Comments on: The Gold Bugs May Be Right This Time

By: sean

sean — Thu, 12 Nov 2009 00:08:33 +0000

I would also note that foreign central bank USD reserve accumulation belies the notion that the world is losing faith in the USD and caution not to read too much into a trade that is working very well for guys who are short USD. When this turns its going to be violent and you will see a huge USD rally. I think that will happen when the Fed signals that they are going to start raising rates.

By: sean

sean — Wed, 11 Nov 2009 23:37:00 +0000

The US can not go bankrupt – thats like saying the subway system can run out of tokens. Obviously peoles perceptions can be anything, regardless of the facts so I can’t argue that the perception isnt there.

By: David

David — Wed, 11 Nov 2009 03:12:12 +0000

Right now Gold is going up due to the devaluation of the dollar and inflation. Price indexes don’t include the price of housing. Housing tripled from 1998 to 2006 during the housing bubble. Inflation has been much higher than reported.
Hyperinflation won’t occur from the money supply, but from the perception of the US Government going bankrupt. Deflation or Inflation could cause this, assuming interest rates keep up with inflation. If the Federal Reserve continues to pay negative real interest rates, fewer and fewer investors will want the dollar. That’s what is driving the dollar down and Gold up. If people unload the dollar like stocks in the 1929 stock market crash, Gold would skyrocket. As the value of the dollar goes to zero, Gold goes to infinity.

By: sean

sean — Wed, 11 Nov 2009 02:41:06 +0000

thats a great que stion. lemme think about it…

By: The Inquisitor

The Inquisitor — Tue, 10 Nov 2009 21:28:11 +0000

Sean, I would be glad to receive the research which you are so kind as to offer. How do you propose to do that without disclosing our identities to potential crazies on the web?

By: sean

sean — Tue, 10 Nov 2009 21:04:32 +0000

Inquisitor, I would be happy to send you some research that you may find interesting. Some relatively light, albeit kind of depressing economic reading on the current recesson.

All the Best

By: sean

sean — Tue, 10 Nov 2009 07:35:57 +0000

Just an aside on gold. If you bought in the last inflation fear inspired bull maret in the 70′s you will break even (adjusted for inflation) at $2300 so hang on, youre almost flat – just another $1200 to go.

By: sean

sean — Tue, 10 Nov 2009 07:20:11 +0000

K, If I understand you correctly you are saying that too few consumers bidding for too many goods resulted in deflation in Japan. So it didn’t matter what the BOJ did in terms of adding to excess reserves or the explosion in the broad money supply – it was an issue of too little agregate demand that drove inflation.
I contend the same for the US as we struggle through our private sector balance sheet repair and deleveraging.
I agree energy prices will rise as we have done nothing to address our supply problem ( in fact we are going the other way) and food prices will rise right along with them. These will be driven by incraeses in demand though, not by the fact that there are excess reserves that in fact get drained ever night as they go from the banks to the fed.
If money supply was the key, why has every central bank abandoned it as a guide to setting policy rates?

By: K

Tue, 10 Nov 2009 06:31:25 +0000

I see this argument a lot. That model forgets one thing. The Japanese population is decreasing, rapidly. They won’t allow massive immigration and as an island there’s very little of the illegal variety as well. Result:fewer customers chasing a lot of product or deflation. The US is not in that position as the establishment’s actual position on immigration, legal and illegal is “full speed ahead!”. When the bad housing investments get cleaned out in 2011 or 2012, real estate prices in California will begin to rise again from population pressure alone. Combined with the inevitable energy price increases, food increases due to agro-fuel you’ll see lots of price increase with little salary change due to continued high unemployment. Lower standard of living all round with higher taxes due to health care and entitlements.

There wasn’t supposed to be “stagflation” in the 80s either, but it didn’t end until the money supply was stabilized.

By: sean

sean — Mon, 09 Nov 2009 22:45:26 +0000

Yes, the Japanese are experiencing the bust of their asset price inflation – both equity and real estate but the bust has gone on for about 15 years now, with no inflation – in fact persistant deflation. We face much the same risk and a reduction in the federal deficit at this point would be a disaster.
I contend that the current policies are terrible but I would strongly warn againt any attempt to raise interest rates or balance the budget without fitsr seeing an increase in the demand for credit from the private sector.

By: sean

sean — Mon, 09 Nov 2009 22:42:26 +0000

“They default on their debts and credit shrinks. The result is deflation.”

And that is the central issue – without the extension of credit there is no inflation. An persitant increase in reserves held at the Fed is a manifestation of the contraction of prvate sector credit.

By: The Inquisitor

The Inquisitor — Mon, 09 Nov 2009 22:01:38 +0000

Sorry to be a pain in the neck, but these issues are too important to not get right.

The only limit on the volume of business is the available capital (and labor). Credit creation does not ultimately expand the volume of business; it only reallocates the available capital.