What the Heck is Going on With the Dollar and “Fear?”

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“Speculators are losing faith.”

Gold jumped 2.2% on Friday to $1,294.90 an ounce. It’s up nearly 5% for the week and hit the highest price since January 2015.

Silver rose 1.7% on Friday to $17.80 an ounce. During the day, it kissed the highest price since January 2015. It has jumped 15% in April.

The yen, which the Bank of Japan successfully crushed for a while, has re-soared, from ¥126 to the dollar in June last year to ¥112 by last Wednesday morning in Tokyo. At that point, the BOJ announced that it would keep its scorched-earth campaign of negative interest rates and money printing unchanged, rather than adding to it. This disappointed the hedge fund community that had been cocksure that the BOJ would throw more fodder their way. So Japanese stocks plunged and the yen soared to hit ¥106.5 to the dollar on Friday, up 5% in three days, and the highest level since October 2014.

The euro, which the ECB is trying to crush with all its might, has re-soared 9% since early December to $1.145 by Friday.

Seen the other way around, the dollar is losing its value against all of them. The NBF Economics and Strategy team in a note to clients:

After hitting a 13-year high in January, the trade-weighted US dollar has subsequently lost steam, hammered by soft US economic data and hence diminished odds of Fed rate hikes. Speculators have reinforced the greenback’s decline by taking their net long positions to the lowest since 2014.


So they ask:

Can the mighty greenback bounce back? Considering markets are currently pricing in almost zero rate hikes this year, the big dollar could indeed rally if the Fed unexpectedly changes its tone and adopts a more hawkish stance.

But over the short term, they see a “persistence of USD weakness.”

So folks are dumping the dollar, and last week they were dumping stocks too, and they’re chasing after the opportunity to profit from risk. They’re betting on a spike in fear and on a calamity in the markets. Christine Hughes, Chief Investment Strategist at OtterWood Capital, explains it this way:

Falling corporate profits, declining growth forecasts, and an uncertain macro environment have fueled investor uncertainty and kept markets range bound. The S&P 500 has also sold off more than 10% three times in the last 19 months, adding to investor skittishness.

These concerns are best highlighted by the amount of money poured into VIX related ETFs. The amount of shares outstanding in the VXX has hit record levels recently as investors look to protect themselves in the event of another sudden selloff.


Are people worried that central banks are the only thing that keeps stocks propped up and that now even these formerly omnipotent market manipulators can’t do their jobs anymore?

“If things don’t make common sense, sooner or later, they come home to roost.” That’s how John Thornton, who’d retired as president of Goldman Sachs in 2003 and who’s now a prof at Tsinghua University in Beijing, explained it to Yahoo Finance:

“So I feel as though we’re sitting in 2016 with many of the same problems that we’ve had for the last eight or 10 years, they haven’t been addressed very forcefully, we’re living on borrowed time. And sooner or later, that ends in tears.”

OK, he may have an agenda: He’s Executive Chairman of Barrick Gold Corporation and Non-Executive Chairman of Asia-based asset manager Pinebridge Investments, and he has served on the boards of, among others, Industrial and Commercial Bank of China, China Unicom, and HSBC.

But that “uneasy” feeling, as he called it, isn’t unique, nor is his fear that the global economy is “living on borrowed time,” or that the whole package will “end in tears.” We have felt that way for a while.

So people are once again fleeing into gold, silver, and (somewhat inexplicably) the yen, and they’re dumping the dollar and stocks, and they’re betting big on volatility and fear. The irony?

There is no fear.

Not according to the “fear index.” The VIX stood at 15.7 on Friday, so low that it speaks of “complacency” after having spiked last August to 40 and after having plunged and spiked since then:


Source: Bloomberg

And those hardy folks who bet on fear and volatility and bought the VXX on February 11, and thus contributed to the jump in the number of VXX shares outstanding? So far they’re down 43%.

It’s hard to make a buck on fear when complacency still reigns despite visible mega-risks and even more visible mega-challenges. This utter disregard for reality by stock and bond investors, who now no longer feel the need to be compensated for the risks they’re taking, except at the very riskiest end of the scale, is one of the greatest accomplishments of central banks, and at the same time one of the greatest risks out there.

While slow economic growth might look OK-ish on paper, in the US, where there’s significant population growth, it’s toxic. But the numbers are hushed up. Read…  Why this Economy Feels Even Lousier than the Lousy GDP Print

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  76 comments for “What the Heck is Going on With the Dollar and “Fear?”

  1. Syka
    May 1, 2016 at 1:51 am

    Re the rise in Yen: very much in line with “The Fear” factor which is described in fact, as unwind of the Yen Carry Trade. So BOJ actions appear defensive against the $Trillions that have supposedly been poured in this (HF….) Trade.

  2. d
    May 1, 2016 at 3:59 am

    “Seen the other way around, the dollar is losing its value against all of them.”

    Nein, Nein, NICHTS, Herr Richter.

    That is not the other way around.

    That. IS, the way, it is.

    The US $ rose, now it retraces somewhat, the Open interest, Non Comm, net long drop, also say’s, soon there will be a US $ bounce from Support.

    People are always screaming THEIR currency is strong/rising against the US $.

    The reality is, the US $ is normally the big mover, and it has simply weakened against their currency. As it is doing now.

    The element to watch here, to confirm market manipulation, and clandestine devaluation, is how much, CNY, does NOT, rise against the US $. In relation, % wise, to the other major pairs.

    • OutLookingIn
      May 1, 2016 at 11:37 am

      FEAR is a four letter word. So is DEBT.

      If you keep it simple, this is the basis of ALL the global financial FEAR.
      Be it sovereign bonds, corporate bonds, mortgages, car loans, etc. etc.
      Not to forget that derivatives use the above debt as their “asset” base!

      In recent GAO (Government Accountability Office) testimony before the Senate Budget Committee, the comptroller general for the GAO said:

      “The historical average post-World War II of how much debt we held as a percent of gross domestic product was 43 percent on average;
      Right now we’re at 74 percent”.
      Folk’s – that’s 31% above the past 71 year average!

      Look no further than DEBT for the cause of FEAR.

      • OutLookingIn
        May 1, 2016 at 12:53 pm


        “The speculators are losing faith”.
        In what? THE US DOLLAR.

        What is increasingly missing from the global chain of commerce is the US dollar – it’s not involved. Countries are quickening their pace, behind the scenes, to end the dollar hegemony. Hence the BRICS Bank, Asia Investment Bank, the Chinese backed SAFE payment system, the Shanghai Gold Exchange, along with the new “Silk Road” economic trade deals.

        When the US dollar completely loses confidence, the present global monetary system will collapse. Those countries who are not part of the above new system will be left out in the cold, left twisting in this new global financial windstorm.
        Confidence is fast waning in the old fiat system.

        • Bigfoot
          May 1, 2016 at 3:52 pm

          “Confidence is fast waning in the old fiat system.”

          I agree with this at face value but do you really believe that confidence is growing in some new fiat system? BRICS
          South Africa

          Their monetary systems are modeled after ______________.
          This new system is firmly tied to ______________________.
          Yes, it appears that these countries are setting up various exchanges to support trade & you didn’t mention Russia/China setting up an alternative to SWIFT. Could there possibly be more to this than meets the eye? Look at these countries on an individual basis, their monetary system, who they are indebted to, & then try to fill in the blanks above.

          I firmly believe the us$ will eventually collapse (already lost an implied 95+% since created) & probably by design to usher in ____________. I don’t buy into the premise that brics is going to be the replacement. I lean more towards the creation of a global monetary system as there is a lot of evidence suggesting this could be on tap. Who knows right.

          I don’t know any more than you & this is just my WAG.

    • micromacroman
      May 3, 2016 at 7:25 pm

      Glass-Steagall, How we miss thee.

      • d
        May 3, 2016 at 8:54 pm

        OH YES.

        Every day,

  3. rich
    May 1, 2016 at 6:48 am

    Just because people are not afraid, doesn’t mean that they shouldn’t be. I can’t think of any way to survive the kind of world wide, economic collapse the bursting of this bubble will cause:

    “According to the OCC, as of December 31, 2015 there were $237 trillion in notional derivatives (face amount) at the 25 largest bank holding companies, with the bulk of that amount on the books of the insured banks. That compares with $169 trillion on the books of the 25 largest bank holding companies at December 31, 2007, just prior to the implosions on Wall Street. This means there has been an explosive 40 percent increase in eight years, when the Obama administration was supposed to be reining in risk on Wall Street.

    When you hear Hillary Clinton repeatedly tell the public that she wants to continue along the same pathways as President Obama, and that the restoration of the Glass-Steagall Act is not needed, let the image of Goldman Sachs Bank USA and its FDIC insurance logo and its $41 trillion in derivatives come to mind.

    According to the latest report, from the the Office of the Comptroller of the Currency’s (OCC), on the derivatives exposure four largest banks, credit exposure from derivatives versus the bank’s risk-based capital is as follows: JPMorgan Chase 209 percent; Bank of America 85 percent; Citibank 166 percent and Goldman Sachs (wait for it) – a whopping 516 percent.

    Not to put too fine a point on it, but you might recall that one of the key promises of the Dodd-Frank financial reform legislation was that after the largest bank bailout in financial history in 2008, these derivatives were going to be pushed out of the insured bank into bank affiliates that would not endanger the taxpayer-backstopped deposits and force another monster taxpayer bailout in the next crisis. This became known as the “push-out rule” which could never seem to materialize into a hard and fast law. Then, in December 2014, Citigroup simply used its muscle to legislate the rule out of existence.”

    • d
      May 1, 2016 at 7:23 am

      “$237 trillion in notional derivatives”

      Of that sum how much is counter-exposed to another Derivative IE 1+ and 1- = 0 and how much is counter exposed +/- to another item.

      With out a lot of unrepresented data about the alleged problem, there is no proof, it is a problem.

      Like warren buffet I dont like derivatives, The more I learn about them the more I see a need for more detail about what they expose who, to where and when, before the Total derivatives exposure of JP or Goldmans becomes truly relevant.

      Its like claiming Loyd’s is nonviable, as it has potentially 100,000 times more liability on its books than assets and underwriter’s assets.

      knowing full well not even 1 % of Lloyd’s potential annual liability’s, will turn into claims..

      Lots of noise is made about derivatives, yet those making it, never show exactly how, the exposure endangers, who, and whom, where, and when.

      Listing the instruments amounts, what underlying asset or contract they relate to, and all party’s to the instruments.

      Without some serious details, and factual data, you are simply another chicken little/Wolf Crier.

      • rich
        May 1, 2016 at 10:00 am

        If I am a chicken little, then you are an ostrich. We saw what bad derivatives bets (along with some seriously bad RMBS and CDO holdings) did to AIG:

        “The Fed chairman, Ben S. Bernanke, appearing on “60 Minutes” on CBS on Sunday night, said: “Of all the events and all of the things we’ve done in the last 18 months, the single one that makes me the angriest, that gives me the most angst, is the intervention with A.I.G.”

        He went on: “Here was a company that made all kinds of unconscionable bets. Then, when those bets went wrong, they had a — we had a situation where the failure of that company would have brought down the financial system.”

        In deciding to rescue A.I.G., the government worried that if it did not bail out the company, its collapse could lead to a cascading chain reaction of losses, jeopardizing the stability of the worldwide financial system.

        The list released by A.I.G. on Sunday, detailing payments made between September and December of last year, could bolster that justification by illustrating the breadth of losses that might have occurred had A.I.G. been allowed to fail. Some of the companies, like Goldman Sachs and Société Générale, had exposure mainly through A.I.G.’s derivatives program.”

        A.I.G.’s credit default swaps (derivatives) only had a notional value of $527 billion just prior to the collapse, and that’s not even chicken (little) feed compared to the $237 trillion in notional derivatives exposure of today’s largest 25 banks. And I believe that there was about a 14% hit to Lehman Bros derivatives counterparties after the collapse.

        (Forbes) “In 2008, derivatives exposure bankrupted Lehman Brothers in a $600 billion bankruptcy case that clocked in as the largest bankruptcy filing since the beginning of time.”

        What was it that toppled the almighty Lehman Brothers – the effects of contagion.

        • d
          May 1, 2016 at 11:43 am

          Now you comparing History. Where the derivative caused issues to the bank in question,but not the entire system

          To current events, with out specifying what the current derivatives are against, the numbers are meaningless as the risk can not be assessed.

          So you are simply crying. the sky could fall, the sky could fall.

          Without the rest of the information.

          Everybody who loves to make an antibank noise, loves to scream about derivatives, as they dont have to provide details, about THE derivatives, in question.

          As antitbank talk about derivatives, is a hot button, antibank topic.

          Prove the derivatives in question, are a current major risk, today.

          YOU CANT. You are making antibank noise, as you can.

        • Dan Romig
          May 2, 2016 at 6:31 am

          I believe that A.I.G. was a pension trustee for many of the US government employee’s pension funds, and that was the unreported reason it needed to be bailed out after its reckless deals with Goldman Sachs came crashing down in 2008.

          I agree with Rich, and I also read Pam and Russ Martens’
          Readers may want to check out their reports on the trillions of dollars in derivatives being manipulated by Wall Street’s big five. Remember that on 16 December 2014, Congress passed and Obama signed the 2003 page Cromnibus Bill that had a nice section inserted into it by Citigroup that put FDIC coverage on the banksters Ponzi-schemes.

      • May 1, 2016 at 10:36 am

        3 Italian banks are failing hard and Deutsche Bank’s (the biggest bank in Europe) exposure in derivatives (things that caused 2008 meltdown) is now equal to 10x Eu’s GDP. This is just a small example of Europe.

        Now check exposure of banks in the US and Canada to junk bonds of sale companies – indebted so much they spend 80% of their revenues on debt servicing.

        I have more… The only reason those bubbles are not bursting is the chicken game played against the FED – last game FED bailed out everyone in 2008. Now? Think whether they will have enough ink to print this much…

        • nhz
          May 1, 2016 at 12:31 pm

          and let’s not talk about EU governments that are surviving thanks to zero or even negative treasure rates, with budgets that would not be possible in a true economy (subsidizing all kinds of nonsense with much of that related to banks, private mortgages etc.).

          Same story for all the homeowners who are having the time of their life thanks to mortgage rates of 2-2.5% or even less and who are quickly getting accustomed to that (someone I know pays 0.35% now, and in Netherlands too a small number of people even get paid for the mortgage by the bank).

          The whole system is bankrupt but central banksters and politicians keep postponing the inevitable with more money printing and more BS every day …

        • Intosh
          May 1, 2016 at 1:50 pm

          @nhz: But what will bring the “inevitable”? (This is a honest question because I have been asking that to myself.)

          In nature, you cannot escape or cheat the laws of physics. But what are the fundamental laws in a fake economy? In this artificial world, what could force governments to stop handing out money for people to keep consuming, to stop buying to support the stock market, for example? In a game where the players set the rules, they can do anything they want.

      • Atticus Finch
        May 1, 2016 at 11:45 am

        Because the whole process is opaque and detail is impossible to get, let’s start with actual world transactions of $59 trillion against what is being held by the banks. It’s paper pyramid hidden by an inability to trace counter-party risk and the ability to insure a risk that is many times higher than the real economy. The risk is what if the insurer cannot cover the bet, what if the counter-party cannot perform and what is the status of the counter-party three times removed of whom nobody knows who they are? I’m sure you’re right, nothing to be concerned about here.

        • d
          May 2, 2016 at 2:58 am

          I dont like derivatives, or dentists.

          Yes the derivatives pile is opaque.

          Its very opacity, is a cause for concern.

          Screaming about it, throwing around huge numbers, without proving that, X amount held by B, are exposed to C, who is highly unstable.

          Is crying wolf. Beating on Banks, and Banking, as its easy.

          Derivatives are hedges/insurance policy’s.

          Lumping all the potential policy liability’s of an insurer together, and claiming an untenable total liability, is Theatrical Hype. Unless they are all, imprudently, in 1 sector.

          The same for the derivative pile.

          Prove its as dangerous as the hysterical hyper’s claim, currently, not using what has happen in past correction events. Or simply list as a real concern due to its opacity.

      • Bigfoot
        May 1, 2016 at 10:42 pm

        This just in, Freddie Mac to report a loss due to derivatives.
        May need another bailout.


  4. bead
    May 1, 2016 at 8:01 am

    Lots of hedging going on and not hard to see the reason why. No growth and stocks threaten highs. I read funny stuff like Jeff Saut, the permabull who claims to know when the big boys buy. Did you know that 70% of companies reporting beat their lowered earnings expectations (whatever earnings represent) so far in Q1, the highest rate since 2009? How can you leave the stock market when it could bound 300% like 2009? If you can’t dazzle them with brilliance baffle them with BS.

    President Yellen’s bazooka rounds will keep the cattle in the pen.

  5. MC
    May 1, 2016 at 8:34 am

    The dollar is bound to bounce back after the ECB unleashes more weapons of monetary mass destruction on me and the rest of EMU-area savers.
    Mario “Kamikaze” Draghi has made very clear he’ll continue on this course, even if this puts him on a collision course with his best ally so far: the German government. For all the lip service to fiscal discipline and price discovery, so far the Germans have done exactly nothing to reel in the ECB.
    As soon as the ECB cuts rates again, perhaps before the Summer, the dollar will bounce back.

    Japan is another matter completely: the other monetary kamikaze, Haruchiko Kuroda, has a rice paper thin majority among BOJ governors which, as recent event prove, may have dissolved. If the ECB cuts again, or goes on another QE spending spree, to “thrash” the euro he has a 50% chance to get his way, no more. The BOJ already owns over half of Japan’s ETF’s, a big chunk of J-REIT’s and a nice pile of Nikkei 225 stocks to boot. There is very little elbow room left for the kamikaze to maneuver: he may cut interest rates a tiny bit more but that’s it, unless he somehow manages to convince the BOJ governor they can buy the whole of Japan’s financial markets. If Switzerland was the first casualty of the currency war, back when the BNS was forced to abandon the ChF/€ peg, Japan may be the first player forced to throw the towel in because it has literally nothing more to do.

    • nhz
      May 1, 2016 at 12:37 pm

      Of course the Germans (and the Dutch) do nothing despite some vocal opposition. Politicians like their ZIRP/NIRP as it enables bread-and-circuses like never before.

      Huge budgets deficits that cost nothing, cheaper mortgages, quickly rising home prices, rising salaries and generous early retirement packages for public employees, higher social security benefits, and plenty of money to waste on all the new migrants (the Dutch government just decided to spend an ADDITIONAL 25.000 euro or so on each of them, to make sure they feel welcome and will soon vote for the right parties).

      Politicians understand that a majority of the voters benefits hugely from Mario’s con games. So this will continue until the middle class has been eliminated and there is nobody left to rob. The end will catch the big majority of the voters by surprise, because ‘everything was just awesome’.

      • MC
        May 1, 2016 at 1:11 pm

        One problem is general elections in Germany are to be held in a little more than a year. A lot can happen but one thing is bound to stay the same: Kamikaze Draghi.
        In most recent surveys, the new “right wing” German party, AfD, polled third nationwide. By German standards that’s more than a meteoric ascent. CSU/CDU and SPD are already sweating profusely, as those same polls say voter turnout is bound to decrease, again, meaning AfD is taking votes for them. The usual campaign to demonize and ignore, tried with poor results on Italy’s M5S, which shares AfD’s anti-immigration stance, is already afoot.
        AfD will never rule Germany, but it can make a coalition government a whole lot harder if not impossible, like Spain’s Podemos.
        Can the German government afford another year of monetary quackery, especially at a time when China’s appetite for German exports is on the wane and weakening dollar is bound to throw a wrench in exports to the US and the Gulf? In related news, the Bin Laden Group, Saudi Arabia’s largest government contractor and a major customer for German engineering firms, has just fired 25% of its workforce.

        Having Draghi fire his bazooka left and right, like an overenthusiastic recruit without oversight and a crate full of rockets, is bound to cause far more mayhem than Kuroda could ever hope to achieve. While Abenomics is running out of steam, the ECB will stay the course until either a crisis (even a minor one) strikes or somebody finds the political will to put a leash on Draghi.

      • nick kelly
        May 1, 2016 at 1:16 pm

        I think we should feel a little sympathy for Mario. I think of him as a guy on a rack, or maybe being pulled apart by four horses. Good god what a job, trying to stabilize banking systems that make the US shenanigans look tame. There is really no such thing as ‘mark to market’ in the Spanish banks for example. All kinds of real estate that has plunged 60% is still on the books at original price.
        As for Banco Espirito Santo…
        BTW: the Greek banks were by comparison better run- but they were full of Greek government bonds.

  6. Markar
    May 1, 2016 at 9:32 am

    As oil is increasingly traded in non USD currency, dollars will be “returned to sender” as no longer needed. Its days as reserve currency are numbered. And the VIX is no longer an accurate indicator of fear. Slamming it has become one of the Fed’s favorite tools for goosing the stock market.

  7. Ptb
    May 1, 2016 at 9:33 am

    The USD is the still the mother ship. Look for a reaction in the near future. The real tell of future demise will be when the fear trade actually dumps US treasuries. Then you better hang on to your assets.

  8. unit472
    May 1, 2016 at 9:51 am

    Apparently a lot of investors got burned by the BOJ not announcing more ‘easing’ but why that has led to the Yen strengthening is over my head. Japan is still on the road to financial oblivion and, at some point, will have trouble financing its debt domestically.

    FWIW the Eurozone is now growing faster than the US to the extent you believe GDP growth can be measured down to tenths of a percentage point so there is a least some reason for the Euro to be strengthening.

    I confess Fx movements baffle me but the fact that interest rate swaps are negative may underlie some of the Yens rise or so some have suggested.

    • CameronS
      May 1, 2016 at 6:52 pm

      “but why that has led to the Yen strengthening”?

      The reason maybe currency hedging by Japanese institutions.

      “Japanese institutions are indeed sending money overseas at record rate but …. institutions are not willing to take as much risk that the Yen will remain weaker than its Long Term Real Effective Exchange Rate (LTREER) ~99.5. So they are hedging out currency risks (buy Yen forward)…. ”


  9. frederick
    May 1, 2016 at 10:10 am

    İ highly doubt that has anything to do with the Euros recent strength unit472 as the pound and yen are also up tremendously against the USD İ think people are losing confidence in the FED and the dollar due to Yellens constant flip flopping İ know İm giving up and dumping my USDs tomorrow for gold bullion buts thats just me

  10. Lars
    May 1, 2016 at 10:45 am

    The US$ is declining: because China has been using its dollars to buy gold, because China went to a gold backed Yuan on April 19 which will become the defacto world reserve currency going forward, because the US CIA created ISIS is being demolished by Russia, because the Saudis are dumping dollars, and because of great uncertainty over the coming election for US President in November, as well as the US stock market being sold off and those dollars going to buy the seller’s home currencies.

    • d
      May 1, 2016 at 11:48 am

      “The US$ is declining: because China has been using its dollars to buy gold, because China went to a gold backed Yuan on April 19 ”

      Where do you get this fairy story from.

      HARD evidence, not ZeroHedge or some other fairy story.

      • walter map
        May 1, 2016 at 4:48 pm

        In view of the banking industry’s long and distinguished history of duplicity, corruption, and malice, I for one am unimpressed with your rather atmospheric bleatings in their defense.


        • d
          May 2, 2016 at 3:47 am

          Banks are like toilets, a necessary element of modern urban society’s.

          They dont do anything they believe the regulations dont legally allow them to do, (as its to expensive in the long term), although some of their employees do, from time to time.

          If you dont like what the banks are doing speak to the regulators who control them.

          Crying that the banks own the regulators, is garbage, as the electorate elects the people, who appoint the regulators.

          The problem with the behavior of the banks, is the refusal of the electorate, to change it. As the electorate loves soft rich-man targets, to beat on.

          Look at Argentina another period of leftist mismanagement comes to and end and five minutes later the leftist are in the street protesting that nothing is changing and all evils are the fault of the right.

          The leftist electorates biggest problem, is the leftist electorate.

    • nick kelly
      May 1, 2016 at 1:05 pm

      If China’s currency is ‘gold backed’ as the US$ was before 1971, then I should be able to present yuan and receive gold. Where do I do this and what is the exchange rate yuan/gold?

      • Jungle Jim
        May 1, 2016 at 1:34 pm

        Just because a currency is gold backed does NOT mean that it IS convertible. From 1934 to 1974 Uncle Buck was gold backed but US citizens were prohibited from owning gold except as dental work, jewelry, or objects de art.

        Every government reserves the right to screw its own citizens when the need arises which usually works out to being a political need. The one crime they will never forgive is if a citizen tries to protect himself from the government. For that, no punishment is too severe. In the 1940s you could get ten years in Atlanta for mere possession of gold coins.

        • nick kelly
          May 1, 2016 at 8:52 pm

          The US could make whatever laws it wanted for US citizens. However it was bound by the Bretton Woods agreement to exchange external dollars for gold at 35 per ounce.
          By 1965 the US share of world trade began to shrink as Germany and Japan recovered. Other countries began to notice that as the issuer of the reserve currency, the US was getting something of a free ride- it cost the US almost nothing to print a hundred dollar bill.
          In that year France announced it would exchange its dollar reserves for gold. The US had to comply or abandon Bretton Woods. Switzerland soon followed. At first the US did exchange the gold as per the agreement.
          But as the cost of the Vietnam war was increasingly covered with printed dollars, the trickle became a torrent.
          The drain of gold from the US could only be stopped by abandoning Bretton Woods. This is what happened in 1971 when Nixon shocked the system and ‘closed the gold window’

          If ‘gold backed’ doesn’t mean convertibility what does it mean?
          Surely the mere announcement that a country has a bunch of gold doesn’t qualify. The US still has a bunch of gold.
          Until recently the Swiss franc was the closest thing to a gold backed currency but I believe that is no longer the case.

          Since 2008 China has created the most money and credit in history. Everyone who visits China notices that all the money seems brand new.
          If all this new money is ‘gold backed’ China must have a very large hoard.

        • nick kelly
          May 2, 2016 at 10:42 am

          PS: Nixon undoubtedly closed the gold window i.e. ended convertibility, to weaken the US dollar as well as stopping the gold drain. It worked-US exports and GDP rose (although perhaps in inflated dollars)
          Right now everyone is desperately trying to lower the value of their currency- if China were to have a gold backed yuan it would strengthen dramatically, whereas recent Chinese moves have aimed at the opposite.

    • May 1, 2016 at 1:22 pm

      That China went on the gold standard is news to me. They’re the biggest money-printer and credit-creator of them all. And they have a great transmission channel: their state-owned megabanks (among the largest in the world).

      • Mark
        May 1, 2016 at 1:38 pm

        I hate gold, I see it just as useless metal, but two week investment is paying off handsomely and ammunition companies are doing good as well.
        Happy investing.

        • prepalaw
          May 1, 2016 at 3:00 pm

          How can anyone hate a thing. Mark must also hate earth, air, water and fire.

          If there is anything man-made to hate, that thing is debt.

          Stop hating and start thinking. A person consumed with hate is useless to himself and his family.

        • May 1, 2016 at 4:10 pm

          I hate oxidized coffee (the smell and the taste). It’s repulsive. Turns out, “hate” has a lot of meanings, just like “love.”

          I love a good steak and I love my wife and I love swimming in the cold Bay. Yes, but in different ways. One word, different meanings. The beauty of the English language (or perhaps any language).

        • d
          May 2, 2016 at 3:35 am


          Hate however, is an extremely powerful, negative, personally destructive Emotion.

          Just like bias, it clouds the thinking process, with negative results.

          Just as bully’s need somebody to beat, to feed their weak personality’s and low self esteem.

          So Racist need somebody to hate, for the same reasons.

          For our own well-being, Hate, Bias, and Racism, are things we should Strive to Eliminate, from our lives, and the planet..

        • walter map
          May 1, 2016 at 6:17 pm

          “I hate gold, I see it just as useless metal”

          Let me know when you’re going to throw yours out so I can send someone to dig through your trash.

      • Agnes
        May 1, 2016 at 7:15 pm

        China has taken the second of three steps to monetize their currency(pricing gold in yuan)….but has not yet taken the third step. Japan has called in their notes (yen) and could conceivably monetize overnight if they wished. China’s first step toward monetizing was when they encouraged their citizenry to buy pm.

      • Lars
        May 2, 2016 at 12:22 pm

        As the Western Mainstream Media is highly controlled by the Western Corporatocracy, don’t expect to hear about what’s going on in the ‘real world’ from only them. [d]
        That said, alternative media sources do ‘color’ their stories as well, but in a different direction.
        Therefore: the passage of time will tell the tale best, albeit that Truth will win out in the long run. (We are all watching to see what happens ! – Lars)

        China is embarking on a course of an ‘implied’ gold backed Yuan, not an ‘officially’ gold backed Yuan, though they may make it official if the ‘implied’ status isn’t effective enough. [Wolf]

        – –

        April 18, FED Chairman Yellen meets in secret with Obama in a closed door emergency session.

        19 APRIL 2016 2:10 PM EDT — Today, China did launch the Shanghai Gold Exchange (SGE), with an official Yuan fix for the price of Bullion.

        – –

        “There is also a lot of chatter from multiple sources that some sort of financial event far bigger than the Lehman shock is imminent. While experience has taught us to be wary of specific dates, many sources even go so far as to say it will be on April 19th. This is the day the Shanghai Gold Exchange will start its gold trading platform.

        It is probably no coincidence then that last week Deutschebank admitted in court that it manipulated gold and silver prices and promised to release all the information it has about other big banks involved in the price manipulation.

        So, we have the Chinese starting a gold exchange at the same time as the Western banks that traditionally set the gold price are being publicly outed for fraud. The Shanghai Gold Exchange will also make it possible for the Asians to monetize the vast off-market gold hoards they reportedly hold. This means the Chinese yuan will become at least partially gold backed.”

        – –

        “In a shocking move likely to crush the US economy overnight, China is refusing to make its new gold-backed Yuan, convertible from or to US Dollars. The new Yuan will be introduced next Tuesday, April 19.

        When the International Monetary Fund (IMF) agreed to add the Yuan to the basket of world currencies used for Global Reserves and International Trade, they wanted China to make the Yuan more reliable as a currency. Since then, China has almost un-pegged its Yuan from the Dollar, allowing its value to fluctuate on world markets.

        But for years, China has been amassing huge amounts of gold bullion; some have said their appetite for bullion has been “staggering.” And with a new gold-backed Yuan to be issued next Tuesday, the entire world will have a choice of a new currency to use for international trade: The old US Dollar which is backed by nothing, or the new Chinese Yuan, which is backed by gold. Which currency would YOU use?

        When this new currency is issued, countries that have been forced to use US Dollars for decades, and have had to keep billions of dollars in their foreign currency reserves, will be free to dump those dollars. But they won’t be able to dump them to China for the new gold-backed, Yuan!

        China has reportedly decided “there can be no conversion of gold-backed Yuan to or from US dollars.” What China fears is that many countries around the world will want to trade their reserve US dollars for the new Yuan, leaving China with mountains of worthless US dollars. China already has several trillion in US dollar reserves and does not want or need more.

        If news of this decision by China is correct, then countries around the world may just have to decide whether or not they wish to continue trading with the USA at all?

        The upheaval this could cause as early as next week, would be staggering.

        UPDATE 19 APRIL 2016 2:10 PM EDT —

        Today, China did launch the Shanghai Gold Exchange (SGE), with an official Yuan fix for the price of Bullion. This is a major action by China because previous to this, the Gold price was fixed in London and New York. It has come out over the past few months, that Banks and others participated in an ILLEGAL PRICE-FIXING scheme to artificially manipulate the price of precious metals so as to protect the value of the US Dollar. Now that Bullion will be priced separately in China, the world will get to see the real value of precious metals, as opposed to the downward-manipulated value.”

        – –

        • nick kelly
          May 2, 2016 at 4:27 pm

          So update to May 2- what happened?

    • Aloof
      May 2, 2016 at 8:22 am

      Perhaps declining dollar is what is planned; gold backed Yuan would likely help with that endeavor. Just a few days ago I ran across this interesting article, “US Treasury Gives Explicit Warning To China, Germany And Japan Not To Devalue Their Currencies” at http://www.zerohedge.com/news/2016-04-29/us-treasury-gives-explicit-warning-china-germany-and-japan-not-devalue-their-currenc

      • d
        May 2, 2016 at 9:00 am

        That was the G20 deal no competitive devaluation.

        Those currency groups are also all on currency manipulation watch.

        gold backed Yuan would likely help with that endeavor.

        unless it is redeemable at what rate it is pointless for them.

        The other CNY issue is that the official in circulation # is hundreds possibly thousand of trillions of CNY under what is actually in circulation.

        As they have been clandestinely physically printing CNY and paying state accounts with it (Monetizing state debt) for decades.

        Turning that into a gold backed redeemable currency will evaporate chinas gold reserves overnight.

        chinese in the street would be paying foreigners to go to the gold window and redeem CNY for them.

        a gold redeemable CNY destroying the dollar, is anti dollar pipe dream.

        The dollar will one day be replaced, not by CNY or the Rubble.

  11. prepalaw
    May 1, 2016 at 10:46 am

    Wolf must have touched a raw nerve. It is seldom to see so many Dollar Bulls rally so quickly to trumpet the Dollar.

    Apart from that, I have never understood the relationship between the

    Dollar and the Yen

    (for example, why does the Dollar and the the US stock market seem to go up when the value of the Yen in US$ goes down)


    the Yen and the Japanese stock market

    ( it would seem logical that if the US$ purchasing value of the Yen goes up, foreign investors would push the value of Japanese stock up –

    after all, the value of those stocks in foreign exchange just went up)

    • frederick
      May 1, 2016 at 12:03 pm

      They can stick with the sinking ship which is the USD if they want but İm done and am bailing on my dollar holdings tomorrow morning İ just dont believe anymore and with this 28 pages thing İ am really running scared Just too many black swans circling for my taste but to each his own

    • d
      May 1, 2016 at 12:08 pm

      One of the top currency traders I know, rarely trades yen as he claims it is illogical.

      It is Asia’s unofficial reserve currency, he claims you need an Asian mind to fully sync with it.

      Yes different groups have different thought processes. This is a non racist fact.

      He dosent do that well with CHF either.

      Though we both did EXTREMELY well when the SNB pulled the floor. It was a brilliant contrary insight of his that I followed, I rarely do that, but all the contrary signs lined up.

      One of the things that is happening at the moment is that a huge amount of Japanese wealth is going home.

      Mrs Watanabe, just like all markets. Hates uncertainty. Take profits, and capital, hide all in floor-safe, under mattress.

      Wait untill after Yankee Election Circus ends.

      Will explain some of it.

      • rich
        May 1, 2016 at 3:16 pm

        “One of the things that is happening at the moment is that a huge amount of Japanese wealth is going home.”

        I’d ask you to document that statement, but I know that you’re just making it up.

        This is more like it:

        “Japanese Companies’ Increasing Overseas Investment and Current Account Balance”


        And the only major buyer of Japanese debt, which is now over 200% of GDP, is the BOJ.

        “Redemptions forcing BOJ to expand purchases to reach target
        BOJ’s ownership of JGB market seen reaching 50% by 2017”


        On the other hand, the share of Japanese households with no financial assets rose to a 50 year record in 2014.

        • d
          May 2, 2016 at 3:25 am

          currency outflows do not push the yen up, as in outflow yen is SOLD = increase of yen in market, yen goes down.

          Yen is going up as it is being brought which means lots of long yen traders or demand for yen from another source. Open interest does not show lots of yen longs..

          Foreign investment in Japan is down, as are exports, so the demand for yen is not from there.

          Foreigners are in fact currently divesting from Japan increasing the supply of yen further again.

          Yet yen is still going up as the US dollar is going down and yen is being brought by the only people who want it, Japanese.

          “On the other hand, the share of Japanese households with no financial assets rose to a 50 year record in 2014.”

          Along with the high demand internally for “Ichi man”.

          The huge number of small safes found after Fukushima, and returned to their owners unopened, explains a lot of that.

    • Mark
      May 1, 2016 at 6:32 pm

      I hate investing in gold, but can’t resist to make money, on useless metal.
      My pile of gold went 13% in last two weeks.

  12. rich
    May 1, 2016 at 2:02 pm

    “Prove the derivatives in question, are a current major risk, today.”

    D, that is a ridiculous thing to write. As you should know, thanks to the Commodities Futures Modernization Act of 2000, derivatives are unregulated, opaque, and I doubt that the banks will make their trillions of dollars in derivatives liabilities visible to the public (not even to me, chicken little, if they won’t allow the regulators to see them. You must have been a hell of a David X. Li fan in 2007. And yes, you found me out. I am not a bankster fan.

    • Bigfoot
      May 1, 2016 at 9:54 pm

      Any investment or trade carries some degree of risk Always, nothing is 100% safe. As you mentioned Rich & Atticus Finch stated succinctly, many(most) derivative trades are opaque & trade over the counter. While most exchange traded derivatives are zero sum, there is no telling how the majority of these are otc derivatives are structured. According to the BIS, at the end of 2013 there were $710 trillion notational value derivatives, 82% were interest derivatives, & a large percentage of these were initiated/held by a handful of banks. – I have no fear, nothing to be worried about. (laughter in background)

      LTCM -Long Term Capital Management 1998– $5 billion in assets controlling $1 trillion in trades primarily in fixed income markets (interest rate derivatives) goes belly up. The fed & wall street put together a bailout because the entire global financial market was at risk. Yeah, ancient history, no need to worry. ( more laughter heard) I was trading actively at the time but I wasn’t laughing!

      CDS-credit default swaps – a form of otc derivative -more ancient history from 2008/2009, AIG the largest insurance company in the US at the time ( oh snap, it’s not just banks, ruh roh) has to be?? bailed out due to huge systemic risk to the system. The CDS were backed with MBS with questionable value. Don’t worry. (more laughter heard)

      2008 Lehman Brothers (formerly 4th largest US investment bank) had derivative connections to 8,000 companies. One nasty feature of derivatives related to bankruptcy defaults are that the settlements almost always come at a cost to the customers & or the taxpayers. Primary derivatives used were interest rate related. Yeah, more ridiculous ancient history. (crowds heard laughing hysterically)

      For some real comedic relief, see this Lehman advertisement from 2003

      Forget about the libor scandal where large banks manipulated interest rates & we know over 80% of derivatives are interest rate products. Combined with the record amount of debt we now have, I can’t possibly imagine any problems developing. Ancient history & doesn’t prove there is any risk out there. (laughterX10)

      Caveat Emptor

    • d
      May 2, 2016 at 3:50 am

      ““Prove the derivatives in question, are a current major risk, today.”

      D, that is a ridiculous thing to write. ”

      It is not.

      They are not structured as they were in 07.

      You are claiming they are a huge unfunded liability.


      Prove it.

      By showing:

      A is exposed to B who is exposed to C who has no money to pay.

      Otherwise, you are simply, screaming the sky may fall tomorrow.

      Beating on banking insurance, because its easy, and you can.

      • Bigfoot
        May 2, 2016 at 10:01 am

        d – you seem pretty aware of what’s going on in the world but I can’t wrap my head around your pro bank stance. It’s your opinion & that’s cool but some of the things you are posting are not accurate.

        As far as being able to prove 100% that the derivatives are currently problematic, how could anyone prove this ONE WAY OR THE OTHER when we are talking about otc trades that we have no details on? Obviously we can’t. You also cannot prove 100% that they are not going to be problematic, can you??

        So this leaves us to make educated guesses on probabilistic outcomes based on known facts & historical relationships. As I & others have rehashed some examples of problems caused by derivatives that have almost collapsed our system more than once due to the leverage & systemic risks, and knowing the size & scale of these unregulated bets has grown to gargantuan levels, I think the assumptions (all you or I can do) & fears that they will once again be the catalyst for a meltdown are easily understood.

        Other than the fact that neither side of the debate can prove 100% yea or nea that derivatives will be a problem, if you could give us your most informed reasons of why we should not worry about the current level of derivatives in play globally, I would sincerely be interested in what you have to say.

        How can you possibly make a blanket statement that banks do not do anything that is illegal, just sometimes their employees do? There is systemic corruption from the top down throughout the financial industry. This has been reported, proven, & highlighted for years. The fines issued for all the corrupt activities of this sector are just a small cost of doing business. I could link a ridiculous amount of info regarding this but if you actually believe this stuff you write, I doubt it would alter your views. Bear in mind that most of the cash related to our underground economy will have to be laundered through the banks. Here is but one example – not breaking laws, just some underling in the cubicle ???
        Citi has been doing this for decades. This isn’t the first time!

        You also claim derivatives are not structured as they were in 07. How could you possibly write this?? They are otc opaque trades. Nobody except the parties to the contracts has a clue of their structure.
        Clues, oh yes there are clues we can speculate about & they give us our justified reasons for concern.

        I linked the article above regarding freddie mac losing money & possibly needing another taxpayer funded bailout & this being attributed to derivative positions.

        This morning we have puerto rico ready to default on their bonds. These bonds are insured through other companies using a variety of derivatives. These companies and many others putting these trades on are very thinly capitalized relative. Another clue. There are many.

        • d
          May 2, 2016 at 12:29 pm

          “d – you seem pretty aware of what’s going on in the world but I can’t wrap my head around your pro bank stance. It’s your opinion & that’s cool but some of the things you are posting are not accurate.

          As far as being able to prove 100% that the derivatives are currently problematic, how could anyone prove this ONE WAY OR THE OTHER when we are talking about otc trades that we have no details on? Obviously we can’t. You also cannot prove 100% that they are not going to be problematic, can you??”

          No I cant.

          I have no doubt some of them will be as every year there are insurance claims, and at base a derivative, is an insurance/hedge element. .

          The point is, THOSE SCREAMING ABOUT THEM, CANT prove they all are.

          Which is what they assert and claim. Bandying about numbers in the trillions that the Banks are allegedly unsafe by, which is BS.

          Therfore they are creating FUD throwing garbage at banks because they can and banks are an easy target today.

          Banks as entity’s dont set out to do illegal things. For 1 reason, it is to expensive. They employ large groups of lawyers to split hairs in their favor and keep them on the legal side of the line, sometimes they make mistakes.

          Sometimes their employees do knowingly illegal things with out the authority management and sometimes they even get caught.

          At this point we must differentiate, between banks, Stock and trading entity’s, currency trading entity’s, fiance houses, and merchant trading houses.

          A lot of people call all of these thing’s banks.

          They are not.

          Then they lump them all together and call them thieving wall street Banksters, which is pathetic, childish and untrue.

          The repeal of glass steagal in America allowed, Octupus financial trading house’s “Goldmans, JPM, Et al” to use depositors funds, from their retail banking activity’s, for trading activity’s, dodd frank has not resolved this.

          Until it is resolved, US FDIC exposure is to high.

          The major derivative threat at Banks, not trading houses, still comes from NPL’S NATIONAL AND INTERNATIONAL.

          IF you take the current undisposed of, NPL’S, add the potential new NPLS in a credit event, take this as a % of the loan book then take that percentage of the entity in questions derivatives book. You get a rough exposure #.

          Today every bank loan has a derivative against it. As they are all insured, sometimes there are several insurance policy’s/derivatives on the same loan, by different entity’s. As banks and insurance company’s are good bookies, they lay off their risk.

          Throwing around total derivatives liabilitysis like throwing around the daily forex turnover which is currently around US$3.98 trillion PER DAY.

          meaningless unless, you break it down.

          The bad boy of American derivatives is GS, they turn up in every dirty intyernationaldeal there is, mainly due to the way they select, and fail to oversee their international staff. More often than not, the people who put the international deal together, no longer work for GS when the TSHTF, as in Greece.

          GS didnt do anything illegal in the greek deal, some of the people and auditors who put that together, did, and should have been stood against the nearest wall and shot. They weren’t as they would have taken the greek government and a large chunk of Brussels with them. The EU didnt want that.

          America and some other nations still have issues as they have not separated trading entity’s and retail Banking activity/ Banks. I live in one where they were never allowed to join them, That no longer has an FDIC. so its very Cavaet emptor.

          “I linked the article above regarding freddie mac losing money & possibly needing another taxpayer funded bailout & this being attributed to derivative positions”

          And how much profit has the US stae stripped out of Freddie and Fanny since the took them over. I dont any more but I know its BILLIONS. If the state hadn’t of stripped them they would have the capital to cover their insurance/derivative liability’s.

          “You also claim derivatives are not structured as they were in 07. How could you possibly write this?? They are otc opaque trades. Nobody except the parties to the contracts has a clue of their structure.”

          When insurance company get bitten, as in 08 and ultimately derivatives are insurance, they look at why, then structure things differently in the future. To prevent that, its what they do. Stop using the hot button hype word “derivative” and start using the word insurance.

          Thats what derivatives are, and insurance especially life insurance in America was put together by professional winning gamblers. Who with the old market traders, were writing Algorithms before they were called algorithms.

          If you spread it around/Lay it off far enough, you may get stung, you wont get burned. when you haveto pay out on a few winners.

          Freddy and Fanny are holding to much of their own action, again, as they couldn’t lay it off at prices attractive to them. or the state wouldn’t let them lay it off a market rates.

          If puerto rico goes into voluntary default, and I believe it is voluntary. The P/R administration is trying to hold a gun to the head of Washington and the bond holders, a lot of small investors will get burned and some big ones will get stung.

          Anybody who brought D’s tied to P/R got a good rate on them. And has laid them off well and truly, if they have half a brain as P/R has publicly been on the cards for over 3 years.

          The biggest looser in P/R will be the IRS. As all the PR losses will be pre tax, somewhere.

      • Bigfoot
        May 2, 2016 at 1:57 pm

        d- All-righty then, I’ll have to agree to disagree on many things you believe & just realize they are your beliefs. However, I don’t disagree with everything you write & I’m out of time for debate. Thanks for taking time to respond

        • d
          May 3, 2016 at 1:25 am

          Intelligent disagreement is good mental stimulation.

          Have a nice day.

        • Bigfoot
          May 3, 2016 at 8:07 am

          Thanks & you as well.

  13. May 1, 2016 at 2:03 pm

    The article and most of the comments seem cogent. A more inclusive analysis may be that a larger, if not the, reality is beginning to intrude into the self-referential fantasies of the economists, central bankers, and speculators, who have come to the sicking realization that they have been busy trading bubble gum cards and monopoly money, and in doing so have been dissipating and disrupting the production of real goods and services. As is common in these types of situations, their efforts at denial are both increasing, and less effective, even to themselves. The resulting individual and institutional incongruence and dissonance should be expected to result in increasingly erratic and irrational behavior, even by their own standards grounded in their fantasies. [Translation: they will be even more bats**t crazy than usual.]

  14. shaba
    May 1, 2016 at 5:03 pm

    Seems more realistic that the movements in currency are co-ordinated; all to provide relief to the Yuan, which had been devalued with disastrous consequences twice in two months. The dollar has been jawboned down (hike backdown). The Euro and Yen have had to suck it up and wear the strengthening. The focus has gone off the Yuan, it has devalued relative to its tading partners, EU being the main one.

  15. junior_kai
    May 1, 2016 at 6:33 pm

    I don’t consider this the end of the dollar, although I’m sure there are those in government that would like to see it – they sow the seeds of chaos wherever they can in order to increase their power.

    No, I see this whole move in the dollar from about a year and a half ago perfectly correlated with the take down of oil in a coordinated economic attack against Russia as well as the fracking industry in Canada and the US by the US and Saudi oligarchies. Now that the damage has been largely done, they are letting it unwind. I took advantage of the usd strength by buying more physical and taking trips to Japan and Australia. Why the Euro remains as high as it does with all of its problems remains a mystery to me though.

    • Toddy
      May 6, 2016 at 11:53 am

      Aggregate of retail “investors” are closing net short EUR positions which typically puts pressure on the bid side of the liquidity pool, causing price action to support long positions despite fundamentals indicating weakness.

  16. Agnes
    May 1, 2016 at 7:57 pm

    I finally found a place to compare Shanghai and London prices of Gold. Just google: William Adams Bullion Desk

    • prepalaw
      May 1, 2016 at 8:05 pm

      Thank You.

  17. Tony Phenom
    May 1, 2016 at 11:34 pm

    The fear trade has migrated to strips. Vix no longer works because stockholders no longer protect with options. They simply liquidate bit by bit and decrease their exposure to the stock market. The truly fearful and those trading on that fear use the strips.

  18. night-train
    May 2, 2016 at 3:02 am

    So, should I sell my silver coins now, or hold them for currency after the big reset?

    • Bobcat
      May 2, 2016 at 9:48 am

      Gold to hold
      Silver to spend
      Lead to throw

  19. wholy1
    May 2, 2016 at 9:07 am

    I’m looking more forward to “Speculators are losing LIVING.”

  20. Chicken
    May 2, 2016 at 10:25 am

    I expect if someone attempted to stop our next president he’d beat them like the dogs they are, using his cane like Andrew Jackson did, or a length of pipe.

    It’s time to stop the nonsense.

  21. wilbur
    May 3, 2016 at 11:58 am

    That chart is saying higher highs and higher lows …………

  22. Julian the Apostate
    May 3, 2016 at 6:46 pm

    Wow. Great debate. Thoroughly enjoyed it.

  23. May 6, 2016 at 11:45 am


    The comment section is really awful to read on a phone due to the indent of replies.

    s are
    e to

    I wonder if another template can help. Just a thought.

    • May 6, 2016 at 2:02 pm

      Yeah, that’s a problem with the system. I could allow only 3 indents, as opposed to 4 now, but that make it harder for commenters to have a dialogue.

Comments are closed.