Rhunzzz

Total Rating:
+4 / -2

16 Comments

    • Fri Nov 21st 15:07 PM | Rating: 0 -1
      Commented on:
      Who Will Take Over Citi?
      CRAZY. At time of writing, Citigroup's share price is lower than Wachovia's! Yeah, that's only psychological, but even so, Citigroups' market capitalization is only three times larger than Wachovia's. The largest bank in the world, worth only three times as much as Wachovia??? This market has gone delirious.
      View article »
    • Mon Nov 17th 07:02 AM | Rating: 0 0
      Commented on:
      Gold: Not Just for Gold Bugs Anymore
      Dear Sir,

      I am reading the article you linked. I have some points to raise.

      1. The article states that the Fed's balance sheet liabilities would have to be backed by its current gold reserves. In other words, not every single dollar would need to be backed by gold. So why would this be any different from a fractional reserve system? It would just be a fractional gold reserve system - only partially backed by something of value (debt in the current system, gold in this putative system).

      2. Current spot price of gold is $743.35 per troy ounce, last I checked. For the dollar to be pegged at the reserve price $7,000 per oz. would mean a 950% devaluation of the dollar in gold terms. This would appear to me to have catastrophic inflationary and redistributive effects upon the economy. All of a sudden those who had accumulated gold would suddenly see a sharp increase in their purchasing power, relative to everyone else. I don't see how this could be good for the US economy.

      I don't see anywhere in the article suggesting how to deal with such a huge drop in the purchasing power of the dollar in gold terms. If I have missed it, please point it out.
      View article »
    • Sun Nov 16th 10:15 AM | Rating: 0 0
      Commented on:
      Gold: Not Just for Gold Bugs Anymore
      Dear Sir,

      The point is not what Wall Street cares about. We all know they will aim to maximize profit, that is the whole point of the market system, after all.

      The point is that to return to a "total" gold standard, where every single dollar in circulation is backed by physical gold, would result in a huge distortion of the market. You think the ethanol subsidies diverting food production into biofuels was bad? If the Fed were to seriously set about drastically increasing its gold reserves to back up the dollar, even at the current spot price, the resultant distortion of the market would greatly dwarf this!

      Think about it, current global gold reserves are only 29,822.6 tonnes. To back up every dollar at current spot price would require 753,161.49 tonnes!

      Am I totally wrong in this? If so, please enlighten me. How else would the US return to a gold standard without either driving up the price of gold so high that it would greatly distort the market, or causing deflation so severe that we would be reverting to barter trade?

      A fractional gold-reserve monetary system perhaps? If so, then I don't see how it would be much of an improvement over the current system.
      View article »
    • Sun Nov 16th 03:35 AM | Rating: 0 0
      Commented on:
      Gold: Not Just for Gold Bugs Anymore
      Dear Sir,

      I have often wondered exactly how a country could actually go back on to the gold standard. Because it seems more like a very theoretical solution that would have horrific consequences if actually tried.

      The current spot price of gold is $743.35 per troy ounce.
      1 metric ton is 32150.746 troy oz.
      Therefore, currently, 1 metric ton of gold is worth $23,899,257.04.
      At last count, the US economy is approximately $18 trillion. Hence, for every dollar to be backed by gold would require... 753,161.49 metric tonnes of gold.

      For reference, the entire world's gold reserves are reported at 29,822.6 tonnes. In 2001, it was estimated that all the gold ever mined totaled 145,000 tonnes. (Figures from the World Gold Council).

      So perhaps we should reset the theoretical reserve price of gold to be lower? Let's take the last reserve price backed by the US Fed in 1971, which was $35. For the present size of the US economy, backing a reserve price of $35 per troy ounce would require 15,996,074.07 tonnes of gold.

      So clearly, to go back to the gold standard would require one, or some combination of the following:

      1. The US buys up a lot of gold in order to back up its targeted reserve price, in fact much more than the current global reserves, and much more than all the gold ever mined as of 2001, therefore driving up the spot price of gold in the process, diverting a lot of investment into gold-mining and gold processing rather than other activities like, oh, agriculture or technology.

      2. The US economy shrinks to a fraction of its size.

      So it does look like going back to the gold standard MIGHT be quite a horrific idea actually. Of course, this is just simple arithmetic.
      View article »
    • Fri Nov 14th 07:37 AM | Rating: +3 0
      Commented on:
      Bailouts Must Be Odious
      How I think a bailout should happen:

      1. Firm receiving aid must issue a majority stake to the government in COMMON stock, intentionally diluting existing shareholders.

      2. Trustees representing the government must fire the top management and the board.

      3. No payment of dividends nor cash spent on stock buybacks.
      View article »
    • Wed Nov 12th 07:06 AM | Rating: +1 -1
      Commented on:
      Paul Krugman + Al Gore = The Way Forward
      I think you should be prepared for a real flame war. There are too many people here who just keep on railing about the national debt and monetary inflation, often at the same time (betraying ignorance of elementary macroeconomics).
      View article »
    • Sat Nov 8th 10:27 AM | Rating: 0 0
      Commented on:
      How Investors Can Profit from the Coming Bear Market in Bonds
      Dear Sir,

      I agree with your suggestion of the Treasury issuing bonds directly to the Fed in exchange for cash which would then go to finance spending increases and tax cuts. This would be inflationary, which is the whole point in a situation where deflation is a threat, and would create new cash that can be used for stimulus, WITHOUT increasing bond yields.

      Still, the end result may be the same - long-term interest rates may have to go up because eventually the inflationary genie must be put back in its bottle, after it has done its work of course.
      View article »
    • Sat Nov 8th 10:18 AM | Rating: 0 0
      Commented on:
      The Budget Deficit & Macro Policies Going Forward
      Dear Sir,

      It would seem that all options involve huge borrowing. That is beyond dispute. However, what form will this borrowing take? To avoid the problems of dependence upon foreign central banks (perhaps too late, but one should aim to avoid digging deeper) or bond yields going up along the curve, what about issuing a majority or even all of new debt to the Fed, in exchange for cash? Yes, this is creating money, and yes, this will be inflationary, but it would avoid the problem of crowding out private borrowing, it would not increase the US' indebtedness to foreign central banks, and after all isn't inflation the whole point of the exercise? Rates can always go back up, and the US government can always reduce borrowing, when the economy is back in shape.
      View article »
    • Fri Nov 7th 09:32 AM | Rating: 0 0
      Commented on:
      Effects of the Long Dated Treasury Bubble
      Ok. Could you explain why there is no way the US government can repay its debt? When the economy recovers, the US government can cut spending or raise taxes (even if the political will may not result in that happening) or in extremis, they can always print more money. Yes, that would be inflationary, but that is another issue. By the terms of its nominal obligations, the US can always pay off its debt.

      Still, it's very likely that long-term interest rates will have to go up. There is no other logical outcome to the Treasury about to issue oodles more debt. And that is ultimately what will tackle the inflation that will soon be created, indeed, is being created now.
      View article »
    • Sat Oct 18th 00:34 AM | Rating: 0 0
      Commented on:
      You Can't Trust Bond ETFs for the Time Being
      Sooooo... back to open-end funds for fixed income? What a shame. Maybe that's why, according to the Richelsons, ETF managers aren't eating their own cooking.
      View article »
    • Fri Oct 10th 16:39 PM | Rating: 0 0
      Commented on:
      Recapitalization and the Implicit Treasury Guarantee
      The way I see it, preferred stock has certain advantages over debt and common stock, from the point of view of stabilizing financial institutions.

      1. Flexibility. A bank who misses an interest payment is in default, but it can miss a preferred dividend so long as it makes it up later (if the pref. is cumulative). Also, the bank does not necessarily have to pay back the principal for the preferred, it has the option of calling it.

      2. No voting rights. The government does not want to be in a position where it must actually be running the banks, nor does it want to be seen as having such rights, nor does it want to dilute the common shareholders.

      Am I right on this?
      View article »
    • Wed Oct 8th 09:12 AM | Rating: 0 0
      Commented on:
      Britain's 'TARP': Taxpayers Locked in to Potential Upside
      The British plan is so much better than TARP. A quick, instant injection of capital that allows for the taxpayer the potential for upside. TARP has taken long enough to pass, and now, while the Treasury has to figure out on a CASE BY CASE basis how much to pay for EACH toxic asset, it's taking way too long for the money to get where it's needed.
      View article »
    • Mon Oct 6th 10:32 AM | Rating: 0 0
      Commented on:
      Opportunity in Emerging Markets Amidst This Panic
      The problem is - neither VWO nor EEM will rise again till US investors start regaining their optimism, no matter how well the actual emerging market countries are doing macroeconomically (with regards to growth or balance of payments). So in the meantime, it's a real leap of faith - neither VWO nor EEM really pays out sufficient dividends to bolster fragile faith with cold hard cash.
      View article »
    • Thu May 15th 23:28 PM | Rating: 0 0
      Commented on:
      Want to Fix the Fed? Get Rid of It
      Hmmm. I'm a monetary neophyte here but wouldn't eliminating fractional-reserve lending mean that banks can only lend out money that none of their depositors could call on?? In effect banks would only be able to lend money from fixed/time deposits, not from current or savings accounts, as though the reserve requirement were 100%. That would result not just in a credit crunch, but a credit black hole.
      View article »
    • Thu Apr 10th 22:14 PM | Rating: 0 0
      Commented on:
      FFA: A Closed-End Fund That's Not Too Defensive
      I've always wondered about these "managed distribution" closed-end funds. They may give an irresistible yield and discount, but ultimately how sustainable are the payouts? And when most of them that I have seen trade at perennial discounts to NAV, one wonders - why continue to invest in something which causes your principal to shrink over time?
      View article »
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