JoNova

A science presenter, writer, speaker & former TV host; author of The Skeptic's Handbook (over 200,000 copies distributed & available in 15 languages).


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Quantitative easing bleeds the poor and feeds the rich

In the past, David and I have written about how money supply is rampantly expanding, and how this benefits the spenders and the speculators while punishing the producers and the savers (in a relative sense of course). We’ve been called conspiracy theorists for pointing out systematic problems with paper currencies.

Today in The Australian we find some more people who agree with us: Rupert Murdoch, Veteran Reserve Bank economist Peter Jonson, Warwick McKibbin (former Reserve Bank Board), and Bob Gregory (Professor of economics at ANU and another former Reserve Bank Board member). It’s good to see this issue make the front page. Shame it wasn’t there 15 years ago.

“Rupert Murdoch had warned G20 ­finance ministers that money printing by central banks had exacerbated inequality…”

“Mr Murdoch is saying what a lot of people including central bankers are saying in private and increasingly in public,” said Warwick McKibbin

Here’s the latest US money base* graph. The massive injections started in August 2008, the numbers ran right off the old graph scale. It was a temporary liquidity injection to tide us over difficult times. It took 90 years to grow the US base money to $800 billion. Now six years later [...]

The Ben Factor. One man drives a market. The world pretends it is “free”.

How much is that company worth? You can look at its PE, debt, market spread, sovereign risk, and discounted cash flow, but in the end, it’s the Ben Factor (BF) which dominates all companies, metal prices, and sovereign currencies in the West.

The Ben hath spoken, and said that in future, if the economy is looking better, he might slow the printing of $85 billion US dollars a month, some indefinite non-specified day. All that was … obvious. But, world-wide investors and traders hang off the words, trying to second-guess what the BF banality implies. No one will say it, but everyone knows that it the rate of the flow of easy cash so much as slows, all hell will break loose. Balanced on this thin veneer of pretense, stocks, metals and whole national currencies change direction within minutes.

The Ben has spoken.

What hath changed since yesterday? Not much. But global paroxysm ensues.

Bernanke taper talk sends markets into a tailspin

Closing Bell: S&P 500 posts biggest fall since November 2011 on Fed’s stimulus plan

EMERGING MARKETS-Latin American stocks tumble to four-year low

China, Fed frenzy send Aust [...]

What Fiscal Cliff? It’s a fiscal-crack-in-the-pavement.

There is an economic crisis out there, but it isn’t the Fiscal Cliff.

The best summary of the economics I’ve seen comes from Mark Steyn.

The bipartisan Super Committee of Super Friends was supposed to find $1.2 trillion dollars of deficit reduction by last Thanksgiving, or plucky little America would wind up trussed like a turkey and carved up by “automatic sequestration.”

Sequestration sounds like castration, only more so: It would chop off everything in sight. It would be so savage in its dismemberment of poor helpless America that the Congressional Budget Office estimates that over the course of a decade the sequestration cuts would reduce the federal debt by $153 billion. Sorry, I meant to put on my Dr. Evil voice for that: ONE HUNDRED AND FIFTY THREE BILLION DOLLARS!!! Which is about what the United States government currently borrows every month. No sane person could willingly countenance brutally saving a month’s worth of debt over the course of a decade.

I suppose it’s possible to take this recurring melodrama seriously, but there’s no reason to. The problem facing the United States government is that it spends over a trillion dollars a year that it doesn’t have.

I never [...]

Bonds set record on record, stocks down, gold leaps

The world is so poised on the edge. The jitters are sweeping through tonight.

Just suppose you have $100m in assets that you are nervous about. You cannot stick that amount in a bank, because government guarantees only cover the first $1m or whatever, and banks are all risky now. So you buy into the biggest, most liquid market in the world — US Treasury bonds, that is, the debt of the US Government. Sure, you risk losing a few percent as bond prices jostle up in the panic, but at least you preserve your wealth. So you sell your assets, convert the proceeds to US dollars, and buy US Treasuries.

So much money had run to US Treasury bonds that the yield — which was at a record low yesterday — just got a lot lower. People are happy to give their money to the US government for an historically low yield.

Yesterday things were more scary than any time since WWII:

On Thursday, benchmark 10-year Treasuries yields fell to a historic low of 1.5326 percent, according to Tradeweb. The previous low was in November 1945 when yields ended that month at 1.55 percent.

Tonight, things are [...]

Murdoch tweets about money printing and inflation, reality won’t be far behind

The game is up when everyone knows the only way out is printing money, because then everyone knows inflation is coming, and the bun-fight begins. Everyone wants the wage rise, the payment now, and to buy the commodities that they won’t be able to afford tomorrow. Price tags begin that rising spiral. I don’t think we are on the verge just yet, but it can’t be that far when someone like Murdoch is broadcasting it.

Rupert Murdoch tweets:

‏ @rupertmurdoch

Governments worldwide have borrowed 100 trillion last ten years. Defaults inevitable sometime soon. Means crash, hurting rich and poor.

‏ @rupertmurdoch Of course markets stay high with central banks printing huge sums, inflating everything except jobs.

The only question that matters then, is are they “printing”, and how long have we got?

US Money Base Figures

This is the US money base, starting in 1918.

You can see the moment Lehman Brothers went under. It’s that “bend”.

 

..

That graph again, logarithmically, so we can put the last 90 years in perspective. Remember the oil crisis, the Vietnam War, the 1987 crash, LTCM, and the dot com burst? They don’t [...]

This gold bar is worth its weight in … tungsten — corruption knocks on every door

A gold bar that should have weighed 1,000 grams, weighed 2 grams too little. The owner had it cut in half to reveal that the certified, stamped bar with serial numbers had tungsten rods inserted all the way through it. Tungsten, has a density of 19.35 g/cm3, so is a near-perfect match for gold (19.32 g/cm3) and it sells for just one ten thousandth of the price.

The gold bar was cut in half to reveal the tungsten rods.

The problem of fake gold bars By Felix Salmon March 25, 2012

You don’t need to be a conspiracy theorist to find this worrying: a 1kg gold bar, certified as 99.98% pure by XRF (X-ray fluorescence) tests, turns out to have been drilled out and largely replaced with tungsten. This bar was discovered only because it was 2 grams lighter than it ought to have been: the forgers failed to add quite enough gold to the outside of the bar to make up for the weight lost when they replaced gold with tungsten. But if they’d gotten the weight right, it would probably still be circulating today.

[Reuters]

Is this a big issue? Who knows? Gold bars are rarely audited. [...]