Posted on 06/22/2013 1:25:44 AM PDT by blam
I am a successful business man and have been for 40 years and I disagree with you to the power of ten.
LLS
You seem to have a handle on some of the dynamics - can you explain in layman's terminology? Thanks
This all makes sense when you realize that the gummint has to LIE ABOUT INFLATION, and LIE ABOUT UNEMPLOYMENT.
The Fed is literally printing money and giving it to politicians to spend. So I guess technically they don't "control" that spending and they just announced they are going to stop doing that some day. Soon, really soon. Any day now.
“It’s one thing to be wrong about the way banking works and the way inflation might spread. But most of these people were explicitly recommending a substantial overweight in gold and silver as well. And they’ve been annihilated in recent years. Gold is down 33% from its 2011 highs. And silver is down a staggering 60% since the time I started referring to it as a bubble. These are massive moves and if you’ve been substantially overweight these metals in your portfolio then you’ve experienced substantial pain based on sheer misunderstandings by people who are posing as experts.”
http://www.freerepublic.com/focus/f-news/3033567/posts
Gold vs. Guns: One Investment Outshoots the Other
TheStreet.com ^ | 6/20/2013 | Robert Weinstein |
Posted on Thursday, June 20, 2013 7:23:53 AM by Grampa Dave
The S&P Gold Trust, GLD, can’t gloat about performance while near 52-week lows. Sturm Ruger delivers a big caliber dividend over 4%, while GLD slowly eats value from management and trading costs.
Now trading near $130.60, GLD was $45.30 at the beginning of 2005, an impressive gain. During the GLD peak in 2011, an investment in GLD was almost a four-bagger. Not bad at all, but Sturm Ruger started 2005 at $4.09, and is now over $48, a 12-bagger by itself, but Sturm Ruger paid out enough dividends since to return most of your original investment.
The bottom line is that guns as an investment may help you reach your safety and financial objectives better than gold can, both in physical form and as a stock.
(Excerpt) Read more at finance.yahoo.com ...
If our $’s are such a bad thing to own, why do the Gold and Silver merchants hawk their gold and silver 24/7/365 for $’s?
Contrary to popular belief, inflation does not naturally result from a government that "prints money" on its own and inflates the money supply. Economic activity is a combination of both the supply and velocity of money. If I print a dollar and put it in my wallet, I have $1. If I use it to buy a newspaper at a newspaper stand, and the guy who runs that stand uses it to get a haircut, and the barber uses it to buy groceries, then we have $4 in activity from my original $1.
When the Fed engages in a massive program of buying mortgage-backed securities from banks and brokerage houses, it isn't really "creating money" at all. It is buying bonds that are backed by money that has already been created -- in many cases created years ago. Since many of these are non-performing mortgages in default or foreclosure, the purchase by the Fed is the only thing that gives them any value at all.
Without this intervention, the whole system would collapse. This is not to suggest that it was ever a good idea to write those mortgages in the first place, but once the loans were extended, there was no good way to unravel the mess that had been created.
The soaring equities market is the effects of inflation. That is where a lot of the excess money is going. When that collapses other prices should rise accordingly.
The main purpose of a currency is to facilitate business transactions. It's main purpose is not a store of value over time.
When the currency doesn't grow as fast as the supply of goods over time it causes deflation and deflation causes depressions. On the gold standard we had major severe depressions every 20 years. Shortly after the creation of the FED, we had the great depression, which was caused when the FED tried to reign in the growth of the money supply and tightened to fast. The FED learned from that and we've not had a depression since.
The great recession which we are now in, wasn't caused by the FED, it was caused by stupid trade policies which off-shored too many of our jobs, deregulation of the banking industry, and the failure to adequately prepare for another oil price shock after the 70's.
What you want is a small amount of inflation each year. That avoids deflation and the risk of a deflationary depression. It also provides an incentive for people and businesses to invest cash, rather than to hoard cash.
In a deflationary environment, you can increase your purchasing power just by holding cash. You don't need to invest. And that's one of the reasons it causes depressions, is that people stop investing.
I know the 100 year charts of the value of a dollar looks scary. But the fact is that only hurts people who wanted to hoard their money in their mattress for 100 years. It doesn't hurt people who put it in a savings account and make some interest or who invest in business and earn much more.
If you look at the year to year swings of the value of the dollar, the dollar since the FED has had less than half the variablity of the dollar under the gold standard. Under the gold standard we had year to year swings in the value of the dollar sometimes in excess of 20%. And that is bad for business.
I wonder what would be happening if they weren’t buying billions of dollars of government bonds that the public is obligated to repay? No effect on the economy?
You don't know your history. Prior to the FED we had deflationary depressions every 20 years and they were severe. High unemployment and high business and bank failure rates.
We had 2 depressions early after the formation of the FED which included the great Depression, and they were caused by the FED overtightening the money supply. The Fed learned and since that time we've not had a depression, though the current recession is very close to one.
80 years with no depressions is a phenomenal record and that is thanks to the FED.
Economic Depressions of the United States
History of Economic Downturns in the U.S.
You're claim that the FED is a banking cartel is silly. The FED profit all gets turned back over to the U.S. Treasury not the banks. And the entire FED board of governors which determines interest rate policy is appointed by the President, not the banks. The banks do get to elect 2/3's of the directors of the Federal Reserve banks, but half of those have to come from the business community not the banking industry. And the remaining 1/3 gets appointed by the Board of Governors which itself was appointed by the President.
The Fed permits out-of-control government spending by printing the money to buy the bonds. With a stable money supply, the government's borrowing would cost five or six times as much.
The Fed is designed to protect banks from failure and make bankers wealthy. To do that, it supplies the politicians with all the free money they want.
The value of the American dollar has dropped by 95% since the Fed took over its management.
By "it" I assume you mean what happens when the Fed buys Treasuries which it only started in mass after the 2008 crisis was underway.
It does flow into the economy. You're not seeing inflation because the credit crisis was so severe that money supply shrunk dramatically. We would have had a deflationary depression had the FED not acted. Even so the so-called printing of FED money by buying treasuries has barely offset the shrinking from the credit crisis.
When the economy does recover and credit expands again, there is the potential for inflation. But at that point, the FED is sitting on a bunch of treasuries that it can sell back into the market reducing the money supply.
Why is the Stock Market so "inflated" and what does it mean for the dollar's true worth - both now and in the future?
I don't think the stock market is that inflated. The DJIA was almost 12,000 in 2008 before the crisis hit. Now 5 years later it's 15,000. That's about a 5% annual increase, compared to the historical normal of about 15%.
The PE ratio on the DJIA is currently about 16. Compare that to this historical chart.
But I am very concerned about the continual destruction and offshoring of American industries. Healthcare is now over 25% of our economy. And I don't see an economy where we all provide healthcare to each other and are depending on foreign countries for manufactured goods as a very viable long term economy.
See post 28. A 95% drop in value over 100 years is not a concern for anybody who isn’t hoarding cash in their mattress. The purpose of currency is facilitate business transactions, not to be a long term store of value.
See post 28. A 95% drop in value over 100 years is not a concern for anybody who isn’t hoarding cash in their mattress. The purpose of currency is facilitate business transactions, not to be a long term store of value.
Congress would still be borrowing that much. They'd just be borrowing it from China and paying higher interest rates.
However, we would be neck deep in a deflationary depression. The credit crisis in 2008 dramatically reduced the money supply. Had the FED not acted and offset that, we'd see the dollar rise in value, but we would also have seen dramatic business and banking failures.
The public is obligated to repay those bonds. But again, Congress was going to borrow them anyway. And I doubt higher interest rates would have deterred that crew one iota. Since the FED bought the treasuries, when the public repays those treasuries, the money flows back to the FED, and the profit goes back to the public.
Effectively, we've borrowed from ourselves. We don't do that normally, because it does increase the money supply. And the FED is charged with two tasks. Keeping unemployment low and the value of the dollar stable.
Repaying the Fed as opposed to China, is not repaying us, though. The people are repaying an outside entity the interest. The Fed is not us any more than China is us.
Those who win this game are the owners of the constituent banks making up the Fed.
We are the losers. We pay for the privilege of become state-dependent upon everything.
It is a losing game. I cannot afford gas, heating or food like I could. Telling me it doesn’t matter, because we are not hurt does not work with me.
Thanks for the explanation - can’t say i have a good grasp, but that’s my own lack of research/education in the area. Appreciate you taking the time.
We are all hurting, but it is not because of the FED policies. It’s the stupid trade policies that incent our busineses to move overseas. And it’s a string of irresponsible Congress’s overspending that is causing the pain.
The FED is indeed us. When the FED buys Treasuries it creates money. That increase in the money supply reduces the value of the money we hold ever so slightly. When the government pays that back, the money supply is reduced again. Which increases the value of the money we hold ever so slightly.
The interest that the FED collects doesn’t go to banks, it goes back to the U.S. Treasury.
You’re pain is real. But your focused FED policy is misplaced. You should be focused on Congress. Congress is the one charged by the constitution with regulating trade with foreign countries. And Congress is the one that writes and approves every spending bill.
We are all hurting, but it is not because of the FED policies. It’s the stupid trade policies that incent our busineses to move overseas. And it’s a string of irresponsible Congress’s overspending that is causing the pain.
The FED is indeed us. When the FED buys Treasuries it creates money. That increase in the money supply reduces the value of the money we hold ever so slightly. When the government pays that back, the money supply is reduced again. Which increases the value of the money we hold ever so slightly.
The interest that the FED collects doesn’t go to banks, it goes back to the U.S. Treasury.
You’re pain is real. But your focused FED policy is misplaced. You should be focused on Congress. Congress is the one charged by the constitution with regulating trade with foreign countries. And Congress is the one that writes and approves every spending bill.
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