Inflation, deflation, gold and currencies

[Reality Check]

I have a question for you thomasglee, are you a Generation Xer ?

Not sure what generation you're from... .

Again "thomasglee", you demonstrate the practice many people use of being non-responsive as a means of not answering a simple question honestly.

The question was very simple. Are you, "thomasglee", a Gereratioon Xer?

[Reality Check]

...

My coins have a hand engraved number that is part of a URL like http://gold.ai/0034 and when you go to that number you see a high resolution picture of that coin

...

Your website at http://gold.ai is cool.

I suspect the Island you live on is even better .

[vincecate]

Your website at http://gold.ai is cool.

I suspect the Island you live on is even better .

Thanks. In 1994 when I decided to leave the USA and researched different places I might move to, Anguilla seemed the best place in the world to move to. It is still rather good.

[vincecate]

I've considered getting into a similar business (or even just getting the equipment to make coins for myself from scrap gold jewelry that I would buy) myself, but haven't thought of it enough to find out what the capital equipment costs would be. Can you provide any insight?

Including bullet proof glass it is around $40,000 and without that maybe $25,000. For another $10,000 plus travel cost I would show you where to order everything and come by and help set up and teach you how to use it.

[Laustim]

We live in a very unstable, crashes, unprecedented raz.Nepreryvny rebellion and unrest in Greece at the devaluation of the currency were motivated and created fear. It is expected that people will once again turn to the one thing that has stood the test of time, an element that not only increase your wealth, but also to protect it.

[vincecate]

Bernanke opens his mouth and silver is up almost 5%.

[vincecate]

Mish posted about hyperinflation and I posted trying to explain where I think he is wrong.

http://howfiatdies.blogspot.com/2012/08 ... ation.html

[Reality Check]

John makes a very strong argument in favor of deflation, rather than hyperinflation.

However, I can see a path where asset values decline in terms of gold and maybe even silver, but at the same time increase substantially in terms of U.S. dollars.

The counter argument to that is of course is the lack of any country, and the lack of any currency, that can replace the kind of backing the U.S. dollar does have.

The U.S. dollar is not fully backed by gold, or sane government policy, but it is backed by the rich natural resources of a huge nation ( geographically ) and by a very large ( 300 Million ) population which includes, historically, an exceptionally hard working and innovative, entrepreneurial and working classes.

Add to that a super power class military armed with approximately 2,000 strategic nuclear warheads and the U.S. dollar remains uniquely backed by the United States.

The Euro is not the U.S. dollar, for many reasons, some obvious, some not so obvious.

[Higgenbotham]

The probability of "hyperinflation" has increased a lot over the past 16 months.

In 2011, when silver prices were up near $50 and the real time inflation indexes were starting to increase exponentially, there was a lot of buzz about hyperinflation, which I wrote about at the time. However, at that time, there was virtually no chance of hyperinflation, as I saw it.

Since then, as that inflation scare abated, the US government has become comfortable with the fact that hyperinflation "can't happen here", has continued to wantonly deficit spend, and has now driven their credit rating below that of other available credit instruments. The chorus of "hyperinflation can't happen here" has grown ever louder, just at the time when it can. It is true that under "existing conditions" the world will continue to use dollars, but when US dollars become the "next best thing" to someone else's toilet paper, the time that the world will accept US dollars as reserve currency is drawing to a close. What America's zombie politicians and central bankers have done in the past 16 months is to ensure that the time that the dollar has left as reserve currency will be as short as possible.

It's not enough to say that the world needs to have a reserve currency and the dollar is the de facto choice. Under the conditions that the world is rapidly devolving into, it doesn't have to have a reserve currency. Instead, it can have dissolution and chaos. It's my view that over the past 16 months America's zombie politicians and central bankers have assured a chaotic outcome. I'm not a beleiver that hyperinflation is the right word because hyperinflation is usually contained to a certain territory. Since this is the reserve currency, it is a worldwide outcome that will affect all 7 billion people on the planet, through various means like higher food prices, breakdown of trade, etc.

[John]

> Mish posted about hyperinflation and I posted trying to explain
> where I think he is wrong.

> http://howfiatdies.blogspot.com/2012/08 ... ation.html

Actually, I really have to thank Vince for pointing out Mish's column.
This column is very close to my own thinking, and very powerfully
makes the deflationary spiral case that Generational Dynamics has been
predicting for almost ten years.
http://globaleconomicanalysis.blogspot. ... ation.html

However, I want to focus on one particular section that opens up a
potential area of research:

> Would Printing $50 Trillion Tomorrow Do Anything?

> Ignoring interest on excess reserves (a proviso I mentioned),
> printing $50 trillion dollars tomorrow might not do anything.

> Indeed, if $50 trillion printed tomorrow sat as excess reserves
> (the most likely event), it would have the same effect as if it
> was buried in the ground, or not printed at all. Such is the
> nature of a credit-based economy, and a point that has caused
> hugely inaccurate inflation forecasts from many Austrian
> economists.

> As previously mentioned, such massive printing might briefly cause
> a temporary attitude change accompanied by a brief asset bubble of
> some sort (especially in long-dated treasuries given banks would
> put some of it to that use).

> However, massive printing would collapse treasury rates, further
> destroying those on fixed income, and make it even harder for
> pension plans to meet assumptions.

> Since printing $2 trillion did not spur credit expansion, pray
> tell why would $50 trillion?

What particularly caught my attention was the phrase "credit-based
economy."

The thought is this: What if "printing money" is irrelevant to or only
indirectly responsible for hyperinflation? What if the only thing
that matters is money created through debt, and the only effect of
"printing money" is to make more debt available?

This would provide an additional generational explanation for why
there was near-hyperinflation in America in the 1970s, but no
inflation today when there's a lot more "printed money" in the system.

In the 1970s, a rising Boomer generation was only too willing to go
into debt to buy things for themselves and their Gen-X kids.
Businesses too were only too willing to borrow and hire lots of
employees, providing a route by which debt-created money worked its
way into inflated salaries, and from there into the general economy.
Today, those same Boomers, as well as their Gen-X kids, have been
badly burned and are becoming debt-averse, resulting in no inflation,
or a deflationary spiral. (This argument can also be related to the
velocity of money.)

So the difference between the 1970s and today is that there's less
debt-created money, even though there's a lot more printed money, and
it's the debt-created money that's affecting the inflation/deflation
rate.

The research project would be to go back to the Weimar inflation, and
see whether or not the hyperinflation fits the debt-created money
model.

It's well known that the Weimar government printed money, but how did
that money make its way into people's salaries, so that a person would
have the wheelbarrow of money to buy a loaf of bread? Did the
government provide it to the banks, which then lent the money out to
businesses to pay inflated salaries? Then the debt-created money
model would apply.

John