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Thread: Britain heads for another recession

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    Default Britain heads for another recession

    After going through one quarter of gdp growth from the Olympics, the British economy went back to negative growth for the 4th quarter 2012.

    http://www.telegraph.co.uk/finance/e...cts-0.3pc.html

    Adjusted for inflation, British gdp for 4th quarter 2012 is still below gdp for 4th quarter 2007.

    http://www.guardian.co.uk/news/datab...growth-economy

    For dancers in the UK, this means things probably won't be getting better any time soon.
    Last edited by eagle2; 01-27-2013 at 11:01 PM.

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    Default Re: Britain heads for another recession

    ^^^ while the above may be true about declining UK GDP resulting in declining earnings potential for UK dancers, the implication that GDP growth ( funded by increasing gov't debt i.e. the USA ) will lead to growing earnings potential for US dancers probably isn't true !


    From our 'old friend' Charles Hughes Smith via

    (snip)"Here is real (adjusted) gross domestic product (GDP), which includes government spending: (in other words, as you borrow-and-blow trillions of dollars, GDP rises -



    Unfortunately, employment hasn't risen along with the population or the GDP: the only metric with any meaning is full-time employment, as self-employed and part-time jobs may pay a few thousand dollars a year and should not be included in the same category as full-time jobs.



    In sum: the population and GDP have both expanded smartly since 2000, but full-time employment has barely edged above levels reached 13 years ago.

    Academic economists and political progressives would have us believe that the only thing restraining employers from hiring millions more people is lack of access to cheap credit.
    The explicit assumption here is that cheap credit is all employers need to expand their workforce. This is so out of touch with reality that it beggars description.Progressives and academic economists generally claim the Federal Reserve's zero-interest policy (ZIRP) and its other policies of flooding the economy with liquidity "are working," i.e. boosting the economy.

    Here is what the Fed's policies are boosting: financial sector profits Please compare this chart with the chart above of full-time employment, and then decide where the Fed's free money/easy credit is flowing.



    The only way to understand why employment is dead in the water is to stand in the shoes of a potential employer or entrepreneur. Remarkably, this perspective is unknown to economists and progressive politicians because they have never been an employer (and no, hiring a grad student to grade papers or an illegal nanny to watch your kids does not make you an employer.)

    I have described this vast divide between small business employers, entrepreneurs and the self-employed and those working in government or Corporate America as one of the least explored social/economic divisions in the nation.

    Those who have spent their careers in government or academia have little idea what it takes to hire more people. Number one is a business with strong demand for one's products or services. In a developed world with too much of everything except energy, that is no small challenge: the world is awash in over-capacity in every field except niche industries such as deepwater oil rigs.

    Second, you need a process that generates so much value (specifically surplus value) that you will generate immediate profits by hiring more people.

    If the value added by additional labor is low, then you have no reason to hire more employees, even if Ben Bernanke personally knocked on your door begging you to borrow a couple million dollars at low rates of interest.

    If an additional unskilled worker will cost $10 an hour and might generate $100 a day in additional gross revenues, that is $20 in gross profit. But the overhead costs of operating a business are rising faster than inflation: junk fees imposed by cities, counties and states, workers compensation and disability premiums, healthcare costs (if you hire full-time workers), energy costs, and so on.

    For most businesses, overhead costs 50% to 100% of total employee compensation--wages plus benefits and payroll taxes. So adding another employee to gross 20% more doesn't make it worthwhile--it actually generates a loss once overhead costs are paid.

    The only time it makes sense to hire another worker is if that worker will create 100% or more surplus value from their labor. For example, a worker paid $200 a day in total compensation generates $400 more in gross revenues--enough to not only support the added overhead but net the business a profit.

    In a global economy, competition constantly lowers the premium most businesses can charge. That places most businesses in the vice of declining gross margins and higher labor/ overhead costs. The only way to stay solvent is to grow revenues and slash costs so declining gross margins are still enough to pay the bills and leave some return on capital/time/risk invested.

    Cheap credit doesn't create surplus value, increase gross margins or get rid of over-capacity. It is a financial non-sequitur for all but a relative handful of enterprises. The only firms interested in borrowing money for expansion are those relative few in sectors that are not burdened with overcapacity. That might include oil services, network security and a handful of others.

    But high-margin sectors such as technology either get funding from venture capital or their high margins generate enough income to fuel expansion without taking on debt.

    The only companies borrowing vast sums of money are those paying off higher-cost existing debt with new cheap-credit loans. The savings from lower interest payments don't flow to new hires, they flow to the bottom line and from there to executives, owners or stock buybacks that boost the portfolios of institutional owners.

    Employment is dead in the water because opportunities for organic expansion are few and the cost basis of doing business in the U.S. keep rising. That vise forces businesses large and small to reduce labor costs while boosting productivity. There is no other way to stay solvent in a post-bubble, over-capacity, over-indebted consumerist economy awash in too much of everything but energy, common sense and fiscal prudence.(snip)


    The relevant take-aways probably are ...

    - there is an 'overcapacity' of dancers ... on both sides of the Atlantic - partially driven by the fact that very few decent paying 'straight' jobs are available, as well as partially driven by the fact that 'straight' job paychecks are not rising ( and arguably after-tax, after-necessities, discretionary income is falling ) - which has incentivized more girls to turn to dancing as a source of primary or supplemental income.

    - with the exception of the handful of 'growing industries / growing profits' situations pointed out by the author i.e. financial industry workers, certain tech industry workers, oil industry workers, etc. who are flush with money, the remaining pool of strip club customers with decent paying full time jobs has not actually grown over the past few years ( nor have their take-home paychecks ).


    But the basic point is that the existing measure GDP now bears very little direct correlation to the number of strip club customers, or the discretionary income level of strip club customers, which in turn is available to be spent on dancers !!!
    Last edited by Melonie; 01-28-2013 at 04:33 AM.

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    Default Re: Britain heads for another recession

    Quote Originally Posted by eagle2 View Post
    After going through one quarter of gdp growth from the Olympics, the British economy went back to negative growth for the 4th quarter 2012.

    http://www.telegraph.co.uk/finance/e...cts-0.3pc.html

    Adjusted for inflation, British gdp for 4th quarter 2012 is still below gdp for 4th quarter 2007.

    http://www.guardian.co.uk/news/datab...growth-economy

    For dancers in the UK, this means things probably won't be getting better any time soon.
    The short answer is that Britain has not pursued pro-growth policies. Instead they raised taxes.

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    Default Re: Britain heads for another recession

    What's worse, the U.S. appears to be headed in the same direction. Increasing taxes and a slowing economy. http://www.nytimes.com/2013/01/31/bu...rter.html?_r=0

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    Default Re: Britain heads for another recession

    ^^^ arguably, the US is worse off, since we are adding a trillion dollars worth of new gov't debt every year, as well as a significant 'real' loss of US dollar purchasing power, which the UK is not ( or at least not as much per capita ) !!! That additional debt then becomes a 'drain' on future years' growth, due to the rising costs of debt service ( i.e. future gov't spending for US treasury bond interest and principal payments that does NOT benefit the country's citizens but instead benefits the 'rich' domestic and foreign 'lenders' ).

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    Default Re: Britain heads for another recession

    There isn't a significant 'real' loss of US dollar purchasing power. Inflation is low. The price of gasoline at the pump fell significantly over the fourth quarter.

    In 2012, US economic growth was somewhere between 1.5 and 2 percent. Britain's economic growth was zero percent for the whole year.

    China is about the only major country that has not implemented any austerity programs, and China is about the only major country that has been experiencing strong economic growth over the past four years.
    Last edited by eagle2; 02-03-2013 at 02:59 AM.

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    Default Re: Britain heads for another recession

    ^^^ that's what the mainstream financial media would have Americans believe, at least ! Unfortunately, outside the seasonally adjusted, hedonically adjusted, official gov't CPI figure, the 'real world' price inflation economics are a bit different ...





    You can see the 'truth' of the inflation situation at
    Last edited by Melonie; 02-03-2013 at 04:21 AM.

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    Default Re: Britain heads for another recession

    Quote Originally Posted by Melonie View Post
    ^^^ arguably, the US is worse off, since we are adding a trillion dollars worth of new gov't debt every year, as well as a significant 'real' loss of US dollar purchasing power, which the UK is not ( or at least not as much per capita ) !!! That additional debt then becomes a 'drain' on future years' growth, due to the rising costs of debt service ( i.e. future gov't spending for US treasury bond interest and principal payments that does NOT benefit the country's citizens but instead benefits the 'rich' domestic and foreign 'lenders' ).
    Indeed, we have long passed the point where the debt level is considered healthy. The only thing we have left to fight a recession is a lending requirement for our bailed out banks. So far, they have sat on the sidelines and not fueled in the economic recovery. Instead they have been content to borrow money from the government at almost zero percent and loan it back to the government at 3-4%. That's the only tool left to fight a recession and it's hard to tell if Obama is willing to use it. His last Treasury Secretary was not and Jack Lew is from the same school of thought. Bernanke spoke about a sort of lending requirement two years ago at Jackson Hole, but has been silent about it since then.

    Z

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    Default Re: Britain heads for another recession

    The only thing we have left to fight a recession is a lending requirement for our bailed out banks. So far, they have sat on the sidelines and not fueled in the economic recovery. Instead they have been content to borrow money from the government at almost zero percent and loan it back to the government at 3-4%
    also, a lot of this newly printed 'free' money has also found its way into stock shares and commodities, thanks to the 'prop trading' desks of the bailed out banks. Like the newly printed 'free' money effectively helping to hold down interest rates on newly printed Treasury Bonds ( a very necessary goal of the FED / gov't ), the newly printed 'free' money has also inflated stock share price levels and commodity price levels. And while the FED/ gov't arguably support stock share price inflation ( i.e. it makes for positive news if nobody actually looks 'under the hood' ), increasing commodity prices thus increasing US prices for gasoline, food, utilities, etc. is definitely NOT on the FED / gov't agenda.

    And, ultimately, that 'free' money isn't free at all ... it will be paid for via US taxpayers having to divert an ever larger share of future year tax payments towards servicing this debt, it will be paid for by US dollar devaluation thus higher US dollar denominated future prices for everything imported, etc. High gov't debt burden and loss of UK pound purchasing power are indeed at the root of the UK's current financial situation. And the US is arguably following in their footsteps.

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    Default Re: Britain heads for another recession

    Melonie and Zofia are both right. Has anyone checked gas prices lately ? Up $. 15 per gallon just in the last two weeks.

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    Default Re: Britain heads for another recession

    Quote Originally Posted by Melonie View Post
    ^^^ that's what the mainstream financial media would have Americans believe, at least ! Unfortunately, outside the seasonally adjusted, hedonically adjusted, official gov't CPI figure, the 'real world' price inflation economics are a bit different ...
    No, people living in the real world know that inflation isn't anywhere near the 7% cited in your link. The price of gasoline is still lower today than it was in the spring of 2008. The price of natural gas has fallen significantly over the past 5 - 10 years. The cost of homes has fallen significantly. Your article excludes homes, but anyone who has bought a new home in the past four years has saved significant amounts of money. In addition, very low interest rates have significantly reduced mortgage payments. I've been shopping for cars over the past 2 month, and there is little change in the cost of cars since the last time I leased one three years ago. I don't know where your article gets the idea that the price of cars has gone up. I have no idea where your article gets the idea the cost of phone service has gone up. VOIP cost next to nothing. You can get Magic Jack for less than $20 a year. The price of consumer electronics such as computers and flat screen TVs has fallen. My cable bill hasn't gone up in years. If anyone is going to claim this is somehow unique to where I live, the cost of satellite television service hasn't changed in years either. I've been getting offers for DishTV for $19.99 a month for years, and they're still offering this rate:

    http://dishtv.com/

    I'm sure if you look hard enough, you can find some product that has increased in price, but it has nothing to do with our deficits or national debt. There has been severe droughts over the past year, which has caused increases in anything related to farm products, but this has nothing to do with our deficits or national debt.

    Your whole claim that there is inflation is based entirely on your ideology, which has already been proven wrong. You've already stated, based on your ideology, that "$5 a gallon gasoline before the end of the year (2012) is a virtual certainty". Gasoline isn't anywhere near that. You posted an article stating the Fed's policies would be a "Christmas gift" for gold bulls. Gold bulls got empty stockings from the Fed this year. If there was such a significant loss of purchasing power of the dollar, why can a dollar buy so much more gold today than two years ago, when it was over $1,800 an ounce? According to your ideology, the price of gold should have increased significantly over the past two years, but it has actually gone down.



    Why is this happening if the dollar is losing purchasing power?

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    Default Re: Britain heads for another recession

    Quote Originally Posted by Melonie View Post
    ^^^ arguably, the US is worse off, since we are adding a trillion dollars worth of new gov't debt every year, as well as a significant 'real' loss of US dollar purchasing power, which the UK is not ( or at least not as much per capita ) !!! That additional debt then becomes a 'drain' on future years' growth, due to the rising costs of debt service ( i.e. future gov't spending for US treasury bond interest and principal payments that does NOT benefit the country's citizens but instead benefits the 'rich' domestic and foreign 'lenders' ).
    No, the US is not worse off. We're much better off than we were 4 years ago. It's very obvious to anyone who looks at the whole picture, instead of focusing on one or two numbers, like you and Zofia are doing. The only thing you both see are one or two big numbers, and because they're big numbers, you think it's bad. You think because $1 trillion is a big number and $16 trillion is a big number, our deficits and debt are bad. You fail to see that Americans have greatly benefited over the past four years as a result of our government running big deficits. Our deficits are less than 10% of GDP. Our government could have easily balanced the budget over the past four years by raising taxes on everyone that average 7 - 8 percent of income per person. Instead of raising taxes by that amount, our government has been borrowing money at 2 percent interest. While our government has been borrowing money at 2 percent interest to keep taxes low, any American that invested that extra money in the stock market has been getting a return of probably around 20 percent annually. By the government borrowing trillions of dollars at 2 percent interest, Americans have been able to increase personal wealth by trillions of dollars. In addition, millions of Americans have been paying down personal debt over the past four years. Americans that have been paying down credit cards that charge 15 - 20 percent interest, instead of paying more in taxes are much better off. While the US government debt has increased approximately $5 trillion over the past 4 years, our wealth has increased approximately $15 trillion. By any measurement, we're much better off. You and Zofia just want to focus on one or two numbers, and ignore everything else.

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    Default Re: Britain heads for another recession

    Quote Originally Posted by Eric Stoner View Post
    Melonie and Zofia are both right. Has anyone checked gas prices lately ? Up $. 15 per gallon just in the last two weeks.
    No they're not. Gasoline tends to fluctuate in price. You can't just go by two weeks. The price of gas is still lower than it was 18 months ago, and nowhere near the $5 a gallon that Melonie said was a "virtual certainty".


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    Default Re: Britain heads for another recession

    While our government has been borrowing money at 2 percent interest to keep taxes low, any American that invested that extra money in the stock market has been getting a return of probably around 20 percent annually. By the government borrowing trillions of dollars at 2 percent interest, Americans have been able to increase personal wealth by trillions of dollars. In addition, millions of Americans have been paying down personal debt over the past four years.
    All of these 'talking points' have a ring of truth to them ... but aren't anywhere near as 'rose colored' as mainstream media would have us believe one one takes a look 'under the hood'.

    Over the course of the past 12 months the S&P index ( with a large contingent of Wall St. Banks making up that index ) has increased about 11% ... as measured in non-adjusted US dollars. However, over the course of those same 12 months, the non-adjusted US dollar denominated price of food, of utilities, of insurance, of college tuition, of oil, of taxes etc. ... i.e. the price of 'necessities' ... has arguably increased by a similar amount. Thus from the standpoint of increasing personal 'wealth', an American who invested $1000 in canned food a year ago is arguably more 'wealthy' than a person who invested $1000 in the S&P, sold at an 11% gain, paid taxes on that gain, and then bought canned food today !

    In regard to Americans supposedly paying down personal debt, the 'dirty little secret' is that this statistic treats equally Americans who actually pay off their credit card bills and Americans who go bankrupt, or settle for less than the amount owed, or who otherwise have their credit card bills 'discharged' without full repayment. So even though repayment by the borrower or 'discharge' of debt by other means yields the same result in this statistic, in the 'real world' it arguably DOES matter whether credit card debt is being paid down by the actual borrower versus de-facto paid down by the US taxpayer ( via TARP funds to banks taking the writeoffs, or money printing by the FED to buy bundled credit card backed bonds at above market prices, etc. )

    In regard to falling prices for ( certain ) real estate, for ( certain ) cars, for imported consumer electronics etc., a huge contributing factor is falling 'demand'. Yes lots of Americans would buy real estate, or a car, or consumer electronics IF THEY COULD ACTUALLY AFFORD TO PAY FOR THEM. But thanks to recently enacted income verification requirements, stress analysis requirments etc. on the part of private sector lenders, a notable percentage of 'subprime' borrowers are now shut off from accessing the credit necessary to buy things that they can't afford. There are still exceptions, of course, i.e. de-facto US taxpayer subsidies for 'subprime' GM auto loans via Ally Bank /GMAC, US taxpayer backed student loan money being used to purchase IPads etc.

    Agreed that the price levels of US gasoline and US natural gas are not directly coupled to the world price of oil or gas. This is based on the fact that US gasoline refining capacity and natural gas distribution capacity is 'landlocked'. Thus, temporarily at least, US gasoline and natural gas prices are significantly below world market levels. However, with each day that passes, new LNG export terminal capacity, the switching of US gas wells to oil, etc. chip away at the 'landlocked' supply = lower prices factor.

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    Default Re: Britain heads for another recession

    and speak of the devil ... some reality in regard to 'talking points' ...





    Arguably, the only chart above that shows any 'rose colored' complexion is auto sales. However, in regard to reality, this statistic counts vehicles shipped from auto makers to auto dealers ( that aren't actually sold ) as well as autos purportedly sold to 'subprime' buyers ( many of which may never be paid for ) thanks to zero down TARP financed loans through GM and Chrysler ... 'subprime' auto buyers who would not have been able to obtain financing from other automakers or conventional lenders precisely because of the high risk of 'loss' they represent.

    Circling back to the topic of this thread, the UK has already gone full circle in regard to the impact of the gov't using taxpayer funds to subsidize it's domestic auto industry !!!

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    Default Re: Britain heads for another recession

    Quote Originally Posted by Melonie View Post
    All of these 'talking points' have a ring of truth to them ... but aren't anywhere near as 'rose colored' as mainstream media would have us believe one one takes a look 'under the hood'.
    and things aren't anywhere nearly as bad as you make them out to be.

    Quote Originally Posted by Melonie View Post
    Over the course of the past 12 months the S&P index ( with a large contingent of Wall St. Banks making up that index ) has increased about 11% ... as measured in non-adjusted US dollars. However, over the course of those same 12 months, the non-adjusted US dollar denominated price of food, of utilities, of insurance, of college tuition, of oil, of taxes etc. ... i.e. the price of 'necessities' ... has arguably increased by a similar amount. Thus from the standpoint of increasing personal 'wealth', an American who invested $1000 in canned food a year ago is arguably more 'wealthy' than a person who invested $1000 in the S&P, sold at an 11% gain, paid taxes on that gain, and then bought canned food today !
    Necessities have not gone up 11% over the past 12 months. Regardless, we're comparing the return on the stock market to the interest the US government is paying on it's debt. The U.S. government has been paying 2% interest on loans. The S & P 500 has doubled over the past 4 years. Anyone who has taken the extra money they were able to keep, as a result of the government borrowing money instead of raising taxes, and invested in stocks is way better off as a result.

    Quote Originally Posted by Melonie View Post
    In regard to Americans supposedly paying down personal debt, the 'dirty little secret' is that this statistic treats equally Americans who actually pay off their credit card bills and Americans who go bankrupt, or settle for less than the amount owed, or who otherwise have their credit card bills 'discharged' without full repayment. So even though repayment by the borrower or 'discharge' of debt by other means yields the same result in this statistic, in the 'real world' it arguably DOES matter whether credit card debt is being paid down by the actual borrower versus de-facto paid down by the US taxpayer ( via TARP funds to banks taking the writeoffs, or money printing by the FED to buy bundled credit card backed bonds at above market prices, etc. )
    Looks like you're making stuff up again. Loan default rates are down. Auto loan default rates are close to record lows.
    http://abcnews.go.com/blogs/business...ing-off-debts/


    Quote Originally Posted by Melonie View Post
    In regard to falling prices for ( certain ) real estate, for ( certain ) cars, for imported consumer electronics etc., a huge contributing factor is falling 'demand'. Yes lots of Americans would buy real estate, or a car, or consumer electronics IF THEY COULD ACTUALLY AFFORD TO PAY FOR THEM. But thanks to recently enacted income verification requirements, stress analysis requirments etc. on the part of private sector lenders, a notable percentage of 'subprime' borrowers are now shut off from accessing the credit necessary to buy things that they can't afford. There are still exceptions, of course, i.e. de-facto US taxpayer subsidies for 'subprime' GM auto loans via Ally Bank /GMAC, US taxpayer backed student loan money being used to purchase IPads etc.

    Agreed that the price levels of US gasoline and US natural gas are not directly coupled to the world price of oil or gas. This is based on the fact that US gasoline refining capacity and natural gas distribution capacity is 'landlocked'. Thus, temporarily at least, US gasoline and natural gas prices are significantly below world market levels. However, with each day that passes, new LNG export terminal capacity, the switching of US gas wells to oil, etc. chip away at the 'landlocked' supply = lower prices factor.
    No, the price of oil is the same all over the world.

    Can you please answer my question. If the dollar has lost purchasing power, why is the price of gold lower today than it was two years ago?

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    Default Re: Britain heads for another recession

    Looks like you're making stuff up again. Loan default rates are down. Auto loan default rates are close to record lows.
    And you're putting words in my mouth. The relevant point was the default rate of SUBPRIME auto loans ... a detail which your 'rose colored' link carefully avoids. See for some 'balanced' perspective.


    No, the price of oil is the same all over the world.
    Again trying to put words in my mouth. Prices for refined blended gasoline vary widely throughout both the USA and the world, and depend on the cost of taxes, blended ingredients, and refining as much as they depend on the price of oil. And you're wrong on the oil price point as well, with US Cushing oil prices ( about $98 / bbl today ) being significantly less costly than european Brent oil prices ( about $115 / bbl today ) to name one well publicized example. And in regard to US dollar price inflation I would point out that US Cushing oil prices have increased ~10% since election day ... a development which is working its way through the supply chain and now translating into higher prices for US gasoline.


    If the dollar has lost purchasing power, why is the price of gold lower today than it was two years ago?
    Arguably, because it is possible for gov'ts and central banks, large sovereign investors, large financial institutions, etc. to sell paper financial instruments ... such as lease contracts ( which effectively allows x amount of gold to be double counted ), 'naked' gold futures contracts ( which effectively allows x amount of gold to be created out of thin air ), and non-100% gold backed mutual fund / ETF shares ( which similarly allows x amount of gold to be mathematically expanded ) ... paper financial instruments which world markets still treat as if they are equivalent to actual ownership of physical gold. This in turn allows the price of physical gold to be depressed temporarily by artificially increasing the 'perceived' supply of gold ... with that depressed price suddenly reversing once the 'paper gold' investors are actually forced to produce the physical gold that they don't actually own !!! The same techniques are also used to manipulate the price of silver.

    Many claim this is simply a conspiracy theory, but its existance is becoming increasingly well documented. See

    However, even if 'paper gold' based price manipulation is taken off the table, there is also the issue of investors 'rotating' out of safe assets like gold and into 'speculative' assets like financial / tech stock shares to take immediate advantage of central bank money printing.
    Last edited by Melonie; 02-08-2013 at 03:26 AM.

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    Default Re: Britain heads for another recession

    Arguably , you are both right. Melonie has made some excellent observations but Eagle questions how "bad" it really is. The obvious question is : "Compared to what ? ".

    Yes, overall we are doing better than the British and a lot better than the Greeks. For now. Maybe even for the rest of the year. Then what ? I've repeatedly raised the question : " For how long ? ". How long are we going to be able to limp along with sluggish growth and high unemployment ? How long are we going to be able to print money and run huge budget deficits ? History says we will not get away with this indefinitely. At some point things have to change OR we will reap what we've sown.

    Yes, rates are low NOW. The government is able to borrow money at less than 2 %. Some folks like Krugman have literally said that this is a license for Washington to borrow without any limitation. He NEVER said anything of the sort when BTD was POTUS. Quite the contrary.

    As for gold, Melonie is right. Investors are putting their money into stocks as evidenced by the Dow and S & P.
    Last edited by Eric Stoner; 02-11-2013 at 08:21 AM.

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    Default Re: Britain heads for another recession

    and now UK's credit rating has been downgraded.

    http://www.bbc.co.uk/newsbeat/21573162

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