Tuesday 26 July 2011

On rich countries and strong currencies

If you're someone who can't go for the idea no country wants a strong currency just because it wants an export advantage over its trade partners, let's look at it from another angle.

If your currency is too strong, you're probably paying your workers a lot more than workers elsewhere in the world. For a start off, this provides them with more disposable income than elsewhere, meaning they will eventually and inevitably bid against each other, raising the prices of goods and services. There is a higher cost of living in "rich countries" than in poor countries, the same product often for sale at a significantly higher price just because the local market can support that higher price.

Additionally, if your currency really starts to get very strong in comparison to some others, it seems to me it will be cheaper for your population to import than to buy locally produced goods and services (see: export of jobs to the Far East from The West over recent decades, unsustainable trade deficit problems).

An overly-strong currency not only undermines any export advantage you might like to enjoy, but also over time will gut your domestic economy.

Saturday 23 July 2011

Call me Stick Man

Today I was inspired, by the sun and by FOFOA's stick man video comment on a NeuralNetWriter thread, to take the kids to the park and build a den with them.

A journey of 1,000 miles begins with just one step, and a stick den is no different. The first stick, which in this case I have indicated in the final photo above using the big red arrow, makes all the difference and in this case the first stick was an upright at the corner with a branch sticking out from it at just the right height for my purposes. This stick leant against one of the four trees that we chose to build around and the branch sticking out was used to support the second stick: a beam running to the second tree and against which not only the sticks forming that side wall and the roof would later be supported, but also the second of the beams going out to the third tree would be supported by it too. At first, this forms a highly rickety and precarious structure that one has to support while others pass you the parts you need (NO! Not that one dumbass, THAT one!) but as you build on more and more carefully-selected and even more carefully-placed sticks, all supported by the ones that have gone before, eventually the thing does begin to have some integrity. It can finally stand alone without ones constant assistance, even when the wind blows and the kids keep carelessly bumping against it and banging their fresh supplies of sticks into the thing. Pesky little critters. All the help you can take, as expected.

After a half hour or so of jolliness, scavenging and construction, the thing was finally plenty safe enough to sit inside and eat lunch. Not very exciting really — unless you're 7 or 8 years old, in which case it's the most exciting thing since ... well the last thing you did.

Anyway, once the kids were finally inside I had a thought and smiled to myself. Rather like the $IMFS being built atop the first "dollar", which formed the base of the system that has been pyramided onto ever since, the whole thing is at the end of the day all being held up by that first carefully-selected and even more carefully-placed stick at the corner. Without the critical support of that first stick, it would all come crashing down in a second onto these unsuspecting children, and I would piss my pants laughing from a safe position outside. Oh, the deep and plentiful joys of parenthood.

I hope nobody ever decides to kick the stick holding up the $IMFS, to see if it brings the whole house of cards down, just because they can from a safe position.

(Yes I could have, but no I didn't :) )

Thursday 21 July 2011

The seatbelt light is on

A bitter fight at the $1600 round number level, before
a blast-off into new highs and blue skies?

Or a head-and-shoulders top, pressaging a short-to-medium-term
breather and a welcome buying opportunity?

I'm hoping for the latter!
But I won't be too disappointed if it's the former.

Tuesday 19 July 2011

Hot Summer

Well... maybe one way to hide from all this mayhem then...

But... careful not to cool things down too much ...

It's a shame, but there are only so many lifejackets to go around.
And so few people willing to put them on yet anyway.

Monday 18 July 2011

Friday 15 July 2011

2004: a pivotal year

Just one year in the time line of Freegold (h/t Mortymer)

(Copied from this post)

Funny how things change from time to time.

Wednesday 13 July 2011

I can take a hint

BIS Working Papers, No 348
The international propagation of the
financial crisis of 2008 and a
comparison with 1931

6. Conclusion

We have suggested a number of ways in which the financial crisis of 2008 was propagated internationally. We argue that the collateral squeeze in the United States, which became intense after the failure of Lehman Brothers created doubts about the stability of other financial companies in the United States, was an important propagator. The provision of large-scale swap lines by the Federal Reserve relieved many of the financial stresses in other countries that had followed Lehman Brothers’ failure. The unwinding of carry trades, particularly yen carry trades, is also likely to have transmitted market volatility to the countries that had been the destination of the carry trades when they were first put in place. It seems likely that, at the time of writing, there is still a large quantity of yen carry trades to be unwound.

In both crises, deposit outflows were not the only important sources of liquidity pressure on banks: in 1931, the central European acceptances of the London merchant banks were a serious problem, as, in 2008, were the liquidity commitments that commercial banks had provided to shadow banks. And in both crises, the behaviour of creditors towards debtors and the valuation of assets by creditors, were all very important. Flight to liquidity and safety was an important common feature of the crises of 1931 and 2008. In both episodes, the management of central banks’ international reserves appears to have had pro-cyclical effects. However, there was a crucial difference, in that the supply of assets that were regarded as liquid and safe in 1931 was inelastic and became narrower with the passage of time, whereas in 2008, it could be, and was, expanded quickly in such as way as to contain the effects of the crisis. The understanding that the role of governments and central banks in a crisis is to enable such assets to be supplied was perhaps the most important lesson of 1931, and the experience of 2008 showed that it had been learned.


Having learned an important lesson in 2008, there being a strong likelihood that future market volatility will be transmitted to the countries that had been the destination of the carry trades, and there being still an elastic supply of assets that are regarded as liquid and safe ... I see a strong likelihood that all future market volatility will be dealt with in the same manner it was dealt with in 2008.

How to remove an unwanted guest

You can find some spot remover ---> here <---

The great thing about blogging is
you don't have to do anything you don't want to

Tuesday 12 July 2011

Approaches to credibility maintenance


"Keep buying our debts, we're good for them"


"If you stop trusting us, you can always swap your euros for our gold"

Creditor nations:

Saturday 9 July 2011

A good job at FOFOA the discussion is only about RPG and HI

Because, I don't know about you, but I'm on the fence when it comes to Peak Oil. My understanding is those Russians pretty much swear by abiotic, and who am I to argue really with the world's largest producer of anything? [Except in the case of dollars, natch...]

Fortunately, it's not really directly relevant to RPG or HI, and to my mind a much less pressing issue. Certainly not anything I can realistically do anything about personally, whichever side of the debate I came down on. But that's just me being a pragmatist again.

[sarc] Or am I just an idealist and I don't even realise it..? :-\ [/sarc]

Friday 8 July 2011

A Redenomination of Value

A quick'n'dirty look at Freegold from the
perspective of Marx's Law of Value.

  1. The social value of commodities in general, reduces during periods of economic contraction. (As a result of supply/demand dynamics.)
  2. People continue with the same expectations for individual value. (They are unwilling to accept a pay cut, or "austerity".)
  3. This disconnect results in tension between business owner/operators ('Capitalists': who must sell the production of their business at worst for break-even and optimally for a profit), and workers ('Labour': who are unwilling to accept a reduction in their individual value of labour — and, infact, expect to see a steady increase in it, at least nominally, over time).
  4. This tension has always in turn eventually resulted in: sustained and stubborn deflation (an increase in the value of currency, in relation to goods and services in general); fear and uncertainty; economic turmoil — in the past ultimately only escaped by some form of catastrophic societal and currency collapse (depression, sometimes even revolution).

The euro-Freegold design circumvents this issue by enabling a redenomination of the denominator (currency), either upwards or downwards, to guide the social and individual values of commodities (including labour) into a constant state of relative equillibrium. Through the single and unwavering mandate of the ECB targeting — and so far achieving, it should be noted — an approximately 2%pa inflation in the HICP index of core consumer prices, adjusting the exchange value of the currency upwards/downwards to achieve that goal. The means to redenominate the denominator, is to adjust the currency against the ultimate globally-accepted benchmark of true and enduring value: gold. Gold is held as the primary reserve of the currency manager, and the ratio of their reserves (ounces of gold) to their liabilities (euros in the system) is the objective measure of their success.

Here is the fundamental difference between the euro and, say, the dollar:

  • The dollar is not directly and objectively measurable against anything tangible and it is a debt backed security — as the promises break down, the backing for the currency disappears along with them.
  • The euro is an objectively measurable, asset-backed security — the major promise of the ECB is that they will sell you their reserve gold, if necessary, at the €price they maintain to be the prevailing market €price.

You can see quite clearly that they have been making good on that promise for at least the last decade, right here.

You will, respect ma, austeratay!

Check your change: weights and values

(H/T Patrick - thanks! ;-) )

Here is, IMO, some interesting data, collated from the ECB website. I'll just show the two graphs first, and include the underlying numbers below for all you stat porn junkies out there.

ECB gold reserves by weight

ECB gold reserves by value

My take on this (the steady and significant reduction of ounces in reserve, in spite of the increased valuation of the reserves over time -- due to the steadily rising price per ounce) is that the ECB are delaying the inevitable repricing event that is on the horizon at distance-unknown. Patrick has a slightly different view of what is going on (which I won't share, but Patrick perhaps you might add a comment to explain it, if you see fit and happen to read this post? ;-) )

So much for the gold being hoovered up by all the Central Banks these days, eh? Looks to me like the ECB has over the past decade or so disposed of about 1/8th of its gold to someone or another.

Month €bn Ounces
199912 116.365 402,758
200001 116.213 401,639
200002 121.07 400,503
200003 116.026 400,503
200004 121.253 400,503
200005 117.206 400,503
200006 120.767 400,503
200007 119.628 399,539
200008 124.267 399,539
200009 124.739 399,539
200010 125.553 399,538
200011 123.809 399,537
200012 117.843 399,537
200101 115.022 404,119
200102 116.543 404,119
200103 117.632 403,153
200104 119.524 403,153
200105 127.174 403,153
200106 128.627 403,089
200107 122.286 402,639
200108 119.964 402,430
200109 129.009 401,904
200110 123.9 401,902
200111 124.437 401,903
200112 126.085 401,876
200201 131.353 401,877
200202 137.9 401,878
200203 138.749 401,607
200204 137.076 400,644
200205 139.312 400,404
200206 127.808 400,277
200207 124.65 400,279
200208 127.333 400,278
200209 131.41 400,278
200210 128.544 400,114
200211 128.543 399,951
200212 130.414 399,022
200301 135.477 398,728
200302 128.18 397,765
200303 122.25 397,765
200304 119.901 396,324
200305 121.129 396,233
200306 119.975 396,229
200307 124.208 396,277
200308 135.993 395,632
200309 131.679 395,444
200310 131.37 395,284
200311 130.955 394,294
200312 130.012 393,543
200401 127.034 393,542
200402 125.449 393,540
200403 136.406 393,539
200404 127.972 393,536
200405 126.51 392,415
200406 127.751 392,324
200407 127.515 392,221
200408 131.89 392,222
200409 131.371 392,200
200410 130.956 391,961
200411 133.418 391,219
200412 125.409 389,998
200501 126.122 389,435
200502 127.58 388,411
200503 127.735 387,359
200504 129.606 385,428
200505 129.273 384,622
200506 138.201 382,323
200507 135.239 381,223
200508 135.153 380,520
200509 149.441 380,258
200510 148.142 378,357
200511 158.783 377,023
200512 163.445 375,861
200601 176.297 375,626
200602 175.526 374,888
200603 179.685 373,695
200604 191.688 373,166
200605 188.259 370,982
200606 178.888 370,694
200607 183.25 369,890
200608 179.356 369,671
200609 174.17 367,958
200610 174.727 367,426
200611 179.425 366,229
200612 176.284 365,213
200701 183.314 365,051
200702 183.31 364,605
200703 180.423 363,109
200704 179.918 361,563
200705 176.533 360,324
200706 172.809 358,768
200707 173.569 357,492
200708 175.156 357,219
200709 187.034 356,925
200710 194.41 355,749
200711 188.584 355,290
200712 200.978 353,688
200801 219.588 353,672
200802 226.302 353,302
200803 208.447 353,077
200804 197.788 352,885
200805 201.455 352,714
200806 207.914 352,331
200807 206.462 351,099
200808 198.389 350,933
200809 216.843 350,651
200810 200.509 350,038
200811 223.822 349,735
200812 217.047 349,207
200901 251.237 350,174
200902 263.086 349,418
200903 240.403 349,076
200904 231.454 347,868
200905 240.658 347,801
200906 229.799 347,563
200907 230.83 347,548
200908 232.67 347,532
200909 236.114 347,217
200910 243.989 347,214
200911 271.717 347,183
200912 266.06 347,180
201001 268.103 347,179
201002 283.537 347,178
201003 287.317 347,176
201004 307.476 347,173
201005 340.619 347,163
201006 351.937 347,156
201007 311.379 347,018
201008 340.997 347,017
201009 332.299 346,994
201010 337.241 346,994
201011 369.335 346,991
201012 366.19 346,962
201101 336.293 346,987
201102 353.909 346,986
201103 351.458 346,988
201104 358.546 346,987

Wednesday 6 July 2011

Gold and Economic Freedom

(Capitalism: The Unknown Ideal, Ayn Rand, 1967, page 107. ISBN:978-0-451-14795-0)

"[...] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets.

The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion. [...]

And this, all of 45 years ago, straight from the hand of the great Satan himself! :->

(FWIW, "no I don't believe in evil in this instance".)

Survival advice from bankers

Tuesday 5 July 2011

More rope, vicar?

"[...] A great irony presents itself, since a Greek Govt debt default might trigger huge Credit Default Swap contract payouts by AIG, now obligated by the USGovt. [...]"
(From July 1st Jim Willie article)

An interesting nuance, I thought.

I do wish he'd fade the conspiratorial tone in his articles, it's just not really necessary is it? And off-putting for potential new readers not pre-packaged with a tin-foil head adornment, IMO.

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