Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Silver prices -- Ignore unavailable to you. Want to Upgrade?

To: dwight vickers who wrote (1176)	5/21/1998 1:01:00 PM
From: Ray Hughes	Read Replies (1) \| Respond to of 8010

Hi Dwight, Thanks to you and Mark for compliments. Your observation about the powers' ability to keep things afloat is most important to understanding gold's failure. Fiat money is working in days of turmoil precisely because CBs figured out that they must flood the market with liquidity whenever a problem occurs. Failures that triggered '29/'32 depression were a) National Banks wanted to punish Country Banks (non-national banks) for competing in real estate bubble. So National Banks pulled back credit, causing Country Banks to fail. b) National Banks didn't want to carry the debt risk on worthless real estate once the panic selloff began. The ensuing credit crunch precipitated '29/'32 depression. Fed came close to the same mistake in the mid-'70s credit squeeze. Finally, the light dawned. The very opposite must be done. Make credit very available to any bank or system in trouble so depositors are reassured. Just hike interest rates a bit to keep the new money from circulating too fast and precipitating excess demand. The latter is why governments undid usury laws so interest rates could counterbalance flood of new money. By avoiding depression and inflation with the same strategy, fiat money was validated. We simply can't transfer gold fast enough to satisfy needs of the global system for overnight liquidity whereas credit is moved instantly by computer where it is needed. The success of fiat money also needed one new factor - a generation that never knew real uncertainty or failure of the credit banking system. We got 'em. You may recollect the shifting of bank practice from risk aversion to "go-go" banking. Hey, bankers like to make money on their options, too. So, hype up lending, increase risk, jack up the bank's earnings and its stock soars and options pay off. The increases in banking activity needed a "reserve" more available, at nil cost, than was gold. The very essence of the role of a hard money was that its natural lag in supply would restrain unbridled, inflationary increases in credit. Well, the go-go bankers didn't want any constraints and liked a little inflation - the price rise in assets caused a massive swelling of demand for assets on which to lend. Banking volume boomed and options paid off again. Opps, the S&L crisis popped up - '29/'32 all over again. This time the Fed opened the flood gates of liquidity, paid off the creditors and assured everyone, much to the expense of taxpayers, that there was no long term consequence of go-go banking. So now risk is not risk. Collapses don't occur, derivatives don't bite back. A bunch of very inexperienced "quants" have huge computer power to create leverage-on-leverage, sometimes very adeptly hiding the massive pyramid of risk from their employers. Bang! Down comes another sleepy European bank. The CB's just supply liquidity and the act starts in the other ring to keep the audience distracted from the fact that the tiger just ate the pretty lady in ring one. I agree on the tea sets. Also, very interestingly, local very up-market jewelry store is featuring sterling table ware. Demand on the upswing, supply diminishing, profits to be made trading silver. RH