Bonds!

[wabuffo]

here were US Civil War bonds with interest and principal paid in gold.

 

Yeah, sorry, I should've been more clear.  I'm talking in the current floating currency monetary regime where the US dollar is no longer convertible to gold.  That system of pegging to gold was in place for only a few decades and didn't work very well (despite what the Austrians will tell you).

 

A sovereign could CHOOSE not to repay debt denominated in a security it controls.

 

Why on earth would any sovereign "CHOOSE" not to redeem debt denominated in a security it controls?  Especially since typically on the same day (at least in the case of the US Treasury) it is also issuing debt denominated in a security it controls.   

 

Bill

Edited September 15, 2025 by wabuffo

[wabuffo]

It's all government IOUs whether you think you made a conscious decision to "lend" it to the government or not.

 

gfp gets it.   Sovereign govt IOUs are our financial assets. 

 

If one talks about paying down the debt then one talks about shrinking the govt IOUs outstanding.  But that also means shrinking the private sector's financial assets outstanding too.   That never ends well.

 

Bill

 

 

[bizaro86]

28 minutes ago, wabuffo said:

 

Why on earth would any sovereign "CHOOSE" not to redeem debt denominated in a security it controls?  Especially since typically on the same day (at least in the case of the US Treasury) it is also issuing debt denominated in a security it controls.   

 

Bill

 

I'm not saying it's likely, but politicians do all sorts of things I think are crazy. 

[Eldad]

1 hour ago, wabuffo said:

here were US Civil War bonds with interest and principal paid in gold.

 

Yeah, sorry, I should've been more clear.  I'm talking in the current floating currency monetary regime where the US dollar is no longer convertible to gold.  That system of pegging to gold was in place for only a few decades and didn't work very well (despite what the Austrians will tell you).

 

A sovereign could CHOOSE not to repay debt denominated in a security it controls.

 

Why on earth would any sovereign "CHOOSE" not to redeem debt denominated in a security it controls?  Especially since typically on the same day (at least in the case of the US Treasury) it is also issuing debt denominated in a security it controls.   

 

Bill

The question was “how could corporate bonds ever have a lower rate than US treasuries”

 

I said a conceivable scenario is one in which the US system deteriorates to the point in which it makes sense for corporates to pay interest in something other than possibly rapidly depreciating USD. It has happened many times.

 

 

 

 

 

 

 

 

 

 

 

 

[TwoCitiesCapital]

4 hours ago, gfp said:

 

You guys don't seem to get it.  "money" is the national debt.  The only thing the government accepts when you "loan" them money is their own IOUs.  There is no big difference between a dollar in a your checking account, Berkshire's 3 month treasury bills, or a 30 year bond they had to find kind stranger creditors to buy.  It's all government IOUs.

 

There have been plenty of reserve currencies before us. There will be others after us. Being the reserve currency and being able to "print" your own money doesn't just mean there are no consequences to doing so and everything is fine just printing money out of thin air to buy things that took actual labor/productivity/time/capital to produce. 

 

And there is plenty big of a difference in the risk/reward of 3-month treasuries/cash vs 30-year bonds to the holders of those debts. Just ask First Republic - they wouldn't have had any issues if they had owned cash instead of mortgage bonds and long duration treasuries. 

 

2 hours ago, bizaro86 said:

 

A sovereign could CHOOSE not to repay debt denominated in a security it controls.

 

Personally, I'd have more faith that the US courts would make Microsoft pay me if it could but didn't want to vs making an administration (of any party) pay me if it could but didnt want to.

+1

 

Still waiting for the courts to have the govt pay me for the theft of Fannie/Freddie. The courts will allow for repression if its needed.

 

Just like they allowed for the US gov't to make private gold transactions illegal, bid to buy up all of the gold at ridiculously low prices when you made all competition for the gold illegal, and then immediately default against your obligations denominated in gold by changing the exchange rate favorably AFTER you forced everyone to sell to you at a lower rate...which is exactly what happened after the Great Depression. 

[gfp]

On 5/21/2025 at 1:50 PM, wabuffo said:

I showed through my first argument that money was invented to facilitate commerce.

 

We agree on this money facilitates commerce as a blinding glimpse of the obvious - but you seem to ignore the whole who-invented-the-money part of the equation.   You make assumptions but offer no proof for your "case closed".

 

Why are records of interest being kept by Mesopotamians on clay tablets around 2000-3000 BC older than coined money (which only appeared in the eighth century, BC).

 

Seems to me coined money should've appeared first, then loans and interest record-keeping, but what do I know.

 

Bill

(never been a NY Times reader)

 

https://phys.org/news/2025-09-ancient-tally-civilizations-myths-money.html

 

another study pointing out the early use of tally sticks independently invented in England, China and the Maya world

[Eldad]

On 9/26/2025 at 4:14 PM, gfp said:

 

https://phys.org/news/2025-09-ancient-tally-civilizations-myths-money.html

 

another study pointing out the early use of tally sticks independently invented in England, China and the Maya world

Tax sticks from 14th century England prove that money was invented by governments and predates commerce? Tax sticks from oh 2000 years or so after the first known use gold and silver on the British Isle as a medium of exchange? 
 

You all should read Fiat Money Inflation in France. The French Revolutionaries agree with you whole heartedly. You can see how it worked out for them: societal collapse, guillotines, and then Napoleon to clean it all up. 

[gfp]

[wabuffo]

Not what you would expect from a "currency debasement" from oil and the yield on the 10-year when gold is blasting to new all-time highs....

 

Very weird times.

 

Bill

[Spooky]

38 minutes ago, wabuffo said:

Not what you would expect from a "currency debasement" from oil and the yield on the 10-year when gold is blasting to new all-time highs....

 

Very weird times.

 

Bill

 

Strange times indeed. I keep reading about the "debasement trade" but it is not showing up in bond yields.

[wabuffo]

 

Strange times indeed. I keep reading about the "debasement trade" but it is not showing up in bond yields.

 

And, particularly, oil ( a commodity that trades in world markets in USD) and has had a historical dirty-peg to the gold price going back to post WWII.  While it can vary, an oz of gold has historically "bought" 18 barrels of Brent crude +/- 10 bbls.

 

At the current price of gold ($4330 per oz), Brent should be trading towards $240 per barrel rather than $60.

 

So either gold falls back down, or oil shoots up, or they both move towards their historical equilibriums to each other.  

 

I mean gold shot up to $800 in the late 70s and was back down to $300s a decade or two later.   Or it shot up to almost $2000 in 2011 and was down 50% just five years later.

 

Bill

 

[Cod Liver Oil]

Is anyone short gold/long oil?

[rogermunibond]

Massive liquidity from pandemic, plus global wealthy savings glut = counting assets BTC, gold, equity goes up.

 

This is divorced in some respects from the real economy ie oil, NG, ag commodities.

 

Strategic metals and REE are their own thing.

[Dalal.Holdings]

Oil has its own supply/demand dynamics that are driving its price low. Even historically it is a commodity that swings wildly detached from any happenings of the USD.

 

I would not use it alone to make generalizations about USD. It is a very dirty peg as stated

[wabuffo]

Oil has its own supply/demand dynamics that are driving its price low. Even historically it is a commodity that swings wildly detached from any happenings of the USD.

 

Compare oil-to-gold vs other commodities-to-gold.   Much tighter range.  Yes, supply-demand matters but the value of the dollar also matters.    

 

We'll see.

 

Bill

[Spooky]

4 hours ago, wabuffo said:

And, particularly, oil ( a commodity that trades in world markets in USD) and has had a historical dirty-peg to the gold price going back to post WWII. 

Do you have any theories on why this is the case?

[wabuffo]

Do you have any theories on why this is the case?

 

After 1971, the world's, non-US oil exporting countries did not want to trade their oil for dollars that were diminishing in buying power.   

 

Bill

[Dalal.Holdings]

There are a lot of counter-examples to Gold-Oil link. Covid is one clearly--oil prices went down to negative territory because oil demand collapsed. 

 

In the 70s, Gold surged because of the Nixon shock while oil surged due to the Arab Oil embargo/Iranian revolution. These were two completely different events that sent both commodities up. If you looked at both their charts, you would have thought it was due to correlation when in fact it was mostly due to coincidence.

[wabuffo]

These were two completely different events that sent both commodities up

 

OPEC formed as a direct consequence of the Nixon devaluation of the USD due to severing the link to gold in 1971.  OPEC members understood that they did not want to see the value of their oil devalued too so they used their new cartel powers to limit supply and re-establish the true value of their oil exports in real terms.

 

The US then tried to impose price controls domestically, which, of course, created the gas lines (as price controls always lead to shortages).   The laws of economics can't be repealed.

 

These are not unconnected events.  Don't believe me?

https://www.federalreservehistory.org/essays/oil-shock-of-1973-74

 

 

Bill

Edited October 20, 2025 by wabuffo

[Dalal.Holdings]

39 minutes ago, wabuffo said:

These were two completely different events that sent both commodities up

 

OPEC formed as a direct consequence of the Nixon devaluation of the USD due to severing the link to gold in 1971.  OPEC members understood that they did not want to see the value of their oil devalued too so they used their new cartel powers to limit supply and re-establish the true value of their oil exports in real terms.

 

The US then tried to impose price controls domestically, which, of course, created the gas lines (as price controls always lead to shortages).   The laws of economics can't be repealed.

 

These are not unconnected events.  Don't believe me?

https://www.federalreservehistory.org/essays/oil-shock-of-1973-74

 

 

Bill

 

Haha--What's next, you'll tell me the Yom Kippur War was a direct consequence of Nixon's devaluation ? No, I don't think the devaluation led to the embargo. It was the Arab response to the 1973 Yom Kippur War.

 

And then at the end of the 1970s you had the Iranian Revolution which led to the 1979 Oil crisis.

[rogermunibond]

China household demand for gold and central bank buying.

 

Some good slides from Torsten Slok

 

https://www.apolloacademy.com/wp-content/uploads/2025/10/102125-Charts.pdf

[rogermunibond]

[Spooky]

2 hours ago, rogermunibond said:

 

There was an interesting section in the latest JPM Eye on the Market talking about central bank gold holdings: https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/eye-on-the-market/mad-libs-amv.pdf

 

Basically, they talked about how the argument that the share of central bank foreign exchange reserves invested in gold indicates substantial institutional concern about the US$ is flawed. Almost the entire increase in the gold share of reserves since 2009 is a function of the rising market price of gold itself. The partial disintegration of the post-war world order and rising developed world government debt is driving gold prices higher but central bank gold allocations do not appear to be a big part of the reason why, nor are they clear verdicts on the US$ as reserve currency. If you keep gold prices flat at 2009 levels and use actual central bank gold holdings, the gold share of reserves actually falls to 8%.

 

 

 

 

[gfp]

So it seems like the Fed will have to announce an end to Quantitative Tightening today, which will then look a lot like "stealth QE" since it requires them to buy treasury securities to offset MBS paydowns just to stay even.  Standing repo facility has gotten some action recently.  Bank reserves are below their magic line in the sand of $3T and show signs of tight money here and there.

 

Jobs market is in the dumps and will stay in the dumps for what looks like a decade or more.  Rate cuts will keep coming.  You have to go out 20 years before you find a "4" on the yield curve...

 

Outside of the AI-industrial-complex there are some pretty desperate Americans out there.  I sure am glad I'm not a graduating senior at university right now.  Unless I had majored in air conditioners or something sexy like that.

 

I hope Blake Hampton is OK out there - he was studying computer science in Oklahoma and working for the TSA.  Its a rough world for entry level CS majors and petroleum investors.

[Red Lion]

5 minutes ago, gfp said:

Jobs market is in the dumps and will stay in the dumps for what looks like a decade or more.  Rate cuts will keep coming.  You have to go out 20 years before you find a "4" on the yield curve...

 

 

Is the job market so bleak for the foreseeable future because AI is going to result in a loss of jobs, or is this for demographic or other reasons? And are you referring to the total size of the labor market, or just the percentage of unemployed? It seems like immigration can make a big impact on this especially over a period of a decade. 

 

I feel that eventually rate cuts are inevitable to try to slowdown the compounding of the national debt. I know that the FED's dual mandate today is to avoid inflation and keep the unemployment rate low, but in 15+ years it's reasonably foreseeable that the FED may care more about preserving the status quo on entitlements which requires growing the economy and keeping low borrowing costs. 

 

I'm not an economist or historian, but it seems like we had this same scenario playout after world war 2. Let GDP and inflation run hot, keep interest rates down through something akin to quantitative easing, and grow out of the problem. I think this inevitably plays out sometime in my lifetime. AI could perhaps accelerate this trend.