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Quantitative Easing Is Killing Trust In Capital

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Quantitative easing is killing trust in capital and boosting gold, says investors

Link: http://www.cnbc.com/2016/02/18/quantitative-easing-is-killing-trust-in-capital-and-boosting-gold-says-investors.html

Desperate central bankers are undermining trust in capital and boosting gold with their polices, an asset manager has warned.

Swiss Asia Capital managing director and chief investment officer Juerg Kiener said quantitative easing was "killing capital" because it cost investors to hold cash but did not also reduce the size of their debt.

"When you have capital getting reduced and you have still have your debt outstanding, what you get is credit riskGold is basically another insurance against financial dislocation in an environment where your credit is actually the issue, not liquidity," Kiener told CNBC's "Capital Connection".

The Bank of Japan stunned markets on January 29 by adopting negative interest for the first time, following in the footsteps of several European central banks.

Cramer: Could gold be ready to roar higher?

And while central banks could "print as much money as they want" in the hope of stimulating growth, that would not reduce the risks to solvency brought about by credit risk, Kiener added.

Kiener said that with gold gaining $200 an ounce, or more than 10 percent, in just a month, he expected some correction and profit-taking soon.

"The fundamentals haven't really changed, we've got really weak global economies, we've got desperate central bankers who are trying to stimulate economies,' said Kiener, alluding to the broader markets.

Why gold isn't the hedge you think it is

The spot gold price was down 1.9 percent at around $1,206 an ounce in afternoon Asian trade on Thursday, paring earlier gains from investors who piled in to the precious metal on the back of dovish minutes from the Federal Reserve's most recent policy meeting, released on Wednesday.

Notes from the January Fed meeting revealed that monetary policy committee members worried that tighter global financial conditions could hit the U.S. economy. The Fed considered changing its planned path of interest rate hikes in 2016, according to Reuters - a path that has seen its policy diverge from that of other major central banks.

Gold prices fell around 10 percent in the second half of 2015 on fears that interest rate hikes from the Fed would dent the appeal of the non-interest bearing asset. But with negative interest rates back in the picture, the yellow metal has regained favor because it would cost investors more to hold cash.

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It is just comical how cheap gold is given the mess we're in. Negative rates, FFS! Is there a single reason not to hold gold really?

I'd rather hold assets with real value.

Like a stake in the real economy (which I do own), and a house (which I don't).

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I'd rather hold assets with real value.

Like a stake in the real economy (which I do own), and a house (which I don't).

So, can you not get HTB and buy an overpriced hovel on an lO mortgage?

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It is just comical how cheap gold is given the mess we're in. Negative rates, FFS! Is there a single reason not to hold gold really?

Not another gold thread

How many do you guys need

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Not another gold thread

How many do you guys need

in an economics discussion we inevitably come back to money and implicitly the properties of sound money ie. divisible, portable, non counterfeited, not used up by industry, relatively scarce, durable, desired etc you always come back to gold.

go through any commodity, check off the monetary properties and you will find only gold wins, and now also bitcoins.

people who moan about gold hogging all the economics conversations don't understand sound money as the basis of sound economics imo

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The fact that Central Banks have no qualms with creating enormous amounts of money (and thus further weakening the concept of a link between currency and production) means that they are disincentivising people from working to produce useful stuff and instead, encouraging speculation and money-manipulation schemes as a way to generate return on capital.

It's simply disastrous - yet it is now seen as normal. It surely will end in disaster, the only question is how much can the insiders loot from the system before it collapses? How much wealth is there to be misappropriated and misallocated before the economy collapses in a total heap?

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You're seven years late with that observation.

In fact, in Weimar Germany and Austria people took note of this in 1922/23, i.e. almost a 100 years ago.

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I read the BoE document referenced by 'Assume the Opposite' in his signature and found it very informative.

I had assumed incorrectly that the BoF was buying assets directly from the commercial banks in order to boost the quantity of money in the economy.

If I have understood correctly they don't do this directly but buy assets from third parties i.e. pension funds and the procedes of the sale are deposited in banks.

What I haven't been able to find out is what assets are bought and how the price of those assets purchased is determined?

Is it just a committee of the great and the good who say OK we will give you X million pounds for Y million of your 10 year government bonds etc.

What will happen to the assets purchased in the long run?

Any of you clever chaps out there have any answers?

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If I have understood correctly they don't do this directly but buy assets from third parties i.e. pension funds and the procedes of the sale are deposited in banks.

What is the big difference? It artificially props up demand.

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What is the big difference? It artificially props up demand.

Just as they intend!

It would be interesting for someone to ask one of the BoE representative's at the quarterly briefings what are fair value for shares, guilts, houses etc.

Since they seem to deem it necessary to 'support' assets prices I presume they have in mind a price that they should support at!

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