Gold prices are dropping like a rock and what this means

The price of gold was almost $1800/oz at the beginning of October.  (Short time high: $1791.75 on 10/4/2012).  As recently as 12/12/12 it was at $1716.25.  But since then it has continued to drop and is now (12/21/12) at $1651.50.

It is unlikely to go below $1550/oz, as there is support at that level.  But still, this raises the interesting question - why would people abandon gold, which has intrinsic value, and just hold cash, which the Treasury and Federal Reserve can create at will?

The answer I think has 2 parts.  First, this is a signal that another recession is happening.  The drop in the price of gold is similar to that which happened in 2008.  On 3/7/08, gold was at $1011.25/oz.  It was still as high as $903.50 on 10/8/08, just after the financial crash.  But then it quickly dropped to $712.50 on 10/24/08.   So in just over 2 weeks, it dropped 22%.

But still, why would people abandon gold?  Long-term it obviously is a very good investment, but in the short-term, people would prefer to hold cash.  They can always shift back to gold once the threat of a recession is over.

But can't the Fed just print money at will to offset the demand for cash?  Again in the long-term they can and will kill the dollar.  But again we are speaking of the short-term.

So the second part of the answer is that the Fed cannot create enough money in the short-run to head off a recession.  I've studied this question extensively, and I don't necessarily want to repeat my thinking, but the main way that money is created is through deficit spending.  And because of the fiscal cliff, deficit spending will be reduced.  This doesn't necessarily mean that the money supply will be reduced, but it does mean that the rate of increase will slow.  The economy is so sick that the main thing keeping it afloat is the spillover from government spending, and now that "crutch" will partially be taken away from it.

But isn't the Fed printing money at the rate of $85 billion/month?  Supposedly yes, but that isn't enough.  Any new money that goes to purchase Treasury bonds doesn't help at all, because Treasury bonds are already treated as a kind of money.  (I account for this in my M4 measurement).  The $40 or $45 billion that they are spending to purchase mortgage-backed-securities does increase the money supply, but almost all of this goes to banks that already have excess reserves, so the money won't find its way into the general economy (M2).

So cash, for which there is a huge demand (not to spend but to hold onto) is becoming more valuable in the short-run.  That is called deflation.  We are heading into the Great Recession, Part II.

So what is the solution?  It depends on your point of view.  As a country we are very divided.  If you have a neo-Keynesian point of view, like Paul Krugman, then we need more government spending to offset the oncoming recession to kick the can down the road some more.  But if you are a fiscal conservative, then there is no problem at all.  Bring the recession on.  It is inevitable, and is needed to cleanse some of the waste.

Yesterday, the fiscal time bomb went off, as was predictable far in advance.  It will take a little time for this to be apparent.  But a recession is now inevitable.  So sell that gold and hang onto cash for about the next 6 months.  It will be a wild ride, but we will be better for it later.

The Great Spanish Crash

World's largest building being built in Chengdu

"The Global Centre will house offices, conference rooms, a university complex, two commercial centres, two five star hotels, an IMAX cinema, a "Mediterranean village", a skating rink and a pirate ship, among other attractions.
About 400,000 square metres will be devoted to shopping, most of the outlets high-end luxury brands.
Despite Chengdu being around 1,000 kilometres from the sea the complex has a marine theme, with fountains, a huge water park and an artificial beach, accented by the undulating roof, meant to resemble a wave."

Read more: http://www.businessinsider.com/new-century-global-centre-chengdu-china-2012-12

What causes hyperinflation? Quasi-fiscal deficits

"What causes hyperinflations? The answer is: Quasi-fiscal deficits! Why have we not seen hyperinflation yet? Because we have not had quasi-fiscal deficits!

What is a quasi-fiscal deficit? A quasi-fiscal deficit is the deficit of a central bank. From Germany to Argentina to Zimbabwe, the hyper or high inflationary processes have always been fueled by such deficits. Monetized fiscal deficits produce inflation. Quasi-fiscal deficits (by definition, they are monetized) produce hyperinflation.

The only losses that can meaningfully affect central banks stem from flows (i.e. deficits), like net interest losses. These losses result from paying a higher interest on their (i.e. central banks’) liabilities than what they receive from their assets. These losses leave central banks no alternative but to monetize them, in a deadly feedback loop. They are like black holes: Once trapped into them, there is no way out, because (fiscal) spending cuts are no longer relevant, unless they produce a surplus material enough to offset the quasi-fiscal deficits. And that, by definition, is impossible."
--http://www.zerohedge.com/news/2012-12-19/guest-post-what-causes-hyperinflations-and-why-we-have-not-seen-one-yet

Comment:  This makes a lot of sense.  And since the Fed Reserve makes a profit each year (most of which goes to the Treasury), by this definition hyperinflation is impossible.

So if this is true, what would cause quasi-fiscal deficits?  Either bad assets (like defaulted mortgages) that don't pay interest, or borrowing in a foreign currency that has higher interest rates than can be earned domestically.  With the Fed's ballooning balance sheet, having bad assets is a distinct possibility. 

Donald Trump to build towers in Rio slum

See http://www.dailymail.co.uk/news/article-2250346/The-Donald-brings-Trumpesque-flair-Rio-plans-erect-2-6billion-towers-city-slums.html
"The buildings together will make up the largest office complex in Brazil, once complete, with pedestrian tunnels and bicycle paths included, according to the project's consortium of developers, which is headed by the Trump Organization. Construction on the first two of the five planned towers will begin in the second half of next year, officials declared at a press conference in Rio on Tuesday. Those towers are expected to be finished ahead of the 2016 Olympic games, which Rio is hosting."

Science is for girls too!

See also: http://aftermath2022.blogspot.com/2012/06/science-is-for-girls-too.html

Cursed project in Saigon

Saigon One Tower

See: http://www.bloomberg.com/news/2012-11-25/vietnam-empty-office-towers-show-dreams-turned-to-rubble.html

The Saigon One [aka Saigon M&C] project was originally conceived in the 1990's.  "In 1997, just after the hotel's foundations were laid, the Asian financial crisis broke out and put what was hoped to be a temporary hold on the project. A lack of capital has left the site dormant ever since [as of 2005]. The new owners estimate the cost of the mall and 40 story tower at USD$60 million."

Construction began again in 2008, and it was supposed to be completed in 2010, with a construction budget of $228 million.  But as of January 2010, only a few floors had been built. Finally in late 2010 and early 2011, construction picked up speed.  By mid-2011, it topped out at 42 floors, but construction halted.  Now it may never be completed.

"On the bank of Ho Chi Minh City’s Saigon River, the construction site for the 40-story Saigon M&C Tower is deserted except for two security guards. Today, ropes dangle from the first six floors, originally designed to incorporate a 23,000-square-meter commercial space, while glass paneling is incomplete on the remaining floors." --Bloomberg

Economic collapse in Vegas

By G4T

Bear Rescue Mission

Khartoum

Sudan's newest development

Should Liberia and Sierra Leone merge?

This is just a thought.  Both are English speaking countries.  Liberia has a population of about 3.7 million in an area of 111,000 km².  Sierra Leone has a population of 5.5 million in an area of 72,000 km².

Here are some differences:  Sierra Leone was a British colony and was founded as a home for former British slaves. It has a unicameral Parliament. It is a member of the Commonwealth of Nations. It has a per capita GDP of $366/person.  It is primarily Muslim (71%).  Its currency is the Leone.

Liberia was founded by freed African-American slaves.  It has a bicameral Congress (Senate and House of Representatives). It has a per capita GDP of only $297/person.  It has a primarily Christian population (85%).  Its currency is the Liberian dollar.

Both countries are part of the West African Monetary Zone, which proposes to use the Eco as a common currency, starting in 2015.

======================
Also, on a similar note, why are Togo and Benin separate countries?  Both speak French and received their independence from France in 1960.  They both use the same currency, the West African CFA franc. It is absurd that they are separate.

  

Equatorial Guinea has a new capital

See: Revealed - the new capital city built deep in the jungle by 'dictator' of Equatorial Guinea

New city to be built near Changsha

See: Hunan to build ginormous city from scratch
KPF Releases Masterplan for Chinese City Built From Scratch

"A new city in the West Changsha Pioneer Zone in Hunan Province, Meixi Lake is centered around a 3.85 kilometer‐long lake. Upon completion, the city will be home to 180,000 inhabitants, and will provide residents, workers and visitors sustainable neighborhoods for living, working, recreation, culture and entertainment." 

Zhengzhou thinks big

 

Zhengzhou, capital of Henan province, has one of the world's largest convention centers, larger than Vatican City.  It is building Zhengdong New Area, which will be twice the size of Manhattan island.

See:  Cities think big - but can they all really win?

What is the half-life of M4?

M4, my own economic measurement, was at 20172.4 on 11/30/2012. 

When was it at half this amount? On 12/31/04, it was at 10089.7.  So the half-life is right at 8 years.  So we can expect it to be about double the current level in about 8 years, in 2020.  And double again in 2028 and then again in 2036.  Somewhere in that range is where the fun begins, in my opinion.

Cities 201-250

This is a continuation of the previous list here.  Unlike the previous lists, this is more subjective, based on cities that weren't included in the previous lists.

201. Karachi, Pakistan
202. Kolkota, India
203. Dhaka, Bangladesh
204. Lagos, Nigeria
205. Kunming, Yunnan, China
206. Taiyuan, Shanxi, China
207. Xiamen, Fujian, China
208. Nanchang, Jiangxi, China
209. Geneva, Switzerland
210. Luanda, Angola
211. Mecca, Saudi Arabia
212. Ankara, Turkey
213. Prague, Czech Republic
214. Warsaw, Poland
215. Monaco
216. Curitiba, Brazil
217. Gold Coast City, Australia
218. Kyiv (Kiev), Ukraine
219. Cape Town, South Africa
220. Strasbourg, France
221. Macau
222. Zhongshan, Guangdong, China
223. Budapest, Hungary
224. Panama City, Panama
225. Edinburgh, Scotland, UK
226. Baotou, Inner Mongolia, China
227. Taizhou, Zhejiang, China
228. Bucharest, Romania
229. Linyi, Shangdong, China
230. Bangalore, India
231. Medellin, Colombia
232. Handan, Hebei, China
233. Muscat, Oman
234. Durban, South Africa
235. Dongying, Shandong, China
236. Yancheng, Jiangsu, China
237. Ahmedabad, India
238. Luoyang, Henan, China
239. Pune, India
240. Jiaxing, Zhejiang, China
241. Hyderabad, India
242. Almaty, Kazakhstan
243. Yangzhou, Jiangsu, China
244. Nairobi, Kenya
245. Ho Chi Minh City, Vietnam
246. Katowice, Poland
247. Nanchang, Jiangxi, China
248. Cangzhou, Hebei, China
249. Wellington, New Zealand
250. Chennai, India

Here are probably the next 25 cities:
Anshan, Liaoning, China
Jinhua, Zhejiang
Tai'an, Shandong
Baoding, Hebei
Krakow, Poland
Manama, Bahrain
Isle of Jersey
Talinn, Estonia
Port Louis, Mauritius
Reykjavik, Iceland
Lausanne, Switzerland
Addis Ababa, Ethiopia
Lyon, France
Bern, Switzerland
Abuja, Nigeria
Isle of Man
Benidorm, Spain
Hamilton, Bermuda
Almaty, Kazakhtan
Bratislava, Slovakia
Montevideo, Uruguay
Algiers, Algeria
Casablanca, Morocco
Kinshasa, DR-Congo
Lahore, Pakistan

Top 40 Skylines

This is someone's subjective list of the top 40 skylines in the world:

1. Hong Kong, China 
2. Chicago, USA
3. New York, USA
4. Shanghai, China
5. Singapore, Singapore 
6. Tokyo, Japan
7. Toronto, Canada 
8. Kuala Lumpur, Malaysia 
9. Shenzhen, China 
10. Seattle, USA
11. Dubai, UAE
12. Seoul, South Korea
13. Sydney, Australia 
14. San Francisco, USA
15. Frankfurt, Germany 
16. Pittsburgh, USA
17. Sao Paolo, Brazil
18. Dallas, USA
19. Guangzhou, China
20. Houston, USA
21. Atlanta, USA 
22. Rio De Janeiro, Brazil 
23. Chongqing, China 
24. Melbourne, Australia
25. Philadelphia, USA
26. Johannesburg, S. Africa
27. Osaka, Japan
28. Panama City, Panama 
29. Miami, USA 
30. London, England
31. Las Vegas, USA
32. Boston, USA
33. Minneapolis, USA
34. Los Angeles, USA
35. Bangkok, Thailand
36. Calgary, Canada
37. Montreal, Canada
38. Jakarta, Indonesia 
39. Perth, Australia 
40. Paris, France 

Source: http://www.diserio.com/top15-skylines.html

M4 up 0.77% in November

As of 11/30/2012:
M2 = 10,263.9
Public debt = 11,553.2
Fed held = -1,644.7
-----------------------
Total as of (11/30/2012):  20172.4

This is up 155.8 or 0.77% in November.  It is interesting that this number is less than the government deficit in November.

For those who are just reading this, "M4" is what I call my measure of money.  I think it is going to go up about 1% every month into perpetuity.  As long as it goes up less than 1%/mo., we are doing fine.

I'm not seeing much Fed purchases yet.  Straight quantitative easing (purchases of Treasury securities) has no impact on M4 because it is just trading one form of "cash" (T-bills) for another form.  Purchases of MBS on the other hand does result in an increase in M4.

Taxes were less than 50% of gov't spending in November

In November 2012, the FedGov spent $334bn, but took in only $161bn taxes, leaving a deficit of $172bn, which it borrowed.
 

Kyle Bass says Japan will go ballistic in 12 to 18 months

I'm not saying that I am smarter than Kyle Bass, but I disagree.  He has been wrong before on Japan.  I think Japan will succeed in devaluing its currency to may 100 yen to the dollar, but that doesn't mean the debt bomb is going to go off.

See also: The Yen as a reserve currency

Where the rich people live

"New data from WealthInsight shows that Beijing and Shanghai each have more multi-millionaires now than Los Angeles. The study measures the segment of the population worth $30 million or more, known in wealth-industry parlance as "ultra-high-net-worth individuals."
Beijing has 1,318 people in that group. Shanghai has 2,028. Both are higher than Los Angeles, which has 950 people worth $30 million or more.
New York still towers over the others when it comes to the ultra-highs, with 2,929 people worth $30 million or more. But the BRICS are catching up. Sao Paulo, Brazil, has 1,310 ultra-highs – more than San Francisco, Washington and Miami combined. Moscow is now on par with Chicago when it comes to ultra-highs, while Mumbai has more than Dallas.
The number of ultra-highs in secondary BRIC cities like Puna, Fuzhou and Chongqing could nearly double over the next four years."
--http://www.cnbc.com/id/100289964

Lanzhou

Chinese developers are planning to flatten 700 mountains to make way for a new town in the north-west of the country. The nation's most ambitious "mountain moving" project is slated for a patch of desert the outskirts of Lanzhou in the Gansu province and is estimated to cost £2.2bn, according to the Guardian.
--http://www.telegraph.co.uk/news/worldnews/asia/china/9728795/China-700-mountains-to-be-levelled-to-make-way-for-new-town.html 

See also: Internet vigilantes call out Lanzhou mayor in bling scandal