According to "this pundit", Gold is overvalued by 50%...
SeaEagleCoins
Posts: 3,262 ✭
Just received the link to this "article" from a "Whale" I know in the commodities markets... I have alot of respect for him... also for many of the folks on this forum... I usually just stop by to lurk... anyway, I'm curious about what some of your thoughts might be on the info in the following link
Elliot Wave International
Elliot Wave International
Re: Slabbed coins - There are some coins that LIVE within clear plastic and wear their labels with pride... while there are others that HIDE behind scratched plastic and are simply dragged along by a label. Then there are those coins that simply hang out, naked and free 
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One major lapse in Nico's analysis is a 100% belief in the accuracy of the CPI back to 1913. This is where he comes up with his whimsical error factor of 50%. The CPI has undergone numerous changes since 1983 to "help" it become more "accurate." That meant to have it understate inflation. Nowhere in the CPI does it account for currency or credit growth, the ultimate keys in determining where gold values go. The USA exported much of its price inflation overseas over the past 25 years. Eventually it all evens up. In the event of a currency crisis or lack of confidence in the govt, the CPI isn't going to protect you. That's what gold is for. Those kinds of concerns cannot be reflected in the CPI. What would the gold price be today if it had to balance off all the US FRN's in circulation, or the total US foreign debt obligations, or all of the US debt/credit? Does the CPI adjust for the fact if any of the USA/world central bank gold stocks have been sold away over the past 20 years, but still recorded as owned? Per Nico, it's all baked into the CPI.
roadrunner
<< <i>Nico's last article was full of half truths as well. His job writing for Bob Prechter is to support the boss' view that gold is headed to $200/oz. Prechter has held this view since 2001....so he's been dead wrong 8 years running. That's not an enviable track record, especially to sign up and pay for investment advice on that subject.
One major lapse in Nico's analysis is a 100% belief in the accuracy of the CPI back to 1913. This is where he comes up with his whimsical error factor of 50%. The CPI has undergone numerous changes since 1983 to "help" it become more "accurate." That meant to have it understate inflation. Nowhere in the CPI does it account for currency or credit growth, the ultimate keys in determining where gold values go. The USA exported much of its price inflation overseas over the past 25 years. Eventually it all evens up. In the event of a currency crisis or lack of confidence in the govt, the CPI isn't going to protect you. That's what gold is for. Those kinds of concerns cannot be reflected in the CPI. What would the gold price be today if it had to balance off all the US FRN's in circulation, or the total US foreign debt obligations, or all of the US debt/credit? Does the CPI adjust for the fact if any of the USA/world central bank gold stocks have been sold away over the past 20 years, but still recorded as owned? Per Nico, it's all baked into the CPI.
roadrunner >>
Gold at $200 an ounce????
<< <i>Just received the link to this "article" from a "Whale" I know in the commodities markets... I have alot of respect for him... also for many of the folks on this forum... I usually just stop by to lurk... anyway, I'm curious about what some of your thoughts might be on the info in the following link
Elliot Wave International >>
The problem with his line of thinking is that it ignores the simple fact that
much gold buying is caused by its function as a store of value. In 1980 peo-
ple were stocking up on gold because it was obvious the spending party in
Washington was going to result in significant inflation. To some degree gold
was also riding silver's coattails but it was the 12% inflation and fear of what
was to come that drove the price high. It was held in check by the fact that
one could get 18% interest on CD's.
But the FED artificially broke the back of inflation by pushing up borrowing
costs and the real cost of capital. To really break inflation the only means is
to actually cut government spending and the printing of more money. But in-
stead the government soon began new spending sprees that would make a
drunken sailor blanch. But still the FED was able to delay the effects of more
money in the system by regulating rates and because the computer was caus-
ing unprecedented new efficencies and massive productivity gains.
All this is gone now and we're left with massive debt and massive printing of
money to finance the bonuses of the clowns who have sat at the head of the
conglomerates for the last three decades. The money is gone, the jobs are
gone, education is in near total collapse, and the financial system which pays
1% interest and charges 20% interest can't withstand higher interest rates
because they used derivatives as a means to drain ever more money away
from the system. These derivatives are now ticking time bombs just waiting
for a default which can be brought on by almost anything but higher interest
rates head the list.
If you believe the financial system is sound then gold is greatly overpriced. But
I see government spendoing has more than quadrupled since 1980 and debt
has gone up far far more.
I've always said we'd muddle through and this is still possible probably, but
I used to think we could hold the value of the dollar at at least 6c. I'm no longer
so optimistic.
Gold will tank horribly when all this is over. My guess is that it will drop to ab-
out $20,000 from 50,000 in just a few days. Of course this assumes we succes-
fully muddle through. This is less certain than ever.
I'm not so sure that gold tanks once the commodities boom ends like in 1980. Back then we had a vibrant financial and economic system to go back to. What does fiat hang its hat on this time around?
roadrunner
<< <i>Cladking, that was an eloqent and succint summary of 3 decades of financial abuse. How ironic that the sheeple have cheered on these changes all along. Now they're looking back wondering what they've really done. >>
The most distressing thing to me is the stock marjket collapse
of 1987 provided dramatic evidence of what was going on and
not a single thing was done to avert this.
<< <i>
I'm not so sure that gold tanks once the commodities boom ends like in 1980. Back then we had a vibrant financial and economic system to go back to. What does fiat hang its hat on this time around?
>>
Good point. I am assuming that people start demanding value
for their money before this can possibly end, though. Part of
getting value is at least getting kids who can read and write
from the most expensive educational system in the world.
Everything really hinges on this. It takes six or eight weeks
to teach a kid to read and write if they ever actually try and
there will be dividends in only a few years.
It appears we may be led to a brave new world where most
citizens have nothing and are kept by the government while
a few run the machinery of the economy.
"The most distressing thing to me is the stock marjket collapse
of 1987 provided dramatic evidence of what was going on and
not a single thing was done to avert this. "
And what was so bad about this? Two years later the market was back and new investors got a 35% return.
"In 1980 peo-
ple were stocking up on gold because it was obvious the spending party in
Washington was going to result in significant inflation"
These people were exactly correct, and where are they now? Sitting with perhaps the worse investment of the last 30 years.
Think about this, those people who were buying gold in the 80s, were probably at least 45 years old as anyone younger had little disposable income. Those people are now at least 75 or dead. Is that any different from today?
Knowledge is the enemy of fear
<< <i>Ok, Im just making arguement here.....
"The most distressing thing to me is the stock marjket collapse
of 1987 provided dramatic evidence of what was going on and
not a single thing was done to avert this. "
And what was so bad about this? Two years later the market was back and new investors got a 35% return.
"In 1980 peo-
ple were stocking up on gold because it was obvious the spending party in
Washington was going to result in significant inflation"
These people were exactly correct, and where are they now? Sitting with perhaps the worse investment of the last 30 years.
Think about this, those people who were buying gold in the 80s, were probably at least 45 years old as anyone younger had little disposable income. Those people are now at least 75 or dead. Is that any different from today? >>
You sir are 100% right the people who bought into the hysteria of Gold back in 1980 lost their shirts and stiocks did rebound quickly from the nasty selloff in 1987, however if someone had bought stocks back in 1929 and held throughout the 1930's and 40's it would've taken them nearly 20 years to break even on their investments so anyone can take a specific time period and make it look bad or good.
One could also look at investing in stocks vs. Gold& Silver starting at Golds low around 2001 which would show Gold,Silver and mining stocks crushing the Dow, S&P and Nasdaq.
The point is those who are stuck in their way of thinking will ultimately fail whether it's investing in precious metals, stocks or cd's.
Absolutely.
Knowledge is the enemy of fear
<< <i>
And what was so bad about this? Two years later the market was back and new investors got a 35% return.
>>
What is so bad about it is that we are dancing on the edge of our own
deep deep grave. It's one thing when the lights are out and you don't
know it but these stumbles as in 1987, the 1998 LTCM, and the current
derivatives meltdowns have shown plenty of light on this danger. What
will we need to get either government or common sense to prevail? Will
it be a few billions deaths?
The financial system is composed of mountains of instruments which are
effectively dependent on the smooth operation of the status quo in an
era that change will probably be necessary for our very survival. If we
fail to change we'll die, we do change the derivatives market WILL freeze
up the economy and we'll probably die.
Sure we can go along betting the past will always be like the future but
the day has come that it can't be like the future. There probably won't
be any cheap energy again for at least a generation but we continue to
burn oil like there is no tomorrow. The simple fact is that capital, commod-
ity, energy, and production costs are going to soar relative to labor costs
yet we continue to build junk and waste assets of all types. There were
alternatives to inflation in 1980. The only alternative this time is that last
stumble into the abyss.
Being the eternal optimist I'd suggest gold. Of course my optimism is
nearly pathological so I prefer silver. Pessimists would do much better
buying land and ammunition or to paraphrase the '60's "bend over and
osculate your posterior goodbye.".
These people were exactly correct, and where are they now? Sitting with perhaps the worse investment of the last 30 years.
I did well with gold (and silver) in 1977-1980. However, I sure as heck didn't sit on it for 30 years!!! Where'd you get a crazy idea like that? I got out before the crash, bought back in, lost a little, sold - and didn't come back until 1998. Why would you suggest that anyone who was saavy enough to buy gold prior to 1980 wasn't saavy enough to know when to exit? Your supposition doesn't make any sense.
Think about this, those people who were buying gold in the 80s, were probably at least 45 years old as anyone younger had little disposable income. Those people are now at least 75 or dead. Is that any different from today?
In 1979, I was 28 and was loading up on physical metals a little at a time as I could afford to do it. And it paid off. My ex-wife went to law school and we bought a recreational property with the proceeds. It would have been crazy to sit on a bunch of bullion after the crash. Today, I am (happily) not quite dead yet at 58.
I knew it would happen.
$20/ OZt. I did trade off junk silver for stuff with no real premium
that had been worth a lot befor the silver price went up. When
silver tanked most of this stuff retained its value. When silver was
down some of this was traded off for junk silver.
There are always opportunities.
<< <i>"In 1980 people were stocking up on gold because it was obvious the spending party in Washington was going to result in significant inflation"
These people were exactly correct, and where are they now? Sitting with perhaps the worse investment of the last 30 years.
I did well with gold (and silver) in 1977-1980. However, I sure as heck didn't sit on it for 30 years!!! Where'd you get a crazy idea like that? I got out before the crash, bought back in, lost a little, sold - and didn't come back until 1998. Why would you suggest that anyone who was saavy enough to buy gold prior to 1980 wasn't saavy enough to know when to exit? Your supposition doesn't make any sense.
Think about this, those people who were buying gold in the 80s, were probably at least 45 years old as anyone younger had little disposable income. Those people are now at least 75 or dead. Is that any different from today?
In 1979, I was 28 and was loading up on physical metals a little at a time as I could afford to do it. And it paid off. My ex-wife went to law school and we bought a recreational property with the proceeds. It would have been crazy to sit on a bunch of bullion after the crash. Today, I am (happily) not quite dead yet at 58.
Cladking wrote at in 1980 the spending party in Washington wasnt going to end. And this is correct. We have continued to spend. Did those gold buyers in 1980 think the spending party was going to end in 6 months or a year? I would like to think they were thinking beyond 1981. If im mistaken, then im mistaken. Thats why I wrote my 30 year analogy.
Question for you is, why did you sell? Didnt you think the spending party would continue? Didnt you think there would be entitlement problems in the future?
Knowledge is the enemy of fear
<< <i>
<< <i>
And what was so bad about this? Two years later the market was back and new investors got a 35% return.
>>
What is so bad about it is that we are dancing on the edge of our own
deep deep grave. It's one thing when the lights are out and you don't
know it but these stumbles as in 1987, the 1998 LTCM, and the current
derivatives meltdowns have shown plenty of light on this danger. What
will we need to get either government or common sense to prevail? Will
it be a few billions deaths?
The financial system is composed of mountains of instruments which are
effectively dependent on the smooth operation of the status quo in an
era that change will probably be necessary for our very survival. If we
fail to change we'll die, we do change the derivatives market WILL freeze
up the economy and we'll probably die.
Sure we can go along betting the past will always be like the future but
the day has come that it can't be like the future. There probably won't
be any cheap energy again for at least a generation but we continue to
burn oil like there is no tomorrow. The simple fact is that capital, commod-
ity, energy, and production costs are going to soar relative to labor costs
yet we continue to build junk and waste assets of all types. There were
alternatives to inflation in 1980. The only alternative this time is that last
stumble into the abyss.
Being the eternal optimist I'd suggest gold. Of course my optimism is
nearly pathological so I prefer silver. Pessimists would do much better
buying land and ammunition or to paraphrase the '60's "bend over and
osculate your posterior goodbye.". >>
Cladking, what would be the alternatives to inflation in 1980? If commodity costs soar faster than income, which is what I believe you are saying, then who is going to support these prices? In other words, where will the demand come from?
Knowledge is the enemy of fear
<< <i>
Cladking, what would be the alternatives to inflation in 1980? >>
There really never is any alternative to inflation when you print more
money but they were able to delay the inflation by reigning in credit.
Inflation is the perception that money is losing its value brought on
by excessive amounts in the economy; too much money chasing too
few goods. But this perception was waylaid by greatly increased in-
terest rates which had the effect of making money seem scarce.
Greatly increased efficiency since 1980 has actually "erased" some of
the inflation built up but there are still inflationary forces this old and
there are lots of new ones.
There is no real opportunity to increase interest rates at this time.
<< <i> If commodity costs soar faster than income, which is what I believe you are saying, then who is going to support these prices? In other words, where will the demand come from? >>
There really doesn't need to be increasing demand for commodity
prices to increase. Simply increasing the costs of production will cause
them to increase either by the loss of marginal producers or by the pass-
ing along of higher costs by stronger producers.
In this case though there are likely to be increasing demand by growing
economies and curtailment of supplies caused by greatly higher energy
and processing costs. China and India can probably maintain reasonably
good growth even if much of the world is in recession. Many countries have
an excellent educational system and a population that is hungry to move
into the 21st century. This part of the world is well positioned to utilize
natural resources and gain efficiency as they modernize and upgrade.
More than ever the economy is a world economy. It really has been for
12,000 years but the difference is that capital flows are more fluid over
distances than even in the recent past.
I can only speak for myself. I thought at the time (1977-1979) that inflation was increasing as it had been since I first became aware of the concept in 1974. I started accumulating silver in 1977 and built a pm position into 1980. I don't recall thinking much at all about whether or not the spending party would continue.
Question for you is, why did you sell? Didnt you think the spending party would continue? Didnt you think there would be entitlement problems in the future?
I initially sold on the advice of my futures broker because I had some serious gains. Of course I thought the spending would continue - and, the cruise missle program was eating up silver at the time. I wasn't much focused on entitlement programs either.
I exited my futures positions (bought on margin) when gold was around $670, and I held onto my physical 90% silver bags and my rolls of Sovereigns. After the crash, gold was in the mid-$600s and silver was in the mid-30's - that's when I sold off my physical. Nice gains all the way 'round.
It was clear at the time that the Hunts were going to be forced out of the market by the change in margin rules, and the writing was on the wall. It didn't really have much to do with my assessment of government spending and entitlements, although that was a part of the rationalization for buying pms in the first place. Of course, those were simpler times, no derivatives...
So much of precious metals investing is simply "common sense". Right now, we have an imaginary financial system. It used to be a fiat-based system, but now it's an imaginary system. Hey, the relevant issue is that health care and living expenses are very real as you contemplate retirement (or even if you are still gainfully employed).
IF the imaginary financial system goes "poof" someday, (whether it is sooner or later) - I want to be able to put my hands on some real, hard assets. And besides, who can honestly say that they trust the financial system after what we've seen in just this past year? Again, maybe that's just me.
I knew it would happen.
<< <i>Did those gold buyers in 1980 think the spending party was going to end in 6 months or a year?
I can only speak for myself. I thought at the time (1977-1979) that inflation was increasing as it had been since I first became aware of the concept in 1974. I started accumulating silver in 1977 and built a pm position into 1980. I don't recall thinking much at all about whether or not the spending party would continue.
Question for you is, why did you sell? Didnt you think the spending party would continue? Didnt you think there would be entitlement problems in the future?
I initially sold on the advice of my futures broker because I had some serious gains. Of course I thought the spending would continue - and, the cruise missle program was eating up silver at the time. I wasn't much focused on entitlement programs either.
I exited my futures positions (bought on margin) when gold was around $670, and I held onto my physical 90% silver bags and my rolls of Sovereigns. After the crash, gold was in the mid-$600s and silver was in the mid-30's - that's when I sold off my physical. Nice gains all the way 'round.
It was clear at the time that the Hunts were going to be forced out of the market by the change in margin rules, and the writing was on the wall. It didn't really have much to do with my assessment of government spending and entitlements, although that was a part of the rationalization for buying pms in the first place. Of course, those were simpler times, no derivatives...
So much of precious metals investing is simply "common sense". Right now, we have an imaginary financial system. It used to be a fiat-based system, but now it's an imaginary system. Hey, the relevant issue is that health care and living expenses are very real as you contemplate retirement (or even if you are still gainfully employed).
IF the imaginary financial system goes "poof" someday, (whether it is sooner or later) - I want to be able to put my hands on some real, hard assets. And besides, who can honestly say that they trust the financial system after what we've seen in just this past year? Again, maybe that's just me.[/
I think that you've hit on something here, the world has had a fiat system forever it seems but it really intensified when 90% Silver coinage was removed in 1965. Now we are left with what you so eloquently stated an imaginary financial system where the stroke of a key creates electronic money out of thin air so anything is possible now whereas before there were checks and balances.
I do believe that David Morgan is correct when he says we as a nation are staring at a currency crisis in the not to distant future and I'm not even sure what to do about it but i do have enough precious metals for my family to get by and farmland to produce food.
inability of proto-farmers to protect their crop. Man would have discovered
almost immediately that things grew from seed. He'd remember spitting
out raspberry seeds where he saw raspberry plants and would soon learn
that water and sunlight would produce more bountiful crops. Of course he
had no means to protect this so it was 300 centuries before there was enough
cooperation that agriculture was truly born. Immediately this system took root
almost everywhere and where here was sufficient water agriculture flourished
and drove out hunters and nomads. It was many times more efficient at pro-
ducing food so cities were born and invention boomed.
7,000 years later writing was invented.
There is no need for additional demand when the currency is being debauched or quantitatively eased. Currency drives the issue. In the early days of Weimer there was no additional demand for food, commodities, and things in general. But as the currency cheapened, the prices started going up. This all occured while business conditions were deteriorating. People will still need to eat, wear clothes, make repairs to their properties, buy consumer necessities, purchase health care and insurance, etc. The companies selling those products or services won't be absorbing the costs of a dropping currency. Real average wages have been falling ever since 1973. It doesn't appear to have dampened anyone's appetites for goods and services, in good times and bad.
roadrunner
Thank you for your reasoned response.
Cladking,
You mention that there would still be increased demand from growing economies like China and India, so demand would "sustain" any price increase? I ask you this, suppose Europe, USA, Japan do not increase demand in the future. Would China and India be able to keep worldwide prices high? I ask, because it seems from 2002-2007 all the worlds economies were humming along at probably 100%, yet worldwide inflation was low and manageable. If major cogs in the global system are broken or worn, how can demand exceed the ability to produce? I agree that prices could jump due to external events, but I doubt they could be sustained without increasing demand.
Roadrunner,
The Weimer situation was caused by supply constraints as the German manufacturing and distribution system was completely destroyed. Inflation doesnt just come from demand as you may have thought I meant. As I stated many times it is the result of imbalances in the supply/demand equation. Keep demand steady, yet reduce supply and you will have inflation. My thought is that this disruption in the supply chain started the Weimer inflation and they printed money to respond to the increased demand for marks. I believe inflation came first, not the printing of money. The Zimbabwe situation also resulted in supply disruptions and government price controls. BTW--I believe Nixon tried to use price controls to limit inflation. Thats not a good idea.
As far as our present situation, I ask 2 questions.
1. Is the money we printed "new" money, or is it money that has replaced what was "lost" or "destroyed" in the global financial meltdown? Are there really more dollars floating around today than a year ago?
2. If everyone in the USA was given $100k and they all buried in the backyard and never spent it, would inflation result?
Knowledge is the enemy of fear
1) Nobody knows how much money was melted down.
2) Nobody knows how much money the banks used to replace what they gambled away, except for Bernake, who does know but does not feel obligated to explain these things to the American Public.
3) Nobody knows how much more lost equity is still unaccounted for, although it's "really, really alot". They don't even know who's holding what, and how that nebulous amount is valued "at market" because nobody's buying it.
And that doesn't even consider the what, $68 Trillion or some unfathomable number, of unfunded liabilities that the government (taxpayers) are on the hook for in terms of social security and medicare.
Print on! Buy more Treasuries! The music's gonna stop. Not everybody's buying (like they used to). Last one outa the pool's a rotten egg! The only problem here is that it's not a game.
I knew it would happen.
It was new money that was created. M0 increased by around $1 TRILLION in 2008. It may not be in the economy yet but it was created. While economists and gold bugs may argue about what Money aggregate has the biggest effect on inflationary tendencies, I tend to agree with those that M0/M1. John Williams of shadowstats.com feels that M3 is the best indicator. Regardless, all money aggregates show yr over yr growth, with M1 and M0 showing the largest increases. M0 was $833 billion in June 2008 and 68% of M1. Today, M0 is >$1.8 TRILLION and larger than M1. This is very odd that the bigger aggregate money supply is now less than the smaller one. That's a 117% increase in M0 in less than a year which exceeded the previous biggest year by many multiples (that was back in the 1980's).
I don't know how to factor in the other liquidity means that have been added by the FED. The "savings account" they keep for foreign central banks has increased by hundreds of billions this year. Supposedly that has been increasing due from agency debt being repurchased. It doesn't show up in the money supply. Many FED deals don't show up in the Money supply. The entire shadow banking system of credit doesn't show up in the money supply yet was the major driver in the economy from 1982-2008. Can anyone figure out what the current true "credit" money supply is? This is just money created by banks by keystrokes and doesn't show up in any money supply figure. The fact that assets depreciated (CRE, homes, businesses, stocks, bonds, commodities, etc.) has no effect on money supply...except where defaulting loans may cause a bank to curtail future lending to increase capital reserves.
2. If everyone in the USA was given $100k and they all buried in the backyard and never spent it, would inflation result?
An interesting thought. Given human nature, what % of people would "cheat" on this deal? After all, who would ever know if some were missing since it was all given in small unmarked bills? One could "audit" it every year and state that it was all there....even if IOU's were left in place of bills (ie Soc. Sec.) The banks supposedly are sitting on $500-$800 BILL in reserves that they aren't touching. The next question is do we believe that? Do we trust the book keeping entries of the FED and the large banks? This is the same FED that created a way to make M0>M1.
Something tells me that there would be a lot of new cars, boats, and plasma TV's sold shortly after the $100K deal went into effect. Morgan Stanley was supposed to buy gold for their clients and keep it on deposit. They didn't do it. It still boils down to trusting big bankers. GLD is supposed to have $1100 tons of gold sitting on deposit that no one can touch or borrow on. 8,133 tons of US gold reserves are reported on the books but who actually owns it? What's the difference if $800 BILL in bank reserves have actually been spent/loaned/swapped and IOU's replaced it?
The stats link below gives a number of interesting articles on Money aggregrates, charts, CPI, etc.
roadrunner
<< <i>jmski,
Thank you for your reasoned response.
Cladking,
You mention that there would still be increased demand from growing economies like China and India, so demand would "sustain" any price increase? I ask you this, suppose Europe, USA, Japan do not increase demand in the future. Would China and India be able to keep worldwide prices high? I ask, because it seems from 2002-2007 all the worlds economies were humming along at probably 100%, yet worldwide inflation was low and manageable. If major cogs in the global system are broken or worn, how can demand exceed the ability to produce? I agree that prices could jump due to external events, but I doubt they could be sustained without increasing demand.
Roadrunner,
The Weimer situation was caused by supply constraints as the German manufacturing and distribution system was completely destroyed. Inflation doesnt just come from demand as you may have thought I meant. As I stated many times it is the result of imbalances in the supply/demand equation. Keep demand steady, yet reduce supply and you will have inflation. My thought is that this disruption in the supply chain started the Weimer inflation and they printed money to respond to the increased demand for marks. I believe inflation came first, not the printing of money. The Zimbabwe situation also resulted in supply disruptions and government price controls. BTW--I believe Nixon tried to use price controls to limit inflation. Thats not a good idea.
As far as our present situation, I ask 2 questions.
1. Is the money we printed "new" money, or is it money that has replaced what was "lost" or "destroyed" in the global financial meltdown? Are there really more dollars floating around today than a year ago?
2. If everyone in the USA was given $100k and they all buried in the backyard and never spent it, would inflation result? >>
It is new money but I'm sure some of it went to replace some lost money, much of the rest is either sitting on the banks balance sheets or more likely the money has been invested into the stock market along with bets in commodities after they tanked this spring.
Of course it made perfect sense at the time as the market was to cheap but now the market is starting to roll over so the next few weeks will be interesting to say the least.
So once this money starts hitting the system when the economy picks up inflation will start rearing it's head and the fed will be powerless to hike rates like Paul Volker did back in 1980. To much debt now compared to then so the fed doesn't want to pay out that much interest on trillions of dollars in debt.
I like this question! In isolation, and without regard for supply or demand, and...
since money creation is itself inflation, the answer is yes. But the results of the money creation wouldn't be seen or felt in terms of prices.
The other half of this scenario is the fact that everyone in the USA had already been to the casino the night before, and had drank and gambled into the wee hours of the night, staggering home without any idea how much they had lost or to whom they owed money. Vaguely, they remembered making out a bunch of IOUs and signing them over, but that was just before blacking out.
Does that mean that the loan on the mortgage won't be due at the end of the month, or that the car loan won't have to be paid off? And what about tuition, and property taxes? If you don't know who you borrowed the money from or from whom you borrowed it, does that mean you don't have to pay it back?
I knew it would happen.
<< <i>
2. If everyone in the USA was given $100k and they all buried in the backyard and never spent it, would inflation result? >>
I'm trying reaaaal hard to give you a serious answer to this, but just can't resist.....
BWAAHHAHHAHHHAAAAHAHAAAAAAAHAHAHAHAHAHAAAAAAA!!!!!!!!!!!!!
Seriously? You think the vast majority of americans wouldn't spend like fiends once they got their hands on $100K? You might as well say you will give an alcoholic a bottle of scotch and trust he will bury it in his backyard and never drink it. That bottle will be dry the instant you look the other way.
Opponents to the inflation theory often say it is impossible because the government will have to get money directly into consumers hands and teh banks aren't lending money. I disagree, as my junk mail will show you banks are desperately trying to get me to open lines of credit, HELOCs, new credit cards, etc. More importantly the government IS putting money DIRECTLY into consomers hands. Here's how:
1) Lengthening unemployment benefits from 13 weeks to the current 78 weeks and now a proposed 99 WEEKS!!!
2) Cash for clunkers
3) welfare
4) 30% of Americans are now on food stamps. 30%!
5) Coming soon...free healthcare!!! Woohoo!
6) Don't bother paying your mortgage or taxes, we won't foreclose on you for 2 years anyway and you can use the money you used to spend on housing to buy cars and flatscreen TVs!
7) etc... lots more to come soon
All ofthese are just sneaky ways to achieve "Helicopter drops" and there will be more soon. Inflation is here and lots more is coming. Invest accordingly.
Groucho Marx
The question was whether or not simple money creation is inflationary. But to play along, I think the possibility of everyone being given 100K are the same as everyone saving it.
Knowledge is the enemy of fear
<< <i>
The question was whether or not simple money creation is inflationary. But to play along, I think the possibility of everyone being given 100K are the same as everyone saving it. >>
Yes, I think it would be inflationary since many people would spend
everything that isn't nailed down knowing they had $100,000 buried
in the backyard. They would max out their credit lines and then borrow
from family and friends.
But money creation doesn't work this way. It either goes to the wealthy
or to bail out the wealthy.
It is logical to assume that the derivatives are a zero sum gain. No one
understands many of these instruments and there is a chance that some
are set up to create only winners or only losers but surely such instruments
would get found out by the computers and there would be either no sel-
lers or no buyers for them.
So when one of the big banks is given mega billions to cover their follies
there will be another bank on the winning end of the same deal. No money
has been destroyed it has only been created. Of course in real life huge
amounts of wealth have simply evaporated because of these deals gone
wrong and triggered by the collapse of the housing bubble.
Now what happens when the economy improves and financial and commod-
ity assets regain some of this lost wealth. This money simply rains down on
us much like the hydraulic cycle where water evaporates, forms dark clouds,
and then inundates the land.
Much of the productive capacity of this country has been shipped abroad to
enrich the few. Much of the wealth has been converted to forms that aren't
understood and underpin the finanbcial sector which can't even make a pro-
fit stealing from the population by paying 1% interest and charging ususary
interest rates to the poor. To a large extent we take in each others' laundry
to survive and it's gonna start raining quarters.
If money is created to bail out the loser in this arrangement, and if the winner is allowed to take their "cut" and run - then money has been created. In essence, the winning bankers have robbed the public of real money, and have done so in broad daylight with no negative consequences.
In addition, the loser (gambler) bankers haven't been run out of business and continue on, bonuses and all. They haven't lost a thing.
I knew it would happen.
to survive and it's gonna start raining quarters. >>
What a great line!!! I'd post an LOL but it really isn't funny......