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Comment by biff | Hacker News Reader

To summarize, Wall Street's saying "They couldn't possibly be that stupid." and Congress is saying "Just try us."?

"There are decades when nothing happens and there are weeks when decades happen" -Vladimir Lenin

Crises come quickly because nobody likes to dump until they absolutely have to. That is, when everyone else is dumping. Markets thus exhibit self-organising criticality.

Endogeneity doesn't help, either. Wall Street doesn't react because it assumes Congress isn't insane. Congress doesn't believe it's insane because "the Dow is down barely a point from a month ago!"

I just hope all the millions and millions of lines of source code out there at banks have no problem with defaulting T-bills. What should we call it.. Y2K => GOVT2DUMB?

I hope everyone learned their lesson after all the panic over Italy/Greece/whoever defaulting and when senior MBS bonds took losses way back in 2009 and the code can handle defaults. I think the bigger risk would be from the portfolio rebalancing that would need to be done as what was assumed to be a 0 risk T-note is no longer 0 risk. That's of course ignoring the sudden "oh shit" heard all the way in southern Jersey when the notes don't actually pay out.

There have been tons and tons of serious investors claiming T-bills are the most risky assets class since at least 2005:

Marc Faber, Jim Rogers, Kyle Bass, Peter Schiff, list goes on and on.

Hoarding gold since 2005 and tell you one thing - just can't wait.

U.S. debt will still be among the safest assets (as opposed to the safest, which it still could be).

Edit: I don't think that defaulting on or debt wouldn't lead to catastrophic consequences. Nor am I an economist.

> Hoarding gold since 2005 and tell you one thing - just can't wait.

I don't want to burst your bubble, but if things go tits up, it will affect the demand of useless shiny metals and as a consequence, their value. If I were you, I would hoard toilet paper. Historically, for some reason, when the shit hits the fan, there is never enough toilet paper around to wipe up the mess.

Gold has lots of uses. Of course, most of them are dependant on industrial (and hence financial) infrastructure...

Gold Price is currently at its mining cost. The asset you can buy at its production cost is a bubble? Where are you talking your investment advise from? CNBC?

US Treasuries at the most expensive price point for the past 300 years. That's for you, if you're looking for bubbles.

Gold's mining cost is directly correlated with its sale price - different precious metal or gem mines have different extraction costs. So the "mining cost" of an ounce of gold varies with which mines are open, which varies with how much the gold sells for.

mining cost = labor + energy

If: labor + energy to extract gold > gold price

we have a bubble?

;-) LOL

I meant "burst your bubble" as an idiom, not as an insinuation that there is a bubble in economic terms.

That said, gold's price is determined by supply and demand, just like for any other good. Certainly part of the price is supply, which is determined to some extent by mining costs, but there is also the demand side of the equation. You will find demand for precious metals greatly diminished during a recession or any kind of economic hardship. They are a luxury good. Toilet paper, on the other hand, is an inferior good whose price will not be affected by any economic hardship. In fact, it may even increase during such a crisis.

Buy toilet paper.

I lived through severe economical crisis in 1980s in communistic Poland that included food shortages and hyperinflation. Also read a lot about hyperinflation in Weimar Germany and role of gold during WW2. I think you are right. Toilet paper, cigarettes, alcohol, even toothpaste are luxuries and can function as money during hardship. For the poor. Rich at that time buy production assets on the cheap using gold. Did you know that the only way out of Aushwitz was to bribe guards with gold? That was the only thing so valuable that they let someone go. At the peak of hyperinflationary period in Weimar Germany gold price went down tremendously. True. Still the price of all the Mercedes-Benz equity was just about 600 ounces of gold. It's not that gold gets expensive. No, you're right. Toilet paper, food, guns, will be relatively much more expensive. The point is that production assets will get so cheap that you can get them easily for few ounces. You could probably trade them for food too. The thing is the food goes bad, and isn't practical for trade. Gold, you can shove up your ass and run away leaving your whole life behind.

So, I'd say, it's more like poor will be using cigarettes, alcohol, etc. to trade just to survive while wealthy will use gold and silver as the currency. Because if you're this guard in Aushwitz, how do you know if Germnay wins the war. Or the US? You don't. That's why you'll prefer currency gold to national currencies.

The term for this is heteroskedasticity, which I've never spelled right.

Essentially, volatile events are not evenly spaced-- volatility tends to cluster around events.

Endogeneity refers to the causality loop. The markets are judging the probability of the U.S. defaulting. The market's judgement, in turn, affects the probability of the U.S. defaulting. This will tend to produce a system exhibiting self-organised criticality.

The probability of the critical point being tripped could be heteroscedastically distributed. But that's not the same thing as saying the market judgement is endogenous to its prediction.

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