Monday, March 9, 2015

Some Thoughts Miss While Others Change

Two important clues in this busy past weekend's briefings ...

First, a quick snippet about negative interest rates at the Hedge:
They are a natural consequence of the rampant money creation undertaken by central banks in response to the global financial crisis as there is a lot more newly-created money floating around the financial system than there are safe places to put it. 
Not exactly. After all, the article preceding it decries the global dollar funding shortage with equal angst. Negative rates are merely a policy initiative to encourage the growth of debt vs. allocation to savings.

With the oil price decline, a few extra dollars are sloshing around in the accounts of the little people which could be used to buy more STUFF. BUT ... stuffing those dollars away into mattresses (or interest bearing accounts) does NOTHING to circulate (i.e. grow) the debt - therefore, not only do they no longer receive interest (silly debt serf, interest is for bankers) but they may now receive penalties.

When we buy stuff with dollars, we circulate debt. And the system depends upon the growth of debt (as an aside here, little has been written about the decline in oil price in terms of lower mining production costs - but that is another post).

Secondly, we have Macleod thinking out loud again about the changing bullion markets and this time, by George, he's beginning to get it right:
At some stage China with her SCO partner, Russia, will force the price of gold higher as part of their currency strategy. You can argue this from an economic point of view on the basis that possession of properly priced gold will give her a financial dominance over global trade at a time when we are trashing our fiat currencies ...
This does seem a more defensible  explanation, as it evolves, than the current fixation some reveal toward a new gold standard. A "currency strategy" is indeed what is called for, and trading partners - and their currency relationships - will be a large part of this.

That's all for now. Have a pleasant week ...

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