Jerry, KWN audio with Bill Flec…. Tomorrow regarding bitcoin

As with anything new there is always going to be distrust and doubters, myself included.One comment said sound money will rule.Fortunately for me I took your advice years ago and invested 20% of my wealth into precious metals.So this brings us to bitcoin.Why are we even talking about bitcoin?In my opinion I think this is a statement of the people who want a return to sound monetary policy.But there is something else going on here.It’s called E-commerce and how people spend their money.Think about the days of money before credit cards.How foreign of a concept must credit cards have been.So now we have credit cards albeit with a transaction fee for using them.This is where bitcoin and virtual currency’s get interesting.Virtual currency’s tranaction fee’s can be much lower than credit cards when it comes to E-commerce.Bitcoins and virtual currencys are deffinately in a mania faze now and the so called computer hacks that invented them may have been short sighted in their enception,but as time goes on I think virtual currency could have legs.When google ipo’d at fifty dollars did I understand google?no.Just for fun fun I invested into3 technology,3 biotechnology stocks,no more jr miners,already have enough of them,and put the same amount of cash into bitcoin..I will give it 5 years and reveiw the returns.I just wished I had done the same thing with google.

The value of bitcoin has dropped by $300 and continues to fall following a clampdown on the controversial crypto-currency by the Chinese government.

China’s central bank, the People’s Bank of China, and five government ministries have said they do not view bitcoins as a real currency, as they have “no legal status or monetary equivalent,” and have warned local banks and businesses against using it.

The announcement saw the digital currency crashing on the MT.Gox Bitcoin exchange from a record high of $1,216 to $870.

The value of one bitcoin then bounced back to $1,045 for a short period of time, before dropping again to less than $660 on the night of December 7.

France’s central bank also had some harsh words to say about bitcoin this week, calling it an unreliable and risky means of investmen

I just posted the articles you guys mention @ keiser yesterday, cause thats the bitcoin “pump” site.
I guess with the chinese gov suggesting be careful and their banks not to use it, down she goes, interesting to see how far down it will go.
This is a pce of an RT article.

Good round table today.

Thanks Matthew. I will remember not to take James advice in the future! Was he not touting Bitcoin just yesterday as the solution to our gold tears?

Tulips, Matthew, tulips!

Thanks Mr. Chew and to you Reverend.

I guess that we have something else in common Doc!

Bird, I just read your yesterday synopsis as regards where this mess ultimately ends. As you know, this will not end well. Your scenario certainly is high on the list of eventual outcomes. It was interesting that before 1929, government debt was not the issue predating the crash. This time it is along with an irrational stock market which they also experienced with the Federal Reserve encouraging margin debt at that time as well. Back then, all the big boys were warned early on about the fact the Fed was going to step aside. We may be seeing the same thing now except the “stepping aside” this time may be the beginning of some tapering. If you look at the DJIA, it’s very interesting that volume over the last 3-4 months continues to dry up. Also, the number of companies listed on the exchanges have decreased almost 50% over the last 12 years. Maybe, we’ll have a reprieve from our economic mismanagement for a while yet through inflation before the whole ball of wax goes. I don’t know what scenario is coming but train coming is not a message of economic revival. Europe is not getting better (in spite of the hype) with Portugal and Spain’s debt actually increasing—-along with the fact most of these countries have their loans coming due in the near future and no significant structural change has occurred.

Bird, good comment about “pushing bank lending may be one of those levers so a reduction of the rate paid on Fed deposits might be in the cards.” The Fed is already attempting to do that by involving the Federal Home Loan Banks in this area. The banks have been parking a lot of their excess reserves at the Fed because of the rate their getting. After all, it’s like receiving free money without risk and they’re doing nothing with that capital anyway. I understand the Fed is now moving money between banks using access reserves from the Federal Home Loan Banks which don’t pay the kind of interest by law. I believe there is no legal precedence for this although it seems legality has been kicked out of the system a long time ago already as it pertains to the Fed.

Agree with Rick on tapering; they can’t do it because no one else wants to buy our debt. Without the Fed’s QE interest rates go to the moon–and America goes down the tubes. Also, the Fed is still digesting the mortgage backed securities–that global investment instrument of mass economic destruction that pushed the world over the economic brink. BUT…. if they do taper, they won’t do it in the CLASSIC SENSE OF THE WORD (to steal a phrase of Sec of State Kerry). Instead it will be in the verbal sense of word, but not literally. Maybe they’ll give it a new name–something with that favorite word of corrupt politicians: REFORM. Yes, yes, monetary reform with a dollar bill under everyone’s pillow.!

I would attempt to offer a reasonable response Gary but I think we first need to redefine what is and what is not inflationary in an economy. Are we running short of stocks that their price is being bid up? Are houses in short supply in the US perhaps? Do we need to check to see if bonds are insufficiently created to know that market demand is causing them to rise of fall? Since it is your contention that inflation can be measured by rising prices for assets you may want to first inform readers how you come to that conclusion in order that we can all be on the same page where the issue of inflation/deflation is concerned. Maybe we can start with a discussion of rents, wages or the price of butter first? Where I live we experience double digit inflation every year. It is caused by demand in excess of supply and shortages are quite real. I cannot buy milk, cheese or eggs every day for example. Vehicle demand is extreme. The outcome is that wages are rising and prices for many other related services are being pressured up as demand for services to bring new supply increase. In conjunction with that there has also been a number of deliberate currency devaluations which have compounded the price rises. During this time real estate costs have roared ahead although it is clear that those increases are driven by pure speculation and are not based on actual shortages such as we see with butter and milk. Hopefully you see where I am going with this. Asset prices are distorted by capital misallocation and they can both rise and fall dramatically. In other words, wealth can evaporate just as quickly as it was created under some circumstances. The same cannot be said for butter where once it rises it tends to rarely if ever decline in price at the retail counter. On the issue of currency debasement in the US it should be clear that the bulk of monetized funds have never reached the market and this is widely acknowledged to be the reason inflation has not broken out in consumer markets or wages. Indeed, labour is in surplus and job creation is tepid especially for small enterprises. So I think you are confusing asset price growth and capital flows which are distorted with genuine inflationary pressures that usually impact the whole economy….not just the wealth of the top 5 or 10% of investors.

Great food for thought Gary

Gary: That is correct, the Fed can start inflation by devaluation of the dollar. They know this full well hence the helicopter speech by Bernanke which together with his policies put him into the chair later. For every action taken by the Fed there are repercussions and consequences, and like Jim Rickards points out in his book “Currency Wars” and expanded in the new book, the members of the Fed do not understand nor use complex theory in their actions. They simply do not understand complex theory. Point making is that QE, taper talk and a whole basket full of other things both in the open and hidden create additional problems for the Fed which they never see. For example the policies being used by the Fed are creating extreme Geo-political tensions not the least of which are domestic and coming next year during the US election process. It is not possible to understand or manage complex systems using linear theory which is precisely what the Fed members and most of the financial banking institutions do today.

Bernanke decided not to continue his chair almost two years ago well in advance of any solid accounts of who would replace him. Everything done during this time was maintenance such as allowing a bubble in the major indexes and the intense suppression of precious metals. Nothing has been solved but small problems have now become big. They, neither those at the Fed nor anything else running this mess understand what they are doing. But the real risk to everyone is, these money mandarins do not realize the fact that they know not what they are doing.

You bet the folks at the Fed are sweating bullets, Doc.

Yes Richard, I agree that the combination of events as you outlined above represent a huge problem. If it had not already happened at other times in history I probably would not give it a second thought. The fact is that we are heading like a freight train into the same outcome that people lived through during the past depression when wealth was lost first through an equities crash, secondly as assets deflated rapidly, third by bond market failures across the board and finally by bank closures that evaporated savings. All your assets can indeed fall to a small fraction of original worth. Worse, in some cases they can fall to zero. All of the above will take place in my opinion and they will happen because we are now perched on the edge of an inevitable default on debts all across the globe. It is not just the USA that has made commitments to its citzens that can never be paid. It is also Japan, the UK, most of Europe and many others including the developing nations who can ill afford the mistake. When the large ones go, contagion will take down the rest. It is no joke what is taking place in Japan as just one example. Talk about a case of no way out. I hope you appreciate I am not even trying to be dramatic here. These are just the obvious outcomes where fierce devaluations of currencies cannot be entertained or achieved in every case to make the books balance. Obviously all of us cannot devalue together. Japan may get away with it for a time but what of the UK or US? That is impossible and so the only outcome remaining is outright defaults. This is known. It is why bail-ins have been embraced in the West. It is why so much effort is being made by the G20 to cooperate in the collection of taxes and finding those who are attempting to spirit away capital to other jursidictions. Until now we have seen a patch and bandaid job done on a group of crisis countries in the Eurozone and yet the debt problem keeps expanding to include more and more state victims. It cannot be resolved with monetary tools. All that is currently achieving is putting off to another day that which cannot be avoided in the end. Revenues and expenditures must be aligned in the end though. That is not optional. There is a popular notion that countries do not operate like households and that debts never need be repaid. It is a childish and ridiculous notion that will soon be tested. We do know for a fact that ALL debts must be cleared in the final reckoning and that they will be made good either by the debtor or the creditor or both. There is no grey area in that equation. Just checking any comparitive chart of debt growth around the world should quickly confirm in everyones mind that we are nearing the conclusion of the multi decade period of credit expansion and that the result will be a final resolution of excess (unrepayable) indebtedness. So far, of the euro group, only Iceland has stood up, told everyone to bugger off and actually walked away from its obligations. More will follow although when is unknown. I think we are setting up for that troubling time now though and it seems likely that it will be brought on by changes in the power structure at the ballot box. And just look at the level of risk taken on by most of the emerging economies as another example. This current low rate environment has allowed them to take on unprecedented debt. The moment the Fed threatened tightening though capital fled and strangled off their economies leaving them strung ut and gasping for air. Within weeks we began to hear how foreign exchange surplusses were being drained to defend thier various currencies. This is a signalling moment and should be warning us of the significant risks coming. I really am not optimistic in this regard because I do in fact believe the worst case scenario is looking more and more likely. We have seen trade and currencies collapse before and it looks to me it will happen again as the nation defaults become tangible facts and finally come home to roost. So we are not really in a recovery at all. We have only managed to postpone and exacerbate an exisiting problem that is improbably large. Debt cycles don’t find cures by magnifying debt. This time around the US is not the engine of the manufacturing world though. So we will get a different outcome than last ime around. I agree the Fed will need to deliberately inflate but the risk is rates rise too. We are trapped like rats and people had better wake up and think twice about their personal investments and how they are going to preserve wealth because the shit is going to hit the fan.