Inflation, deflation, gold and currencies

Investments, gold, currencies, surviving after a financial meltdown
vincecate
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Re: Inflation, deflation, gold and currencies

Post by vincecate »

The nice thing about silver leaps is I don't seem to need to know exactly when the dollar will crash. I think as more and more people understand things it keeps going up. When the panic really starts it should really shoot up.

vincecate
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Re: Inflation, deflation, gold and currencies

Post by vincecate »

Rare earths are used in many things and are in the inflation camp:

"Just last week, we learned that the value of China’s rare earths exports has soared almost nine-fold, year on year. That is, a tonne (i.e., a metric ton) of Chinese rare earths – a weighted composite of 17 different materials – currently rings the cash register for just over $109,000. This is up dramatically since July 2010, when each tonne averaged buyers a mere $14,405."

http://dailyreckoning.com/chinas-rare-e ... z1IvBM9ecy

I think the right way to think about the value of the dollar is compared to the CRB, gold, oil, rare earths, or other real things that have a constant real value. Compared to such real things the value of the dollar is clearly going down. John's regression toward the mean does not work when using paper money to measure value because the value of the paper money keeps going down. It is as if you were measuring waves on the beach with a stick that was getting dissolved by the salt water and so shorter, you would think the waves were getting bigger. However, it is also interesting to see how the dollar compares to other paper money, which is what the "dollar index" shows. And even in this it is getting close to making new lows.

http://quotes.ino.com/chart/index.html? ... &w=&v=dmax

The only real support for the dollar is other central banks buying up dollars. My theory is that some day they will realize that it is foolish to invest in dollars that are dropping in value and stop doing this. As this starts the value of the dollar will go down relative even to other paper money. My own guess is that when the dollar index gets to 66.6 it means that the dollar no longer has sufficient support and will keep falling. At 75 it is getting closer to this value.

http://howfiatdies.blogspot.com/2010/10 ... -when.html

Higgenbotham
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Re: Inflation, deflation, gold and currencies

Post by Higgenbotham »

Another post by Mark D Cook, an expert independent trader who was featured in one of the "Market Wizards" books. Generally, I wouldn't want to argue with the judgement of an individual who has single-handedly made millions trading futures from a rural farmhouse in Ohio over a 30 year period. The documentation of that is here:

http://uamconsult.com/book_606_chapter_ ... ofits.html

The link to the below comment is here:

http://blog.markdcook.com/?p=236
Bernanke Versus The World

I will editorialize on this special advisory. The world clearly has a firm chasm between global perception by other capitalistic economies and Bernanke’s cavalier approach to the U.S. economy. Clearly, Mr. B. has no fear or respect for inflation. I have studied Fed chiefs for over 30 years as I am very inquisitive of personalities of powerful figures. It would be very interesting to have Paul Volker and Ben Bernanke in a private room mono-a-mono. These two approach the Fed chief’s role from 180 degrees different directions.

Volker felt the Fed’s role was to fight inflation and encourage capitalism to work. Bernanke feels his role is to ignore inflation and intervene socialistically to create artificially unstable environments. Both approaches have their pros and cons. Volker orchestrated one of the strongest economies the U.S. has had in the last 30 years. Bernanke has been at the Fed helm during the greatest crisis in the last 70 years.

Personality is at the core of this power move by Bernanke. The only time window he views is the short term, the here and now. This is clearly the American mindset of Joe Average citizen in today’s society. Spend today, pay the bill tomorrow or not at all. Bernanke has been very cognizant of what he can do and sidestep the reins or shackles of Congress.

Bernanke has a very stubborn nature. The more he is questioned the more stubborn resolve he possesses. This will always put a person behind the curve. He will not go into a neutral state of tempering the QE2 or his monetary policy quick enough. That would require him to eat crow. His nature prohibits him from acknowledging humility, let alone the remote possibility his approach has long term devastating effects.

The international financial community has ostracized the U.S. They are and will make an island out of the U.S. economy. The longer Bernanke’s ego is allowed to govern his decision making, the longer our economy will remain in peril.

Pay close attention to how the European Community’s economies respond over the next year as they will be a direct opposite of the U. S.

Won’t some entity, A.K.A. Congress, introduce a new word to Bernanke and explain its meaning? That word is inflation. Americans will ponder this as they pay $4.00 for gasoline, guess Bernanke does not buy gasoline but instead has a full tank of ego.
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.

John
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Re: Inflation, deflation, gold and currencies

Post by John »

Dear Higgie,
Higgenbotham wrote: > Another post by Mark D Cook, an expert independent trader who was
> featured in one of the "Market Wizards" books. Generally, I
> wouldn't want to argue with the judgement of an individual who has
> single-handedly made millions trading futures from a rural
> farmhouse in Ohio over a 30 year period. The documentation of
> that is here:

> http://uamconsult.com/book_606_chapter_ ... ofits.html

> The link to the below comment is here:

> http://blog.markdcook.com/?p=236
Bernanke Versus The World

>> I will editorialize on this special advisory. The world
>> clearly has a firm chasm between global perception by other
>> capitalistic economies and Bernanke’s cavalier approach to the
>> U.S. economy. Clearly, Mr. B. has no fear or respect for
>> inflation. I have studied Fed chiefs for over 30 years as I am
>> very inquisitive of personalities of powerful figures. It
>> would be very interesting to have Paul Volker and Ben Bernanke
>> in a private room mono-a-mono. These two approach the Fed
>> chief’s role from 180 degrees different directions.

>> Volker felt the Fed’s role was to fight inflation and
>> encourage capitalism to work. Bernanke feels his role is to
>> ignore inflation and intervene socialistically to create
>> artificially unstable environments. Both approaches have their
>> pros and cons. Volker orchestrated one of the strongest
>> economies the U.S. has had in the last 30 years. Bernanke has
>> been at the Fed helm during the greatest crisis in the last 70
>> years.

>> Personality is at the core of this power move by Bernanke. The
>> only time window he views is the short term, the here and
>> now. This is clearly the American mindset of Joe Average
>> citizen in today’s society. Spend today, pay the bill tomorrow
>> or not at all. Bernanke has been very cognizant of what he can
>> do and sidestep the reins or shackles of Congress.

>> Bernanke has a very stubborn nature. The more he is questioned
>> the more stubborn resolve he possesses. This will always put a
>> person behind the curve. He will not go into a neutral state
>> of tempering the QE2 or his monetary policy quick enough. That
>> would require him to eat crow. His nature prohibits him from
>> acknowledging humility, let alone the remote possibility his
>> approach has long term devastating effects.

>> The international financial community has ostracized the
>> U.S. They are and will make an island out of the
>> U.S. economy. The longer Bernanke’s ego is allowed to govern
>> his decision making, the longer our economy will remain in
>> peril.

>> Pay close attention to how the European Community’s economies
>> respond over the next year as they will be a direct opposite
>> of the U. S.

>> Won’t some entity, A.K.A. Congress, introduce a new word to
>> Bernanke and explain its meaning? That word is
>> inflation. Americans will ponder this as they pay $4.00 for
>> gasoline, guess Bernanke does not buy gasoline but instead has
>> a full tank of ego.
It's majorly ironic that it seems the only person in the world
who agrees with me that we're not headed for inflation is Ben
Bernanke. I was listening to some commentators ridiculing him
this morning. "His problem is that he doesn't have to drive
to work every day -- if he did, then he'd know that there's
inflation going on." That's what Mark Cook is saying as well.
I guess that must be my problem too, since I don't drive to
work every day either.

I've frequently wondered whether Bernanke really understands
that we're headed for a crash and deflationary spiral, and
just isn't able to say so, for fear of being blamed for
triggering a crash. I guess my personal appraisal of this
situation is that if Bernanke is willing to stand up to so
much heat, then he must know a lot more about what's going on
than people give him credit for. He may yet rescue his
historical reputation.

So it isn't "Bernanke versus the World" as Cook says. It's
"Bernanke and Xenakis versus the World." Whew! What irony!

John

vincecate
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Re: Inflation, deflation, gold and currencies

Post by vincecate »

John wrote: So it isn't "Bernanke versus the World" as Cook says. It's
"Bernanke and Xenakis versus the World." Whew! What irony!
You two make a strange pair. You have been right so many times and Bernanke has been wrong so many times, yet now you are predicting the same thing. One of you will break with tradition. :-)

Higgenbotham
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Re: Inflation, deflation, gold and currencies

Post by Higgenbotham »

John wrote:It's majorly ironic that it seems the only person in the world
who agrees with me that we're not headed for inflation is Ben
Bernanke. I was listening to some commentators ridiculing him
this morning. "His problem is that he doesn't have to drive
to work every day -- if he did, then he'd know that there's
inflation going on." That's what Mark Cook is saying as well.
I guess that must be my problem too, since I don't drive to
work every day either.

John
If I understand correctly, you (and Bernanke) are saying there is no inflation now. Cook (and others) are saying there is inflation now. I agree with Cook that there is inflation now. Housing prices may be going down but since there are few sales to owner occupants that doesn't have much immediate effect on household budgets. Meanwhile, rents are rising.

As far as the future, I don't really see Cook trying to predict whether the future will be inflationary or deflationary. Cook is saying that Bernanke's policies and lack of ability to assess and take responsiblity for his actions will have long term devastating effects on the US economy while breaking down the world financial order. I agree with that too. Due to Bernanke's actions, the world financial order is going to collapse (actually is collapsing as we speak) and there will be no way to put Humpty Dumpty back together again. In my opinion, it's too late to rein Bernanke in and undo the damage he has done. Confidence in the ability of the US to manage the world reserve currency has been permanently lost. There may be deflation at some point in the future but that will take a back seat to the chaos that has been unleashed by Bernanke's arrogance.
His nature prohibits him from acknowledging humility, let alone the remote possibility his approach has long term devastating effects.
The international financial community has ostracized the U.S. They are and will make an island out of the U.S. economy.
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.

Higgenbotham
Posts: 7436
Joined: Wed Sep 24, 2008 11:28 pm

Re: Inflation, deflation, gold and currencies

Post by Higgenbotham »

I read this and thought it was worth posting. It explains a few things in detail, one of which is why hyperinflation can't be achieved until they chew through the long term bond market, which is not an immediate process. He gives the theoretical example of no defaults, just conversion. In the case of defaults, deflation will come in stronger at the beginning of the process than what he describes. Also, he makes the point that once the switch is flicked as happened these past few months when Bernanke was not reined in, then you're at a point where it becomes very difficult to prevent the eventual destruction of the monetary system. It doesn't make economic sense for a bank to make a long term loan in this environment so the banks just turn into money sucking vultures and the economy gets destroyed.

http://www.financialsense.com/contribut ... ave-danger
Paul Tustain: I think it is very likely because I think it is almost an inevitable consequence of the modern construction of democracy. I am a huge fan of democracy but I do think that democracy needs to be strongly constituted. And the sad problem with the way it is constituted both in Europe and in the United States is that all elections are fought at the boundary of responsible debt. If you do not go up to that boundary, if you try to offer austerity to an electorate, the other guy looks far more generous and he gets elected and for all your good intentions, your monetary discipline is consigned to the dust bin. That is the problem and that is what sort of leads you inexorably towards an inflationary future. But in fact, the point that I have been trying to make is that what we will get, what we will hear from governments as they print money, is that it is a relatively modest amount of money that they are printing. And in fact, it is, that is perfectly true. But it hides the thing that is really going on. And this is the thing that really worries me. When you just print even a little bit of money, if you just print whatever it is, seven hundred billion dollars, or whatever, it sounds modest next to coins and notes of some fifteen trillion dollars in circulation, but it sends a very powerful message to savers. Now if you look at that monetary stock, it has got this time element built into it. You think of the hundred trillion dollars of bonds, they are basically spaced out over broadly about a twenty-year period. Most of that money was frozen into the bond market freely by people who owned the debts. But they basically had this signal from QE that it is no longer safe to put money out to twenty years. And indeed, you will see that the likes of PIMCO have basically withdrawn all their money from U.S. Treasuries because they think that it is so fatal.

Now what that means is that you give the markets that signal that you are going to print money whenever the going gets tough, but eighteen-year bonds or twenty-year bonds are all still eighteen and twenty-year bonds. And the clock has to wind down, allowing those bonds to get to the short end. And you see steadily, and this of course already happened in Greece, you see a mountain of money, as it gets redeemed, even a twenty-year bond which gets redeemed, is going to be re-invested in the short end. Nothing goes back out to twenty years. And so you get this hump of money at the short end and short-end money behaves very much like cash. That is why it is kept at the short end; you can sell a short dated bond for very near its cash value, its nominal value. You cannot necessarily do that with a long-term bond. So with this pile of money at the short end, you have got, instead of having twenty trillion in coins and notes and near-term money, you suddenly go up to one hundred and twenty trillion in coins and short-term notes but getting there, is going to take fifteen years. And that is the point. The switch has been flicked and it is not possible to un-flick it. So that shift to the short end is clearly happening. If you look at quantitative easing now, it is essentially making the financing of bond purchases very cheap but the bonds themselves are still, lets say in the fifteen-year end, anything from seven years up, which is basically in the quantitative easing stock. But they are only being bought by banks, because the banks can put them back to the central bank because the central bank has got a mandate now to buy illiquid long-dated quality bonds. So that is where they all end up, everyone connects it and goes back into cash which is provided by the central bank when it buys these long-term bonds and converts all the holder’s money back into cash. So it creates this mountain of short-term money. And this is why you get inflation and deflation at the same time.

What you have got now, is an increasing glut of short-term money chasing all the things that people buy with short-term money, and that seems like your shopping basket or the gasoline for your car. But you have got a shortage of long-term money and that is what you would use obviously to buy a house. So your house, there being a shortage of money, is falling in price but the things that you buy in your shopping basket, they are all increasing in price. So the inflation has switched round from where it was in 2005 but it was the other way around as all of the money was swept out to the long end to finance house purchases. It has switched round now and it now both ways, it hurts people who have savings. Their cost of living goes up, their assets go down in value, and their standard of living steadily slides as they compete on world markets for their commodities, their food, their clothes and their oil that are the compulsory purchases of life. And for which you are competing for, on international markets, with Asians who now are sitting on a stock of two trillion dollars.
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.

vincecate
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Re: Inflation, deflation, gold and currencies

Post by vincecate »

Higgenbotham wrote:I read this and thought it was worth posting. It explains a few things in detail, one of which is why hyperinflation can't be achieved until they chew through the long term bond market, which is not an immediate process.

http://www.financialsense.com/contribut ... ave-danger
It is a very good article; however, I think he is wrong about having lots of time till debt is moved to short term. The shift of government debt to short term debt really got going with Clinton. As of late 2009 there was 43% of the Federal government debt due in the next 12 months (URL below). With QE1 and QE2 I suspect an even higher percentage is short term now. If people stop rolling over debt now then the Fed has to print 43% of $14 trillion, or $6 trillion over the next 12 months, on top of the deficit of $1.65 trillion for a total of nearly $8 trillion in new money. This is more than enough new money to start hyperinflation. We do not need to wait till more debt has moved into the short end.

This is the standard pattern of people moving to short term debt and then not wanting to roll over debt, so governments print money, so hyperinflation. But you don't need to first get all government debt to short term. If the deficit is 40% of spending and the debt due in the next 12 months is several times this amount then there is no way that increasing taxes or spending cuts could be sufficient to avoid massive new money creation if people stop rolling over debt. The money needed over this first "non-rollover year" is many times the taxes collected.

With a deficit of 40% of spending, I don't think defaulting on the debt can even fix things. After defaulting the government can not sell any more bonds, so the whole deficit really gets covered by money creation, for as far as the eye can see. With $1.65 trillion every year in new money, ongoing, I think you still get hyperinflation anyway. Also, on any given month it will seem less painful to politicians to just print what is needed that month than to default. So I think the political preference to "kick the can down the road" ensures that they print money instead of default.

http://en.wikipedia.org/wiki/United_Sta ... rity_risks

John
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Re: Inflation, deflation, gold and currencies

Post by John »

Dear Vince,
vincecate wrote: > John wrote:So it isn't "Bernanke versus the World" as Cook says. It's
> "Bernanke and Xenakis versus the World." Whew! What irony!

> You two make a strange pair. You have been right so many times and
> Bernanke has been wrong so many times, yet now you are predicting
> the same thing. One of you will break with tradition. :-)
Bernanke was wrong about a number of things. He believed that a
so-called "fiat currency" could never suffer deflation, which has been
disproven by Japan's experience. He believed that verbal statements
by the Fed could control inflation and deflation. And he believed
that the Great Depression could have been cured by a very simple fix
of lowering interest rates, which has been mostly disproven by his own
experience as Fed chairman since 2007.

However, it's not clear that he's been "wrong" for the last three
years. He's been doing what he had to do, and saying what he had to
say. There's nothing he could have done differently at any point,
because of political pressure. That will be the subject of a lot of
debate, now that Trichet has raised the ECB interest rate.

I should mention that this inflation/deflation debate is a huge issue
for you, which is appropriate, but for me and Generational Dynamics
it's actually a relatively minor issue in a world model that
encompasses hundreds of financial and geopolitical issues. The
inflation/deflation issue is highly interlocked with a lot of other
issues, and if we aren't headed for a deflationary spiral, then a lot
of other things would be wrong as well, including many things that
have already turned out to be correct.

For example, I received a very great deal of flak from the BigPeace
people for my analysis in January that Egypt would not turn into
another hardline Islamic state like Iran. And now, three months
later, that analysis is turning out to be correct (even though some of
the BigPeace people still can't believe it). This may seem to most
people like a completely different issue, but in fact it's interlocked
with the financial issues, and exactly the same world model and
methodology that led to the Egypt analysis also leads to the
inflation/deflation analysis.

So say what you want and believe what you want, but I'm going to say
the same thing again that I said to your new girlfriend Lily: There
isn't a snowflake's chance in hell that the (hyper)inflation scenario
is going to occur. It just cannot happen.

John

vincecate
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Re: Inflation, deflation, gold and currencies

Post by vincecate »

John wrote: So say what you want and believe what you want, but I'm going to say the same thing again that I said to your new girlfriend Lily: There isn't a snowflake's chance in hell that the (hyper)inflation scenario is going to occur. It just cannot happen.
Well, to me it looks like things are unfolding about the way I expected as far as inflation and the Fed buying up most of the government debt. The prices on the international commodities are rather high. And in any case, the price on my silver options ($50 strike 2013) went up 18% yesterday alone. So if this is what being wrong is like, I can deal with it. :-)
Last edited by vincecate on Sat Apr 09, 2011 10:17 am, edited 1 time in total.

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