What you may have missed in the business news last week:
Gold has had a bad year:
Which is not likely to be helped by the fact that the US reported unemployment rate has dropped to 7% – which was the hypothetical tipping point for Mr Bernanke (or, soon, Ms Yellen) to start tapering off the asset purchases.
What I did find interesting is the question that is being asked in the video that I linked to above: “Where did all the gold go?” Because it’s not in the vaults of London: gold stocks in the West are down by some 811 tonnes for 2013. Given that there are only about 31,800 tonnes floating around in official reserves, that’s a fair amount of movement.
It’s all off to China, who has plenty of new vaults popping up (down?) all over the place. The Chinese, it appears, are desperate to invest their trade surplus in anything but US government debt, if they can help it.
Even so, that explanation doesn’t really tie in with that gold chart, right? Surely Chinese demand would be driving the price up? Or perhaps I’m just underestimating the opposite-of-exuberance of all those gold speculators…
Either way – the tapering off of asset purchases would mean that the market is now a bit saturated with dollars, to the point where companies are being forced to use them to hire people. That’s, um, the pre-cursor to a bout of inflation. Perhaps (and I hesitate to say this) a little gold investment might not be a bad thing at this point…
I’m not sure why I’m writing about this – the House and the Senate go backwards and forwards so often with budgets that it’s all quite boring.
That said: this one is a bipartisan budget (unusual), rather than just a Republican budget that got pushed through by a Republican majority.
The new budget will cut the deficit by $3.1 billion in 2014. Which is basically a rounding error when you have budget deficit of over $1 trillion annually. But you have to start somewhere.
Here’s an infographic to show the magnitude of the problem:
3. The Volker Rule gets finalised.
The Volker Rule, being the watered-down alternative to the Glass-Steagal, has been finalised by the US regulatory agencies. It’s meant to stop banks from trading on their own account with depositors’ money.
It’s also completely useless.
In Britain, and other sensible countries, the rule is as follows:
“You want to be a big investment bank? That’s fine. You take your retail arm – the one with the depositors’ money – and you put it into its own company. You ringfence it so that there is no way to dip into it when you cock up the investment banking thing.”
It’s clean. And it’s pretty much what Glass-Steagal said.
Instead, the Volker Rule says this:
“Dear bankers. We’d really rather that you didn’t play with depositors’ money as if it was your own, unless you’re doing it on their behalf. So each time you do a trade, we want you to think carefully about whether you’re doing it for you or doing it for them. It’s alright if you’re doing it for you and for them – it’s just not okay if you’re doing it only for you. So it requires a bit of introspection on your part, okay?”
Yes. Because that’s not going to result in every trade being rationalised as “we’re doing it for the client”…
And how do you enforce that? Do you get a team of psychiatrists to come in and evaluate banker-intention each time a trade is disputed?
China has “suddenly” had a downturn in its PMI numbers (for an explanation of the PMI, I wrote this post earlier in the year: The PMI: What Is It?).
It makes you wonder whether this bad news isn’t being piecemealed out to us…
5. Uruguay has almost legalised Mary J.
I’m pointing it out because tomorrow’s post is going to involve the economic benefits of legalised pot.