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Mr. Denninger and Gold or Why the Dollar-Deflationists Are Wrong
Those who know Mr. Denninger know that he, well, for lack of a better word, hates Gold. It only goes to show the level of disinformation and ignorance prevalent in our society when even smart people like Karl fail to get it. From what I hear anybody even mentioning the word Gold runs the risk of being permanently banned from one of his "forums". In a recent commentary entitled "Ten Things for 2010" he was at it again bashing Gold. Here is what he had to say:
We're not looking at hyperinflation folks, in my view - we're looking at a deflationary collapse…If you fear hyperinflation do not look to Gold, instead buy a small (5% of your total portfolio) position in far out of the money LEAP CALLS on the major indices, spread across them. Why? Because (1) the tax structure on gold is unfavorable, (2) gold has never performed well on a contemporary basis .vs. inflation and (3) you can't eat it. If you try to get around the tax man structure you're going to get creamed; governments can and WILL prevent that from working. My recommendation thus is to buy insurance against a hyperinflationary event using instruments that do not try to evade the formal financial structure, are levered (to get around the tax hit) and are defined risk (so as to avoid losing your ass if you're wrong.)
Really Karl? LEAP Calls? In a hyperinflation? That’s a good way to lose 5% your portfolio. I’m assuming you know what hyperinflation is - in a hyperinflation the currency becomes worthless, as in toilet-paper. Why would anyone want to get paid their "winnings" in a worthless currency, assuming there are stock indices and counterparties left who can pay off these worthless winnings when countries collapse?
And the tax structure is FAR more favorable for Gold than ANYTHING else, if only you are not in the habit of bending over. Buy cash and keep your mouth shut – it’s very simple – or just move to another country where the government is not as intent on raping its citizens. I know privacy is a foreign concept in America these days, but still. All your other assets, including stock market profits, are fully open to the government and there is nothing stopping them from taxing them to the hilt. Trust me, when it all hits the fan Gold in your personal possession will be your best friend.
Which brings me to my favorite part:
gold has never performed well on a contemporary basis .vs. inflation
Poor Gold. The thing gave an instant 75% profit when Roosevelt confiscated it in 1933 and rose 24x (yes, that’s 24 TIMES) from $35 to about $850 in a space of 10 years from 1970 to 1980. And even during the past decade from 2000-2010 it has risen 5x outperforming ALL asset classes. Overall, from 1933 till date it has risen about 60x. That is, if you simply held Gold since 1933 you would be now 60 times richer, at least in nominal terms. Yet nobody remembers all that. All they remember is the lousy 20 years from 1980-2000 when the full force of the derivatives market was brought to bear upon it to suppress it’s price (well, that’s a topic for another post), as is being done even now absent which it would have easily crossed 10x (from the 2000 low) by now – which it will at some point in the future as the market cannot be suppressed forever. Indeed, the longer the suppression, the more forceful the eventual price rise as happened when the London Gold Pool collapsed during the late sixties soon after which Gold shot up 24x during the next decade. If you’re not that devoted a disciple of Karl I suggest you hang on to your Gold for a little while longer. In my humble opinion, it will outpace all gains in all other asset classes since the creation of the dollar – in not only nominal, but real purchasing power terms.
And then there was this again:
The last time I checked they didn't take 100oz bars at WalMart, but they sure do take $100 bills
And the last time I checked Karl, they weren’t taking stock certificates and bonds either. Also, there was a funny thing I noticed: there was NOTHING stopping me from getting dollar bills, euros, yen – you name it – for my Gold. In fact, everytime I sold some Gold I got even more paper tickets than the last time – which meant that I could buy even more stuff with the same amount of Gold. How surprising, no?
Well, Karl was definitely surprised:
Precious metals will not be a safe haven: Clean miss. Gold and silver have both performed well.
And talk about reaching wrong conclusions:
Discovery that the metals market has been "polluted" to the point of irrelevance would mean that those around the world who had bought and were holding alleged gold bars that in fact aren't gold had tendered good money for nothing. This would be a monstrous deflationary event - after all, the definition of deflation is the destruction of money, and that's exactly what would have happened, just as if you took a stack of $100 bills and burned them in your back yard.
No Karl, the bills still exist – in the bank account of whoever was paid to obtain the said Gold. It is the Gold which is discovered to be no longer existing, thus causing the apparent supply to be further reduced and spiking the price.
Karl thinks he’ll be safe watching these “fireworks” from the sidelines. Not so Karl. By not buying Gold (and holding dollars), you are smack in the middle of them. You are not simply “missing out” on some investment gain but stand to lose everything as the purchasing power of the dollar is decimated. This is why those advocating holding only paper cash as a “safe alternative” are in fact harming those who listen to them.
Now don’t get me wrong - I agree with a lot of what he says in general – he’s a good reporter (which is why I keep him on my “must read” list) - but when it comes to Gold, Karl simply doesn’t “get it”. First of all, when you talk about deflation you have to ask the question, “In terms of what?”. Most people ala Mish, Prechter, Karl et. al. when they talk about deflation are referring to deflation in terms of the dollar, i.e. they are, in fact, “dollar-deflationists”*. One can’t really blame them since the dollar is considered by most people as “money” today and is therefore their frame of reference. But this is a critical error of perception that will prove fatal to those who hold their life’s savings in dollars when it all finally implodes. The dollar today is just another fiat currency created at will out of thin air by bankrupt and corrupt governments and their Central Banks. It is an illusion of money, not money; which brings us to the question of:
What is money?
This is a topic which can fill an entire book, but I’ll just quote the best one I found (Mises):
In the marketability of the various commodities and services there prevail considerable differences. There are goods for which it is not difficult to find applicants ready to disburse the highest recompense which, under the given state of affairs, can possibly be obtained, or a recompense only slightly smaller. There are other goods for which it is very hard to find a customer quickly, even if the vendor is ready to be content with a compensation much smaller than he could reap if he could find another aspirant whose demand is more intense. It is these differences in the marketability of the various commodities and services which created indirect exchange. A man who at the instant cannot acquire what he wants to get for the conduct of his own household or business, or who does not yet know what kind of goods he will need in the uncertain future, comes nearer to his ultimate goal if he exchanges a less marketable good he wants to trade against a more marketable one. It may also happen that the physical properties of the merchandise he wants to give away (as, for instance, its perishability or the costs incurred by its storage or similar circumstances) impel him not to wait longer. Sometimes he may be prompted to hurry in giving away the good concerned because he is afraid of a deterioration of its market value. In all such cases he improves his own situation in acquiring a more marketable good, even if this good is not suitable to satisfy directly any of his own needs.
A medium of exchange is a good which people acquire neither for their own consumption nor for employment in their own production activities, but with the intention of exchanging it at a later date against those goods which they want to use either for consumption or for production.
Money is a medium of exchange. It is the most marketable good which people acquire because they want to offer it in later acts of interpersonal exchange. Money is the thing which serves as the generally accepted and commonly used medium of exchange...
(All emphasis mine)
Money was created by the markets; by humans trading goods and services amongst themselves; by the need for indirect exchange. This is one of the major misconceptions of the dollar-deflationists - that money is what the government says it is. Although Governments do their best to convince people otherwise, including putting a gun to their collective heads via legal tender laws, they cannot dictate what money is – not for long periods of time anyways – which is why whereas Gold has been money for thousands of years, you’d be hard pressed to find a fiat currency that has existed past a few decades. The present period is one such short period of mass delusion where the majority has been convinced – including, apparently, Mr. Denninger - that the colored pieces of paper being printed by various men behind the curtains is, in fact, money.
Gold is the commodity that humans chose to be “money”- the most marketable good. It didn’t happen overnight, but over thousands of years of evolution. Billions of trading decisions over centuries made by free men of their own volition – the collective wisdom – installed Gold as money. It needs no government violence to enforce as money because the force of nature that is the market chose it to be money. Indeed, it was the governments who hijacked the free-market commodity money of Gold into “backing” their various fraudulent paper money scams using fractional reserve systems. Why? Because the power to create money is the ultimate power. It is not for no reason that Mayer Amschel Rothschild said:
“Give me control of a nation's money and I care not who makes her laws.”
And why do we know Gold is still money today? It’s simple – Gold has the highest stocks to flow ratio of any commodity i.e. its total above ground stockpile is very large compared to its annual production which is NOT the case for other commodities. The reason for this is that while other commodities are primarily mined for consumption, Gold is not consumed but hoarded. Its primary function is that of a store of value – a wealth reserve. Why do you think the Central Banks keep Gold on their balance sheet even today? Right. Even the Gold jewellery demand in countries like India is, in fact, investment demand in disguise – hidden firmly behind veils of religion and culture to protect their real wealth from the depredations of various rulers and governments that have pillaged her over the many thousands of years of her existence.
Moreover, even though most people don’t realize it, even today the dollar is only acceptable as money because it is indirectly “backed” by Gold (via the derivatives market) i.e. you can get Gold in exchange for paper dollars on the open market. The proof of this lies in the fact that were, for some reason, the convertibility of Gold into dollars suspended today [on the open market], the dollar would instantly collapse.
Gold IS Money – not the dollar, not ANY fiat currency. Period.
As the king of banksters J.P. Morgan himself testified before the Pujo Committee in 1913:
“Gold is money and nothing else”.
The Fiat Money Scam
Throughout history no fiat currency has survived – ever. There is a reason for it. Paper money is inherently a scam – a scheme to loot the people who actually produce the goods and services in the economy. Just because it is legalized and its perpetrators hold fancy government titles does not mean it is not a fraud. The issuer can create unlimited pieces of paper – or computer bits today – at essentially no cost and use them to appropriate real goods and services in the economy. So whereas you and I have to actually do real work to procure it, the printers of the currency can basically print whatever they need. This is why there is a constant inflation of money supply under a fiat money regime as has been the case since the Federal Reserve was established in the US in 1913, as constant theft requires constant creation of new money. The evidence of this inflation is the annihilation of the dollar’s purchasing power since then:
The Dollar's Purchasing Power Since the Creation of the Federal Reserve in 1913
This is why we have legal tender laws making the unconstitutional Federal Reserve Notes legal tender with the monopoly of the private banking cartel (i.e. the Federal Reserve) enforced by the courts enabling the banks and the government to essentially enslave the populace. This is also exactly why the founders of America prohibited anything except Gold and Silver to be used as money, and why the governments go to great lengths to suppress their price. Indeed, America today is the very antithesis of what its founders intended.
The fraudulent money system today is the source of all the rottenness. The various scams in progress today - the entrenched corruption - can be all be traced back to it. The rot is at the very top of the pyramid from which the fountain of fiat money emanates. It is indeed telling that the two World Wars occurred right after creation of the Federal Reserve. Further, no amount of prosecution will fix the system because the prosecutors themselves have been corrupted. As Ayn Rand said:
"When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when production is punished and looting rewarded. Do not ask, 'Who is destroying the world? You are.”
It is too lucrative a scam to be given up voluntarily by those owning the printing press while the going is still good. It is like expecting a thief to stop stealing while not only being immune from any sort of legal prosecution, but actually having the power to create laws. The system cannot be fixed - the only way this will stop is a collapse of the existing system so that a new one can be built – and we are in the middle of it right now.
Deflation in Terms of Gold, Hyperinflation in Terms of the Dollar
By its very nature, due to economic control being concentrated in a few hands and fraudulent creation of money out of thin air, the fiat money system creates massive misallocations of capital and resources throughout the economy. The economy under a fiat money system is no different than a centrally planned one, such as the Soviet Union. Moreover, since the entire world is on a fiat money standard today – with the various fiat currencies themselves being “backed” by the fiat dollar - misallocations of capital have occurred throughout the world resulting in malinvestments. These misallocations are both material and human, as exemplified by the skyrocketing unemployment rate. The malinvestments now need to be liquidated i.e. converted to the most liquid form – “the most marketable good” or money - so that the capital can be reallocated to more productive uses. Loans are called in as they can no longer be serviced. This results in deflation, i.e. rising demand for money in relation to everything else, and consequently falling prices and increasing purchasing power of money. Moreover, economic uncertainty means that more and more people want to hold “the most marketable good” i.e. money thus further increasing the demand for money.
Now normally – since a lot of debt-money is destroyed in the process and there is a rising demand for money - this would lead to a rising dollar (in terms of purchasing power, not the meaningless DXY), but that would mean that the whole “theft-via-inflation” scam would fall apart. The government can’t tax a rising purchasing power! They simply CANNOT allow deflation in a fiat money regime as it would defeat its very purpose – that of allowing them to appropriate resources from the rest of the economy. This would threaten their very existence. This is why holes created on the banks’ balance sheets by defaulting loans – which would normally create deflation - are being eagerly filled by the Central Banks. This is why the Fed is now simply printing money out of thin air – both overtly and covertly, with the derivatives market being cleverly used to absorb the excess money creation (so you were wondering why the derivatives monster is increasing exponentially in size?) - to fund the government’s operations as there is not enough money in the market to lend to the government. Hiding under esoteric nonsense terms like “quantitative easing” does not change the fact that it is simply creating money via ledger entries and outright STEALING.
Whether they “allow” it or not deflation WILL take place – not in terms of dollars, but in terms of Gold. It’s simply forces of nature – the market – at work. The dollar deflationists expect the dollar to suddenly reverse its 100 year long drop in purchasing power. Ain’t gonna happen. What the government is doing now – i.e. spending raw printed money into a contracting economy - assures us that we will end up with the hyperinflation of the dollar. The only thing they can do is prolong its demise with intermittent bouts of induced apparent “deflation” to keep the inflationary scam going a little bit longer - remember 2008? (h/t Gary). Initially, of course, many people (such as Mr. Denninger) – mistakenly thinking the dollar to be “money” – will rush to its perceived safety causing the dollar to rise. But ultimately, as more and more people realize that the government will not – indeed, cannot – stop inflating the currency into oblivion, will choose to hold the ultimate “marketable good”, i.e. Gold. This is the reason why Gold is the only asset class at new all time highs. Rest assured, even the big boys are holding Gold in their private vaults, not dollars. Is there any sense in holding something you can create at will?
Ultimately, there can only be deflation in terms of commodity based money such as Gold since it cannot be created out of thin air. Indeed, we have already been deflating in terms of Gold for the past decade. Just look at the various commodities, the stock market, real estate – pretty much anything - priced in Gold – it’s all going down.
SPX priced in Gold (2000-2010)
As capital goes down the liquidity pyramid in search of the most marketable good, all the money derivatives – including the dollar – will collapse returning all capital to where it came from: Gold; a global reset, if you will, with only holders of Gold left standing when the dust settles:
Exter's Liquidity Pyramid
You Cannot Eat Gold, But You Can’t Eat Dollars Either
That has to be one of the lamest arguments against Gold – ever. It is the sign of a closed mind. It shows that you don't know ANYTHING about human history, which is not surprising considering the sorry state of our government controlled "education system". You cannot eat FRN’s either – why not just burn them? The function of money is not to be eaten but to be used as a medium of exchange and store of wealth i.e. to get what you want to eat at an indefinite time in the future. And while with Gold you are assured of getting at least something in return in the future, whether it is an edible product or not, it is not so with dollars. Fiat money has a problem in that it lasts only as long as the government enforcing its use does. In times of economic uncertainty, such as today, when the very survival of various governments is at stake (yes, that includes the US Government) do you want to hold Gold or their worthless colored paper tickets? Gold is the only money that has outlasted empires and governments - no fiat currency has. Think about it - what will your dollars be worth when there is no government to enforce it as legal tender? Yup – zip, zilch, ZERO. And to those who say that we will not need Gold (but something else like food or guns) in such extreme circumstances, I say that empires and governments have constantly collapsed throughout history but it did not mean the end of the world. As long as you believe that human society will exist and there will be division of labor, you need money (i.e. Gold) – because:
a) You cannot store indefinitely all your needs especially perishable items such as food.
b) You do not know with 100% certainty what you will need in the future.
c) You cannot produce/manufacture everything that you will need today or in the future by yourself.
Even if the government does not collapse there is nothing stopping it from devaluing the currency at will in a step function thereby instantly appropriating a vast amount of your savings, as has already happened not once but twice with the dollar since the creation of the Federal Reserve. I mean really, the facts are so obvious that you have to be either be in total and complete denial (perhaps due to having already put all your eggs in the dollar basket) or in collusion with the people promoting the paper money scam.
Gold is the currency beyond Governments. It is the most liquid form of money accepted throughout the world – the true reserve currency of the world - whereas Dollars, Yuans and Euros etc. are only guaranteed to be accepted within their own respective countries, and as long as their respective governments last. Why would you want to tie yourself down to the paper currency of a particular nation, especially in times of such turbulence? It points to a very limited sphere of thinking when you advocate that holding only dollars is the best strategy. It is a fallacy to believe that there is no refuge outside the system; that you have to be trading paper tickets all the time to “keep up” with the dilution of your purchasing power or just stand by idly holding dollars while the government rapes you. Gold is your refuge outside the system.
Got Gold, Mr. Denninger?
*In general we can state that they are “fiat-money deflationists” since the process of money creation is same in all the countries i.e. money is created as debt and the collapse will follow a similar route. The only caveat in my opinion is that since the dollar backs all the other fiat currencies, it *might* collapse last. Also, to keep things simple, for the rest of the discussion, we’ll simply use the term “dollars” with the understanding that it can be used interchangeably with the general terms “fiat currency” or “fiat money” since it is one itself.
For an excellent discussion refuting the dollar-deflation theory and why the dollar WILL eventually hyperinflate, please refer to "No Free Lunch".
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Yes, Mr. Denninger's constant use of such terminology as "buttfucking", "reaming", and "bend over", along with his constant profanity and his gratuitous and puerile references to various sexual practices, do indeed add immeasureably to his credibility and moral authority.
Kinda like Chicago's Mayor Daley telling a reporter he was going to "stick a gun with a bayonet up his butt, and fire a round off" a couple days ago?
Oh those wacky Chicago politicians. Good thing the only place they can mess up is Chicago, ha ha ha...uh...he he...uh, never mind.
+1T (and counting)
Yah! Put me in for + 1T too! LOL, great work, only the second laugh I've had here today, having just been over at the Israel vs. the "peace activists" threads...
It's very simple to see both sides of the argument. Karl thinks that even though we're in a full-throttle dive headed earthward, somehow we will pull out i. e. the current system will survive. Those who hold physical gold don't think this analysis is correct.
The reason we went into recession (deflation) was because the money supply did not match economic activity.
You can increase the money supply by a large factor before even beginning to talk about inflation as a result.
Those who hold physical gold are poor students of history. They fail to see that there will be little inflation even if the money supply is increased very much. (like 1982) They also fail to see what happens to gold prices after the economy recovers. (like 1982)
No, jackfuck, it was because world all-liquids production peaked in 2008.
Gold is in production decline; I continue to maintain that THIS ALONE accounts for its price performance over the past 10 years. Au production peaked at virtually the SAME TIME as its price began a march upwards.
The reality of the future is that there will be LESS gold, LESS oil, LESS helium, LESS energy.
This puts things ALREADY in existence at a PREMIUM with respect to things PROMISED or PLEDGED to be in existence in the FUTURE.
Life has entered backwardation, got it?
Bubbles begetting bigger bubbles. It is the death spasms of a fiat regime. Apparently it is you have no clue what the term malinvestment means. Gold is the antithesis of malinvestment in these times.
The money supply has nearly tripled, and there has been no inflation.
Prove otherwise.
Money is just an abstract concept that allows people to purchase things. When people cannot purchase things, it's because there is no money.
Printing money is an investment into the economy.
Gold is the only thing in a bubble right now, as retail bagholders buy it feverishly while the house is short.
First internet stocks, then houses, and now gold. You will learn your lesson soon.
flag up williams shadow statistic ,,
here he uses actual numbers and non=white washed analysis ,, his look at inflation show a number like 9%..
of course some one eating miso soup with noodles will not see a spike in food prices ,
Dzien dobry Zloty!
good call i like a man on top
Sunday, May 30. 2010Posted by Karl Denninger in Monetary at 18:55
Denninger's response to GG was intellectually positively painful to read in its disingenuous, arrogant and willful ignorance.
On the subject of gold, Denninger is as blind as Bernanke.
I'm just shocked that Denninger took the time to respond to somebody who does not know what he is talking about.
On one hand, you have a guy who is right. On the other, you have a man who is talking his book in hopes that his choices were right.
The latter is GG.
It's like I'm in a bizarro world where morons that have no understanding of basic economics are the norm. Yet, with the reply: gold bitchez, the others who have no understanding of basic economics become the latest bagholders.
Every single deflationist has announced their intention to get out of paper and into real at the height of the deflation. All of them.
There won't be a return to growth; there is no recovery. Energy supply has peaked and EROI continues to decline; this is ALL you need to know.
All the fucking paper money in the world will not turn Cantarell's production around.
Debtmoney was always a claim on future production and, necessarily a GROWTH in said vis a vis that of today. We have hit an inflection point in world growth. We need LESS debt.
Anyone overlevered - that includes ALL the sovereigns - will be crushed by deflation. Crushed.
The FRN is a debt instrument...what is a loan worth if it promises to pay 10% coupon in a year and there's an asteroid about to hit the earth next month? 0.
The FRN as a means of payment, what it represents, and how it comes to be in existence is being DISCOUNTED against real things.
That is what idiots like you and Douchinger DON'T GET. ALL debt instruments are being discounted to reflect a future of INABILITY to repay, and they are being repriced downward with respect to REAL things.
Credit-inflated "assets" such a real estate, will continue to decline, because these have "value" only in the sense that growth can continue and they can produce income. Real things not conjurable into existence will not. Houses are not gold and they are not oil. Oil must be mined from deep within the earth. Houses are made in factories; they are manufactured commodities now. The homebuilders' vertically integrated models could conjure another 1MM houses into existence virtually overnight. The same CANNOT be said of real commodities.
This is the essential difference between them.
Gold is not special compared to other physical commodities who cannot be conjured into existence. Gold is not "money" in the absolute, either. It is merely a convenient and liquid commodity to translate paper into that is highly UNlikely to lose its value overnight.
Any of you who wish to stockpile your wealth in the notes of a State with our balance sheet, by all means DO SO. You will join the legions who had Argentine pesos or Cruzeiro Reais or USSR Rubles. If you wish to stockpile in the form of negative interest rate loans to insolvent institutions (bank acct), DO SO.
The reason fuckers like Douchinger and the deflationists CANNOT reconcile their own lyin eyes against what standard deflation models predict is twofold: they do not understand the nature of debt, and they do not recognize or accept that we have entered a phase of worldwide aggregate contraction.
I got banned the other 4 times from TF for Peak Oil arguments, another thing Douchinger cannot bring himself to believe in. EROI curves and the impact of consumption-per-capita being roughly = wealthy seemed to go right over his head. I have no time for people unwilling to learn.
Trav, I have butted heads with you a time or two, but you make excellent arguments here, and I thank you for them. Food for thought indeed. I am likewise disgusted by Denninger for his pigheaded refusal to be open-minded --- it's strictly "my way or the highway" with that guy. The iron-fisted authoritarian manner in which he acts as Thought Policeman in his forum is proof enough of that.
It's like I'm in a bizarro world where morons that have no understanding of basic economics are the norm.
I was just thinking the same thing, Johnny, as I was reading your remarks.
He just hasn't had one of his Technical Analysis bend him over a chair and back test him yet.
+1000
It was a painful read.
But I would go a step further and say "On the subject of gold, Denninger is a DOUCHEBAG!"
Why did I think Denninger was an economist?
http://denninger.net/resume.html
I must have had him confused with Willem Buiter
http://blogs.ft.com/maverecon/2009/11/gold-a-six-thousand-year-old-bubble/
That's where I'm at!
At these gold prices, barrels of whiskey seem a more reasonably priced medium of exchange to me.
Ammo, booze and pepper (see below) all OK as are silver and platinum.
Ammo, booze and pepper for "money" (barter), the GOLD for wealth preservation.
the inverted pyramid indicates liquidity, right? imo that is not quite the same thing as the larger "store of wealth/medium of exchange" that gg is getting at. on that basis, gemstones would seem to be better than all but gold in times such as ours. in a related point, one might note that the czarinas did not upolster themselves with the currency of the romanov dynasty (which also wouldn't have repelled bullets as long as the diamonds did).
Nope, gemstones tend to lose value in a bad economy. Less people buying due to economic factors (less demand) means more supply and lowered prices.
In a panic situation, anything tangible beats paper, but the problem with gems is that they are not money. Gold is.
Nice article, Gordon.
I am Chumbawamba.
If by "nice" you mean "completely wrong."
Notice he brings up the gold highs in 1980, but fails to mention the plunge in gold prices over the next twenty years.
Gold gets to high prices during a recession. During the recovery, all the people who bought in the recession are bagholders. These people are typically retail investors.
The parallels to 1980 are astounding. Yet, goldbugs see this time as "different." In ten years, they will lose as much of their portfolio as buyers of gold in the 1980 bubble did. Buying physical will surely seal the lack of ability to sell the asset when the time comes.
Anybody who sees hyperinflation as a possibility has not studied economics and does not understand it.
Johnny, don't confuse price inflation with monetary inflation. They are two different things.
Please review the action in the EURO since December 2009 to see what happens when a population loses faith in a fiat currency.
It also goes beyond monetary inflation.
If any state in the U.S. were to outright default on it's debt to the point of municipalities (police/fire/EMT) being in outright breakdown (and some states are extremely close), you would see gold double in price overnight.
Would you work for I.O.U.s printed on paper?
Would you invest in the debt of such a state?
If you would not be comfortable investing in the debt in such a circumstance then the currency used to service that debt would also lose value because no one would be honoring it to pay the debt!
Seriously, there is a reason why bank vaults contain many bars of precious metals.
The current time period could not be anymore different than 1980. You are completely wrong on this. Don't believe me? David Rosenberg laid it out pretty nicely here:
http://pragcap.com/why-this-isnt-a-new-secular-bull-market
Oh, you mean the guy who has been bearish since Dow 7500?
I'd better listen to his calls...
This time period is exactly like 1980. Stagflation is rampant.
How did we get 30 years of growth with low inflation? By printing money.
Reagan printed assloads of money and little inflation occured. We needed more dollars just to get back to normal economic activity.
Now there are too few dollars for the amount of assets. We can either decrease assets (which can't be done) or increase dollars. Either way, the result is equilibrium and not inflation.
Your posts arent favored here (understandably since this is gold bug territory) but your logic is akin to my professors. Im not sure yet on which side of the fence i fall, however i don't doubt many here like gold (oh damn, i absolutely HAVE to imply physical only!!! not paper gld!!) simply because its the popular groupthink choice.
I agree however that hyperinflation is NOT the path of the future.
Yea!! I knew Bates would show up flogging his sheepskin. What does your TA show you concerning the gold deflator chart, oh oracle of vaseline?
I said nothing about my degree, first of all, but at least I have one. Do you?
Next, I don't listen to TA's. I get better grades than them anyway.
As far as trading goes, my bank account speaks for itself. It enables me to pay cash for my education.
I wonder how GG has done trading over the last few years, aside from buying an asset into its peak?
Let's see him hold physical when the price of gold plummets in the economic recovery.
johny me thinks your are full of it .
its easy to spout nonsciense on a web page ,,face it your out of work last you posted was you were going back to school .
your bank account speaks for its self lol
empty .. running on fumes . a troll by any other name is still a zit head
Would add that right now large diamonds (>4 carat) are trading at ALL TIME highs.
The super rich are worried too and fleeing with 25 mil of gold bars isnt easy.
Super prime real estate , high end art , and rare gemstones are going to do just fine in a capital flight scenario.
yeah, but what are the ordinary lower rich to do? Can't afford 4ct VVS/D diamonds. Platinum, gold, silver, palladium, copper...I mean there are any number of things which can be stockpiled. Even coal if you have a big enough hopper for it.
Super gemstones for the wealthy, sure, but the point being that the ripoff factor for J6P makes stones a non-starter. Let's agree that it is a given that J6P is already being fleeced every time he sets foot into a jewelers. The DeBeers advertising scheme has to be one of the most successful mindwarps in history. Alchemy has now produced the "diamond coated" CZ to more perfectly emulate the carbon sister, increasing hardness and diminishing brilliance. Ironic, imo.
When an ozt of silver is valued as much as a fine ruby, which will you feel more comfortable accepting? Can you operate a loupe as proficiently as a gram scale?
This article shows that Gordo is so much smarter than reggie milton. Gold, yea ok.
If by smart, you mean "completely wrong."
In a recession, the money supply fails to get to parity with economic activity. Money dries up, and recession (which is the same as deflation) is the result.
In such circumstances, you can print all the money you want and have no inflation. In these cases, the money supply needs to increase to meet economic activity OR the economic activity needs to decrease to meet the money supply.
Only by printing money can we return to economic activity comparable to 2007. In this case, prices would merely reflect economic activity levels at that time.
GG is ill informed, and obviously lacks basic economics training. Most goldbugs seem to.
You're absolutely right!
Gosh...it's so simple. They need to PRINT MONEY and turn Cantarell's production right around.
"In such circumstances, you can print all the money you want and have no inflation."
Let's test this... suppose the Fed and all other central banks quadruple all the balances of every bank account out there--yours, mine, anyone who has actually saved anything--including corporations. Helicoptered to the savers (I know--that would be too fair vs. giving it to political cronies and supporters).
You think there would be no inflation?
You think gold's price would not quadruple?
GGs argument is sound--it's pointing out that if we have deflation, it will be gold-deflation, not dollar-deflation. We had dollar deflation during the last great depression because we were on the gold standard, not because we couldn't print more money--I know, S-T-R-E-T-C-H to try to understand that.
"GG is ill informed, and obviously lacks basic economics training."
Please, don't claim superiority when GG's argument is aparently above your head.
We had deflation during the last great depression because there were not enough dollars to buy assets. Gold and dollars were essentially the same thing at that time, due to the gold standard.
GG's arguments might work on a gold standard, but the reality is that we are not on a gold standard any longer.
Maybe I can learn the ancient art of calligraphy and see if it has any relevance in today's world as well.
This is akin to what GG is doing.
So why has the money supply tripled since 2008, without inflation?
Because the amount of money in the system is still not sufficient to match previous levels of economic activity. The amount of money being printed is not even making it to consumers, because it is busy plugging holes on balance sheets that were made from having TOO LITTLE CAPITAL.
We've printed trillions of dollars, and the economy is still in deflation.
We can print trillions more, and still not have hyperinflation.
You don't buy insurance the day after your house burns down because the premiums for insurance are too high. Yet, this is exactly what the goldbugs are doing.
The likelyhood of inflation over the near term is slight. The price of gold has far exceeded any probability for inflation.
Goldbugs are buying insurance that they will not need at a premium that is likely too high. The economy ALREADY crashed. Buying insurance now is like buying insurance the day after your house burns down. It does you no good. Plus, the insurance company will charge you too much because the house just burned down.
Is that not clear enough? Look at the price of gold after 1980. Look how it tanked after the economy improved. There was no need for insurance when the economy was great. THAT was the time to buy insurance. Not now.
Please don't claim superiority when my logic is apparently over your head.
GG is leading the sheep to the slaughter, and the goldbugs are baaing their way right off of a cliff.
Johnny. I for one applaud your efforts to educate these folk and to try to save some of their portfolios from damnation. Sorry to say, but we are in a pointless argument here. They will not listen to reason.
Goldbugs have the unfortunate tendency to deify the asset. They stop seeing it as an investment or as a currency and start seeing it as some form of secret treasure that only they know exists. (they are rich you know.... just as soon as the world goes back to bartering for rabbit skins). Very sad really. Something out of a Tolkien novel.
Let's leave them to their folly
And the gold-hating troll shows his true colors at last!
You are a lying son of a bitch, Arm, and you know it. A statist and Quisling to the core. May God damn cowards and traitors like you.
Your analogy.... only one problem with it... the house hasn't finished burning down... there will need to be a good many more injections of cash into the system from the ECB and FED.
Yeah, anyone who purchased Gold in 2002 will do better but this isn't the 1980 gold spike - that's why it's not a spike - it's a steady increase
The Salmon I used to buy at Costco was $12.49 about 1.5 yrs ago. Today it's $21.99. Yea, there's no inflation, except in Food and Energy. You know, the stuff no one needs to live daily.
Actually, the price of energy is down as well.
Gas was 4 bucks a gallon in 2008. I paid 2.52 yesterday.
Oil was 147 a barrel then. What is it now? 74ish? (or exactly half of what it used to be)
How about natural gas? Oh yeah, that's lower too (even though the utility companies are gouging, it's still down wholesale.)
As for food, I know that the price of milk has come down significantly. I pay the same or less for steaks than I did in 2008. I'm not sure about your salmon, but there may be other factors for its rise in price than inflation.
Housing is lower, pretty much everything is lower.
Inflation = growth. Deflation = recession. It really is that simple.
inflation doesnt have to mean growth. simply means more money in the system. doesnt mean people are actually producing more goods and services
You raise an important question though: What is "helicoptering" exactly?
The primary arguments of the deflationists against hyperinflation are wage levels and unemployment levels. Which, by the way, Gordon's piece above does a terrible job of addressing. (Denninger's counterargument also does a terrible job of making this point)
So, I'll make it clear here: A telltale sign of a hyperinflating economy is a low unemployment rate and high-capacity utilization. Right now we have an overhang in manufacturing capacity, skyrocketing unemployment and sagging wages.
I happen to believe (as many others here do), that we'll see deflation then inflation -- but that's a very, very broad description of events and leaves many details yet to be determined. Deflation is easy to see, because it's here. But how will the expanded money-supply of the hyperinflation reach the consumer? We're all well versed in the "helicopter" rhetoric -- but what is that exactly? Checks in the mail? A massive new form of welfare? Or just continued low credit rates which one day trickle down to main street?
Yeah, just like Argentina, the USSR, Brazil...Zimbabwe.
Hyperinflation ALWAYS comes from a "red hot" labor market.
Oh no wait, it doesn't. It's the opposite. The reality is that not one "economist" in a million knows shit about inflation OR deflation