Lunes 27/07/15 órdenes de bienes duraderas

[Fenix]

Why China Will End Up Like Japan
Tyler Durden's picture
Submitted by Tyler D.
07/27/2015 19:25 -0400

Submitted by Eugen von Bohm-Bawerk
When Nixon took the dollar off gold on August 15th 1971 he did not end the Bretton-Woods arrangement. On the contrary, he exacerbated the very same destructive effects that had forced him to renege on the promise to pay gold at a fixed exchange rate to the dollar in the first place. To fund wars and an ever expanding welfare state the custodian of the global reserve currency had fallen for the almost irresistible temptation to print excess dollars above and beyond what was prudent relative to bullion levels.

After closing the gold window no such restrictions were there to notionally hold back the Americans. As long as international producers were and are willing to accept dollars as final payment for their goods and services the exorbitant privilege can continue.

While it may seem like a boon for the US to be able to consume globally produced goods more or less for free it does come with nasty side effects. In essence, the exchange of something for nothing consumes- and misallocates capital on a grand scale. US producers, which must pay their suppliers and workers with real goods and services, cannot compete with foreigners that charge nothing more than a change in some electronic ledger somewhere in the fuzzy world of global banking.

It is true that these changes charged for goods and services are claim on future US production, but that is a problem for tomorrow, not today, and tomorrow someone else will have to deal with it.

We argue that tomorrow is getting real close, but that will be a discussion for another day. Here and now we will focus on global economic ramifications from American dollar emission.

In the Bretton-Woods period dollars were pyramided on top of reserve gold holdings while another layer of fiduciary dollar claims were pyramided on top of the issued dollars in a fractional reserve banking system. In addition to this, Eurodollar claims abroad added another layer to the pyramiding of fiat money in the global reserve system. While a Eurodollar is in itself 100 per cent backed by actual dollars, further fiduciary claims to dollars, for which no dollars actually exists, are bread and butter in this system; hence the need for Federal Reserve SWAP lines in times of stress in financial markets.

Bretton-Woods did pay lip service to gold as a monetary metal, but after 1971 even this loose connection was dissolved completely. There was nothing but a shortage of collateral to hold back an enormous expansion of various dollar claims all over the world; and with securitization only limited to the imagination of Wall Street, collateral shortages turned out to be mere illusory. In other words, limited financialisation in the decades during the Bretton-Woods and centuries of capital accumulation turned out to be a match made in heaven which spewed out collateral babies en masse as soon as the shackles from the barbarous relic was severed once and for all; setting the perfect stage of massive dollar claim issuance.

As a side-note, we do not regard the so-called deregulation of the banking system from the 1980s as deregulation in the proper sense, but rather a Faustian Bargain between a state sponsored banking cartel and the state itself, in a ill-fated attempt to increase money velocity to fund pet projects and make credit readily available for the unworthy borrower (credit is not something that can be given to anyone, but something they already have through prior actions, deed and reputation).

Needless to say, a profligate state with a printing press coupled together with a “deregulated” banking system financialising collateral as never before to expand dollar claims on top of the freshly printed money created excesses unimaginable under the proper Bretton-Woods system. In short, Nixon took the problems with Bretton-Woods and brought them to a completely new level.

With nothing holding them back, dollar claims grew and grew as can be represented in the global current account chart below. From the early 1980s the US started to accumulate an increasing current account deficit, and Japan was the willing recipient of global dollar claims. The US manufacturing base got hollowed out in competition with the Japanese and domestic calls for unfair competition through Japanese currency manipulation grew ever louder due to the fact that global faith in the US dollar was restored after Volker successfully fought the great inflation from the 1970s; leading to a 50 per cent appreciation of the US dollar from 1980 to 1985. However, concerted action by France, the UK, the US and West Germany and Japan to depreciate the US dollar in relation to Japanese Yen and German Deutsche Mark signed September 22, 1985 at the Plaza Hotel in NYC reversed the five year old trend.

The US dollar depreciated by 51 per cent from 1985 to 1987 and looked like it would break the back on the Japanese export miracle of the early 1980s. Not coincidentally, the global current account imbalance peaked in 1985 as the Plaza Accord got going.

Japanese authorities panicked as their export dependent economy essentially came to a halt in the first half of 1986 with the economy in recession and the exchange rate appreciating rapidly. A sizeable Keynesian “stimulus” package was introduced to substitute domestic demand for waning foreign demand. Policy interest rates were reduced by about 3 percentage points; a large fiscal package was introduced in 1987, despite the fact that the economy showed signs of a robust recovery. In response to free money and centralised demand management the economy was actually booming again by 1987. Unsurprisingly, the free money found its way into existing assets as investing for an uncertain future was less of an option. In any case, the once lucrative export sector had accumulated massive overcapacity so there were few easy profit opportunities to be found.

Stocks and urban land prices tripled between 1985 and 1989 as a constant stock of assets were chased by in increasing level of money. Speculation and flipping houses suddenly became the easy route to riches; even the stoic Mrs. Watanabe jumped the speculative bandwagon.

The whole edifice obviously collapsed on the weight of its own absurdity and the Japanese, with firsthand experience of the wonders of Keynesian demand management, thought they could pull off the same trick again. New stimulus packages was tried, interest rates were dropped to the ZLB and early versions of quantitative easing all failed to reinvigorate the once mighty Japanese economy. All the pundits that had used their ruler’s on Japan’s GDP to claim it would be the world’s largest by 1999 were ridiculed and soon forgotten.

Japan did everything wrong. They should allow bankruptcies, defaults, resource reallocation and unemployment. The dollar demand would not come back to support the export sector to the extent it had before the Plaza Accord. It was time to readjust the whole economic structure, but that would be painful in the short term, and the Japanese did not allow that to happen creating a zombie economy instead.

CA all countries

Source: International Monetary Fund (IMF), Bawerk.net

In 2008 the global financial crisis hit the world economy after a massive build-up of financial imbalances again rooted in dollar claim issuance. While global imbalances “only” reached about 1.5 per cent of global GDP in 1985 it had reached more than 2 per cent in 2008. Even worse, imbalances had been allowed to build up over almost 10 years, as opposed to only four back in 1985.

Just as in 1985, political pressure on China to revalue its exchange rate was growing, and the Chinese responded accordingly, though more reluctantly than the Japanese did in 1985. When the bubble burst Chinese authorities had the option of going all in, or accept failure and massive social unrest. The choice was simple; an unprecedented monetary and fiscal “stimulus” package was the favoured option. By substituting domestic demand for collapsing foreign demand the Chinese believed they could avoid the consequences of years of market/reality suppression.

It appeared to work just as it did in Japan, as the Chinese economy steamed ahead for several more years after 2008. Continued demand from China also helped desperate commodity producers which were set to years of pain after 2008. Instead, excess capacity continued to be piled on top of already malinvested resources for seven more years making the problems that much larger.

It is all a mirage though. Just as in Japan, the Chinese will not allow the market process to do its magic to get the economy back on a stable footing. Draconian measures to stop the recent stock market rout are a clear testimony of that. In other words, the Chinese economy will resemble that of Japan, and it will do so very soon, if it is not already there. Global commodity producers will be crushed and once again all the pundits proclaiming Chinese global dominance with the Yuan as the new world reserve currency will be put to shame. It will not happen; the “miracle” will turn into a nightmare.

Bus Cycles

Source: Bureau of Economic Analysis (BEA), International Monetary Fund (IMF), Bawerk.net

Concluding remarks

Global “dollar” issuance looks like genuine demand based on prior production but it is not. Export powerhouses fall into the trap and think the domestic boom they are living through is because they are exceptional. Old socialist are celebrating the fact that alternative growth “models” can outpace freer societies in the west, but these are often nothing more than pragmatic command economies with little ability to change in times of hardship. Just as Japan thought they could go back to pre-Plaza Accord growth rates by holding on to the old ways in the 1990s, the Chinese will expect the growth miracle to return in 2016 with the “right” policies. It will not. China is heading straight into a zero growth environment, and will be mired there for years to come.

[Fenix]

Gold “Extremely Rare” - All World’s Gold Fits In Average Four-Bedroom House
07/27/2015 07:02 -0400


Gold “Extremely Rare” - All World’s Gold Fits In Average Four-Bedroom House

- Gold is extremely rare and all gold ever mined would fit in giant bar the size of a four bedroom house
- Gold is a tangible asset which always retains value - unlike paper assets
- Growing Chinese, Indian and Asian middle class provide “fundamental pillar of support” to gold
- Jewellery is not a suitable vehicle for gold investment due to high mark-ups and VAT
- “Something romantic about gold” and a “premium product” said Bobby Kerr
- Risk of further weakness in short term but buying opportunity presenting itself
- History and academic research shows gold a “hedging instrument” and safe haven asset

Research Director and founder of GoldCore, Mark O’Byrne, was interviewed by Bobby Kerr on Newstalk’s “Down to Business” on Saturday morning. A range of aspects pertaining to gold and the gold market were discussed including the rarity of physical gold; the enormous demand for gold from China and India and gold’s proven safe haven qualities.

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All the gold in the world in a giant gold cube (0.9999 pure)

When explaining the true scarcity of physical gold, Mark was asked whether all the gold ever mined would fit into a 4-bedroom house. Mark agreed, stating that if all above ground gold in existence were refined to 99.9% purity it would fit in a cube with 21-meter sides. This would be comparable to the centre court of Wimbledon or two olympic size swimming pools. It is therefore an extremely rare metal.

Gold is a tangible asset which, regardless of how poorly it may perform in the short term due to the ebb and flow of markets - always retains a value in the long term. When stocks and shares enter into crisis periods there is always the risk that their value can be completely erased as happened with Bear Stearns, Lehman Brothers and as almost happened to some Irish banks.

History and empirical data demonstrate that gold is a time-tested form of financial insurance said Mark O’Byrne. He cites Trinity College Dublin’s Brian Lucey and the work of Dr. Constantin Gurdgiev whose academic research shows that gold is a “hedging instrument” and a “safe haven asset”.

He refers to the old Wall Street adage that one should have 10% of one’s assets in gold and hope that it never works. The implication being that if the gold price is rising it is usually in an environment where stocks and shares, bonds, property and one’s business are suffering.

He emphasises that placing all of one’s wealth in gold is risky but an allocation is essential financial insurance.

When asked by Bobby whether the recent declines in prices were related to the crashing stock market in China, Mark pointed out that there have been a couple of months of weak demand from China but that on a quarterly or yearly basis demand remains robust. Chinese demand for this year is expected to amount to 1,000 metric tonnes.

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Four-bedroom house

The Shanghai Gold Exchange sees an average of 50 tonnes of gold bought each week but last week saw demand spike to over 60 tonnes. He points out that the middle classes of China and India do not trust banks or national currencies due to historical crises such as the Chinese hyperinflation of 1949.They therefore view gold as a currency and savings mechanism and prefer to save in that format.

In 1949, Chairman Mao banned ownership of physical gold in China and the market was not liberalised until 2003. Therefore, Chinese demand is coming from a population of 1.3 billion people who had no access to gold only twelve years ago. This offers a “fundamental pillar of support” to the gold price.

Mark explains that jewellery is not way to invest in gold. Investment grade coins and bars are 99.99% pure whereas jewellery in Ireland - mainly 9 carat - is 37.5% pure. The mark-ups on bullion coins and bars range from roughly 2% to 4% whereas the mark-up on jewellery can be as high as 300%. There is no VAT payable on bullion coins and bars whereas there is on jewellery.

Mark believes that some downward risk to the gold price remains due to the momentum of the recent severe correction in price. He points out that GoldCore had suggested on Bloomberg three years ago that a 50% correction in price was not unlikely at that time as is normal in long term bull markets.

However, in the long term gold should perform well due to the fact that the problems that led to the global debt crisis have not been addressed - too much debt globally. Indeed, debt levels have continued to surge which risks compounding the global financial crisis and risks a new and global debt crisis worse than the last one.

27-07-2015_3

The Newstalk interview can be listened to here


MARKET UPDATE
Today’s AM LBMA Gold Price was USD 1,098.60, EUR 992.42 and GBP 708.39 per ounce.
Friday’s AM LBMA Gold Price was USD 1,083.75, EUR 990.042 and GBP 699.89 per ounce.

27-07-2015_4
Gold in USD - 1 Week

Gold and silver fell over 3% and 1% respectively last week - to $1,098.70/oz and $14.69/oz.

Today, gold in Singapore ticked lower initially prior to seeing gains in late Asian and early Swiss gold bullion trading.

This morning in European trading, silver for immediate delivery was 0.3 percent lower at $14.78 an ounce. The metal slumped to $14.3842 on Friday, the lowest price since 2009.

Spot platinum fell 0.7% percent to $985 an ounce, while palladium fell 1.1% percent to $622 an ounce.

[admin]

LAST CHANGE % CHG

DJIA 17440.59 -127.94 -0.73%
Nasdaq 5039.78 -48.85 -0.96%
S&P 500 2067.64 -12.01 -0.58%
Russell 2000 1214.61 -11.38 -0.93%
Global Dow 2490.67 -5.07 -0.20%
Japan: Nikkei 225 20100.11 -249.99 -1.23%
Stoxx Europe 600 385.91 -8.73 -2.21%
UK: FTSE 100 6505.13

[admin]

Futures8:40 PM EDT 7/27/2015
LAST CHANGE % CHG
Crude Oil 47.11

Crude Oil 47.11 -0.28 -0.59%
Brent Crude 53.11 -0.36 -0.67%
Gold 1093.8 -3.1 -0.28%
Silver 14.525 -0.080 -0.55%
E-mini DJIA 17400 4 0.02%
E-mini S&P 500 2065.25
Currencies8:51 PM EDT 7/27/2015

[admin]

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