Friday, January 25, 2013

No to nationalising the transport system

+1 for Not nationalising the transport system. But it's wrong to think that we have a free-market transport system now. Because it's still a monopoly, aided by govt regulations. 

From a yahoo article:


Rebutting Low again, on his question as to why the government can’t nationalise public transport and utilities to make costs lower for Singaporeans, Lee posed this comeback: If it were so simple, why other countries in the world haven’t done that?

“Why is it many countries that used to do it have decided this is bad? If the government solves all problems, then why in China, did Deng Xiaoping have to do liberalisation and opening up, and upturn so many things which Mao Zedong believed in, and depend on the market and profits and depend on people getting wealthy and bringing the country forward?“ Lee asked.

“If the government can do everything and all will be well, then the North Koreans should be the most prosperous people in the world!” he declared.

Tuesday, January 8, 2013

I still have trouble explaining to others that population growth, or foreigners don't cause inflation over time.

If population growth causes inflation, prices of goods measured in terms of gold would have sky-rocketed in the past few centuries. But what we see is a general decrease in prices of goods in terms of gold. 

Population growth causes price to fall because more people are producing more stuff. It's only when you measure prices in terms of paper money that they have increased rapidly. The very simple reason is that rate of money printing >>> rate of goods production.

Silver and Gold performance 2009-2012

Monday, January 7, 2013

The $1-trillion dollar platinum coin

So, now the 'expert' economists start to think that this $1-trillion dollar platinum coin could work?

What this means, if the US govt can simply mint a platinum coin with a $1-trillion stamp on it and pay its debt to the Fed:

-When the US govt pays the 2 coins to the Fed, the Fed effectively suffer heavy losses of $2 trillion.
-It's the same as the US govt giving Fed a piece of tissue with $2 trillion stamped on it.
-In fact, why bother. The Fed can just write off the $2 trillion debt and take losses from its bond purchases.
-The govt will still continue to run even larger deficits and accumulate even more debt to other creditors.
-The govt turns back to Fed to print more money to buy up govt debt. More inflation.

Possible responses from the market:

-Market gets buoyed by the sudden, magical disappearance of debt worth $2 trillion, only to find to their dismay further down the road that this doesn't improve the US budget and debt outlook at all
-Other creditors find this ridiculous and start unloading govt bonds

To Simplify things:
-Assume that the Fed is part of the govt
-Therefore, all these years, the govt has been printing money to spend like crazy
-Govt will continue to print money to spend and pay creditors, and to keep interest rates low lest companies fail on a massive scale again
-Accelerating inflation down the road

Does the $2-trillion debt wipe-off matter for the fundamentals? Not at all !!
Will the market rally? Possible, but not for long because people will figure it out eventually

Saturday, January 5, 2013

QE3 to stop? Nah

Recently I've gotten a few messages telling me that gold and silver will crash, because the Fed may/will end QE3 come end of Dec 2013.

Ending the QE will be a great thing for the US and for the world. QE1, 2 and 3 should never have been started in the first place. The Fed has to force the government to cut spending drastically. But what happens when they end it? The US government will find it very very hard to service their debt. Even a 1% rise in interest rates will mean the government has to find an additional $170 billion a year to cover the increased interest payment. What if the interest rates go back to the historical norm of 5%? That will be $850 billion. What about 10%? or 20% just like in 1980? It's impossible for them. And companies which are dependent on the current low interest rates will go bankrupt on a massive scale. Bailed-out companies in 2008 will go bust again. They have a massive amount of bonds on their balance sheets. So, will they stop the QE3? They may announce something along that line, BUT I know they will continue to print behind the scenes. This is nothing new. Or they may change its name or form. But it does not matter.

Even if QE3 is indeed stopped, precious metals will still be a good place to be in, because the last safe haven - when the government bond bubble burst - will be metals. Sure, for a while, metals may take a hit, because short-term speculators will exit their trades. Metals have been up 12 years in a row and a 40-50% correction is typical of a bull market. But the long term fundamental is still intact for these metals. When I first started investing a few years ago, I was not dreaming of qe1, 2, 3 or infinity to push up prices. In fact, I was and have been criticising the Fed for doing these QEs. Apparently this doesn't register with the anti-gold crowd. So this latest talk of the town is not a big news in the big scheme of things.
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