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The Quantum of Quantitative Easing Inflation is Coming!

Economics / Inflation Jul 20, 2012 - 01:10 AM GMT

By: Nadeem_Walayat

Economics

Diamond Rated - Best Financial Markets Analysis ArticleThe City of London is Imploding as a consequence of ever escalating shockwave's mostly emanating from across the Atlantic as the United States goes into overdrive in attempts to wipe-out competition from London in terms of profiting from global financial market transactions.

First we saw the US dig out and focus on 4 year old LIBOR manipulation stories centred around the cesspit that goes by the name of Barclays Bank that looks set to devastate all of UK's biggest banks, with the UK tax payer ultimately footing the bailout bill. I have covered this story at length that illustrate that everyone knew about LIBOR manipulation but now pretend that they only found out relatively recently - more here - RBS Chaos and Barclays Libor Cesspit Prompts Slow Motion Run on British Banks


And this week we have seen more convenient revelations out of the US dating back to 2007 that HSBC, Britain's biggest bank that forces ordinary citizens to jump through hoops to transfer small amounts of currency abroad has been engaged in systematic money laundering for the Mexican drug cartels to the tune $7 billion with potentially far worse across the world as HSBC affiliates apparently did business with rogue nations and terror organisations.

The truth is that BOTH stories could equally apply to major U.S. Banks but U.S. politicians are choosing not to investigate / hold them to account. Compared to the master market manipulators such as JP Morgan and Goldman Sachs, the likes of Barclays is just a mere amateur. The reasons why US politicians are looking the other way are the same that UK politicians and the Bank of England have ignored the crimes of Britain's biggest banks in that the politicians are in the back pockets of the bankster's and that the truth risks shaking the confidence of an already fragile financial system.

So the real story is why are U.S. politicians not holding their own thieving criminal banks to account ?

One possible answer may be found in the records of campaign donations.

So now in the UK, HSBC takes the lead from Barclays as Britains most criminal banking institution, the question is will Barclays fight back for the lead with something even worse? Off course Britain's banks are just a few amongst many that is the global banking mafia crime family. The truth will belatedly come out though the price paid will probably wholly be by tax payers.

Now whilst you should by now be agreeing fully with me that the global banking system is fraudulent and possibly even start to see that the central banks are party to this fraud by evidence of their actions as illustrated by money printing, the whole of which has been effectively funneled into the back pockets of the Bankster elite where in the UK this stands to the tune of £375 billion over 3 years, all aided by pure propaganda that central banks are pumping money into the economy which I have repeatedly illustrated as being a PURE LIE because it has NOT been pumped into the the economy as politicians continually state but into the banks.

The Only Solution Governments have is Inflationary Debt and Money Printing

If the Government / Bank of England wanted to boost the economy then they would have handed over at least some of the money that has been stuffed into the bankster banks to the people of Britain by means of tax refunds. The only reason why they have not done so is because it will be highly inflationary, after all Britain being an economy in depression for the past 4 years has still suffered Inflation of 15% as illustrated by the Inflation Mega-trend graph below -

The inflation mega-trend is something that the mainstream press never mentions as the journalists who think they are economists rely on vested interest academic economists to pump out propaganda that virtually wholly focuses on what is only the annual momentum in the rate of change of inflation as illustrated across the media by graphs such as below that paints a picture of relative stability when the truth is that of an exponential inflation trend.

Quantum of Quantitative Easing (QQE) is Coming!

I am quite often asked where will future inflation come from as disposable incomes are falling and my answer is that the government will ignite the wage price spiral. Then I am asked how will they ignite the wage price spiral and my answer to that is what I call the Quantum of Quantitative Easing.

There is a crisis brewing and that crisis is political as a consequence of the subversion of capitalism by the mafia crime family that includes our biggest banks and central banks. You cannot shatter the illusion that has been in force for at least 60 years and probably much longer, and not face the consequences, the illusion has allowed the banks to turn everyone and everything into debt slaves, they have stolen ALL of the wealth of virtually every citizen that has debts and even those that have never borrowed a single penny as a consequence of the fractional reserve banking debt printing Inflation Mega-trend, and the consequences are going to be fought with Quantum of Quantitative Easing, which could become the big new buzz phrase in the mainstream media in about a years time, though given the 4 year delay in waking up to the LIBOR scandal it may take a lot longer still.

What is QQE ?

To date the central banks electronic money printing presses have been busy for the purpose of monetizing government debt by means of the bankrupt banks. Which as I warned several years ago is likely to continue for the whole of this decade and will be one of the primary drivers of the Inflation Mega-trend and in the meantime nothing has changed this expectations. The next stage is QQE, which will involve the UK government (same applies to the likes of the US) via a number of mechanisms to directly spend money printed electronically by the Bank of England without it going through the mafia banking system i.e. direct transfer from the Bank of England to Government. The exact mechanisms used and what they will eventually be called will only become fully clear in hindsight but the basic outcome will be as I indicate here in that the Government will spend money printed (electronically) without it adding to government debt!

The QQE Secret of How to Print Money Without Increasing Debt

The answer to the secret lies in the name, in that we are discussing the QUANTOM of Quantitative Easing.

This is taking place right now, completely out of the focus of the public and the mainstream press.

QQE is taking place by means of the interest earned on government debt bought by the Bank of England i.e. the Bank of England prints money to buy government debt from the banks, therefore the government pays the Bank of England interest on this debt most of which then gets recycled back to the Government so in effect the government has free money to spend that it should not have, and the more bonds the Bank of England buys the less net interest the Government has to pay. Imagine if all of the bonds were owned by the Bank of England, this would mean that the net interest paid by the government on all of its £1.1 trillion debt would be virtually ZERO! So effectively the government has NO DEBT TO SERVICE, because without any interest to pay it effectively ceases to exist! Yes this mechanism is QQE because it allows the government to spend money without increasing its NET debt burden, not only that but the government is actually REDUCING its debt burden as the debt is actually being cancelled out. So QQE is the quantum of QE as the net debt interest burden falls towards ZERO.

I am sure this is one secret that the Bank of England wants to keep hidden away for as long as possible for it implies that the ramping up of the Inflation Mega-trend is already underway with approx 1/3rd of Government debt having been effectively cancelled to date! As effectively 1/3rd of the interest the government pays on it's debts is going back to itself! And meamtime about 12% of the value of the debt has been wiped out by inflation (£132 billion) over the past 3.5 years)

This is the magic of the electronic money printing presses and inflation, as one minute the government had £1.1 trillion of debt and then the next minute POOF, it is all gone! A bit like Verbal Kint turning into Kaiser Sozer!

It is economic magic that the coalition government politicians will pull out of their hat, resulting in no increase in debt and lots of free money to spend or give away in electioneering tax cuts!

This is just one mechanism, though probably the primary mechanism but there will be many other schemes that will cooked up between the Treasury and the Bank of England that will fall under the QQE banner.

Why is it Dangerous?

If QE is akin to pouring petrol onto the inflation fire then QQE is akin to pouring rocket fuel onto the Inflation fire. It will result in an ACCELERATION of the EXPONENTIAL Inflation Mega-trend as the government will effectively keep writing itself blank cheque's that it cashes at the Bank of England.

Why is it Coming?

We are approaching the mid-point of the UK election cycle which means the coalition government will have to start to ramp up the money printing presses that will increasingly target the general public as they attempt to buy votes going into the election. The Mafia banking system is allowing the government to engage in the Quantum of QE which will increasingly allow the government to buy votes by starting to spend monopoly money (which is what Sterling will become) directly on all sorts of activities such as digging big deep holes that they will call construction projects or other measures such as tax cuts, however the key point will be that this expenditure will not have any impact on the governments budget deficit so it won't be money added to debt! They will deploy much smoke and mirrors to try and mask what they are doing and where the money is coming from.

Again the consequences of QQE will be to ramp up the Inflation mega-trend, I have tried not to mention the word Hyperinflation because that is a latter stage panic event. But you are reading this at least a year ahead of the curve, at a time when mainstream press pseudo economist journalists are fully focused on the latest dip in the CPI inflation rate to 2.4%, and are eagerly regurgitating the views of vested interest academic economist propaganda of always imminent deflation.

This is how the Exponential Inflation Mega-trend is likely to play out:

1. QE for the bankrupt banks to monetize government debt = High Inflation

2. QQE to buy votes by expenditure that does not add to the government deficit = Higher Inflation

3. Loss of confidence in Fiat Currency due increase in supply of currency and velocity of money = Hyper inflation panic event.

No3 is not a certainty, it is a risk, and the more QQE a government engages in the greater will be the risk.

My next in-depth analysis will attempt to map out in detail what I expect to follow over the next few years as QE continues to give way to QQE, to get this on completion in your email in box ensure you remain subscribed to my always free newsletter.

In the meantime try to immunise yourself against the worthless deflation mantra in the mainstream press, because at the moment we are experiencing the calm before the coming inflation storm.

Source and Comments - http://www.marketoracle.co.uk/Article35687.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2012 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of three ebook's - The Inflation Mega-Trend; The Interest Rate Mega-Trend and The Stocks Stealth Bull Market Update 2011 that can be downloaded for Free.

Stocks Stealth Bull Market Ebook DownloadThe Interest Rate Mega-Trend Ebook DownloadThe Inflation Mega-Trend Ebook Download

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

raj
20 Jul 12, 04:37
preparing for the worst

Hi Nadeem,

Thanks for your articles, great stuff as always.

I'm in my late 20's and have put together a shares portfolio which is now 2.5x my after tax salary. Assuming just compound dividends and average dividend growth this should be enough to support me fully in 15 years (i live fairly frugally).

However the point you may not like is that I purchased some BTL property in 2010/11 which is 60% mortgage - now on SVR about 4.8%. I bought these small properties to potentially help me pay down my mortgage quicker since the properties have monthly cash-flow (cash-flow would cancel out if rates went to 10%).

As well as this I have my own house which is 50% mortgage. My wife recently had a baby (which adds some weight to my shoulders) and doesn't want to go back to work so i wont be adding to my investments at the speed I could before.

If property/rents don't increase in value I should be paid of in 15 years.

During these 15 years I'm exposed to the worst case scenarios since I am a borrower. e.g. what will happen to mortgages in hyperinflation, etc etc

From your previous posts I have started to take your advice by storing additional amounts of long life foods and have an area in the garden to grow food if required.

However my question is how could I reduce my risk, as I'm sure there are lots of people out there with mortgage debt, how can we reduce the pain if the worst comes.

Should I look to gold, how do I know how much to buy in multiples of my debt?

Thanks in advance

Raj


Andrey Bachev
20 Jul 12, 09:25
Cancelling Debt

Nadeem,

thank You for the interesting perspective Yr article gives.. I do not understand however how the government will cancel its debt to the private Bank of England. Of course both the government and the Bank can transact without the knowledge of the public but the debt will remain. And this is as You say the big issue. The debt of the people increases while the people cannot do anything abt it. I do not think The Bank will cancel that debt in any way. Pls comment.The creation of inflationary money is of course the only outcome for the politicians so inflation will come.The inflationary money goes to the banks and to the government only. So that will already delay its effect and make sure they are the only winners from the creation of that money.My question is when do You think the inflation will really start to accelerate? I'm sure many readers will be keen to hear Your opinion.


Nadeem_Walayat
20 Jul 12, 09:32
Effectively Cancelling Debt

Hi

Just to clarify, I am saying that the government is effectively cancelling debt as it no longer pays interest on it, i.e. it is paying itself interest onthe QE bought bonds. So officially the debt still exists but in reality it does not, smoke and mirrors.

I will do a detailed inflation forecast over the coming weeks.

Best

NW


Nadeem_Walayat
20 Jul 12, 15:03
Debt and Risks

Hi Raj

Invididual risk profiles change according to age and circumstances, currently I am oober cautious, zero debt, well zero interest rate debt that is 100% covered by cash.

Looking at your breakdown it looks to me like your investing in stocks with borrowed money, which is always high risk no matter what ones age is.

If it were me, bearing in mind I am risk averse, I would reduce the size of the mortgages via some liquidation of the stocks portfolio.

It all depends on what is the total size of the debt as a % of -

a. of total assets

b. of income.

In my opinion, debt greater than X3 salary risky. So perhaps your goal should be to reduce total debt to under X3 salary.

And gold won't help because again you would be buying gold with borrowed money effectivelty on leverage.

Best

NW


Raj
20 Jul 12, 17:05
Not borrowed to invest, hard earned :-)

Hi Nadeem

Thanks for your reply

I know it's hard to give individual advice as you said, instances change etc. However I would really appreciate your casual advice, of course I will do my own research.

Mortgage is 270k

Salary 50k

Wife salary Was 30k maybe 15k for a couple more years, then full time mum

Shares 73k no borrowed money, hard saved,

Blt property 300 k with180k mortgage, cash flow 400 a month posative.

I think going forward I can save 10k a year, should I just repay the mortgage or buy some gold? As a guideline if we have inflation/hyperinflation will gold help me pay down my mortgage quicker?

Thanks and look forward to your reply


Nadeem_Walayat
20 Jul 12, 17:47
Risk management

Hi Raj

The reason why your stocks portfolio is borrowed money is because you have a £270k mortgage, so effectively £73k is financed against your property, if it were not then your mortgage would be £203k.

This is how I would work out the risk.

Liabilities

Mortgage £270k

BTL £180k

Assets

Shares £73k

BLT £300k

Own Prop £400k?

Net assets + £323k

Income £70k

Annual surplus £10k

Firstly your total debt is 6.4X your income, however your own propery is 3.85X salary.

Secondly your liquid assets are £73k

Thirdly you have an annual £10k surplus or about 3% of mortgage.

This is what I would do if I were in the same circumstances -

my goal would be to get the home mortgage debt to under £210k.

I would cut my stocks portfolio in half to about £35k and use the £38k to reduce the mortgage to £232k, then I would use the annual £10k surplus to pay down the mortgage all the way to under £200k so for the next 3 years.

Remember the name of the game is to cut risk not increasing it which is what buying gold and holding stocks does i.e. these are high risk investments. I always allow for the worse case scenerio of a 50% loss and the impact that would have on my finances. if it would give me sleepless nights then I reduce risk.

Best

NW

P.S. hyperinflation is not a certainty it is a worst case scenerio, I currently put the actual risk of HP during the next 3 years at about 15%.


Raj
20 Jul 12, 18:13
Thanks

Thanks Nadeem,

house is 480 if that makes any difference

Cheers

Ps the hard thing is the emotional attachment to the shares and of course the safety feeling of holding gold lol


Chris Bunner
21 Jul 12, 01:58
The Quantum of Quantitative Easing Inflation is Coming!

Hi Nadeem;

I would love your personal take on our situation. I am struggling with where to put our money - so as to preserve capital in the event of some financial armegeddon appearing.

We are a family of 4. Wife doesn't work - I am 43 - make $300k a year.

I have $1M - we rent our home - have no debt.

My portfolio breaks out as such:

Precious Metals: $200k mostly gold - some silver

Oil & Gas - $50k

Cash $100k Foreign Exchange or foreign bonds - Brazil/norway/signapore at $200k

US. $150k in 5 year fund earning 12%

$200k in a country south of the border- invested in a business that earns 18.5% annually - hold physical property as collateral.

$100k miscellaneous - trading accounts, etc.

Own equity in 6 start up companies - anywhere from 1% - 12%. All in the digital media space - in lieu of cash payments.

We are very nimble - can pick up and move quickly if the SHTF. Help me understand where I can do better for my family. Thank you -

Chris


John Rooney
21 Jul 12, 01:59
Going Japanese?

In your various articles on the Inflation Megatrend you haven't mentioned the Japanese experience but years before the West's financial crisis of 2008 Japan had its financial crisis with its big banks effectively bankrupt.The Japanese authorities responded with a combination of ZIRP and QE.Unfortunately it didn't work and asset deflation continually reasserted itself despite QE injections.Since the peak of the Japanese stockmarket in 1989 it has,to date,lost around 75% of its value despite repeated doses of QE over the years.

Interestingly when the West had its financial crisis in 2008 they responded in exactly the same way as Japan with a combination of ZIRP and QE.Will the West go the way of Japan?

Given all the QE injections by Japan over the years why do you think the Nikkei has been such a poor performer?After all if one follows your theory that excess money printing(QE) is bullish for stockmarkets,the Nikkei should have gone up like a rocket but instead went down like a stick.

Over the last 10 years the Nikkei 225 Index was the worst performing with a return of-21% ranking Japan 23 out of 23 stockmarket indices.

Over the last 5 years the Nikkei 225 Index was the worst performing with a return of -51% ranking Japan 23 out of 23 stockmarket indices. (Source:ForecastChart.com)

John


Scott
21 Jul 12, 02:00
Got Something!

I think you have got something, Nadeem. I really love your newletters. IMO you are a voice crying out in the wilderness. Keep up the good work!!!!!!!

Scott


JP
21 Jul 12, 07:34
Houses, stocks and gold

@Raj

Even before the hyper part of inflation actually begins, the banks will jack-up their interest rates to protect themselves (I'm talking 20, 30, 40+ here). In the unfortunate (or fortunate?) circumstances of your bank going bust, the government will step in, bail them out, tear-up contract law, and jack-up the interest rates anyway. So in either case you are shafted. Do you thin you will still have a job in that scenario? Unless you are a banker or politician, then I doubt it. Say goodbye to your home and your current life.

In terms of gold, I don't see how you can go wrong in such extreme situtations. As long as it's in your possession (not in a bankrupt bank, when they close their doors) then you can get whatever you need to survive - cash, food, items, even a home etc. Google Exeter's pyramid to see the chart outlining the most liquid assets (gold and silver is at the bottom of the pyramid).

Stocks can be a lifesaver IF you have the following things:

1) Physical stock certificates registered in your name

2) A rock-solid brokerage account with a cast-iron balance sheet.

When banks fail, then so does your brokerage account and your stocks with it (see MF Global). Stock are just another piece of paper unless your have proof that you own them.

Just my humble opinion. Do your own due dilligence.


Cassie
21 Jul 12, 08:10
No yield

Nadeem,

You talk of wage inflation but if we get it will the BoE have to raise interest rates? I have cash but no job or house. I would buy shares but am expecting markets to fall. Wage inflation without interest rate rises would be very bad for me.

Do you think the Eurozone will hold together? I look at property over there and it is dirt cheap compared to the UK. If I bought there instead of the UK it would leave me with extra capital to invest. However if the Eurozone falls apart then surely property would be worth less.... initially... until they start booming after escaping the debt burdens and devaluing. That's when the UK looks like a real basket case?


Nadeem_Walayat
21 Jul 12, 10:18
Portfolio Breakdown

Hi Chris

Your portfolio looks great, cos I don't know enough about US property to comment on that element.

However, I would have a greater weight in Oil and other commodities than Gold and Silver, 20% seems pretty high, I currently have about 2% in gold and silver, though I am tempted to take a detailed look at gold and silver.

So if it were me, I would drop Gold and silver to $50k and switch $150k in other commodities, with the remaining $50k in say big cap dividend stocks.

Best

NW


Nadeem_Walayat
21 Jul 12, 10:24
Japan is different.

Hi Johhn

The differences between the West and Japan and numerous, and I have touched on many over the years.

It really is a case of the sum of the whole rather than individual reasons.

For instance Japan had the mother of all bubbles, when Tokyo was worth more than the entire United States!

In my opinion Japan has not had deflation, we can see this in rising per capita GDP. What Japan has had is a FALLING population, which is ONE of the primary reasons why asset prices are falling. Offcourse asset destruction tsnumai style can impact on this trend.

ANother point is that Japan has high savings (does it still?) and a trade surplus, so the fiat currency dynamics are different.

There are many, many other reasosn such as th uniformity of the population and they way they react and behave is different to the individual (GREED) focused nature of most westerners.

Therefore it is a HUGE mistake to think that what happened in Japan is going to happen in the West. A HUGE red herring just as debt deleveraging deflation has been when we have had INFLATION of 15% in the UK these past 4 years.

Best

NW


Nadeem_Walayat
21 Jul 12, 10:31
Wage Inflation and Euro-zone

HI Cassie

My conclusion as of at least Dec 2011, is that the Euro-zone will break up.

Given amount of Qe to date the Bank of England effectivelty now does nto need to raise interest rates to reduce future wage price inflation, because all it would do is to unwind some of the QE which would have the same effect as raising interest rates.

Best

NW


AC
24 Jul 12, 12:54
Pound vs Dollar

Hi Nadeem,

Could you please provide a quick take on pound versus dollar over the next few weeks/months???

Thanks

AC


Nadeem_Walayat
24 Jul 12, 13:20
British Pound

Hi AC

My existing conclusion as of several months ago as of about £/$ 1.60 is that it should fall against the Dollar, I have a target of £/$ 1.45 pencilled in, which is making me more inclined to hold on to dollars than I had been earlier in the year.

Best

NW


Stevie b.
26 Jul 12, 15:48
QQE

Hi Nadeem - well I've enormously enjoyed reading you over the years, but I'm afraid I'm still a dummy....so...why can the debt bought by the BoE not just be retired? I assume they'd have injected dosh into the system by buying, so why would they pay the govt. any interest on retired debt? Where am I going wrong please?


Nadeem_Walayat
26 Jul 12, 16:59
Shattering the Smoke and Mirrors Illusion

Hi Stevie

Retiring the debt would shatter the illusion that fiat currency has value.

At the moment the markets assume debt will be repaid, retiring the debt would flash the message of infinite money printing because that is what they would be doing, i.e. printing money without any consquences so no one would want to buy or hold it.

Remeber Government Bonds are a scam, so as to allow people today to pay LESS taxes for the servies they enjoy. The banks are party to this scam. The scam manifests it's consquences in the Inflation Mega-trend which is why we will never have a deflationary trend.

Also remember that governmenbt bonds are fiat currency, so eventually and rather quickly no one would want to hang on to sterling and so we would have hyperinflation.

In Summary Retiring the QE Debt would result in very high inflation if not hyperinflation because there is no free lunch. YOU cannot just print money/debt then pretend that it no longer exists.

Best

NW


Raj
28 Jul 12, 13:32
Natural gas and gold

Hi Nadeem

What do you make of natural gas and gold prices at the moment?


Carlos
31 Jul 12, 23:45
Gold vs Paper Money

I would appreciate if you could explain on one of the comments you did on this page:

“I am tempted to take a detailed look at gold and silver.”

Historically, when the subject of the time is quantum QE, does not gold represent that best currency/investment?

I am not a Gold bug but when interest rates are at 0% I see

superior benefit in holding gold then any paper debt. I would, in heart beat, take any bond that yields 10 to 15% like we saw in the 70-80. Today, hum, not much?

Your analysis and emotional stand on the subject are much appreciated.

Best regards,

Carlos


DRS
01 Aug 12, 03:06
Japan aging population caused inflation

Hi Nadeem,

According to Wikipedia: The Japanese government tried to print its way out of trouble but because the aging population starting saving deflation ensued.

Have we in the west not got an aging population?

What is your take on this?

Regards

DRS


Nadeem_Walayat
06 Aug 12, 21:59
Ageing and the West

Japan is part of the West, a small but significant part, that is more competitive than most other western nations, so it has a comparitive advantage.

The UK and US are NOT Japan, their populations are NOT shrinking and there are at significant compettive disadvanatge to Japan over a number of measures.

Bottomline you cannot compare one country to another, even comparing UK to US does not work.

Best

NW


Nadeem_Walayat
06 Aug 12, 22:02
Gold vs paper Money

Hi Carlos

Gold is a commodity, nothing more.

You hear me write a lot about Deflationists being delusional for decades, but so are Gold bugs because it will NEVER become money again, okay I mean in terms of our current civilisation continuing.

Therefore I treat gold investing as speculative, high risk, in fact I see exposure to oil as far lower risk via large cap oil stocks.

Best

NW


TEL
07 Aug 12, 13:30
Gold is money

Nadeem,

You do a great job in a lot of areas but you dont understand the gold market. Gold is being used as money in transactions (oil for gold etc), in backing loans (EU) and is being talked about as a Tier 1 assett. It is moving back into the monetary system because fiat money is being created and paper assetts are as risky or more risky than gold. The two most populous contries in the world know golds place (China and India), in addition to other countries (Russia) and people. Only the West believes in paper assetts at this point. There is a difference between "gold bugs" as you say and people who know the fiat money system is dying. What will occur is speculation but the current fiats are done. The govts will want to institute another unbacked fiat. The question is will it work. Will it restore confidence in paper money. Many wont use it. The reserve currency will be up for grabs in the future and gold will be one of the competing currencies. Paper is the speculative assett at this point.


Nadeem_Walayat
07 Aug 12, 14:28
Gold Not Money

Hi Tel

A Gold standard is never going to happen because it would prevent governments from printing money to buy votes. China, India - ALL print money, gold is just a side show, it drives nothing.

Yes, when current fiat money dies, then it will just be replaced by another fiat currency, that is the lesson from history. Gold will never be a competing currency, never mind a reserve currency.

Whilst it is a good hedge against fiat currency money printing, however uf you put all your eggs into Gold, then you willget badly burned just as occurs with every speculative asset, so you need to know when to exit the trade.

Don't forget what happened in 1980 when gold collapsed into a 20 year bear market, to imagine it can't happen again is a huge mistake. You accumulate assets when they are hated and distribute them when they are loved by all, thats how you grow your wealth, not by becoming e motionally attached to any market.

Best

NW


TEL
07 Aug 12, 16:31
Terms

Nadeem, I agree with what you wrote but I think we are talking about two separate things. Gold has, is and will always be used as money. A gold standard is a different thing and govts do not want that and will only go to backed money as a last resort. During hyperinflations people move from fiats to other types of "currency". In Zimbabwe they use the US dollar and gold. I think there will be a bubbble in gold and you will have to get out at the right time and then into the next undervalued assett as you said. every assett has its day. Keep up the good work !


Martin
15 Aug 12, 21:12
Sterling depreciation

Hi Nadeem

I was interested to read your comments about QQE damaging Sterling. I have lived abroad for 13 years now and my wife and I want to return to UK. The rate of exchange GBP to AUD makes a big difference to our future wealth.

I wondered what thoughts you had on the future of Sterling strength and to what timeframe. If GBP is to fall (especially versus AUD) timing is all important!

many thanks

Martin


worthchanging
02 Sep 12, 18:41
QQE

Hi Nadeem

thanks for another great post, I did have a question though..

So how is QQE more inflationary than QE? To my mind, QE - through what is known as seigniorage - gives the govt nearly unlimited fiat currency to spend. If the key to unlimited spending is having no interest to pay, then BoE buying the bonds from the private sector provides just that.

Now, if QQE would bypass the banks/private sector but do essentially the same - accumulate govt debt on BoE's books while collecting no interest - then how is this more inflationary i.e. resulting in still more unchecked spending, than QE?

If QQE implies official cancellation of debt then Andrey's question still stands..

Thanks,

worthchanging


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