LOTS OF PAPER DOLLARS CHASING TO FEW COINS
GOLDSAINT
Posts: 2,148 ✭
Here is an excellent inflation report that explains the why and how of what we are seeing in markets across the board. So what do you think is next for the coin market? Has our National Inflation period already started? Will the price of coins just continue to go up as the Government pays for all its past over spending? Will we all look back a few years from now and wonder why we just did not pay what we thought were today very high prices, that a few years from now might seem cheap? Is this author correct? Will the coin market also deflate in the end?
Inflation is Everywhere by Jim Puplava,
In the last 12 months the price of oil has risen from under $24 to as high $35 a barrel. It is currently at $32.47. The price of soybeans has gone up more dramatically from a low of $5.09 a bushel to today’s price of $8.39. Copper prices have gone parabolic, rising from $73 to $118.70. Platinum prices are also rising sharply. They have jumped from $670 to $834. The CRB Index, made up of 17 different commodities from metals, soft goods, grains, energy and livestock is up even more. Having hit a nadir in October of 2001, the index is up 42%.Commodity prices from energy, metals, and grains have been on an upward track for the last two years.
On Main Street the average Joe is finding it harder and harder to maintain his current standard of living. More Americans are going deeper into debt each month to pay their bills. They are making use of extraordinary low interest rates on home mortgages to extract equity out of their homes to make ends meet. Households are also using credit
cards to supplement spending each month as personal income and job growth has not kept pace with the rise in prices. The public is told that inflation rates are extremely low, but each month they must reconcile the difference between what they are told and the higher billing statements they receive each month.
Grocery prices at the supermarkets are up over 50% over the last three years. Service costs from the local dentist and the family doctor to the local plumber are all up double digits. Medical premiums are starting to skyrocket again and the cost of sending junior to college requires more equity extraction and second mortgages to pay for tuition. On a day-to-day basis, the cost of just about everything the family needs keeps going up. Yet, Washington and Wall Street keep telling households that inflation rates remain low. They are low because government statisticians have removed price increases from the cost of most goods by counting quality improvements as price reductions. There is no inflation on paper, but it visible everywhere you look on the price of things you need. Unions are striking for higher wages and benefits. Supermarket workers in California have been on strike for over 4 months protesting their having to share in the cost of medical care.
Employers are finding it difficult to shoulder the burden of healthcare costs and are forced to require employees to share in part of the costs. The financial press keeps talking about low inflation, but employers and employees face rising prices. At this point it is either cut benefits or start raising prices--prices of things that are never counted in the monthly inflation statistics. There is a growing gap between what the average American has to spend each month in order to live and what is reported in the financial press as inflation. When prices get high enough, politicians will start looking for demons to castigate when the real inflation demon is government.
What Causes Inflation?
Ask the average person on the street or query financial professionals and you’ll find very little understanding of where inflation comes from or where it originates. Most individuals define inflation as rising prices. They speak about symptoms rather than cause. If inflation is simply rising prices, then what causes it? You’ll find that inflation is attributed to many sources--none of which are accurate. The common misperceptions by policymakers and the public is that inflation has three principal causes:
1. Cost-push inflation as a result of arbitrary demands of labor unions.
2. Profit-push inflation resulting from the greed of businesses raising prices.
3. Crisis-driven inflation resulting from acts of God or weather.
The general belief that inflation is the result of something other than its true cause makes it hard to understand and resolve. Most people believe that inflation is conspiratorial such as OPEC raising prices, businessmen wanting to make higher profits, or greedy unions looking to enhance worker benefits and pay. Somehow inflation has become an evil caused by greedy individuals and businesses. To most people inflation has become a causeless phenomenon inexplicable and born of ill will.
Let's Get This Straight
Definition
However, there is irrefutable evidence that government is the source of all inflation. An undue increase in the quantity of money is what stands behind a rise in prices. The source of all money or credit is government. Thinking of inflation only in terms of rising prices is similar to looking at the symptoms of a disease rather than the disease itself. A more exact definition of inflation would be an increase in the quantity of money and credit relative to available goods resulting in a substantial and continuing rise in the general price level, an increase in the quantity of money caused by government.
When the government increases the supply of money and credit in the economy, it increases demand for goods leading to higher prices. Higher demand or lower supply is the only conceivable cause of higher prices.
When the government or actions by the Fed increase the quantity of money in the economy, the demand for consumer goods is increased through the supply of new money being spent and re-spent within the economy. Since there is greater demand than supply, the price of most goods will go up. In the U.S. the rise in prices has not been commensurate with the supply of money and credit in the system because of imported goods. The trade deficit is a function of increased demand being satisfied by increasing imports. If the U.S. economy was self sustaining and self sufficient and able to meet all consumer demand, prices would have risen more substantially. Goods inflation has been somewhat tame only because excess demand in the U.S. has been satisfied through imported goods. Without the ability to import goods, prices would have been driven dramatically higher.
However, goods inflation eventually surfaces because a country with an expanding trade deficit eventually experiences a declining currency which raises the costs of imported goods.
Unlike the inflationary 70’s when money and credit went into the real economy, since the early 80’s and accelerating into the 90’s, this new century money has been increasingly channeled into financial assets, creating asset inflation. This was visible first in the equity bubble of the late 90’s. New money created by the Fed to fight off a collapsing stock market bubble, recession, and a major terrorist attack led to additional bubbles in the bond market, mortgage and housing market, and finally in excess consumption in this new century. Rising bond, stock and real estate prices are simply another form of inflation that has been created through excess credit and money added to our financial system. All of these related financial bubbles are what is keeping the U.S. economy going. The fact that P/E multiples on the major indexes are now at 96 on the NASDAQ, 23 on the S&P 500, and 21 on the Dow Industrials is another manifestation of inflation. Just as increased demand raises the price of goods, excess demand for securities raises their price. In this case, the price of bonds goes up lowering their yield and the price of stocks goes up leading to higher market multiples.
Printing Presses in Overdrive
Since governments are addicted to spending money and central banks exist only to create new money and credit, additional asset bubbles are inevitable. Since the U.S. economy is now a financially-driven economy, we can expect more money and credit to find its way into other asset classes. In a financial economy such as the U.S. where a disproportionate share of capital is invested in the capital markets, additional credit leads to speculative bubbles. Greenspan/Bernanke & Co. have argued that the Fed has unlimited ability to create unlimited amounts of new money (helicopter money) and intervene endlessly in the financial markets to support asset prices of stocks, bonds, or real estate. Therefore as long as this ability isn’t curtailed through constitutional means or through gold and silver backing, the Fed can create sufficient quantities of money to bail out any financial entity be it a bank, hedge fund, or government enterprise such as Fannie and Freddie.
”My point is that at some point on this seeming never ending ascent of debt/GDP, someone will say “no mas”. Maybe it’ll be Pimco and Pimco think-alikes; maybe it’ll be foreign holders of bonds grown tired of currency/inflationary erosion of principal; maybe it’ll be risk takers in high yield/ emerging market/ levered hedge funds scared to death from a future LTCM crisis. Hard to tell, but I’m telling you it’ll will happen, helicopter or no helicopter and with it will come an economic slowdown/recession unseen since at least the early 1980s when Volcker began his vigil. High Noon.”
Inflation is Everywhere by Jim Puplava,
In the last 12 months the price of oil has risen from under $24 to as high $35 a barrel. It is currently at $32.47. The price of soybeans has gone up more dramatically from a low of $5.09 a bushel to today’s price of $8.39. Copper prices have gone parabolic, rising from $73 to $118.70. Platinum prices are also rising sharply. They have jumped from $670 to $834. The CRB Index, made up of 17 different commodities from metals, soft goods, grains, energy and livestock is up even more. Having hit a nadir in October of 2001, the index is up 42%.Commodity prices from energy, metals, and grains have been on an upward track for the last two years.
On Main Street the average Joe is finding it harder and harder to maintain his current standard of living. More Americans are going deeper into debt each month to pay their bills. They are making use of extraordinary low interest rates on home mortgages to extract equity out of their homes to make ends meet. Households are also using credit
cards to supplement spending each month as personal income and job growth has not kept pace with the rise in prices. The public is told that inflation rates are extremely low, but each month they must reconcile the difference between what they are told and the higher billing statements they receive each month.
Grocery prices at the supermarkets are up over 50% over the last three years. Service costs from the local dentist and the family doctor to the local plumber are all up double digits. Medical premiums are starting to skyrocket again and the cost of sending junior to college requires more equity extraction and second mortgages to pay for tuition. On a day-to-day basis, the cost of just about everything the family needs keeps going up. Yet, Washington and Wall Street keep telling households that inflation rates remain low. They are low because government statisticians have removed price increases from the cost of most goods by counting quality improvements as price reductions. There is no inflation on paper, but it visible everywhere you look on the price of things you need. Unions are striking for higher wages and benefits. Supermarket workers in California have been on strike for over 4 months protesting their having to share in the cost of medical care.
Employers are finding it difficult to shoulder the burden of healthcare costs and are forced to require employees to share in part of the costs. The financial press keeps talking about low inflation, but employers and employees face rising prices. At this point it is either cut benefits or start raising prices--prices of things that are never counted in the monthly inflation statistics. There is a growing gap between what the average American has to spend each month in order to live and what is reported in the financial press as inflation. When prices get high enough, politicians will start looking for demons to castigate when the real inflation demon is government.
What Causes Inflation?
Ask the average person on the street or query financial professionals and you’ll find very little understanding of where inflation comes from or where it originates. Most individuals define inflation as rising prices. They speak about symptoms rather than cause. If inflation is simply rising prices, then what causes it? You’ll find that inflation is attributed to many sources--none of which are accurate. The common misperceptions by policymakers and the public is that inflation has three principal causes:
1. Cost-push inflation as a result of arbitrary demands of labor unions.
2. Profit-push inflation resulting from the greed of businesses raising prices.
3. Crisis-driven inflation resulting from acts of God or weather.
The general belief that inflation is the result of something other than its true cause makes it hard to understand and resolve. Most people believe that inflation is conspiratorial such as OPEC raising prices, businessmen wanting to make higher profits, or greedy unions looking to enhance worker benefits and pay. Somehow inflation has become an evil caused by greedy individuals and businesses. To most people inflation has become a causeless phenomenon inexplicable and born of ill will.
Let's Get This Straight
Definition
However, there is irrefutable evidence that government is the source of all inflation. An undue increase in the quantity of money is what stands behind a rise in prices. The source of all money or credit is government. Thinking of inflation only in terms of rising prices is similar to looking at the symptoms of a disease rather than the disease itself. A more exact definition of inflation would be an increase in the quantity of money and credit relative to available goods resulting in a substantial and continuing rise in the general price level, an increase in the quantity of money caused by government.
When the government increases the supply of money and credit in the economy, it increases demand for goods leading to higher prices. Higher demand or lower supply is the only conceivable cause of higher prices.
When the government or actions by the Fed increase the quantity of money in the economy, the demand for consumer goods is increased through the supply of new money being spent and re-spent within the economy. Since there is greater demand than supply, the price of most goods will go up. In the U.S. the rise in prices has not been commensurate with the supply of money and credit in the system because of imported goods. The trade deficit is a function of increased demand being satisfied by increasing imports. If the U.S. economy was self sustaining and self sufficient and able to meet all consumer demand, prices would have risen more substantially. Goods inflation has been somewhat tame only because excess demand in the U.S. has been satisfied through imported goods. Without the ability to import goods, prices would have been driven dramatically higher.
However, goods inflation eventually surfaces because a country with an expanding trade deficit eventually experiences a declining currency which raises the costs of imported goods.
Unlike the inflationary 70’s when money and credit went into the real economy, since the early 80’s and accelerating into the 90’s, this new century money has been increasingly channeled into financial assets, creating asset inflation. This was visible first in the equity bubble of the late 90’s. New money created by the Fed to fight off a collapsing stock market bubble, recession, and a major terrorist attack led to additional bubbles in the bond market, mortgage and housing market, and finally in excess consumption in this new century. Rising bond, stock and real estate prices are simply another form of inflation that has been created through excess credit and money added to our financial system. All of these related financial bubbles are what is keeping the U.S. economy going. The fact that P/E multiples on the major indexes are now at 96 on the NASDAQ, 23 on the S&P 500, and 21 on the Dow Industrials is another manifestation of inflation. Just as increased demand raises the price of goods, excess demand for securities raises their price. In this case, the price of bonds goes up lowering their yield and the price of stocks goes up leading to higher market multiples.
Printing Presses in Overdrive
Since governments are addicted to spending money and central banks exist only to create new money and credit, additional asset bubbles are inevitable. Since the U.S. economy is now a financially-driven economy, we can expect more money and credit to find its way into other asset classes. In a financial economy such as the U.S. where a disproportionate share of capital is invested in the capital markets, additional credit leads to speculative bubbles. Greenspan/Bernanke & Co. have argued that the Fed has unlimited ability to create unlimited amounts of new money (helicopter money) and intervene endlessly in the financial markets to support asset prices of stocks, bonds, or real estate. Therefore as long as this ability isn’t curtailed through constitutional means or through gold and silver backing, the Fed can create sufficient quantities of money to bail out any financial entity be it a bank, hedge fund, or government enterprise such as Fannie and Freddie.
”My point is that at some point on this seeming never ending ascent of debt/GDP, someone will say “no mas”. Maybe it’ll be Pimco and Pimco think-alikes; maybe it’ll be foreign holders of bonds grown tired of currency/inflationary erosion of principal; maybe it’ll be risk takers in high yield/ emerging market/ levered hedge funds scared to death from a future LTCM crisis. Hard to tell, but I’m telling you it’ll will happen, helicopter or no helicopter and with it will come an economic slowdown/recession unseen since at least the early 1980s when Volcker began his vigil. High Noon.”
0
Comments
particular case is the increased velocity of money caused by an improving economy
is causing an apparent increase in money. The fed was pushing on a string trying
to get more money in the economy a few years back and now that velocity is in-
creasing the string is pulling taut.
Yeh, right.
Also if soybeans were at $800/bushal I would get into farming. did you mean $8/bushal?
IMO
Lot of things not true in there.
What is their agenda
This psyco-babble sounds like the ramblings of Lyndon LaRouche (his campaign web site).
Matt
www.isupportourtroops.us
My Coin Website
My Professional Website
I dont make the news I just report it, and if the particular coins you collect have not gone up the 42% this guy is talking about, well what can I tell you. Since my collection is mostly in Bust halves, I can tell you that most of my collection has hit these new numbers, and then some, this would also be true of almost all the Barber Halves I collected the last few months. As a couple of examples my 1794 Bust half I bought 4 months ago cost $4,600 in fine, pcgs now has it at $6,000 and one year ago it was $3,500. Last year the 1815 Bust I just bought in Au was $3,700, PCGS now has it at $5,500 and I just paid $4,600 at auction competeing with 30+ bidders. I guess I could set here and go through the list but what would be the point. If there were any errors in this post from Mr. Puplava I am sure it was due to my bad copy job, sorry.
Coin collecting is like most things where the prices are based on the old tried and true rule of supply and demand. More people interested in a particular series tends to drive prices up...
Is a coin valued at $5,000 if no one wants to buy it? What if there is a buyer who pays $4,000? Is that $5,000 coin now worth only $4,000? What if there is a buyer who pays $6,000 (think about active bidding)? Is that $5,000 coin now worth $6,000? Did someone get a steal and did someone get ripped? I think of it as market variation.
No/low supply + high demand = higher prices
High supply + low demand = lower prices
The American society is one that is largely driven by wants when they should be taking care of their needs first. Consumer (family) debt continues to rise at an alarming rate in this country. Instead of paying $20 extra towards a credit card, most people order pizza (or something that they could otherwise do without). The "I've got to have it now and I'll worry about the future when I get there" is why so many people are filing bankruptcy and retiring broke. Unfortunately, this trend is only getting worse.
Until the American society starts spending more wisely and saving more (and I see coin collecting as a method of saving), our society is destined for harder times and higher prices.
Food for thought...
My Coin Website
My Professional Website
BIO:
For more that two decades, Certified Financial Planner James Puplava has served his clients and investors at large as a money manager with a penchant to educate. He pioneered financial seminars in the early eighties in San Diego, began a radio talk show in 1985 and brought his writing and unique brand of wisdom to the Internet in the late nineties.
Mr. Puplava is President of Puplava Securities, Inc., member firm Broker/Dealer and President of Puplava Financial Services, Inc., a Registered Investment Advisor. He is a cum laude graduate of Arizona State University in History and Economics and holds a summa cum laude Masters in International Management from American Graduate School of International Management. He is a member of the Market Technicians Association and a CMT candidate.