Some forum members have said there is a possibiliy for deflation.
PerryHall
Posts: 46,122 ✭✭✭✭✭
If there is deflation, how will that effect gold and silver prices? If inflation is good for PM values, wouldn't deflation be bad for PM's? Your thoughts?
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
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Comments
<< <i>Since History has a tendency to repeat itself, I would suggest a little research before anyone answers your question and give us a valid reference..(leave out Zimbabwe)... I, myself, don't know. >>
I know Zimbabwe had lots of hyperinflation but did they ever have deflation?
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
Some people think that our debt is manageable, some don't. The fact that foreign entities hold some of the trump cards in the deck is not helpful in charting a course that avoids both hyperinflation or a disproportionate deflation.
No matter which side of the fence your assets are on, big swings in valuation are only good for the ones who know which way it is going to go. Sometimes, it's easy to start thinking that these cross-currents in the economy are not happenstance.
I knew it would happen.
<< <i>
<< <i>Since History has a tendency to repeat itself, I would suggest a little research before anyone answers your question and give us a valid reference..(leave out Zimbabwe)... I, myself, don't know. >>
I know Zimbabwe had lots of hyperinflation but did they ever have deflation? >>
It didn't...my brain was still on hyperinflation & not a deflation scenario...
There's only 2 of us. I agree we eat well but $250 bucks a week just at the grocery store? I mean we could save money if we were to buy tv dinners and other stuff like it but we also like life.
Coin's for sale/trade.
Tom Pilitowski
US Rare Coin Investments
800-624-1870
Where at least some of the confusion is coming from is the "Austrian school of economics" idea that "inflation is everywhere and always a monetary phenomenon", which loosely interpreted means that since the Fed is printing as fast as it can, this is inherently inflationary. But that money doesn't appear to be going anywhere except back into the Treasury, which is doing it's d*mnedest to spend it through the government. IT's just that on balance, govt spending and Fed monetizing doesn't seem to be winning over reduced corporate and consumer spending, credit withdrawal and debt destruction.
I've mentioned before that I think the major driver of the POG is the opportunity cost of owning it. Given that real interest rates are at zero or somewhere close to it, there is very little "cost" to owning gold. If inflation were at 3% and T-bills were returning 5%, I suspect gold demand from investor/speculators, the primary driver of the current market, would drop, as you would be giving up a 2% "risk free" yield to hold gold.
Can't argue with that. There is definitely a deflationary slant to the current economic environment. But some asset prices have been rising over the last few years counter to the deflationary trend, hence there is also an inflationary slant to parts of the economy.
Where at least some of the confusion is coming from is the "Austrian school of economics" idea that "inflation is everywhere and always a monetary phenomenon", which loosely interpreted means that since the Fed is printing as fast as it can, this is inherently inflationary. But that money doesn't appear to be going anywhere except back into the Treasury, which is doing it's d*mnedest to spend it through the government. IT's just that on balance, govt spending and Fed monetizing doesn't seem to be winning over reduced corporate and consumer spending, credit withdrawal and debt destruction.
There is where I have some issues. We can't just look at printing press money or even M1, M2. We have to also include the entire shadow banking/treasury system where keystroked money is flowing in large quantity (ie trillions). That money is going somewhere, we just can't see where. $200Bill in new (not recycled) bond sales each month is going somewhere even if it's not showing up in M1 or M2 as it would if it were processed/authorized through congressional spending. Some of it is going into speculative assets such as gold,silver,etc. Some is going into bankers and govt side pockets. Don't just look at money velocity of circulating currency which is on the order of only $700 BILL. This issue is many multiples of that. I'd say that $20 TRILL has been pumped into the world economy over the past 2 years...so where has it gone? Much of that wealth was transferred, not lost or thrown down the proverbial derivatives "washing" hole as many think.
I've mentioned before that I think the major driver of the POG is the opportunity cost of owning it. Given that real interest rates are at zero or somewhere close to it, there is very little "cost" to owning gold. If inflation were at 3% and T-bills were returning 5%, I suspect gold demand from investor/speculators, the primary driver of the current market, would drop, as you would be giving up a 2% "risk free" yield to hold gold.
Agreed. Gold tends to follow interest rates and in particular real interest rates, not inflation per se. In fact gold tends to perform poorly during moderate inflation (1982-2000) esp with help by the govt. When inflation started heating up from 2004-2006 gold rallied on that as real interest rates fell. Trying to identify what real interest rates are when our banks are holding $180 TRILL in illiquid otc interest rate derivatives is a difficult issue. You can't have truly market determined rates when that kind of chicanery has been going on. Whatever rates currently are, they have not been determined by true market supply and demand but have undergone massive distortion due to derivatives. Derivatives also helped to massively distort home prices as well as gold/silver prices. Derivatives have basically distorted the entire financial system as well as the pricing of various classes over the past decade.
Gold also responds to a lack of confidence in fiat money and govt. That's probably been the driving force from 2009-2010. Inflation or deflation, gold really doesn't care. It will tend to hold its value in either scenario. During a currency confidence crisis however it will respond the quickest as it has always been an alternative to fiat currencies which have a 100% track record of going to ZERO. So in our current environment we have deflationary and inflationary inputs, confidence inputs, and distortion inputs (derivatives). Trying to determine which one at which time is affecting the gold price is nothing but guesswork.
roadrunner
Deflation in the United States
There have been three significant periods of deflation in the United States.
The first was the recession of the late 1830s, following the Panic of 1837, when the currency in the United States contracted by about 30%, a contraction which is only matched by the Great Depression. This "deflation" satisfies both definitions, that of a decrease in prices and a decrease in the available quantity of money.
The second was after the Civil War, sometimes called The Great Deflation. It was possibly spurred by return to a gold standard, retiring paper money printed during the Civil War.
The third was between 1930–1933 when the rate of deflation was approximately 10 percent/year, part of the United States' slide into the Great Depression, where banks failed and unemployment peaked at 25%.
My question is: how did it affect the price of gold during those times.
I would venture that we may be deflating right now. This is a super time to be buying with CASH.
With the fed printing 1's and 0's...it seems to just be buying gov't debt and doesn't actually affect the general population. Sooner than later...this will hammer us.
JMHO
There have been three significant periods of deflation in the United States.
The first was the recession of the late 1830s, following the Panic of 1837, when the currency in the United States contracted by about 30%, a contraction which is only matched by the Great Depression. This "deflation" satisfies both definitions, that of a decrease in prices and a decrease in the available quantity of money.
The second was after the Civil War, sometimes called The Great Deflation. It was possibly spurred by return to a gold standard, retiring paper money printed during the Civil War.
The third was between 1930–1933 when the rate of deflation was approximately 10 percent/year, part of the United States' slide into the Great Depression, where banks failed and unemployment peaked at 25%.
My question is: how did it affect the price of gold during those times.
With the price of gold being fixed during some of those periods one could say no effect. But I know that following the Civil War the price of gold spiked dramatically. I recall reading one article that claimed one group of traders tried to corner the gold market and manipulate it. Gold reached something over $60/oz at the end of the 1860's. One account said $165/oz briefly but I can't find any chart to corroborate that figure. www.chartsrus.com should help you. During the deflation of the 1873-1900 period the consumer gained 90% in real purchasing power. Real wages advanced. The majority saw their standard of living increase. But real average US wages have been dropping steadily since 1973.
I still think we can't look just at circulating currency like we did in the 1970's when there were no such thing as otc derivatives, mbs, siv's, etc. The bankers and govt created a separate money system based on credit and derivatives. It cannot be tracked because it is not out in the open. Those liquidity (or illiquidity) flows dwarf the paper currency and PM systems. Everyone is focused on outdated systems of measuring money flows which is leading to incorrect conclusions with monetary and financial policies. This is not the 1970's from a monetary policy view, nor can you apply thumbrules and forumulae from previous decades to come to a conclusion. Until all these derivatives are methodically unwound (very unlikely) there is no way to analyze the current situation accurately. More than likely these contracts would have to blow up all at once to figure out where we stand. And then Fred Flintstone would even be able to analyze it.
roadrunner
How deflation affects price of gold
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
About 27 dollars AND 52 CENTS. That is it in a nutshell.. What has
really been deflated ,is my hopes, dreams and aspirations.
Camelot
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey