the rates will just rise like it or not. But the UK and others can't really afford to pay more on what they borrow so what to do? Print money to pay the extra interest of course... or 'quantitatively ease' only this time you are printing money not to encourage growth but just to pay the extra interest. Then the cheap Japanese goods will hit the markets, Japanese cars will be 25% less expensive than American or German cars... What do you do? Sooner or later - and the conventional wisdom is that sooner is best - you have to follow the Japanese lead. So the 'west' also prints money like there's no tomorrow to keep their goods and services competitive. That is the start of the currency war.

    What happens in the eurozone is particularly interesting... "Jean-Claude Juncker, EuroGroup chief, has signalled that Europe is no longer willing to be the last economic player holding the toxic parcel of an over-valued exchange rate, describing the euro as “dangerously high” after its three-month surge against the dollar, yuan and yen." Europe drawn into global currency wars as slump deepens - Telegraph It seems that euroland is happy to join the party and a devaluation of the euro may well help those countries which are having austerity forced on them though of course it begs the question of why they weren't allowed to devalue for themselves in the first place... Of course a rise in German bond rates will make it also more expensive for Germany to keep propping up the southern European countries where the IMF has now accepted that even their last Greek calculations are wrong "There is a gap according to our preliminary projections for 2015-2016" of up to "€9.5bn," says Poul Thomsen, the IMF's mission chief for Greece. Greek debt is now expected to be 190% of GDP in 2014 and private investors have already been hit twice... Who will take a 'haircut' this time? Really the implications of all this are enough to make anyone's brain boggle; a 1% rise in British or US interest rates would crush the property market which has just started rising again. More homes would be re-possessed and less people would be able to afford them so property prices fall again... What would happen in Spain doesn't bear thinking about.

    I suppose the two main points are that A. We are very close to all time highs in terms of the amount of money held in bonds and lows in the interest charged. This will not last like it or not. B. The Japanese 'splurge', where they are "threatening to change the Bank of Japan’s statute unless it agrees to launch a monetary blitz and weaken the yen" to quote the Telegraph article will mean a rise in interest rates in Japan at first. The likelihood of our 'bond bubble' then bursting is well almost a certainty. JAD is right when he says "currency is the tail and not the dog" but the truth is that the dog is seriously ill. Will we print money? I am not sure we will have any other choice. As for time... Well it seems that in Japan the political battle for the Bank of Japan is already won; "Japan's prime minister Shinzo Abe declared a "monetary regime change" on Tuesday as the central bank bowed to government pressure, setting a 2pc inflation target aimed at helping the country emerge from its prolonged bout of deflation." This will include "open-ended" central bank asset purchases... "Bundesbank President Jens Weidmann said on Monday that the BoJ's independence was under threat and warned that government interference in monetary policy could spark a currency war. “Already, alarming attacks can be seen, for example in Hungary or in Japan, where the new government is interfering massively in the affairs of the central bank, pressuring for a yet more aggressive monetary policy that’s threatening the end of central bank autonomy,” said Mr Weidmann, who also sits on the European Central Bank’s Governing Council, in a speech in Frankfurt last night. “A consequence, whether intended or not, could be the increasing politicization of the exchange rate."" You ask me when? It's already started and the truth is that nobody knows how bad it will get nor can any so called 'expert' predict all the consequences. As I have long maintained economics is not a 'science'.

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    pari,

    So did Reagan I believe in 82? That worked out ok
    no, reagan dropped taxes significantly in 81. his 'tax increases' of 82 took back only 1/3 of the original tax cuts, so the baseline was still significantly lower.

    which is another blow against the idea that you can tax cut your way out of a recession. BTW, reagan engaged in a lot of 'militarized keynesianism', so to speak.

    as did HWBush/Clinton. Methinks the Great Depression example doesn't really fly.
    HWBush increased taxes in 1990, largely due to a fallout in receipts due to the on-going recession as well as lingering reagan-era deficits. he didn't use them as a panacea for the recession, which in any case was already at its deepest point before the passage of the tax law.

    recovery was stalled largely until 1992-1993.

    as for clinton, he raised taxes during a time of prosperity, which is precisely what should be done. and as expected, it had minimal impact on the market.
    Last edited by astralis; 22 Jan 13, at 16:19.
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    snapper,

    Well the chances are that Japanese neo - Keynesian splurge will burst this 'bubble'. The Japanese have had a decade of 'deflation' (where goods and services get cheaper so there's no point buying today as it will be cheaper tomorrow, next week, month, year etc) and they've had enough. This Japanese 'splurge' is partly aimed at China I suspect where of course the US and others have consistently argued that the Chinese currency is artificially kept low to enable their export led economy. In effect the Japanese are calling the Chinese bluff and when Japan devalues (which we expect to start in April after a new head of the Bank of Japan is appointed) they will actively seek to undercut Chinese export prices - to steal the Chinese export markets particularly in the high end technology sector. The Chinese domestic demand/market is not yet ready for this... we've all seen the unused factories and empty flats that they keep building in China, so China will be in a pickle and none too happy. In effect when Japan devalues this will represent the start of a Sino - Japanese trade war. Let's hope the Japanese know what they're doing...
    then we'll see over this coming year whose prediction goes into effect.

    let's put it in another way.

    china put a huge stimulus, larger (by proportion to economy) than that of the US. and loosened their monetary policy, although not on the level of the US.

    the US has quantitatively eased, with a stimulus.

    the EU has quantitatively eased.

    in every case i've heard the doom-sayers say that -this- will be the last straw that breaks the camel's back; instead, we see borrowing rates cheapen over the past 3 years.

    to the extent that we WILL have inflation in 2012, that will be a good sign that the world economy is at last recovering.

    of course, i'm quite willing to pay up on a butter cookie bet if we were to hyper-inflate, if we get into a trade war, and there's a massive burst of the bond bubble. these are very concrete predictions you've put out, and i'll be happy to re-visit them one way or another this time next year. deal?
    Last edited by astralis; 22 Jan 13, at 16:20.
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    Quote Originally Posted by snapper View Post

    Well the chances are that Japanese neo - Keynesian splurge will burst this 'bubble'. The Japanese have had a decade of 'deflation' (where goods and services get cheaper so there's no point buying today as it will be cheaper tomorrow, next week, month, year etc) and they've had enough. This Japanese 'splurge' is partly aimed at China I suspect where of course the US and others have consistently argued that the Chinese currency is artificially kept low to enable their export led economy. In effect the Japanese are calling the Chinese bluff and when Japan devalues (which we expect to start in April after a new head of the Bank of Japan is appointed) they will actively seek to undercut Chinese export prices - to steal the Chinese export markets particularly in the high end technology sector. The Chinese domestic demand/market is not yet ready for this... we've all seen the unused factories and empty flats that they keep building in China, so China will be in a pickle and none too happy. In effect when Japan devalues this will represent the start of a Sino - Japanese trade war. Let's hope the Japanese know what they're doing...
    Chinese and Japanese high tech categories and export markets don't over lap enough for that to happen. It'll be with Europe that Japan will be fighting with (and South Korea to a lesser extent).

    Though Japan will have a very difficult time paying for commodities.

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    Quote Originally Posted by kato View Post
    Germany will be pulling about 675 tons of gold from their storage abroad.

    That was 674 tonnes, not tons. Tonnes are metric tons, a little more than 10% heavier than a ton.

    The Monex website showed the closing price on 21 January 2013 to be US $1690 for one troy ounce of gold.

    (674 tonnes) x (32150 troy ounces per tonne) x ($1690 per troy ounce) = $36620779000 = ~$36.6B USD

    That fraction of Germany's gold reserve as relative value is a small chunk of one commodity relative to the scale of Germany's economy.
    Germany's M3 money supply is ~2.4T Eurodollars = 3.2 US Dollars
    GDP is ~$3.5T US and national debt slightly exceeds 80% GDP
    That gold would pay down only ~0.1% of Germany's national debt at current prices.
    Last edited by JRT; 23 Jan 13, at 13:21.
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    Quote Originally Posted by Skywatcher View Post
    Chinese and Japanese high tech categories and export markets don't over lap enough for that to happen. It'll be with Europe that Japan will be fighting with (and South Korea to a lesser extent).

    Though Japan will have a very difficult time paying for commodities.
    You are of course right on this - Japan doesn't make alot of the low end goods such as clothes etc that China does. The point is that with the growing Sino Japanese tension and the proposed increases in the Japanese defence budget, of which there are almost certain to be more, they HAVE to get the economy growing and rebuild their balance of trade surplus. You asked elsewhere how they would pay... well here is my more detailed answer. The details revealed so far of the Japanese 'splurge' are;

    A national and local stimulus worth 20 trillion yen (140bn) or 4.4pc of GDP.
    The BoJ to aim for 2% inflation (previous policy was 1% inflationary target).
    Starting from 2014 the BoJ will buy 13tn yen ($145bn; 92bn) in assets each month.

    You might argue that this has 'nothing to do with Sino-Japanese tensions' but for myself I do not believe that a Governments policy can be 'compartmentalised' in such a way. It would be naive in the extreme to say this 'politicization' of the Bank of Japan and quite likely as Jens Weidmann says of the exchange rate itself is in no way related to the growing Chinese pressure.


    Quote Originally Posted by astralis View Post
    snapper,

    then we'll see over this coming year whose prediction goes into effect.

    let's put it in another way.

    china put a huge stimulus, larger (by proportion to economy) than that of the US. and loosened their monetary policy, although not on the level of the US.

    the US has quantitatively eased, with a stimulus.

    the EU has quantitatively eased.

    in every case i've heard the doom-sayers say that -this- will be the last straw that breaks the camel's back; instead, we see borrowing rates cheapen over the past 3 years.

    to the extent that we WILL have inflation in 2012, that will be a good sign that the world economy is at last recovering.

    of course, i'm quite willing to pay up on a butter cookie bet if we were to hyper-inflate, if we get into a trade war, and there's a massive burst of the bond bubble. these are very concrete predictions you've put out, and i'll be happy to re-visit them one way or another this time next year. deal?

    Three points about what you say;

    The Chinese stimulus, as you must be aware, is aimed primarily at growing domestic demand in order to wean themselves off their dependence on exports. A wise idea as should a full blown currency war break out the Chinese export markets will be threatened to say the least. Chinese domestic demand however remains low and is certainly not able to support the economy should the export markets be threatened.

    The EU has NOT quantitatively eased. Not a jot... You are perhaps mistaking the ECB's Long Term Refinancing Operation (LTRO) of which there were two rounds for 'quantitative easing'. It was not. The LTRO's were cheap loans to European Banks no doubt hoping they would then buy Greek, Italian etc Government bonds. In LTRO 1 of December 2011 Italy took €110 billion, Spain received €105 billion, France claimed €70 billion, Greece asked for €60 billion and Ireland requested €50 billion but when they speak of Italy, Spain etc in this context they mean Italian and Spanish banks. You might argue that this 'QE by the back door' but these are loans to those banks not direct intervention by the ECB itself. As it was it didn't stop the Spanish banks falling apart and needing another 100bn euros of loans from the ESM last year. As for the loans made to the Greek banks under the LTROs well what they did invest in Greek Government bonds they had to sell back a year later (last December) for 1/3 of the value under the IMF bond buyback scheme.

    On inflation; after a $1trillion 'stimulus package' and two rounds of QE it is hardly surprising that the US has some inflation. In the UK the QE has directly caused inflation but more importantly we haven't rushed headlong into shale gas and alot of British inflation is caused by high energy prices as we have to pay a 'green premium' to build wind farms everywhere. It has very little to do with 'growth' here and if you had not had QE and stimulus spending then the US would be in deflation now.

    Look I know you are more used to seeing policy in domestic terms while I perhaps look first at the international implications of a policy so let me try to explain what is happening - and it is happening as I write - in more domestic terms. In purely domestic terms the arguement is about the role of Central Banks. The primary role of our 'independent' central banks is to keep inflation at x%, previously 1% in Japan and now 2%, 2% in Britain etc... Of course if that was their sole function and they were indeed totally 'independent' then certainly the Bank of England should not have 'quantitatively eased' as it has consistently missed it's inflation targets, nor frankly should the US Federal Reserve. Nor is the ECB exactly 'non - political'. "It sent secret letters to the leaders of Italy and Spain in mid-2011 with a list of sweeping demands, covering pensions, labour reform, and sensitive political issues over which it has no constitutional authority. When Italy failed to comply with the terms, it switched off bond purchases, let yields spiral upwards, and forced Silvio Berlusconi out of office." Central bankers should be brought to heel by elected parliaments - Telegraph Of course under ECB rules it should not be buying Italian bonds in the first place but it justified this by claiming it bought bonds from the 'secondary market' - that is from people who had already bought them and not direct so to speak. So on the current level of central bank 'independence' there is already some confusion and what you might call 'leeway'.

    Now in Britain and the US it has already been conceded that central banks should directly buy Government debt - quantitatively ease, though thus far these interventions have been made to suppress the interest payed on Government bonds - hence the all time low on bond yields last year and continuing 'bond bubble'. Well the Japanese policy could, in one light, be regarded as US and UK style QE+; it is after all in essence only a 'stimulus package' with monetary easing. You could argue that the Bank of England's two interventions to buy Government debt (QEs) actually ignored their inflation target and placed bond yield suppression as their priority. The difference with the Japanese monetary easing is that it will go directly for growth and not just bond yields. British QE so far has totalled 375bn whereas from January 2014 the Bank of Japan will buy 92bn per month to pay for the starting 140bn 'stimulus'. Other stimulus packages are planned we are told and with 1104bn of QE over 1 year the Japanese plan is roughly British QE x 4 over a year. I would be very surprised if the Japanese plan did NOT result in growth but the question this raises, in one light, is should other central banks prioritise growth rather than inflation? The current Governor of the Bank of Canada and next Governor of the Bank of England, Mark Carney, has already suggested this; "Giving his first speech since being appointed to run Threadneedle Street, Carney said in Toronto on Tuesday night that central banks should be prepared to ditch inflation targets in the event of sluggish growth and instead set themselves the task of raising national output." Mark Carney backs measures to boost growth | Business | The Guardian He takes over the BoE on July 1. In some ways Carneys suggestion is very much in line with how the new Japanese Government sees the role of it's central bank and in the same way the arguement could be phrased in terms of the role of central banks in promoting growth and everything seems fine...

    However this is really talking in niceties. The Japanese Government has directly said it is willing to change the terms of the Bank of Japan and by recently agreeing to increase the inflation target to 2% and postpone QE until next year the current Governor of the Bank of Japan has only delayed the inevitable as he will replaced in April by someone "with the will and ability to pull the nation out of deflation" to quote the Japanese Prime Minister. Shinzo Abe will either have someone who does what he says because they agree with him or change the rules. The notion of 'independence' will become a mere veneer in Japan and the debate on the role of the central banks, or what their priorities should be is already up for grabs in Europe and the US. Clearly the Japanese Government sees growth as a priority due to the Chinese pressure and if the Bank of Japan stands in the way woe betide them...I don't suppose that Britain or the US will make such an obvious assault on the 'independence' of our central banks and the BoE Monetary Policy Committee today rejected more QE Bank of England shies away from more QE - Telegraph but with incoming Governor already speaking of ditching the inflationary policy for a GDP policy we could perhaps expect more QE from July aimed at growth which - just as it happens - would suit the British Government just fine. Call it coincidence if you like.

    That is more or less the argument in domestic terms as best as I can put it, which is probably over complicated and confusing as usual. It is interesting that the Japanese QE+ has been postponed until 2014 and I suspect, though I cannot say for sure, that this has been forced on them so that others can prepare; the Germans repatriating their gold, the Carney GDP priority etc... I'm quite sure Shinzo Abe would like to 'kick off' tomorrow if he could as the first to break out of the paradigm thinking usually benefits most.

    Of course my thinking is more 'foreign policy' wise... how it effects international relations etc and in this increasing politicizing of central banks I see the politicization of the exchange rates. QE means inflation and inflation means devaluation. I note that a new bout of LTRO from the ECB is also expected; "Senior bankers believe that a third wave of cheap money could be on the way to Europe’s banks through a new long-term refinancing operation from the European Central Bank. But they suggest a revival of the facility will come with strings attached to force banks to lend, in an attempt to reignite eurozone economic growth." Bankers forecast new wave of LTRO You could call this 'GDP prioritising' or QE or even 'stimulus'; whatever you want in technical and polite terms but the very simple truth in terms of international relations is that it means devaluation; undercutting others. The Chinese have been doing it for years - by buying the $ debt they have in effect not only surpressed the yuan, which they sell anyway, but artificially kept the $ high to enable their export economy. It's not a nice game and now the Japanese want to play the Chinese on their own terms - they are busy buying the European debt, raising the value of the euro, while they plan to devalue the yen. This is what Jean-Claude Juncker was referring to; the euro has risen 20% against the yen since last July. If you honestly think that two of world top 4 economies playing this hostile economic devaluation game won't effect the US or the rest of us then you are very seriously mistaken. My dear fellow the opening shots are being fired... The Japanese say they will observe a diplomatic truce until 2014 but have a new Governor of the Bank of Japan coming in April whose qualifications must include inflationary/devaluationary policy; he may well tear up current policy and start the blitz sooner and heavier. If you think we can ignore this you are wrong.

    Regarding the 'bond bubble' itself; the British, US interest on Government bonds reached all time lows last year on the back of QEs. Germany reached all time lows on the back of the weakness of it's 'partners' in the euro. Well others want to play the QE game now. Maybe it will start in 2014 with the BoJ purchases or maybe before with LTRO 3 in euroland or with new BoJ and BoE Governors appointed in April/July. They will call it 'growth stimulus' and other friendly sounding things and I'm sure Obama has more of his innane dependency culture ideas up his sleeve. Britain and the US will not be alone in the next QE - we will have competition. What would you call it when countries compete in QE? Well I'll cut the technical and polite speak and tell you... a currency war.

    Well I wrote the above earlier and just after found this:

    Last edited by snapper; 23 Jan 13, at 17:57.

  13. #43
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    Quote Originally Posted by snapper View Post

    You might argue that this has 'nothing to do with Sino-Japanese tensions' but for myself I do not believe that a Governments policy can be 'compartmentalised' in such a way. It would be naive in the extreme to say this 'politicization' of the Bank of Japan and quite likely as Jens Weidmann says of the exchange rate itself is in no way related to the growing Chinese pressure.
    Incidentally, the Korean-Japanese tensions are relatively untalked about, compared to Sino-Japanese relations, in these topics.

  14. #44
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    Bank of America issues `bond crash' alert on Fed tightening fears

    "The US lender said investors face a treacherous moment as central banks start fretting about inflation and shift gears, threatening a surge in bond yields."

    Bank of America issues `bond crash' alert on Fed tightening fears - Telegraph

    It's all right Astralis... your butter cookies, lovely as I'm sure they are, are safe due to EU law.

  15. #45
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    snapper,

    let me know when it actually happens.

    it's likely that the fed will start tightening in 2014 as the economy finally recovers. we'll likely see minor inflation then, which is a GOOD thing.

    but i do not believe there will be a currency war, nor will there be hyperinflation. i'm more than willing to make the bet; my predictions at WAB have been pretty good...
    There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov

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