Challenging Gold Price None Manipulation Analysis

Hi Steve,

The charts are signaling the possibility of a 50% rise in the US long bond yield from current levels. I invite you to consider what would happen if the 30 year bond yield were to rise by around 50% from its current level:

…to capital values in the multi trillion dollar treasury markets

…to the US government’s cash flows if no one will buy its paper and/or if it has to pay 50% more interest on its for its new borrowings against the backdrop of today’s public debt of $12,636,662,956,140.07.

…to the US Dollar if the Fed moves to plug the cash flow deficit by creating all the money the government needs out of thin air; thereby ramping the entire world’s greenback inventory of over as opposed to merely recycling the majority of the current US$7 trillion held in central bank reserves across the planet. (See: http://www.bloomberg.com/apps/news?pid=20601087&sid=a4x9dIJsPn4U Quote from this article: “The dollar’s 37 percent share of new reserves fell from about a 63 percent average since 1999.”, October 12 2009)

… to price inflation within the US

… to the US consumer, who is up to his ears in debt in an environment of 16% - 17% “true” unemployment (taking into account under employment) and who therefore has no bargaining power to ask for wage increases

… to “real” US GDP given the importance of consumption. (Real growth statistics measures volumes, not dollars and I would submit that there has been no real growth in the US economy for longer than the US Federal Government would care to admit).

In the last few days the Fed has started to “talk” as if it wants to raise yields. The decades old minutes from which the gold bugs are quoting offer another clue to the way the Fed works: When it wants a particular outcome it starts to talk about what it “might” do. When it starts to talk about the possibility that it “may” raise rates in an environment of high unemployment you can bet your last dollar that its sphincter is starting to contract. It is terrified of inflationary pressures and the possibility that there could be a train smash in the bond markets. It is sending out a signal in the hope that people will react to the idea rather than the reality. This jawboning tactic is the generic message that those decades old minutes reflect in respect of the Fed’s market “management” tactics. Gold price manipulation is yesterday’s news and the discussion on gold is largely conceptual except insofar as it is an insurance policy against financial catastrophe. Up to now the rising gold price has not really had any affect on the world at large. Tomorrow’s news will be the bond markets. If the US long bond yield rises by 50%, that will affect everyone who draws breath. It might well have the capacity to bring the global economy to its knees.

For nearly nine years I have been trying to tell the gold bugs (of which I happen to be one): “Be careful what you wish for”.

I call it as I see it. It’s your call if you want to publish it. Perhaps if you cut and paste this particular email to the bottom of the earlier one the message might have a greater impact. The days of partisan politics and lobbying tactics are behind us. We need to close ranks.

As I see it, the solution to our problems will not lie with the central banks and/or economists of the world. It will lie in entrepreneurial embracement of new energy paradigms to replace fossil fuels. But it will take several years before any new energy paradigm begins to gain economic traction. There are no silver bullets. Natural gas is certainly not a silver bullet. It contains less thermal energy per unit of measure than either coal or oil and it is still a fossil fuel. We have passed peak oil and the cost of sequestering carbon dioxide from coal will add over 50% to electricity prices. This will open the door to coal replacement energy technologies.

The replacement options are: Nuclear (fraught with human frailty issues), wind (seriously space inefficient), thin film PV solar (years away from commercialization), solar thermal (will work well with thin film), high lipid algae (to replace oil derived raw materials in some manufacturing industries) and – as an “out there” wild card – over unity, electromagnetic energy. We also need next generation electricity storage technologies of which – as an out there wild card – gold might hold the key to one. The latter two wild-card possibilities are primarily what Beyond Neanderthal examines. It can be ordered at the website below or from Amazon. The novel on which I am currently working will examine the human frailty issues with regard to nuclear and, possibly, some alternative structures which might serve to address these issues.

Kind Regards,

Brian Bloom

Author, Beyond Neanderthal