Friday, October 29, 2010

QE accomplishes nothing.

QE accomplishes nothing. The markets are wrong regarding its power or efficacy in achieving the goals the Fed thinks are within reach with simple asset swaps of differing maturities.

U.S. stocks may gain 10 percent should the Federal Reserve announce a program of asset purchases known as quantitative easing, and emerging-market shares will keep rising, according to hedge-fund manager Barton Biggs.

“The conventional wisdom is the markets are going to probably sell off,” Biggs, managing partner of New York-based Traxis Partners LLC, said in an interview today with Betty Liu on Bloomberg Television’s “In the Loop.” Investors may in fact get a “surprise” with “another 10 percent rally.”

The problem...

...with politically controlled (or governmental equity) is eloquently phrased by the head of the St. Louis Fed in as part of these remarks concerning the Systemic risk containment.

One of the most difficult features of systemic-risk identification is that the risk build-up occurs during relatively good economic times. It is more than an uphill battle to convince financial markets, policymakers, and the general public to adopt what may be unpopular, restrictive measures when all seems to be well. For example, the GSEs—Fannie Mae and Freddie Mac—repeatedly claimed that their risk-management systems were modern and sophisticated, more than enough to protect their shareholders and U.S. taxpayers from economic disaster. They were completely wrong. When policymakers, such as my predecessor Bill Poole, warned about the risks the GSEs were taking, only a few were willing to recommend that action be taken to protect the economy from the potential catastrophe. The FSOC will face similar problems. Can the interagency Council come to an agreement on a specific risk and an associated policy action when times are good?


From an article in the FT. My comments are italicized.

Capital controls are not a new policy measure, of course. Instead, they were used universally by members of the Organisation for Economic Co-operation and Development (with the exception of the US) and across the developing world after the second world war, and only fell out of favour with the shift toward neo-liberalism in the 1970s. Some of the capital controls of this period were downright draconian in contrast with current practice. Indeed, in South Korea, investors were required until the 1980s to secure government permission for holding foreign currency or exporting capital.

This of course depends on what your goals are, and this is a very selective use of history to justify the premise. Notice the U.S. did not practice this policy, as the people are ostensibly in control of the republic via the self correcting mechanism of free elections.

What was forgotten during the neo-liberal era is that many of these explicitly “anti-market” measures helped to promote rapid economic development by increasing financial stability. This is not to say that all controls were successful or that all measures taken to enforce them were appropriate. But that should not distract us from acknowledging their tremendous contributions to unprecedented economic growth and stability during the period.

Cart before the horse. Most of the countries in question did not have much capital to export, and the controls were simply political controls emplaced to prevent the flight of the wealthy few. Stability is the trade-off for freedom of movement and capital. Poltical risk will always and everywhere be a risk in such environments.

Those of us who have long advocated systematic financial reform look at current developments with excitement. Countries need the latitude to impose capital controls that meet their particular needs, and it is a relief to see that they are finally getting it after a long period of debilitating neoliberal ideology.

"Debilitating" in the sense that increased indvidual freedom is antithetical to monolithic governmental authority? This is, like most economic questions, about trade-offs. Who benefits, and who experiences detriment. This commentary leaves ramifications on individual freedom conspicuously absent, and simply assumes that the "good of the country" can be accurately defined, calibrated, and executed by govenmental edict.

Yet periods of transformation are also potentially dangerous, as countries search individually for solutions to problems of unemployment and insecurity that require collective action. There is therefore a pressing need today for a new international financial architecture that at once promotes national policy autonomy while ensuring that diverse national strategies cohere into mutually beneficial co-ordination. Let us hope that leaders of the Group of 20 economies begin a conversation along these lines at its upcoming meetings in Seoul, and then reach out to the developing world more broadly in a process of building a new international financial framework.

Yes, the solution to the current imbroglio is more collective action, more centralized decision making, and a more cohesive international financial architecture. Shumpeter described the process of creative destruction, but here the author has no self-correcting mechanism, steeped in human behavior, that would lend credibility to his belief that cooperation between governments in levying capital controls in an organized manner would engineer the outcomes desired.

IMF: currency forecaster

What "fundamentals" does the IMF think control the values of currency pairs?

The International Monetary Fund says the US dollar is overvalued on
currency markets, while the euro, yen and pound were in line with

"The real effective exchange rates of Japan, the euro area, and the UK all appear broadly in line with medium-term fundamentals, while the US dollar is on the strong side of fundamentals," the IMF said in a report to the Group of 20 economic powers on Thursday.

The IMF noted recent government interventions in the foreign-exchange market had contributed to the imbalance, which has sparked fears of "currency wars" to protect exports amid the global economic recovery.

"While advanced economies have generally avoided intervening in
currency markets, some have intervened more recently to limit rapid
appreciations, contributing to the abovementioned tension on this

The IMF reiterated its view that China's currency, the yuan, remained "substantially undervalued".

The IMF prepared the report for a G20 meeting of financial ministers
and central bank governors in South Korea on October 22-23, in
preparation for a G20 summit in mid-November.

Monday, October 25, 2010

Credibility...part II

Mishkin backing the Fed and its ability to guard against inflation and inflation expectations (expectations being the more important indicator for the Fed these days).

By establishing an inflation objective at this juncture the Fed can guard against both of these problems. Providing a firm anchor for long-run inflation expectations would make the threat of deflation less likely.
But a firm anchor would also give the Fed flexibility to respond to the weakness of the economy – because it would help ensure that any new moves to quantitative easing would not be misinterpreted as
signalling a shift in the central bank’s long-run inflation goal, making an upward surge in inflation expectations less likely too.

So the Fed will not abandon anchors in the future, and has never done such things in the past...this bespeaks to a credibility problem for Mr. Mishkin, one that is detailed in the new movie "Inside job" (you can see a clip with Mr. Mishkin here).

Not exactly the ringing endorsement Bernanke was hoping for.

Sunday, October 24, 2010


How long have we heard this and similar announcements?

Treasury Secretary Timothy F. Geithner expects China will allow the yuan to strengthen because officials there understand it’s in the interest both of domestic growth and global economic stability.

“They recognize it’s important to the world,” Geithner said in an interview on Oct. 23 with Bloomberg Television, after a meeting of finance ministers and central bankers in Gyeongju, South Korea. As China’s currency stance affects more countries, “China recognizes that, and I think we’re going to see them continue to move.”

Friday, October 22, 2010

Alarmist... ads depicting the U.S. as some sort of debtor nation owning its future production to creditor nations is nonsense, and exhibits a misunderstanding of the mechanics of modern fiat non-convertible currencies. The hyper-linked ad above is a good example of this. The Chinese do not "own" us. They hold Treasuries in an account at the Fed. These accounts gain regular coupon payments and a final payment of principal at maturity. This is all done through spreadsheet accounts at the Fed. They do NOT own future production, nor can they indenture us all into perpetual servitude.

If anything, the reverse is true. We have the goods the Chinese have produced. They have electronic accounts. Who has "won" in this arrangement? And, given your knowledge of the stability of Communist regimes, who is more likely to be gloating over the decline of a nation in 2030?

Thursday, October 21, 2010

Full employment...

...and price stability.

The dual mandate of the Fed has been oft-criticized for its "having its cake and eating it too" panglossian view.

The largest problem in my view is the time lags between the two mandates. Price stability is largely a mechanical problem that involves policy instruments entirely different from the more politically charged issue of full employment.

We are observing in real time the ramifications of these parallel lines.

The answer... the question "Why aren't the banks lending" was always going to be something like this.

Shoddy mortgage lending has led bankers into a two-front war, pitting them against U.S. homeowners challenging the right to foreclose and mortgage-bond investors demanding refunds that could approach $200 billion.

While federal regulators and state attorneys general have focused on flawed foreclosures, a bigger threat may be the cost to buy back faulty loans that banks bundled into securities. JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. have set aside just $10 billion in reserves to cover future buybacks. Bank of America alone said this week that pending claims jumped 71 percent from a year ago to $12.9 billion of loans.

The Glue...

...that holds the world together is still the U.S. dollar, despite the various calls of foreign "creditors" growing wary of "supporting" U.S. assets.

Reality, as evidenced by the above graph, tells a much different story.

Wednesday, October 20, 2010

From the U.S. CRS...

...some comments on the failed state to our south.

Remittance inflows, which are largely from the United States, are Mexico's second-highest source of foreign currency after oil. Numerous analysts have noted that Mexico's potential to promote economic growth, increase productivity, and lower the poverty rate is very limited without implementing substantial structural reforms. President Calderón has proposed a number of reforms to address these challenges, including proposals to eliminate extreme poverty, overhaul public finances, privatize parts of the state oil company, adopt labor reforms, reform the telecommunications sector, and encourage political reforms. Most of these proposals, however, have deeply rooted political implications and have been strongly opposed by the major political parties in the Mexican Congress. There are some signs that the population may be pushing for change, but the prospects for passing any of the proposals will likely depend on the outcome of the 2012 presidential elections.

In my view, an impossible list.

That cracking sound... are hearing from the middle kingdom not your imagination.

14 cities put caps on purchases for residents and on housing loans

GUANGZHOU - Property sales have seen a sharp drop and there's been an increase in the number of cancellations of home orders in Chinese cities that have introduced regulations to limit purchases of property. [Property tycoons suffer decline in their wealth]

Dalian, in Liaoning province, is the latest to join in this move to control the rampant property market. On Tuesday, it suspended second-home purchases for families who are residents, while denying new home loans for migrant families who have not worked in the city for at least one year, said a local official.

At the same time, the amount of deposits for first and second home purchases has been raised.

Thirteen other cities now have similar loan caps and higher down payment to cool down the overheated property market.

In Guangzhou, only 308 apartments were traded online, on Monday, according to the Land Resources and House Management Bureau. This represented a big decrease for a single day.

And the average price was 8,600 yuan ($1,320) a square meter, the first time the price has dropped below 9,000 yuan a square meter in two years.

"The government will stop unreasonable home demand and limit speculation in the property market," housing management bureau officials have explained.

The city's new rules now require buyers to have a household registration, or hukou, and a marriage certificate to purchase an apartment.

Cheng Yun, of Guangdong Centraline Property Co Ltd, said most would-be property buyers have adopted a wait-and-see attitude. Cheng estimated that property prices in Guangzhou will fall at least 10 percent over the next few months.

The restrictions apply to both new and second-hand homes and those below the age of 18 cannot purchase a home by themselves.

Local property agents say that some people who had made a deposit on an apartment have begun to break the agreement because they're worried that prices will fall after the new limits take effect.

Tuesday, October 19, 2010

Cometh the hour...

Cometh the man...let us hope a leadership transition is imminent.

To this day commentators on the right and left attribute the arrest of inflation to the Volcker Fed’s austerity, but the greater truth is that the dollar is a political concept more than anything, and with markets well ahead of polls in terms of pricing in a Reagan victory, the dollar started to correct upward as it became apparent that a politician who understood the importance of a strong dollar would be elected the following November.

In concert with the dollar’s rise, other pro-growth policy changes started to heal an economy that establishment thinkers had left for dead. The old “new normal” was quickly discredited as a better policy mix bolstered the desires of the ambitious to produce.

On the regulation front, rules meant to block the natural evolution of commerce began to be rolled back during the Carter years, and continued under Reagan. This was essential in that far from stabilizing economic activity, regulations inhibit natural growth as businesses must become expert on dealing with rules, as opposed to growing the business itself.

In terms of income tax rates, we began the 1980s with a top tax rate of 70%, but by 1986 Reagan helped push the top rate down to 28%. Government spending is simply another form of taxation, and while Reagan never achieved the cuts he desired, spending as a percentage of the economy’s actual size declined.

Monday, October 18, 2010

Keynsian QE enthusiasts...

...Should reflect on this quote from the Bloomsbury man himself:

"We ar faced at every turn with the problems of Organic Unity, of Discreteness,
Of Discontinuity-the whole is not equal to the sum of the parts, comparisons of
Quantities fail us, small changes produce large effects, and the assumptions of
A uniform and homogenous continuum are not satisfied"

Sunday, October 17, 2010

Trichet finds the cool-aid delicious...

The Euro version of QE is even more ineffective than those manifestations from SCI's

Oct. 17 (Bloomberg) -- European Central Bank President Jean-Claude Trichet rebuffed Bundesbank President Axel Weber’s call to terminate the bond purchase program, saying the “overwhelming majority” of the bank’s 22-member Governing Council still backs the buys.

Asked in an interview with Italian newspaper La Stampa whether the program didn’t work and should be scrapped, he responded: “No! This is not the position of the Governing Council, with an overwhelming majority.”

Weber, who also sits on the ECB’s decision-making council, said on Oct. 13 that the bond-purchase program should be stopped. The remarks, the strongest from any ECB official advocating a removal of stimulus, came as governments and banks in Ireland, Portugal and Greece struggle to convince investors they can fix their budgets and balance sheets in the aftermath of this year’s sovereign debt crisis.

Saturday, October 16, 2010

Importing labor controls...

...the Paper Dragon way:

LUSAKA (AFP) – Managers at a Chinese-run Collum Coal Mine in Zambia shot and wounded 12 miners who were protesting against poor working conditions, police said on Saturday.

"The workers were protesting against the poor working conditions when managers using shotguns started to shoot aimlessly, not in the air, thereby wounding 12 workers," police spokesman Ndandula Siamana told AFP.

Before the Friday incident in the southern town of Sinazongwe, workers had constantly been complaining about poor working conditions at the mine.

Siamana said police were investigating the incident and no charges had been brought against the managers.

"It's possible that the managers feared that they might be attacked but we shall ensure that the culprits are brought to book," Siamana said.

The 12 workers are currently being treated at a local hospital for various gunshot wounds

What is obvious to some... a "dawning realization" to others.

“I believe the U.S. economy is best described as being in a bona fide liquidity trap,” Evans said to the Boston Fed’s 55th Economic Conference. “This belief is not a new development for me; instead it is a dawning realization.” In a liquidity trap, additions to the money supply fail to stimulate the economy.

Easing Steps

The bank president’s comments are among the strongest of any Fed official in favor of additional easing steps. With projections for unemployment to be at 8 percent and for inflation excluding food and energy to be at 1 percent by the end of 2012, “the Fed’s dual mandate misses are too large to shrug off,” Evans said.

He gave his support to a target for the path of the price level over a “reasonable period of time” that is communicated “regularly and often” to the public. Such a policy could complement large-scale asset purchases and a change to the Federal Open Market Committee’s statement to include a pledge to keep rates near zero for longer than “an extended period.”

Targeting a path for the price level would help the Fed push inflation higher “for a time,” Evans said. The central bank would need to state the terms for exiting the policy, he said.

“I’ll admit that my views on this are evolving,” Evans said in response to audience questions. “I think it could be conveyed credibly but there’s a lot of work to establish that and think through what the operational characteristics of this would be.”

R.I.P. Benoit Mandelbrot

Oh yes, he had many "character flaws", but don't we all? He was on the bleeding edge of financial research, and was one of the first to wade out into the ever-changing ocean of the markets and at least attempt to systemitize and conquer its fathoms. Anyone who gives us pause to look at the world in a different manner earns my admiration. He fit this criteria.

NYT eulogy.

Friday, October 15, 2010

Speaking of partial derivatives...

...and piling off my last post regarding that infernal phrase "all else being equal", Bernanke now chimes in about what is presumably the "official" stance the Fed assigns to the current imbroglio. It is most unfortunate that he is, was, and will continue to be wrong about the effects of assets swaps in the manifestation of QE bond purchases and its REAL effects on the REAL economy.

Federal Reserve Chairman Ben S. Bernanke said additional monetary stimulus may be warranted because inflation is too low and unemployment is too high.

“There would appear -- all else being equal -- to be a case for further action,” Bernanke said today in the text of remarks given at a Boston Fed conference. He said the central bank could expand asset purchases or change the language in its statement, while saying “nonconventional policies have costs and limitations that must be taken into account in judging whether and how aggressively they should be used.”

He didn’t offer new details on how the Fed would undertake those strategies or give assurances the central bank will act at its Nov. 2-3 meeting.

Rays of hope... the Failed State. Private action has a much greater probability of making gains in peace and stability than a government that is basically in a state of industrial capture ("industry" of course being the illicit trade in drugs, an activity that gains its massive margins from the arbitrary decision by its major customer to make most narcotics "illegal".)

Every morning at 7 a.m., Mr. Treviño, high-ranking officers from the army and marines, plus officials from the federal police and attorney general's office, meet with a different municipality to discuss security and improve coordination.

"We realized when we arrived that there was no coordination between different levels of government," he says.

Among the problems: the state's different police forces all use different radio frequencies. They also have different emergency telephone numbers for citizens.

"This is like a merger and acquisition. We are doing the due diligence, and then we're going to proceed with the post-merger integration of all levels of government," says Mr. Treviño.

Another former Cemex employee involved in the drug war is Jorge Tello. A former head of Mexico's national intelligence agency as well as one of the chief architects of Mr. Calderon's anti-drug strategy, Mr. Tello is in charge of bolstering coordination between federal and state forces, particularly in the state of Nuevo Leon along the Texas border.

Mr. Tello didn't respond to requests for an interview.

Current Cemex employees are also getting involved. Mauricio Doehner, a young executive, now spends much of his time trying to revive a civic organization called Ccinlac, which brings together groups ranging from big business to local parent-teacher associations. In the mid-1970s, the organization was a powerful voice of civil society, but it has since faded into obscurity.


...Mr. Grant enjoys a very good reputation among just about everyone. However, I think the assumptions from which he builds his excellent logical structures are flawed.

Holders of U.S. Treasuries are not "creditors" in any common-sense use of that term. They have a right to an electronic transfer of numbers from the their accounts at the Treasury...nothing more. Complicating matters is what would happen if these holders sold, say, all of their Treasuries and the effect on their own domestic currencies. Once again, I remind you all that in the world of economics, there never, EVER, is a state of reality that "holds all other things equal".

Jim Grant: The World Is Abandoning the US Dollar
Thursday, 14 Oct 2010 01:01 PM Article Font Size
By: Forrest Jones

The United States has piled on so much debt that world is going to abandon the dollar, says Jim Grant, founder and editor of "Grant’s Interest Rate Observer."

“By the numbers, we are more encumbered now than we have ever collectively been,” Grant tells the Business Insider.

The United States debt has soared to the point where people can expect to see the dollar get the same reaction as in the 1970s, Grant tells the Business Insider. He said that European hoteliers in the Carter years would ask American tourists if they could pay in anything but greenbacks.

“The world has expressed preference for currencies not called the dollar. It’s happened,” he told the Business Insider.

Economists often grab headlines disagreeing with one another about the fate of the U.S. economy, with some experts such as Paul Krugman arguing for more stimulus to kick-start a recovery while others, such as Niall Ferguson, arguing debt is already out of hand.

For Grant, nobody knows what is going to happen.

“My perspective is that people in this business may be experts on up to what has happened up until this minute, but we and the cab driver are all equally ignorant about what will happen,” he says.

“Nobody knows anything.”

The only thing for sure is that the world will avoid the dollar.

If the world continues to invest in dollars given U.S. debt levels, cash injections and low interest rates, “they would be an unusual set of creditors.”

The dollar has fallen recently, including hitting a 15-year low against the yen after sluggish unemployment figures increased expectations that the government will inject cash into the economy, which weakens the currency.

Thursday, October 14, 2010

Facepalm... light of the previous post regarding the St. Louis Fed and its short research paper, we know get Rosengren spouting this:

“What additional quantitative easing would potentially do
is bring down the unemployment rate faster than it otherwise
would come down,” Rosengren said in a television interview with
CNBC today.

No bubble...

...nope, none at all. Bet the farm on Gold!

Fissures at the Fed?

I am astounded this paper was allowed to be published...not so much because its conclusion happens to be true, but that it dares to disagree with much of current economic canon belief. Is a truth-seeking compass finally percolating within the institutional structure of the Fed? I doubt it, but this is a very welcome development.

...reducing interest rates modestly from their already historically low levels is unlikely to stimulate aggregate demand: Little effect on aggregate demand implies a corresponding small effect on output
and, hence, employment.

Friday, October 08, 2010

The "Maestro"...

...stating the benefits of what amounts to the policy making equivalent of "Do as I say, Not as I Do". I applaud his resilience in the face of his irrelevence, but this advice would be disasterous for the country.

Former Federal Reserve Chairman Alan Greenspan said the U.S. fiscal deficit is “scary” and the federal government needs to cut spending on entitlements.

“We’re involved in a dangerous game,” Greenspan said yesterday at a foreign-exchange conference in New York sponsored by Bloomberg LP, the parent of Bloomberg News. “We’re increasing the debt held by the public at a pace that is closing” the gap between our debt and “any measure of borrowing capacity,” Greenspan said. “That cushion is growing very narrow.”

U.S. companies may be holding back on investment because of the rising federal deficit, which causes uncertainty about future tax policies, Greenspan said in an opinion article for the Financial Times this week. Weak investment by businesses in capital equipment and fixed assets has helped to crimp the U.S. economic recovery, he said.

“You need” austerity, said Greenspan, a paid speaker at the event. “We’re going to have to start to cut” from government entitlement programs, he said, adding that reducing the budget is better than raising taxes in closing the U.S. budget deficit. Still, Greenspan reiterated that he supports allowing tax cuts enacted under President George W. Bush to lapse at the end of 2010.

MBS, CLO, CDO, etc.

What a mess. It is truly astounding what can happen when revenues go geometric, and the more complicated the structuring instrument, the more potential for error and worse...which also applies to legislation.

In light of the Unemployment report...

...from this morning showing that, in terms of employment, governmental policy has failed miserably...

"TO ME our knowledge of the way things work, in society or in nature, comes trailing clouds of vagueness. Vast ills have followed a belief in certainty, whether historical inevitability, grand diplomatic designs, or extreme views on economic policy. When developing policy with wide effects for an individual society, caution is needed because we cannot predict the consequences"
-Kenneth Arrow

In a report that Jared Bernstein and I issued during the transition, we estimated that by the end of 2010, a stimulus package like the Recovery Act would raise real GDP by about 3 1⁄2 percent and employment by about 31⁄2 million jobs, relative to what otherwise would have occurred. As the Council of Economic Advisers has documented in a series of reports to Congress, there is widespread agreement that the Act is broadly on track to meet these milestones…. What the (Recovery) Act hasn’t done is prevent unemployment from going above 8 percent, something else that Jared and I projected it would do. The reason that prediction was so far off is implicit in much of what I have been saying this afternoon. An estimate of what the economy will look like if a policy is adopted contains two components: a forecast of what would happen in the absence of the policy, and an estimate of the effect of the policy. As I’ve described, our estimates of the impact of the Recovery Act have proven quite accurate. But we, like virtually every other forecaster, failed to anticipate just how violent the recession would be in the absence of policy, and the degree to which the usual relationship between GDP and unemployment would break down
Christina Romer

Of course the markets have cheered this news as it spells inevitability for QE2, which comes as no surprise to readers here. However, to the extent that the market believes QE2 will be effective, it is wrong.

Throwing more and more money at the problem will only achieve similar results. This explains my allusions the the Khyber pass and the charge of the Light Brigade. The Fed and the Economic establishment is, once again, mistaken in its belief that asset swaps will stimulate the economy, and I once again sound my clarion call for the only effective measure of stimulus to create ORGANIC growth in aggregate demand; Tax Cuts.

It is a tragedy that so many lives are effected by policymakers whose first calculus when contemplating policy is the retainment and expansion of power. I am starting to think this is by design rather than ignorance or good intentions.

Thursday, October 07, 2010

What could possibly go wrong?

Gold will go up forever becuase of government profligacy and mismanagement, right? No less an authority than VIETNAM holds a sanguine view toward the metal.

Miner gives gold bulls the green light
By Jack Farchy and Javier Blas in London and Ben Bland in Hanoi

Published: October 7 2010 15:03 | Last updated: October 7 2010 15:03

Gold prices hit a fresh all-time high as AngloGold Ashanti, the world’s third biggest gold miner, said on Thursday it had wound up its hedge book months ahead of its original plan, sending a bullish signal to the market.

Earlier on Thursday, the Vietnamese central bank said it would consider lifting an effective ban on gold imports that has been in place since May 2008 – another positive sign for prices, since Vietnam is traditionally one of Asia’s largest gold consumers.

AngloGold announced last month that it would raise nearly $1.4bn in new capital in order to close its hedge book by early 2011, joining Barrick Gold, the world’s top gold miner, in putting an end to the legacy of forward sales which pre-dates the boom in gold prices.

Traders said AngloGold had been active in the market buying back its hedges in recent days, even as prices rose to successive nominal highs. Indeed, they pointed to the miner's buying as one of the factors driving prices, which have risen 3.5 per cent this week.


...Ireland and Portugal "in play", further stressing the ability of the EU system to function as normal. This talk of restoring "confidence" as some recursive panacea that will repair the underlying disfunctions and imbalances resulting from the previous decades credit binge is folly.

Tuesday, October 05, 2010

Stampede mode initiated...

...when Au is sub 700 within a year, yet more ephemeral causal inferences will be dusted off and plied for explanatory traction.

There will also be attendant outrage at what will be the obvious difference between owning physical gold and owning a financial claim to a trust or security deriving its value from traded gold prices.

Gold climbed to a record in New York as the dollar extended its decline, boosting demand for precious metals as alternative assets. Silver advanced to a 30-year high.

Gold reached $1,333.80 an ounce as the dollar dropped as much as 0.7 percent against a basket of six currencies. Federal Reserve Chairman Ben S. Bernanke said yesterday the U.S. central bank may buy more debt to help the economy. The Bank of Japan today pledged to keep its benchmark interest rate at “virtually zero.” Since Sept. 14, gold has risen to a record 12 times.

“When governments are in the business of printing money, gold is going to do well,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “More quantitative easing is inevitable at this point for the U.S. The dollar is going to suffer, and gold is going to take out records along the way.”

Gold futures for December delivery rose $16.10, or 1.2 percent, to $1,332.90 at 9:29 a.m. on the Comex in New York. Before today, gold had gained 20 percent this year.

In London, gold for immediate delivery is up 21 percent this year and headed for a 10th consecutive annual gain, the longest winning streak since at least 1920. Bullion has outperformed global equities, Treasuries and many industrial metals, prompting record investment in gold-backed exchange- traded products.