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Of course it's deflation. It's just that it's deflation being fought with an "inflation cure", and you think that the inflation cure will end up as the dominant force.

I guess one could say that. But the cure has been baked into the cake a long time ago.

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Politics will trump economics I think. The US government has pretty much given up all pretence of there being a free market, and like it or not the few key players in the US administration will drive the global economic landscape. They also still hold some powerful bargaining chips:

. Most of the world's dollar assets are held by foreign countries, so who suffers most if it goes south?

. America is still the world's largest market so who will protectionism and trade sanctions hurt most?

. The influence of american multinationals in other countries' domestic political affairs is not to be underestimated.

. The US military-industrial complex still dwarfs that of any other nation.

 

Predicting the decisions these few key players will make over the next over the next few months/years is nigh on impossible. One thing is certain though; priority number one will be to protect the US's privileged position as printer of the world's reserve currency. I wouldn't rule out any option that might be taken to achieve that aim, including ones which would have adverse affects for holders of gold, such as price controls or compulsory purchase. What we'll see over the next few years could well make the actions of Franklin D. Roosevelt's New Deal look positively tame.

 

Not that I'm arguing against holding gold; it's still the least worst option I can see right now. But I wouldn't say the end game is certain by any means...

Hi UTK- yes, you could be right. That is the really scary thing... much scarier than a depression... what will the politicians do? The so-called economic experts have looked to already panic Congress into some new RTC deal. Bush, with a perhaps prescient slip of the tongue, is talking about "persecuting" those nasty short sellers. Jim Cramer was even talking about putting financial terrorism on the table. The world can become crazy quickly.

 

Maybe the best possible outcome would be a quick, clean, complete collapse of the system so they will not be able to do anything.

 

Edit. I really do think though the bureacrats and politicians over-estimate there power. What can you do in the face of a black hole... or a whirlwind, but scurry for cover? Here's hoping.

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Politics will trump economics I think. The US government has pretty much given up all pretence of there being a free market, and like it or not the few key players in the US administration will drive the global economic landscape. They also still hold some powerful bargaining chips:

. Most of the world's dollar assets are held by foreign countries, so who suffers most if it goes south?

. America is still the world's largest market so who will protectionism and trade sanctions hurt most?

. The influence of american multinationals in other countries' domestic political affairs is not to be underestimated.

. The US military-industrial complex still dwarfs that of any other nation.

 

Predicting the decisions these few key players will make over the next over the next few months/years is nigh on impossible. One thing is certain though; priority number one will be to protect the US's privileged position as printer of the world's reserve currency. I wouldn't rule out any option that might be taken to achieve that aim, including ones which would have adverse affects for holders of gold, such as price controls or compulsory purchase. What we'll see over the next few years could well make the actions of Franklin D. Roosevelt's New Deal look positively tame.

 

Not that I'm arguing against holding gold; it's still the least worst option I can see right now. But I wouldn't say the end game is certain by any means...

 

Maybe Jim Sinclair's idea of a Gold Certificate Ratio might not be so out-of-wack!

 

The point of destination is the Gold Certificate Ratio, GCR, as a transparent balancing support mechanism for the US dollar and thereby other world currencies

 

http://www.jsmineset.com/ARhome.asp?VAfg=1...cate&UArts=

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. Most of the world's dollar assets are held by foreign countries, so who suffers most if it goes south?

 

Maybe a tipping point will be reached when they become less an asset and more a liability.

 

I reckon the Chinese are biding their time at the moment. they will cut the rope [no more buying of treasuries] when it suits them.

 

Edit: "treasuries" what a misnomer that is!

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Maybe a tipping point will be when they become less an asset and more a liabilty.

 

Obviously that will be a nightmare for all countries that hold lots of $ in reserve. A global nightmare I guess - something that will be fought hard by those that will suffer. It's either that or the nightmare of finding replacement(s) has to come about.

 

Some might gain by standing behind an alternative globally recognised reserve (China/Russia?) but would the + out-weight the - ? How can the $ be secured as an asset - by backing it with something that inspires confidence. What else might offer confidence better then gold/silver?

 

I have no idea how/if this could be done and am talking as a total layman - just relaying thoughts as they pop into my head! Jim's idea just seemed a bit less far-fetched!

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Here's an interesting radio interview with John Williams of shadowstats.com with Jim Puplava

 

He sends this one out to all the neo-deflationists (wrongmove/magpie are you listening)

 

http://www.netcastdaily.com/broadcast/fsn2008-0920-3a.mp3

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Here's an interesting radio interview with John Williams of shadowstats.com with Jim Puplava

 

He sends this one out to all the neo-deflationists (wrongmove are you listening)

 

http://www.netcastdaily.com/broadcast/fsn2008-0920-3a.mp3

 

Though I have great respect for John Williams, I thought he went a bit hyperbolic today and sounded shrill at times.

 

Though I agree there will most probably be a hyperflationary scenario.... I think they do not do justice to to the reality of the deflationary forces at work today.

 

Everything else, I am in complete agreement with them. :)

 

 

Edit: Frankly, I am amazed they have not recognised the credit crisis as a huge contraction of the supply of money and credit and hence massively deflationary. But we have argued this ad infinitum before.

 

Edit Edit: It was the first time I had heard the word "neo-deflation" before. I was very disappointed as I thought I had coined a new word for my own position. Could anyone tell me where else this word is being used??

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Edit: Frankly, I am amazed they have not recognised the credit crisis as a huge contraction of the supply of money and credit and hence massively deflationary. But we have argued this ad infinitum before.

 

The supply of money has never been increased at such a rate before, $300 billion created on Thursday/Friday by CBs.

 

Their latest bailout plan is to bailout everything! Wake up.

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The supply of money has never been increased at such a rate before, $300 billion created on Thursday/Friday by CBs.

 

Their latest bailout plan is to bailout everything! Wake up.

 

I think "inflationists" need to wake up. We are in a huge bust... the crack up stage... the FED is doing everything they can to avoid the yawning abyss of a deflationary depression. They are obviously going down the road of hyper-inflation... maybe they will succeed... what a pyrrhic victory that is... maybe they will fail... most probably they will eventually destroy the currency.

 

It is kind of child like to think we must either subscribe to the inflation camp or the deflation camp... and the twain never meet. :blink:

 

Edit: In a classic hyper-inflation it would be a very good strategy to get into debt... inflation will make it so easy to pay it off.

But I do not think many are thinking of this option this time round because it is so different.

 

Edit edit: Gold is good.

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I think "inflationists" need to wake up. We are in a huge bust... the crack up stage... the FED is doing everything they can to avoid the yawning abyss of a deflationary depression. They are obviously going down the road of hyper-inflation... maybe they will succeed... what a pyrrhic victory that is... maybe they will fail... most probably they will eventually destroy the currency.

 

It is kind of child like to think we must either subscribe to the inflation camp or the deflation camp... and the twain never meet. :blink:

 

Edit: In a classic hyper-inflation it would be a very good strategy to get into debt... inflation will make it so easy to pay it off.

But I do not think many are thinking of this option this time because it is so different.

 

Edit edit: Gold is good.

 

I agree with a lot of what you say, I do think we are going to be seeing both. I was just getting a bit fed up with the talk of the industrial metal silver going to $6.

 

I believe there has already been hyperinflation in house prices/credit over the last few years. Now with their latest bailout plan, the credit created by that hyper inflation is not going to be allowed to deflate, it is to be kept in the system with newly printed dollars.

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I agree with a lot of what you say, I do think we are going to be seeing both. I was just getting a bit fed up with the talk of the industrial metal silver going to $6.

 

:lol:

Well, for what it is worth, I think it is going to the moon. I am hoping to put my next chunk of change into silver... only got gold at the moment.

 

Edit: What persuades me on silver, is that there will be a scarcity of real money after the dollar falls over. In the last depression, the dollar was backed by gold.... so it was as good as gold... which is why the dolar survived as money.

 

This time round the dollar is backed by........ a debt riddled economy. :mellow: so the monetary qualities of silver are likely to perform well.

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Of course it's deflation. It's just that it's deflation being fought with an "inflation cure", and you think that the inflation cure will end up as the dominant force.

 

some people are so fickle :P

 

http://forum.globalhousepricecrash.com/ind...showtopic=40774

 

"Very dumb idea, basically a big black hole where they swap cash for dodgy assets - if they do this even I might switch to predicting hyperinflation."

 

tbh, I think romans holiday is right when he/she says we will probably get both - it's maybe better to think of the effects on the $ first and everything else second :unsure:

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I think "inflationists" need to wake up. We are in a huge bust... the crack up stage... the FED is doing everything they can to avoid the yawning abyss of a deflationary depression. They are obviously going down the road of hyper-inflation... maybe they will succeed... what a pyrrhic victory that is... maybe they will fail... most probably they will eventually destroy the currency.

 

It is kind of child like to think we must either subscribe to the inflation camp or the deflation camp... and the twain never meet. :blink:

 

Edit: In a classic hyper-inflation it would be a very good strategy to get into debt... inflation will make it so easy to pay it off.

But I do not think many are thinking of this option this time round because it is so different.

 

Edit edit: Gold is good.

 

The latest from Marc Faber regarding this deflation/inflation:

 

However, we should not forget that the current financial crisis and credit growth slowdown is unprecedented in the last 30 years or so and that the through of the Kondratieff down-wave, which lasted in real terms from 1974 to 2001, was incomplete because it was not accompanied by a massive debt-liquidation.

 

As a result, a deflationary bust originating from debt liquidation should not be ruled out entirely before highly inflationary monetary and fiscal policies around the world bring about very high inflation rates. But that may only happen after 2012 and in the meantime, “all asset markets could continue to suffer badly as credit contracts and liquidity evaporates”

 

whole article at

 

http://ftalphaville.ft.com/blog/2008/09/08...hat-comes-next/

 

Well, for what it is worth, I think it is going to the moon. I am hoping to put my next chunk of change into silver... only got gold at the moment.

 

Edit: What persuades me on silver, is that there will be a scarcity of real money after the dollar falls over. In the last depression, the dollar was backed by gold.... so it was as good as gold... which is why the dolar survived as money.

 

This time round the dollar is backed by........ a debt riddled economy. mellow.gif so the monetary qualities of silver are likely to perform well.

 

 

As for Silver vs. Gold, I am not so convinced that silver's performance will not be "tainted" by its "closer" affiliation to the commodities / industrial metals family if we are headed for a deflation first - and hence gold could outperform (disclaimer: I own only Silver and no gold - but this is my current worries and I am considering diversifying into Gold).

 

Also I think one of the main uses/advantages of Silver as money used to be a better practicality for lower nominal transactions (ie you cant buy a latte or your groceries with 1oz of gold ;-)

But I think if gold regains a more important place in monetary matters, it could be used to back financial transactions in an electronic form and therefore would allow for lower unit divisions (ie this is actually one of P. Schiff's point in his Crash-Proof book: a Debit Card linked to a gold account). In this instance we dont need Silver for lower cost transactions.

 

Also I believe in Dr A. Fekete's argument that one of the main reasons Gold is good as money is because the above-ground stockpiles are comparatively much larger than the annual production which make the physical/industrial/jewelry supply/demand equation less (not?) relevant to its price. Whereby Silver being much more industrial (than Gold) would not fulfill its role as money as well..?

 

However, if we still think that resources are going to be stretched and demand will pick up later, Silver prices could go up comparatively to "real" money (ie Gold) on a longer-term horizon.

 

So: monetary and debt crisis: Gold outperforms Silver because it is less impacted by a commodity slump and fulfills a better role as money

Followed by a pick up in demand for industrial commodities once the crisis has been "absorbed" and economic activity re-accelerates notably in India-China. Silver prices go up (in Gold terms).

 

 

That's just my current hypothesis and I still need to do lots of research to refine my point of view but I would be interested to hear yours..

 

 

 

 

 

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Hi L- Thanks for posting Marc Faber's article, he is always good to read . As to silver, you seem to have done a lot more homework on it than me. What I have picked up from some running commentary [Hoye] is that it may not perform due to it being perceived more a commodity than money. I feel this is wrong, for the reason posted above; this time round with the dollar debased, silver's monetary qualities may perform well.

 

Other commentators give arguments that silver will do extremely well and will outperform gold. I lean towards this commentary which usually involves a currency crisis. With a full blown currency crisis, commodities, as real stuff, will always do well. Plus of course silver is money. Arguments can be made that it is doubly good.

 

Personally, I am not as sure about silver, as I am about gold, because I am less familiar with it. I think a good way to approach it is as yet another hedge. Rather than just having one currency, that of gold, why not have two! And if you are less comfortable with silver, just hold a smaller proportion of your worth in it. If it does not perform it does not matter too much. If it does perform, and goes further than the moon to Mars, then it will pay off handsomely.

 

I am hoping to put a chunk of change into silver in a few months time [i am hoping the price stays done]. I am looking at it as not my core position but an investment that could do extremely well.... [similiar to how many invest in mining stocks and juniors].

 

Just my take on it....

Regards.

 

Edit: I think diversifying is good for pragmatic reasons. Maybe you are more comfortable with silver, if so, you could hold a smaller proportion in gold.

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Hi L- Thanks for posting Marc Faber's article, he is always good to read . As to silver, you seem to have done a lot more homework on it than me. What I have picked up from some running commentary [Hoye] is that it may not perform due to it being perceived more a commodity than money. I feel this is wrong, for the reason posted above; this time round with the dollar debased, silver's monetary qualities may perform well.

 

Other commentators give arguments that silver will do extremely well and will outperform gold.

 

Personally, I am not as sure about silver, as I am about gold, because I am less familiar with it. I think a good way to approach it is as yet another hedge. Rather than just having one currency, that of gold, why not have two! And if you are less comfortable with silver, just hold a smaller proportion of your worth in it. If it does not perform it does not matter too much. If it does perform, and goes further than the moon to Mars, then it will pay off handsomely.

 

I am hoping to put a chunk of change into silver in a few months time [i am hoping the price stays done]. I am looking at it as not my core position but an investment that could do extremely well.... [similiar to how many invest in mining stocks and juniors].

 

Just my take on it....

Regards.

 

 

If you follow Bob Hoye you probably know that he expects the GS ratio to be headed to 100...

So you might want to wait fpr that or scale in your purchase? just a thought...

 

Edit: of course you believe he (Hoye) is wrong (duh! I should read better) so ignore this..

I would suggest you hedge your future silver purchase at today's prices.. but that involves some form of "paper silver"...

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If you follow Bob Hoye you probably know that he expects the GS ratio to be headed to 100...

So you might want to wait fpr that or scale in your purchase? just a thought...

 

Interesting.... so a 3 ounce bar could buy 300 ounces of silver. :rolleyes:

 

If there is another huge deflation scare... this could be a very good option.

 

But who knows, I think it is pretty darn cheap now! If I had dry powder I would be buying now.

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some people are so fickle :P

 

http://forum.globalhousepricecrash.com/ind...showtopic=40774

 

"Very dumb idea, basically a big black hole where they swap cash for dodgy assets - if they do this even I might switch to predicting hyperinflation."

 

tbh, I think romans holiday is right when he/she says we will probably get both - it's maybe better to think of the effects on the $ first and everything else second :unsure:

 

I did say 'might'...

 

At the minute I think high inflation is certainly likely as a result of all this. Although that's only if they actually succeed in averting the deflationary collapse first, which is far from certain at this point.

 

The point is one needs to understand that this is a period of deflationary deleveraging first, and beyond that it is anyone's guess how the 'inflation cure' will work. It will either destroy or devalue the dollar for sure, but how rapidly all the consequences will play out is far from certain.

 

But I would say the last week has shown how very determined they are to pump in as much money as it takes and in that respect the balance of probability has shifted towards high or hyper inflation in the medium term.

 

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I did say 'might'...

 

At the minute I think high inflation is certainly likely as a result of all this. Although that's only if they actually succeed in averting the deflationary collapse first, which is far from certain at this point.

 

The point is one needs to understand that this is a period of deflationary deleveraging first, and beyond that it is anyone's guess how the 'inflation cure' will work. It will either destroy or devalue the dollar for sure, but how rapidly all the consequences will play out is far from certain.

 

But I would say the last week has shown how very determined they are to pump in as much money as it takes and in that respect the balance of probability has shifted towards high or hyper inflation in the medium term.

 

Surely, we had 10-15 years of massive money supply, which was bound to cause inflationary pressures. Then came the credit crunch...

 

Things that had been inflated before the credit crunch started to deflate (e.g., houses, and commodities to a degree), but these will now deflate less or maybe no further due to the latest injection of new money.

 

And things that were still only part way through their necessary inflation (e.g., cost of living items, wages) will now have their ongoing inflation dramatically accelerated.

 

 

 

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