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ARCHIVED DISCUSSION FROM 4/22/1999
All times are U.S. Mountain Time
View Yesterday's Discussion.
Aristotle
(4/22/99; 23:45:45MDT - Msg ID:5047)
Golden Lifeboats
Backlash,
You know, it occurred to me that I never voiced my position in this evening's debate...inflation or deflation. I only chimed in on the identity and lifestyle of a dollar.
Dare I break my silence? YES!
You said, "I have no clue which way things are going to turn although I do expect inflation to play a significant role."
Bingo! Inflation is always the final chapter because it is an easy "solution" for governments. It is politically attractive and expedient when you have the wherewithal to create money from thin air to pump up entitlements and spend your way out of a deflationary recession.
I am inclined to think that deflationary effects (USDollar shortages) are being felt around the world, but will never reach Americaa as an economic (business cycle) phenomenon. Our leaders simply have no stomach for that sort of pain.
However, turbohawg rightly points out that a cultural phenomenon arriving on the gossamer wings of Y2K has every likelihood of force-placing a deflation (ZAP!). But I would say that only holds potential if not preceded by a time-compressed 1920's German style inflation brought on by a monetary crisis that is currently hanging ripe on the vine. ---Aristotle
Aristotle
(4/22/99; 23:12:02MDT - Msg ID:5046)
You're the best, Doc!
Indie!...hold the phone! Greying hair need not portend iminent appointments with a pine box. Point me to the nastiest, scraggliest mountainside ever forsaken by God and men and I'm there, with a sandwich in my pack and a lust for gold gleaming in my eye.
I hear you loud and clear, my Fearless Friend. It was not long ago (a matter of days) that over some beers with some friends I had said that while any ol' geezer can plan a fishing and camping outing, wouldn't it be so much more rewarding to have the focus of the trip be Gold panning, and only fish enough to feed ourselves. True story!
The trip would serve as a reality check (not that I need one) as to how difficult it truly is to come by an ounce of Gold. In contrast, it is a relative breeze to acquire the current spot price for an ounce and simply BUY the Gold. That to me is a sure sign that not all is right in Beantown.
So, Dr. Jones, you will be happy to know that I harbor a latent goal to earn an ounce of gold the hard way. I doubt that Michael will hold that foregone business against me (or you for the additional inspiration to fend for myself one ounce worth). I really can't imagine a better incentive to go camping, other than the hammock time with a beer as the moon is rising and the fire is burning bright.
I'm sure you agree...$300 Gold is a gift ("Thanks paper traders!"), and MK seems like Santa Cl-Au-s.
"It's beginning to look alot like Christmas..." ---Aristotle
backlash
(4/22/99; 22:41:07MDT - Msg ID:5045)
Aristotle, Christine, JA, Stranger, and Turbo
Hear, hear ! Gentlemen, Knights, and Ladies ! - - - - - What a splendid exhibition of jousting. Point - counterpoint ! Most lively, entertaining, and informative your posts one and all this evening on the issues of inflation, deflation and vagaries and nuances of each. Wish I were indeed capable of establishing which is the correct answer for the future, but alas such wisdom escapes me.
Aristotle, JA, Stranger and Christine how delightful to follow the exchange of ideas and positions regarding the coming influences of the financial and economic shenanigans being perpetrated by the 'leaders' of the US$ boom times. May I at this juncture suggest that we take a moment to step back from the trees a bit that we might better see the forest.
The proposition of whether inflation will arrive first or after deflation or yet a combination of both simultaneously seems to me a matter of personal perception and opinion as each beholder translates the data seen (deficits, loans, borrowing, debt, money creation, etc.,etc.) and sets it forth according to each ones' experiences and knowledge. Frankly, I have no clue which way things are going to turn although I do expect inflation to play a significant role.
It appears to me that this exchange of positions is analogous to arguing about 'how' the holes are being drilled in the bottom of the boat. My questions are: a.) Who is/are drilling the damned holes? b.) Why are they drilling them?, and c.) What the heck are we going to do about it ? It appears that much of the discussions at this forum deals with symptoms and how or what to do to clear them up. We all are pretty clear on the symptoms, the test is in finding the actual problem(s) and then addressing them.
Answering c.) first, we all know what to do immediately, in the near term, for the mid term, and in the long run. Get Some .. . .Gold. - - - Now, for a.) and b.), the Who and Why. - - - Is it the politicians? If so, the 'why' could easily run a very wide gamut of reasons being lead by ego, power, and greed. Is the 'who' persons behind the scenes? Likely the 'why' would be power or greed. Please, ______ here insert your preference for your own 'who' and 'why'_____ . Let us finish with 'who is drilling the holes' as being 'the uninformed' and the 'why' being 'because they are uninformed and do not know that this will sink the boat that we are all on.' Is it remotely possible that much of the problem is really caused by ignorance and ineptitude? (Not that it would change any of the results.)
My personal approach is to determine just who the hell it is that is drilling the holes in the bottom of the boat (and it makes no difference what the reason is) and throw them overboard regardless of how good they might be at rowing. If the boat sinks, it makes no matter how good any 'one' can row. For the time being, it appears that there are more hole drillers aboard than either hole patchers, bailers, or rowers. The argument is more of which end of the boat is going to sink first, not whether it is going to sink. - - - - - - - - - TO THE LIFEBOATS ! ! !
My little lifeboat has a golden lining. - - - How about yours?
Best Wishes, bl
NORTH OF 49
(4/22/99; 22:26:53MDT - Msg ID:5044)
Aristotle--You want Passion--Let me lead the way
Ok you ole geezer!!--There is no way in hades that I could ever keep up with you, let alone joust with you in this court of economic examination, HOWEVER, I detect a certain degree of complacency in the private accumulation of your little gold hoard---but, to what degree was the challange other than economic in accumulating it??
You want passion Sir?? I challange you Sir (and I just know MK is going to have my b---s for this)that there is nothing in this world more gratifying than to wrestle this treasure from Mother Nature in a one-on-one atmosphere. I'm not talking about stripping, or tunneling--panning my friend. Panning! If you want passion, go to the library, look up your local gold history, and I am sure that somewhere not to far away, there will be a river/stream source of historic gold production. Most are totally uneconomic--so what!!??
I might add, it will help if you live somewhere close to the mountains. Believe me, if you don't, it is well worth planning a vacation for.
I cannot explain it, don't even want to, but there is something about those grains, not much bigger than a granule of salt glittering back at you in reflection of the sun that instills a sense of achievment that ranks right in there with your most reverent passions.
I am not really long on words--but I would like to think that what little I have to say comes from my heart. When I read the words of a great mind like yours saying things about "smoothing back the grey hair, and kicking off the sandles", I think that it is my obligation to say "c'mon Pop, you ain't seen nuth'n yet!!".
No49
Aristotle
(4/22/99; 19:47:43MDT - Msg ID:5043)
JA and the electronic forum
Well, there you have it. A 'virtual' forum makes is all the easier to smooth back the greying hair, kick off the sandals, and feel like a kid again with a topic that is worthy of one's passions.
Passion. Get you some. (Although that particular phrase seems out of place here. We are hip deep in passion and life!) ---Aristotle
JA
(4/22/99; 18:08:39MDT - Msg ID:5042)
Stranger, Aristotle, Turbohawg & Christine
Thank you so much for the lively discussion, great though and comments.. Aristotle, names help us form images. With your namesake I picture someone who has acquired much wisdom over a number of years, I never imagined you to be spry enough to still be into wrestling.
That's the benefit of the forum, it can serve to broaden our view.
I am off to pick up a son from soccer practice and then to a town meeting. Some nut want's to put a dog kennel on the outskirts of my subdivision.
Will check in if time permits later.
turbohawg
(4/22/99; 18:03:00MDT - Msg ID:5041)
Stranger and Aristotle
nothing like a good tussle to cap off an exhausting week and begin the weekend. Clearly we agree on the bottom line ... that gold is a necessary diversification at this time.
For what it's worth, I was in that camp that thought the effects of inflation were gonna deliver a knockout blow between the eyes. About 2 years ago, I picked up Robert Prechter's 'At the Crest of the Tidal Wave'. At the time, it was unbelieveable to me that he was actually making the case for deflation. But he made such a good case that I was forced to reconsider. Still, it took awhile to sink in. Over the subsequent months, I continued to think about it and look at the numbers. The more info that came before me the more I saw the blocks falling into place. Now I feel as if I'm in an accident, with rapidly unfolding events occurring in slow motion. Everything makes sense.
For those who haven't read it, there's a lot of thought provoking info in that book in addition to his technical analysis.
If my suspicion is correct that we'll have a volatile unwinding (or even a volatile UPwinding), there are going to be serious opportunities in the futures markets to make a quick killing. Of course, in the futures markets, one person's killing is another's disaster.
Well, that's it for this guy. Tonight, beer is on the agenda.
TIP: Disregard any posts by turbohAug that may appear late tonight.
TownCrier
(4/22/99; 17:42:03MDT - Msg ID:5040)
Bridge NY Precious Metals Review
Jun gold and May silver continued rangebound in light trade. While some
sources had anticipated some movement today, others said a break above $285 may
hold off until next week. They said a large trader continues to attempt to push
the price by buying large positions but big sellers are leaning on the market.
One trader said the gold market may be waiting to see if there will be any
confirmation of IMF sales and for possibly quantities. While some said they
expect sales to not occur for another couple of years, others think sales may
happen at year-end.
Gold's moving average is turning up and looks steady on a technical basis,
said traders.
--Jun gold (GCM9) at $285.2, dn 30c; RANGE: $285.30-284.30
Reprinted at USAGOLD with permission. For details please go to:
http://www.crbindex.com/
No further reproduction without written permission
Christine
(4/22/99; 15:20:36MDT - Msg ID:5039)
@Stranger, Aristotle
I get so excited by what I read I forget to thank people. Stranger, you and I are clearly both in inflation camp. It will probably be like you say for the time being. Aristotle, I will definitely get the book. Another similar book I wanted by Joel Kurtzman, "The Death of Money," is out of print.
Christine
(4/22/99; 15:10:25MDT - Msg ID:5038)
Check my logic on inflation
My suspicion is that, based on a whole host of measures, this secular economic expansion (and credit bubble) has gone waaaay further than the last one that ended with inflation in the 70's (this time witness a market with valuations significantly higher than even 1929). In my mind this reflects huge economic malinvestment in terms of manufacturing overcapcity. This huge worldwide overcapacity is going to have to be absorbed by creating high economic growth rates via very high money growth. If we don't go that way, we get 1930's, IMHO. High growth, high demand for commodities, high interest rates, rising commodity prices, poor overall stock market performance. And it's got to be twice as bad as the 70's. And IMHO, the powers that be weren't that stupid not to know what they were doing when they did this.
TownCrier
(4/22/99; 14:57:29MDT - Msg ID:5037)
Brazil's foreign reserves dip $344 mln on Tuesday
http://biz.yahoo.com/rf/990422/bs4.html
Third straight day of decline.
TownCrier
(4/22/99; 14:53:13MDT - Msg ID:5036)
IMM currency futures end mixed, continentals lower
http://biz.yahoo.com/rf/990422/bzi.html
This headline has got to give you an uneasy feeling...like a blast from our Revolutionary past. Now, "not worth a Continental."
TownCrier
(4/22/99; 14:48:37MDT - Msg ID:5035)
US Treasuries rocked again, bond yld at 3-wk high
http://biz.yahoo.com/rf/990422/b0o.html
"The market trades horribly," said a bond trader.
And check out this classic quote, "There was a false sense of security the (bond) market could stand on its own merits."
Aristotle
(4/22/99; 14:43:46MDT - Msg ID:5034)
Stranger and turbohawg
Stranger, I've gotta say 'Thanks' to our good friend, turbo, for his good thoughts and especially for reminding me of the original reason I had to jump from the top rope to pin you to the mat. It was all about this comment of yours--
"Thanks for reading, that is if anybody did."
I thought you needed to be 'roughed up' for such silliness.
Be assured...Every word. Every time. Got it?
(I'm only having some fun here, turbo. I hope you know my flying tackles are only directed at friends such as you guys are.) ---Aristotle
The Stranger
(4/22/99; 14:35:37MDT - Msg ID:5033)
turbo
I suppose time will tell, turb. As to the size of money supply alone, I am speaking of M3. I'll bet you are talking about actual currency. There is a difference. Checkable deposits alone are currently running about $700 billion.
Again, let's not nitpick this important message to death. It is so central to the gold rationale, that we all owe JA a big thank you for even bringing it up.
I cannot emphasize enough that anybody whose investments presently do not provide for the developing recurrence of inflation should act to change them right away. Calling Michael Kosares at USAGOLD would be a good start.
TownCrier
(4/22/99; 14:31:42MDT - Msg ID:5032)
U.S. interests paramount in Fed policy--Greenspan
http://biz.yahoo.com/rf/990422/be4.html
Responding to topic of regional dollarization
The Stranger
(4/22/99; 14:20:50MDT - Msg ID:5031)
Ari and Christine
Thanks, Ari. I have a hunch we will be agreeing on a lot in the months to come.
Christine- Down Girl! Believe me, I agree with your inflation prediction, just not the size of it. Remember, higher oil prices leave less money (read: deflation) for other spending. Remember also that inflation is a function of real money supply growth. Right now, that growth is real enough but adequate only to indicate inflation of maybe 5 or 6%. Trust me, in a universe which is presently priced for DEFLATION, that alone should have an explosive impact on the POG.
Aristotle
(4/22/99; 14:18:56MDT - Msg ID:5030)
Christine's reading list
I don't know how pressed for time you are, Christine, but you might enjoy seeing some of your very own thoughts confirmed and expanded in "The Sovereign Individual" by James Dale Davidson and Lord William Rees-Mogg. National governments have met their match, and the internet is on our side!
turbohawg
(4/22/99; 14:15:58MDT - Msg ID:5029)
Aristotle and Stranger
Aristotle, relax dude.
>OK, my point is that all Dollars are the same, and while most exist only as ledger entries, only a very few physical tokens are printed up to facilitate small transactional convenience.<
I understand and agree with your point that all dollars are the same as issued (having posted some months ago on how dollars are loaned into existence). They are not, however, the same as far as how they can disappear. The digital credits can disappear instantly. Assume we get up one day and the $12T stock market is in the midst of a 20% correction. That instantly wipes out about $2.5T of paper wealth. That kind of loss could begin the cascading margin calls and loan call-ins that evaporate those digital dollars. In that kind of circumstance, actual physical dollars will increase in supply relative to the aggregate money supply and increase in value.
This happened in the '29-'30 time frame. As credit crunched, the dollar spiked before people eventually starting losing confidence in it, which ultimately resulted in Fascist Delano Roosevelt stealing the gold of sovereign individuals and devaluing the dollar. Despite his big govt spending spree, the Depression lasted right into the war.
As for Stranger, I'm not going to pile on Aristotle's comments. A couple of points, though. The actual figure of dollars in circulation is about $450B, worldwide. If the Fed has $5T stashed asided somewhere, I wonder where they keep it. Their latest comments say they have $200B.
On that '30's argument, you're right. The Fed presided over a contraction in the money supply. The thing is, they couldn't do anything about it. When the Fed wants to expand credit, there are 4 things that can happen. They put all those new reserves in the banking system and then:
1) the bank is eager to loan and I'm eager to borrow
2) the bank refuses to loan and I'm eager to borrow
3) the bank is eager to loan but I refuse to borrow
4) the bank refuses to loan and I refuse to borrow
Of those 4, only #1 results in an expansion of the money supply. #2, #3, and #4 are what can happen when people lose confidence in the economy, and they are what did happen in the '30's.
>Thanks for reading, that is if anybody did. <
Hey, I always do !!!
There is one more aspect to this inflation/deflation thing that we haven't addressed: confidence. That's what holds the whole thing up. If no one has confidence in the currency, it doesn't matter how much or how little is out there ... could go into this further but I've got to get my hairs cut.
The Stranger
(4/22/99; 14:10:36MDT - Msg ID:5028)
XAU
The XAU index of gold mining stocks closed up 4.4% today, about equal to a 460 point rise in the DJIA. All you physical guys get ready. You are next!
Aristotle
(4/22/99; 14:09:38MDT - Msg ID:5027)
Quick addition to The Stranger
I meant to add that your point of 5023 was very well taken.
Christine
(4/22/99; 14:09:01MDT - Msg ID:5026)
Psychic Economic Predictions
We may have a liquidity crunch, but then we are going to have money expansion and gold plus commodity inflation like the world has never seen. Witness oil already starting. Now, just suspend disbelief on this prediction, and file it away for future refernce--as possibly mega inflation unfolds, watch what happens in reference to electronic currencies and political activity. IMHO, there is a distinct possibility this is all about the international Western powers needing to maintain control of the internet, and their potential loss of banking and governmental control via the internet. Even I know this may be a silly theory, but I won't stop watching. According to the Simmon's article, we are already likely to see articial (ie sooner than would have been) oil shortages in this country. Who is likely to realize that such a round of oil shortages at this time was artificially created. Boooooh! As the government must do this and that in our own best interest so all these awful things won't get worse. Call me crazy, and if I am, Yeaaaah!
TownCrier
(4/22/99; 14:02:32MDT - Msg ID:5025)
FWN Closing N.Y. Metals Comments
June gold futures held within a fairly narrow range of
$284.30 to $285.30 during the day session, before settling
with a modest loss of 30 cents to $285.20.
One trader commented that the market is being held back
by the inability of spot gold to penetrate $285. However,
sources said, the downside remains protected by fears of
potential short covering, due to the massive net short
position of the funds in the most recent Commitments of
Traders report released nearly two weeks ago.
Support for June gold is being pegged initially around
$284, then $281.50 to $282, while resistance is seen at $287.50.
(c) Copyright 1999 FWN Reprinted at USAGOLD with permission. For details please go to:
http://www.futuresource.com/internet.shtml
No further reproduction without written permission from FWN
Aristotle
(4/22/99; 14:01:34MDT - Msg ID:5024)
Money supply
Stranger, I guess the reason it is important to clarify such a minor point is that under one conceptual arrangement, the debt can be gone by dinnertime, but under the other, the Treasury, and hence the taxpayers, are always left holding a bag of debt that cannot possibly be vanquished short of settlement with a medium other than dollars. It takes new debt to create the dollars needed to pay the existing debt. If the Fed were to simply absorb these IOU's (Treasury Bonds) as defaulted loans, not only would that fortunately write off our debt, but it would UNfortunately write off our currency, invalidating it as a legitimate means of settling accounts. Sorta like the Ruble.
Gold would be the only thing left because the banks would go down with the ship.
It doesn't take a massive supply of wooden nickels to result in hyperinflation-type prices. If the money goes south, the prices go north.
"One--Two--Three!" *GOLD! GOLD!* ---Aristotle
The Stranger
(4/22/99; 13:44:28MDT - Msg ID:5023)
More Aristotle
Ari, sorry, I should have read your remarks entirely before responding. You are right. There is a difference between the right hand and the left. But, so what? The effect on money supply is the same. I would hope your efforts to clarify such a minor point will not obscure the very important message I make about monetary policy and inflation. Those goldbugs who long for some kind of deflationary collapse and a crash in the stock market would be bitterly disappointed if their dream ever came true. We had several countries collapse last year, and the depressive effects of such events on the POG ought to be clear to everybody by now.
The Stranger
(4/22/99; 13:30:34MDT - Msg ID:5022)
Aristotle
Do your homework, Ari, then you won't have to take me to the mat. The Fed has several means of controlling money supply. Buying and selling previously issued government debt is only one of them. The Treasury issues new debt as permitted by Congress.
Aristotle
(4/22/99; 13:16:38MDT - Msg ID:5021)
Stranger, I'm working up a sweat here. First there was turbohawg...
now I'm takin' YOU to the mat! *UNGH!* "One--Two--Three" *DING! DING!*
I luv ya like a brother, now say 'Uncle' before I call Mom.
You said (in a temporary fit of delerium, I'm sure) "The Fed can write a check today and buy back every U.S Government bond in existence. Before dinner tonight, we would have a debt-free federal government and a banking system awash in 5 trillion new dollars..."
I'll give you this--the Fed could surely buy them all. BUT, and this is a BIG butt, er, 'but,'the Bonds are issued by and property of the US Treasury. It is ultimately the Treasury that has to buy them back from whomsoever holds them...be they Fed, or be they un-Fed (such as you, me, or a foreign correspondent.)
It is just as the turb-ster said earlier--"The Treasury (not the Fed) sells debt. And they've been selling a lot of it over the years ... to individuals, foreign countries, the Fed (incidentally, foreign purchases have virtually come to a halt). As a result, this country finds itself with about $6T in govt debt"
The Treasury pays for these old IOU's by issuing new ones (selling new bonds). I'd like to say that taxes are used to buy back these bonds, but the truth is that the taxes collected are never enough to balance the annual budget, let alone settle arrears. No, my good friend, these IOUs are just kept a rollin'. Whether or not the Fed purchases them has no effect on the size of the National debt. The Fed's books are not the same as the Treasury's books.
Let me know if this came out completely unintelligible, and maybe I'll give it another go. ---Aristotle, The Heavyweight Champion of the World
PS. I only did it for the GOLD belt!
The Stranger
(4/22/99; 12:32:02MDT - Msg ID:5020)
First turbohawg, Then Shilling
Turbo- We have been down this road before, my friend. The Fed can write a check today and buy back every U.S Government bond in existence. Before dinner tonight, we would have a debt-free federal government and a banking system awash in 5 trillion new dollars, doubling the amount in circulation today, incidently. I have already given you chapter and verse on the experience of the 1930s, and you know it. The Fed may have provided a modicum of relief in October 1929, but from that point until Roosevelt's inauguration in 1933, they presided over a monstrous 30% reduction in the supply of dollars in the banking system. They could have reversed policy at any time, but they chose not too for reasons we have already discussed. Not until Roosevelt came to office did money supply expand, reversing the deflation of the early depression. So, please, let's put this myth of central bank inadequacy to bed once and for all!
Now, as to Shilling, I admit I have not read his book. I do, however, regularly read his column in Forbes Magazine. As the foremost authority on inflation in my household, I feel qualified to offer the following counterpoints.
Shilling:
1. End of Cold War led to global cuts in defense spending.
Stranger:
Spending is like the pop-up game at the carnival. You knock down one squirrel, and another one pops up. Neither the government nor the consumer happens to be operating at a surplus right now. As a result, we may be saving some on new computers, but we are paying more for airline tickets. Besides, defense spending is NOTORIOUSLY cyclical. It will be back - and sooner rather than later. (Remember the pop-up game when you contemplate Friedman's famous dictum. The point is, anecdotal evidence is inherently incomplete!)
Shilling:
2. Major country government spending and deficits are shrinking.
Stranger:
Actually, JA, relative to GDP, our deficit has been in decline for some time. BUT the government still spends more than it takes in every year. So what? It isn't how much they spend, anyway. IT IS HOW MUCH THEY PRINT.
Shilling:
3. Central banks continue to fight the last war---inflation.
Stranger:
How? By lowering interest rates and creating the greatest monetary growth in a generation? Not on your life!
Shilling:
4. G-7 retirements will lead to reduced benefits and slower growth in incomes and spending.
Stranger:
You want to see slower growth in (real) incomes and spending? Just look at the Weimar Republic of the 1920s-30s. Heck, look at the U.S. in the '70s or Brazil today. All of those experiences exemplify slow growth, and high inflation.
Again, inflation is ALWAYS a function of monetary policy.
Shilling:
5-10. (I will not reprint all of these items, as each refers to improvement in productivity of one kind or another.)
Stranger:
There is an algorithm for this debate. Productivity is measured regularly in the U.S. As long as PRODUCTIVITY GROWTH + GROWTH OF GDP = MONETARY GROWTH, you get zero inflation. But, you guessed it, in America 1999, monetary growth exceeds productivity plus GDP by several hundred basis points. Where do you think the difference will show up when it surfaces? Keep your eyes on the PPI!
Shilling:
11. The spreading of market economies increases global supply.
Stranger:
And global demand. So what?
Shilling:
12. The dollar will continue to strengthen.
Stranger:
Relative to what? Relative to general prices? That's just another way of restating deflation. (Ain't gonna happen). Relative to other currencies? How is that relevant when everybody else is inflating, too?
Shilling:
13. Asian financial and economic problems will intensify global glut and reduce worldwide prices.
Stranger:
That was last year, Gary. I suppose, therefore, that Asian RECOVERY will mean HIGHER worldwide prices.
Shilling:
14. US consumers will switch from borrowing and spending to saving.
Stranger:
JA's reaction to this is entirely accurate. Since Shilling's book was published last year, the savings rate has actually gone negative. Many theorize that the need to save has been abrogated by the wealth effect of the stock market. Probably so, but what is the rising stock market if not a perfect example of the inflated prices one must now pay for a dollar of earnings. Those inflated prices, in turn, are credited with giving people the confidence to stop saving and start chasing products and services.
Finally, everybody who reads this knows at least somebody who has turned his attention away from doing his business in favor of trading the market (read Al Fulchino, last night). Some contribution to productivity that makes! I could go on for hours about this subject of inflation, but I have tried everybody's patience long enough. Thanks for reading, that is if anybody did.
Aristotle
(4/22/99; 11:06:26MDT - Msg ID:5019)
inflation and deflation
http://www.usagold.com/AllWorkandNoPay.html
How are my friends doing today? Turbo, Stranger, glad to see you guys chipping away at this.
I could jump right into the discussion, but I am reluctant to because it is such a huge matter, and I am prone to long posts anyway! I think my problem is that I try to explain every item for the benefit of lurkers who are coming up to speed with some of this. I'm happy to see Town Crier's first post of the day. The Gilded Opinion piece by Paul Hein will certainly help me to keep my posts shorter if I am convinced that everyone is well familiar with the subject matter it addresses.
After all, it is hard to have a meaningful discussion about infation and deflation if some of the participants have differing concepts on the mechanics of money creation and destruction. I hope that everyone can find the time to read this. Although it will be nothing new to many of our experts, maybe reading it will help to point out where many of the points of miscommunication are found.
It takes a while to get through, but is written in a very delightful style. I think Townie summed it up nicely when he (she?) said you will understand money well enough to explain it to others. Take a look. I'm including the link for your reading convenience.
Turbo baby, I luvs ya, but I gotta take you to the mat on this one--"we not only have a money supply that is overwhelmingly debt with very little actual currency in circulation..." The 'actual currency' you refer to is debt also. Ohhhhhhhh, maybe I was taking you too literally. Now that I think about it, I'm sure you meant "not only is our credit/debt-based money supply overwhelmingly owed back to its creators, but the overwhelming digital nature poses a problem if many people want to hold a physical representation of their 'debts owed by others.'" No, I'm sure that's not what you meant either. Sheeeesh! this is tough. OK, my point is that all Dollars are the same, and while most exist only as ledger entries, only a very few physical tokens are printed up to facilitate small transactional convenience. I think maybe that is what you were saying.
Gold. Get you some. (and check out that link.) ---Aristotle
Jon
(4/22/99; 9:56:18MDT - Msg ID:5018)
Test
Test
turbohawg
(4/22/99; 9:46:53MDT - Msg ID:5017)
inflation/deflation redux
Stranger ol'buddy, out of the woodwork, indeed ... really been too busy of late to do much posting ... don't have that much to say anyway. Will check later for your always-interesting comments.
Now it has been pointed out here on more than one occasion by several that credit can contract much faster than the Fed can print. That happened in the US in the '30's and Japan post '89. Credit contraction will occur after the pin and not before, so despite the economy's seemingly strong performance, it won't manifest itself until, say, stocks crash and margin calls are made to no avail, banks lose value of their reserves, loans backed by stock collateral get called in, etc. In other words, we're still in the '20's part of the inflation/deflation cycle while much of the world has already entered the '30's part. As Christine's article link suggests, we nearly entered last fall.
In my hasty late night post, I'm sure some were confused by the set up of the post, so let me clarify.
The Treasury (not the Fed) sells debt. And they've been selling a lot of it over the years ... to individuals, foreign countries, the Fed (incidentally, foreign purchases have virtually come to a halt). As a result, this country finds itself with about $6T in govt debt, plus another $15T or so in future unfunded liabilities, such as Socialist Insecurity.
In addition to buying the bonds that the Treasury can't sell to anyone else, the Fed expands credit in the system, and they've been quite generous. With the country now experiencing a negative savings rate for the first time since the Depression and close to 50% of the people in this country now holding at least some of their savings in stocks (as if their was a stock cash pool) as well as 125% mortgages, credit cards, margin debt, derivatives, this country is in deep debt/credit doodoo^2.
The rest of that post can stand on it's own ... next time I'll try to force myself to sleep before posting late night.
USAGOLD
(4/22/99; 9:46:47MDT - Msg ID:5016)
Today's Gold Report: Slow News Day
MARKET UPDATE (4/22/99): Gold, following the currency market's subdued lead,
was sideways this morning with little happening overseas in either London or Hong Kong.
Bridge News reported yesterday that Paul Walker, an analyst at Gold Fields Mineral
Services, discounted alarmist contentions that central banks would rush to sell gold ahead
of any International Monetary Fund sales. GFMS, piping the British government's
overdone desire to sell IMF gold, said however that the IMF would soon sell gold. As
GFMS was making this statement, Chancellor of the Exchequer , Gordon Brown ,was
telling the press that he didn't think gold sales were on the agenda for next week's IMF
meeting but that he hoped sales would occur sometime this year nevertheless. Better
co-ordination would have avoided the unfortunate use of the word "soon". For the most
part, though, it's been an uneventful morning with little to report in the way of news. See
you here tomorrow.
ORDER FORM for a Free Copy of News & Views -- our widely read monthly newsletter
-- and introductory packet on gold ownership.
In Brief (4/22/99).....Anthony Hilton writing for the London Telegraph tells of the
inflationary consequences of war. "Oil," he says transforms the economic prospects of
nations fortunate enough to have vast reserves and traumatizes countries such as Japan
which have to import vast amounts of it.....We have also seen a currency effect. In the
1960s and 1970s the Vietnam conflict flooded the world with dollars and ultimately
destroyed the international credibility of the currency, forcing the US to abandon its link to
gold. This time the casualty is the euro."..............I would hardly call the US $ out of the
woods in that regard.................Without naming names (since stocks are not part of our
purview) more and more earnings reports from gold mining companies are showing
discouraging numbers. Bankruptcy is becoming an all too familiar word to mine company
executives and you never know when poor earnings are going to be followed by a more
fateful arrow in the quiver. The pressure will mount on mining companies from disgruntled
stockholders who have begun to understand the connection between
short-selling/forwarding programs and low stock values. There is a difference between
legitimate hedging practices and participating in shorting schemes that hurt the value of the
metal upon which the firm relies for future profits. Stockholders need to identify which
companies are engaged in these practices and to what extent they have harmed their own
earnings stream and the value of the stock being held.................NATO Secretary
General Javier Solana told the Washington Post last night that he has authorized the use of
ground troops in Kosovo........Britain and France, according to the Drudge Report, are
pressing the United States to send ground forces in to Kosovo.......While the Clinton
administration is painting a rosy picture on Y2K; Republican Congressman are telling the
American people a little stockpiling of food and water won't hurt, according to a Wired
News article this morning.................MK
TownCrier
(4/22/99; 8:49:11MDT - Msg ID:5015)
Struggle for IMF reform
http://news.bbc.co.uk/hi/english/business/the_economy/newsid_321000/321197.stm
Mixed-bag of money-matters, leaning toward reform.
Peter Asher
(4/22/99; 8:48:37MDT - Msg ID:5014)
Alchemist, #5006
Possibly the attempts to drive the POG down by shorting are over and we are now seeing careful, steady acumulation.
JA
(4/22/99; 8:44:15MDT - Msg ID:5013)
Deficits
http://cnn.com/ALLPOLITICS/stories/1999/04/21/budget.deficit.ap/
It looks like we are getting cracks in the "Surplus" for those who like to call it a surplus.
Turbohawg
Thanks for your comments.
TownCrier
(4/22/99; 8:41:04MDT - Msg ID:5012)
US calls for limits on IMF aid
http://news.bbc.co.uk/hi/english/business/the_economy/newsid_325000/325847.stm
US TreSec Robert Rubin says the International Monetary Fund should no longer help countries defend fixed exchange rates - as done in Russia and Brazil last year.
New financial architecture and new policy role in the works for IMF.
TownCrier
(4/22/99; 8:32:50MDT - Msg ID:5011)
Steel Imports Up in March
http://biz.yahoo.com/apf/990422/steel_trad_1.html
An example of trade protection in the works.
TownCrier
(4/22/99; 8:29:27MDT - Msg ID:5010)
Gitic Has Trouble Recovering Assets
http://biz.yahoo.com/apf/990422/china_trou_1.html
When things turn south, even giants like Guangdong International Trust and Investment Corp. can twist in the wind.
TownCrier
(4/22/99; 8:22:13MDT - Msg ID:5009)
White House Favors Selling Gold
http://biz.yahoo.com/apf/990421/imf_gold_s_1.html
Unrelenting... DepTreSec Larry Summers this time around. Mentions the London gold market daily turnover.
TownCrier
(4/22/99; 8:17:17MDT - Msg ID:5008)
Euro renews record slide, dollar higher at U.S. open
http://biz.yahoo.com/rf/990422/3t.html
Strauss-Kahn of France suggests the bottom is near
TownCrier
(4/22/99; 8:14:11MDT - Msg ID:5007)
Fed seen adding reserves via overnight, term RPs
http://biz.yahoo.com/rf/990422/3y.html
The Fed needed to add $10.4 billion per day to the banking system...
Alchemist
(4/22/99; 8:13:26MDT - Msg ID:5006)
Kitco chart
I have noticed for the past while the daily similarity in the gold price on the Kitco chart. If one overlaps the daily price pattern it appears that the charts are close to the same. Can anyone comment.
Christine
(4/22/99; 8:07:56MDT - Msg ID:5005)
Woops
http://www.ZolaTimes.com/V1.1/conmen.html
This stuff is what has goofed me up.
Christine
(4/22/99; 8:01:36MDT - Msg ID:5004)
Inflation, Deflation, Manipulation
Here is some good hard data (as far as I can tell)--how can market theory help with this http://www.ZolaTimes.com/V1.1/conmen.html
ET
(4/22/99; 7:22:59MDT - Msg ID:5003)
Bond pit rumor
Listening to CNBC this morning - In an interview from the bond pit with Rick Santelli of Sanwa Futures, he claimed the rumor floating about the pit was that Russia has had some kind of nuclear accident at one of it's facilities. He further claimed the rumor is widespread in the financial community worldwide. No further confirmation at this time.
ET
The Stranger
(4/22/99; 7:02:44MDT - Msg ID:5002)
Gary Schilling's Deflation Scenario
JA-Thanks for going to the time and trouble to list Schilling's arguments. I am off on an appointment this morning and will have more to say later. But this argument means too much to me not to say at least something right away. (Turbohawg, I should have known this would bring you out of the woodwork).
Again, re. Friedman, "Inflation is first, and always, a MONETARY phenomenon". As you know, JA, the very definition of "inflation" has to do with the CREATION of money, NOT its value. WE certainly have the creation of money. Despite my good friend turbohawg's very fine post, the value of money, as with any commodity, has ALWAYS been a virtual perfect function of its rate of creation. Some time ago, I challenged this forum to provide a historical example of when this was not the case. We came up zero. The challenge is still open!
I have so much more to say about Schilling's theses, but y'all will just have to wait 'til later today. Thanks again, JA for spelling him out. This argument goes to the very core of why we are all here. (Yes, it was I who reported "Deflation"'s 15% price increase).
Oregon Geezer
(4/22/99; 6:06:02MDT - Msg ID:5001)
Steve H re: message 4959
A tip o' the hat to ya, sir. Simply well stated about Y2K. Long ago the fable of the grasshopper and the ant told us the answer to Y2K's possible problems.
I am also reminded of another scientific achievement that got us into trouble because we rushed headlong to embrace it without using our collective noodles and thoroughly studying the situation. This was the dream of atomic power. There was a cartoon called, "Our Friend the Atom" or somesuch that predicted the possiblily of totally clean, safe and perhaps even free electricity in abundance. Now, like the cat that ate the laxitive, we can't find enough ground to dig up to bury the waste. In Oregon we built and then dismantled the Trojan power plant after wasting millions of dollars, thank you. So, the computer, like the atom, comes to us with promise and problems. I fear that we run with the promise before we search out and solve the problems.
SteveH
(4/22/99; 5:29:23MDT - Msg ID:5000)
June gold now and still..
. $285.00, asking $285.00.
turbohawg
(4/22/99; 0:46:20MDT - Msg ID:4999)
hate it when that happens
upon belated editorial review of my previous post (Msg 4998), the first sentence of the third paragraph would be more accurate if it used 'credit expansion' in place of 'selling debt'.
Selling debt is not new but the rate of credit expansion has exploded.
turbohawg
(4/22/99; 0:29:09MDT - Msg ID:4998)
JA
Shilling's book is not familiar to me and I do not necessarily agree with the points you list as his reasons for predicting deflation. However, deflation in the extreme does appear inevitable to me.
Note that the Fed has been inflating balls to the wall for four years and commodity prices have continued to go down. The Fed has had to inflate at an accelerating pace in order to try to maintain price stability in the face of accelerating deflationary forces attacking from overseas. Deflation has already set in, and it's a world phenomenon.
Deflation in this country appears inevitable to me because the Fed has carried out this money supply inflation by selling debt. Now we not only have a money supply that is overwhelmingly debt with very little actual currency in circulation but we have an inverted pyramid of trillions and trillions of leveraged debt resting on top of it. When the bubble pops, it appears that a cod twisting credit contraction will grip this country unlike ever before, much more so than during the Depression.
My suspicion is that rather than a crash and burn scenario we'll experience a volatile unwinding. The reason ?? Out of an aggregate money supply of about $6T, dollars in circulation in this country run about $150B ... Dollars in circulation outside this country run about $300B ... the Fed has telegraphed that it knows this credit contraction is coming because they've printed up that extra $200B in physical dollars (and are probably still printing) to use allegedly if needed for Y2K, which they could use to help offset the shrinking credit supply when it sets in. All debt will not be repudiated at once and all this extra cash will not hit the economy at once, hence the volatility. With the Fed getting this jump, the deflation will probably be relatively short lived before real inflation, possibly leading to hyperinflation, sets in.
So far, these points only address the money supply. Could we have the facade of inflation through rising commodity prices and rising interest rates in a monetary deflation ?? Yes, if the dollar collapses ... that is, if it pulls a baht/ringgit trick. Then we would experience the oxymoronic inflationary depression, a deflation of the money supply (capital flight, credit collapse) with higher commodity prices and rising interest rates (currency collapse) at the same time as falling stock/real estate valuations.
Every cyclic economic crisis has its own unique twist. My guess is that this one will see just what was described ... disappearing wealth through asset price deflation at the same time as commodity price inflation, a combination sure to wipe out the greatest number of people. It's already happening in the world.
It's possible that bank runs, whether inspired by Y2K or a stock collapse, could lead to a strengthening dollar for a period of time as people flock to an actual physical medium of exchange.
The moral of the story ?? Get ready for anything.
Consider me .... at peace.
TownCrier
(4/22/99; 0:25:35MDT - Msg ID:4997)
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