Category Archives: Monetary Policy

Monetary policy is failing Australia, just like it has for other countries

Australia’s central bank, the RBA, like all central banks, are artificially lowering interest rates to manipulate the marketplace. Australia’s housing market bubble is one of the few in the world which hasn’t popped spectacularly yet. Some of this is due to the RBA lowering interest rates, Government’s offering home owner grants and other manipulations, but above everything is foreign buyers coming to the market and China reinflating the commodities boom after the GFC hit in 2008.

Australia’s housing market:
house_prices_rainbow_spaghetti_kohler_april2014
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As most money in the economy is created through fractional reserve banking, that is, when people get new loans at a bank, central banks will continually tinker with the rate of interest to manipulate people’s decisions to get ever-higher loans. In particular, the RBA wants to get more home loans signed. As the following chars show, house prices have really only taken off again in Sydney and Melbourne. The rest of Australia has a flat housing market or a contracting housing market. House prices in Hobart have contracted for over six years; Adelaide’s prices has flat-lined for the same period, as has Brisbane. Most parts of regional Australia haven’t fared much better.

So here’s one of the big faults of having a central bank manipulating interest rates. If Tasmania, South Australia and Queensland were independent countries, the RBA would be halving the current interest rates to try to stimulate those housing markets. Whereas, if Victoria and NSW were independent countries, the RBA would be lifting interest rates right now to try to take the wind out of their property markets. In essence Tasmania is quickly becoming the Greece of Australia. Tasmania’s employment prospects are weak (really only 4 major manufacturers left in the State) and this reflects in its housing prices.

Under the managed economy Australia has there is little the States can do to stimulate investment in their economies. They can’t lower the company tax rate. They can’t alter the GST rate. They can’t manipulate interest rates. These are all managed at a national level. As such, the states earning all the wealth, such as Western Australia heavily subsidise the underperforming states such as Tasmania. For instance, in 2011-12, the Commonwealth derived $49.5 billion from W.A., while expenditure back to W.A. totalled only $29.5 billion, a difference of $20.0 billion. I think most Australia’s take for granted the amount of wealth and taxes that flow from Western Australia to the east coast.

Eventually the wealthy states get tired of bailing out other regions after a while. This has been the cash in Europe for centuries, and now several regions are looking for a way out. Barcelona is doing the heavy economic lifting in Spain, and Venice want’s to be out of Italy (Venetians pay 61 bn euros in tax and gets 21 bn euros back from Rome for services).

How much evidience does one need to show that central planning doesn’t work and leds to inefficient big government?

household_financesHousehold debt has peaked which is a huge warning sign to the RBA that people are more unwilling to take on larger loans.

housing_saving_ratioPeople are tighting their belts as economic uncertainty increases job insecurity. Households are holding onto cash even though the 9 members of the RBA board think interest rates should be low and people shouldn’t be increasing savings. Low interest rates punishes savers.

The RBA can’t manipulate interest rates and get away with it forever. People are waking up.

The Secret World of Gold

Great documentary going through gold’s influence on world economies and in wartime.

The war games continue today. What’s happened to the gold reserves in Greece, Libya, Ukraine and other countries going through crisis in recent years… ? Follow the gold.

Consumer economy in 3 pictures

An interesting set of three pictures from shadesofthomaspaine blog.

I think Australia (and most of the West) is somewhere between picture 2 and 3…

Federal Reserve turns 100

The Fed turned 100 today. 100 years since The Federal Reserve Act of 1913 was passed by congress when most politicians had already left Washington for the Christmas holidays.

Since its creation the US dollar has lost over 97 per cent of its purchasing power. That is if you put aside $1 in 1913, it would have less than 3 cents worth of purchasing power left today.

Unsurprisingly, with the final restraints on money creation removed in 1971 (when the US dollar and other currencies were delinked to gold), consumer prices (cost of living pressures) increase year in year out.

Detailed analysis of the Fed by Ben Swann

Something must be wrong with the US dollar when artists start cutting them up like monopoly money.

One of the best books on the Federal Reserve and why it charter must be revoked, End the Fed by Ron Paul

and heard lots of good things about this book, but I haven’t read it yet. The Creature of Jekyll Island is about how the Federal Reserve Act was written by the banking community and convertly rubber stamped at the 11th hour to become law.

Must Watch: Grant Williams video on the current financial crisis

A good update on where we are at in the financial crisis. Some good charts included:

Must Watch: Michael Maloney’s Hidden Secrets of Money

Compulsary viewing for anyone interested in where the global debt crisis is likely to head next and why researching more about gold and silver is vitally important. This is what your financial advisor and Superannuation Fund managers probably don’t want you to know about…

Highly recommend checking Mike’s best selling book on gold and silver and subscribing to his Youtube channel. The first 4 episodes of Hidden Secrets of Money have been released.

~ Scott

Is Australia too reliant on China?

With the recent Australian Government visit to China and the announcement of a $31 billion currency swap – its time to ask is Australia too reliant on China for trade?

According to graphs from Bloomberg, Australia relies on China for a massive 30% of its export demand. This gross dependence leaves Australia particularly susceptible to shifts in the Chinese business cycle.

Australia reliant on China

35_countries_rely_on_china_for_exports

Alan Kohler has another angle on it. It’s clear to see from the chart below that China’s appetite for Australia iron ore and coal has surged our balance of trade with China.
china_australia_trade_balance

But with the Chinese steel industry increasing its capacity 7 fold from roughly 100 million tonnes to over 700 million tonnes in the last decade… when ill the iron ore/coal bubble pop? when will the Chinese housing/construction bubble catch up?

Already we are a significant drop in exports to India.
india_australia_trade_balance

Once the mining boom income completely drops off, the real dire state of our Government budgets will be clear for all to see. We’ve wasted so much, and the aging population problem is soon to hit us.

– Scott

The new frontier – extracting gold and silver from the sea floor

We often hear of gold and silver being mined from open pits and underground mines… but more recently there has been some bold entrepreneurs that are going to extra lengths to get gold and silver form the sea floor.

Here’s a few cool TV series on mining/exploring for gold and silver… if you can get hands on a copy.

Silver Rush

A three-part series narrated by Mike Rowe, tells the story of one of the greatest deep-sea treasure quests of all time. The series will take viewers on board Odyssey’s flagship, the Odyssey Explorer, as it launches its most audacious operation ever — locate and excavate three shipwrecks worth as much as a billion dollars all in one season. But will they be able to complete the entire recovery effort in just 90 days before punishing storms roll in?


silver bullion brought up from one of the shipwrecks (4kms under the surface):
Silver Rush

For more info visit Odyssey Marine Exploration

Bering Sea Gold

In Nome, Alaska, the gold rush is on. Meet the dredgers, driven by gold fever and sometimes desperate need, who pilot their ragtag dredges and dive with hoses to suck up gold from the bottom of the frigid, unpredictable Bering Sea.

Bering Sea Gold (Under the Ice)

The summer season over, 3 teams of miners dive under the ice to dredge gold on the floor of the Bering Sea. Two dredge teams struggle to winterize their operations, train their crews, and get the gold. But one new, scrappy crew of friends hits pay dirt.

more on these vids at: GMC

In the not too distant future, mining gold and silver from the seafloor with heavy machinery? It’s not far away..

Nautilus Minerals

is the first company to explore the ocean floor for polymetallic seafloor massive sulphide deposits. Nautilus was granted the first mining lease for such deposits at the prospect known as Solwara 1, in the territorial waters of Papua New Guinea, where it is aiming to produce copper, gold and silver.

Nautilus Minerals
For more info visit Nautilus Minerals

As Ron Paul puts it… If you had two ships sink to the bottom of the Ocean A) one with gold and silver on it B) the other with US dollars. Which would the diver go back for? One is real money with intrinsic value, the other can be printed in unlimited quantities.

Cheers
Scott

GoldMarketsCentral.com

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A new site has been launched called www.goldmarketscentral.com.

It’s a new online investment/sharemarket forum. The forum is FREE to register and use.

“GMC” is focused primarily on gold and silver investing, and seeks to connect interested investors from across the world.

The forum is divided into a few parts such as:
• Stock discussion (ASX, TSX, NYSE etc) – over 350 ASX share threads & over 250 international gold company threads
• ways to invest in precious metals;
• latest precious metals news;
• investor education;
• cool stats such as bubble comparison charts etc.

The forum uses the latest vBulletin version and has many community interactions apps added:

• Thumbs up – thank other members if you like their post;
• vB Experience – achievement rewards based on forum activity and interaction
• Invite friends (and receive referral prizes (*see below))
• Featured posts can be sticked to front CMS page, so members can find informative posts quickly
• Member blogs + more

There are over 600 individual gold stocks already listed to get discussion rolling.

If you have a genuine interest in investing in gold/silver stocks, investing in bullion, checking cool stats out, finding the latest news in precious metals trends, then Gold Markets Central .com is the place to be.

(click on images to expand)
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RBA admits our 80 tonnes of gold isn’t stored in Australia

Australia has one of the most respected bullion mints in the world in Perth, secure vaults in many of our cities, yet leaves our gold in London (if it hasn’t been lent out already!, does it exist?)

I came across this correspondance on Casey Reserach:

Dear Brian,

Thank you for your email. The Reserve Bank has confirmed the following:

As at end-June 2011 the Reserve Bank of Australia held 80 tonnes of gold in London Good Delivery bars. The Reserve Bank holds 99.9 per cent of its gold reserves in the United Kingdom at the Bank of England. The remaining 0.1 per cent is held at the Reserve Bank’s Head Office in Sydney.

London is a major global gold trading market and the Bank of England provides a secure and cost-effective storage location for central banks and market participants. The Reserve Bank has processes in place to ensure that the gold reserves are maintained appropriately. It is not considered necessary from management, security or operational perspectives to relocate the gold bars to a facility in Australia.

The Reserve Bank has reviewed its approach to releasing details about its management of the physical reserves of gold and decided to release the above information.

Regards,

Manager | Media & Public Relations Office RESERVE BANK OF AUSTRALIA | 65 Martin Place, Sydney NSW 2000

James Turk’s Outlook for Gold for 2013 to 2015

A good, well explained video by James Turk on the gold market and gold’s role in preserving purchasing power.

James Turk’s Outlook for Gold for 2013 to 2015

In this latest video James provides an update to a longstanding forecast that he made back in 2003 in Barron’s. This interview was widely talked about because whilst the gold price was USD350 at the time, James stated that he envisioned the gold price to be around USD8,000 sometime between 2013-2015.

Now 9 years later, James looks back on this forecast and explains how this original price target was determined. As this timeframe is approaching, James goes on to update this forecast considering the current economic climate.

James argues that the reasons laid out in 2003, that would impact negatively the purchasing power of the dollar, thereby positively impacting the price of gold, are in fact worse than anticipated.

Kyle Bass – Entaglement

An interesting video on Kyle Bass.

The Japan debt time bomb is ticking.

Periods of huge debt usually ends in war.