Pabst: What's like on the floor back then 3 months before the crash? Do some people sense it coming because of a lot of papers are putting on the same trade? or is there anxeity on locals/brokers face that you havent seen before? Did you feel anything abnormal?
it makes keeping money in a bank and earning interest more attractive. that money could have been recycled through the economy by purchasing goods and services. instead it sits idle. it makes borrowing to buy more costly and thereby slows the growth of credit and the money supply. look at housing for example. person A puts his house on sale for 500k. person B has only 50K in savings, but can buy it on credit with a mortgage. in our system of fractional reserve banking, a lending institution only needs a fraction of the 500K in holdings to lend person B the money to buy his house. the bank magically credits person B's account with 500k which he sends to person A. person a now has money with which he can purchase all sorts of goods. when interest rates rise too high, person B can't afford the loan and this system of magical money creation no longer works very well. money isn't created as fast, sometimes in fact, money is destroyed (drop in the money supply). this is how rising rates kills liquidity.
Just because a sovereign country has to defend itself against some terrorists, that doesn't seem justify buying gold and silver. The price of fixed comodities like gold and silver can only go up if another person buys it at a higher price. I suspect that is the reason why the price of gold and silver go up and down, not because there is any underlying value. Why not buy Tanzanite? Also can anyone tell me how fixed income can generate 5% or so interest without the money being put to work? i.e. someone (be it the fed) has to make that money work inorder to afford to give that amount of interest (there has to be a counterparty with the equivalent funds and/or productivity to balance the equation)?
Can someone tell me otherwise if I am wrong, but banks make money by loaning money and charge a percentage for it. So If the interest rates are high or higher than before, then there must be loans being made that the higher interest rate levels? Which means that the money is being put to work, i.e. there is productivity and thus a growing economy. So, correct me if I am wrong, but piling into fixed income and fixed commodities such as gold and silver (with minimal if no underlying value), seems to be a self destructive process. Also if the powerful have already been buying gold and silver, why buy it now? Are there any more buyers to bid the prices even higher? In fact, why buy crude oil even, when there is now the electric car that does 0-60 in 4 seconds, and does 250miles on a full charge at 1cent/mile? What about butanol by Du pont that will be available through BP in about 3 years time, with which there are no transport problems as it can be pumped through gasoline pipelines as opposed to ethanol?