Something to Keep in Mind With All This US Government Shutdown Talk

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Yesterday’s Daily Reckoning ended with ‘buy gold’. It’s been a tough start if you did. The precious metal fell 2% in 10 minutes last night and another 1% since. It seems funny that a lump of inert stuff can change in price so fast.

So what happened? Reuters reckons the gold price tumbled because it didn’t rise: ‘Gold prices sank more than 3 per cent overnight as investors sold on frustrations that the metal did not rally after the US government’s partial shutdown.‘Quality journalism that one.

The Australian Financial Review is a bit more helpful this morning. It pointed out that an ‘unusually large trade‘swamped the market. Remember, the precious metals markets are not manipulated, according to regulators. Unlike every other market out there from LIBOR to currency markets and everything in-between

The government shutdown in the US continues to raise a lack of problems for the media to write about after it predicted chaos. Instead of an economic crisis, other dramatic events are taking place. The Klu Klux Clan had to cancel a rally in a closed national park, some war veterans broke into a closed war memorial, and public transport in Washington is eerily empty. Heady stuff.

In fact, commentators are so desperate for shreds of economic chaos resulting from the US government shutdown that they’re turning to their trusty basket case of last resort – Europe. ‘Fears US shutdown could derail euro zone recovery‘ is the AFR headline. The sub-head is even funnier. Quoting the White House’s press secretary, it says ‘Consequence of Government Debt ‘Unknowable’ but ‘Catastrophic’‘.

How can something be unknowable and catastrophic? Even better, the headline is obviously supposed to be directed at a debt default, not just government debt. So it ends up making our point that it’s too much debt that’s the problem, not the limit on borrowing.

Anyway, the logic on bringing Europe into the discussion has something to do with trade between the US and Europe and the financial crisis that would result from a US debt default.  But in reality, investors decided to sell off US Treasuries and move to European bonds in search for safety, so it looks like the US budget crisis is lending a hand to Europe…for now.

Something to keep in mind with all this government shutdown talk is that this is the 18th time since 1976 that it’s happened. So be sure to panic.

Regards,

Nick Hubble+
for The Daily Reckoning Australia

Join The Daily Reckoning on Google+

From the Archives…

The Fed Does the Reverse Volcker and Targets the US Unemployment Rate
27-09-2013 – Greg Canavan

How Much Juice can Australian Property Have Left?
26-09-2013 – Greg Canavan

Nothing Lasts Forever…Especially Easy Money
25-09-2013 – Chris Mayer

The Unintended Consequences Brewing Thanks to the Federal Reserve
24-09-2013 – Greg Canavan

The Market’s Declining Response To ‘Open Mouth’ Operations
23-09-2013 – Dan Denning

Nick Hubble
Nick Hubble is a feature editor of The Daily Reckoning and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about The Daily Reckoning, he started writing for it. To follow Nick's financial world view more closely you can you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.
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6 Comments on "Something to Keep in Mind With All This US Government Shutdown Talk"

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watcher7
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* Martin Armstrong, “Gold – The Problem We Face,” armstrongeconomics.com/armstrong_economics_blog/, October 1, 2013: Gold has tumbled sharply and the bearish decline still appears to be moving in full pace. The nonsense put out about gold as a hedge against inflation and the coming hyperinflation trapped a lot of people in the yellow metal. However, I have been warning that we face deflation not inflation and with the $2 trillion-plus Fed balance sheet expansion, gold failed to breakout to the upside demonstrating that the fundamentals talked about just are not real. Our Daily Bearish Reversal lies at 1283. We still see… Read more »
slewie the pi-rat
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Gold (Spot): 1317.93 +30.71 +2.33% crack that whip! imo here’s the source of today’s AU bullishness: US Dollar 79.839 -0.341 -0.44% the dollah dropped below 80 in the index, briefly, yest. today, for real [so far]. IF they can keep the dollah down, this generally tends to be ________ for ‘US’ stock indices. bullish, i would say. also for commodities, and PMs. generally. slewienomics, as usual [at least since last Spring], looks to Japan for ‘collusion’. USD/JPY 97.33 -0.67 -0.69% what YEN strength! L0L!!! of course, the strong dollah was recently threatening to derail the Emerging Market economies by ‘exporting… Read more »
Ross
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One for Watcher, http://www.prudentbear.com/2013/09/many-more-defaults-are-to-come.html#.UkyEZBAmGWo . The Australia crunches of the 1840’s and 1890’s were some years behind both those cited. Private debt deflation here at -5% per annum – not yet me thinks. The tyranny of distance still applied as we got wacked hard, even in the face of growing import replacement and continued migration that should have mitigated.

Auric
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The gold plunge just “happenened” to occur on a Chinese holiday (when the Chinese buying would be limited), and just “happened” to constitute an “anti-panic” signal, in times when the market might be prone to panic (US Govt shutdown). This follows on from the plunge that just “happened” to occur immediately prior to the Fed announcing that it would not be reducing its bond buying program – which subsequently pushed gold up. The pattern of take-downs (timing (3am to 4am NY time) and volume) has become regular and blatant. Expect more desperation (read “gold manipulation”) from the powers that be… Read more »
watcher7
Guest
Hi Ross, I had already read the article and it was good to see Ray Dalio analysis. Compare Martin Armstrong, September 20, Can we Blink Before a Dark Age This is why the Hyperinflationists were wrong. The could not understand that a $3 trillion increase by the Fed in money supply would not be inflationary. What happens is DEFLATION. This is why money suddenly buys more. The CDO assets collapsed in value. Hence, what had been a $5-7 trillion contraction in valuations worldwide, must be seen as an increase in money supply of even $3 trillion would be offset by… Read more »
Ross
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Watcher, we are broadly in agreement on what happened in the past. I won’t buy into the long range forecasting side as much. Perhaps you think the waves can anticipate political “do something” behaviours and consequences…. My interest is very much in how Australia navigates external events. We are liquidity junkies (and always have been) which places us at the tail of the whip. Corporatism always makes the dumb choice, as proved by FDR-Hull, and here too we have had little smarty pants public servants whose limited intellects and disasterous rackets have lived on other peoples funny money/inflation export and… Read more »
wpDiscuz
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