Inflation, deflation, gold and currencies

[gtate]

http://www.youtube.com/watch?v=4n3g5lUgkWk

John,

I have been struggling with the direction of the dollar after the certain collapse of the US stock markets. This video is one in which Peter Schiff predicts, in simplistic terms , that the party in the US is over and Asia will begin to consume their own production and the US will be forced into a much lower standard of living with the collapse of the dollar.

Your Thoughts
GTate

[John]

http://www.youtube.com/watch?v=4n3g5lUgkWk

John,

I have been struggling with the direction of the dollar after the certain collapse of the US stock markets. This video is one in which Peter Schiff predicts, in simplistic terms , that the party in the US is over and Asia will begin to consume their own production and the US will be forced into a much lower standard of living with the collapse of the dollar.

Your Thoughts
GTate

I've written many times that the dollar is NOT going to collapse,
and that it's going to strengthen because it's in a deflationary spiral.
See, for example, the first posting of this thread, and then read
through the later postings, where the subject gets debated.

Peter Schiff is wrong.

Sincerely,

John

[mannfm11]

I believe Schiff is a salesman, but I think the whole IMF system may collapse. Question is, why would Asia even want the crap we buy from them. Second, they don't have exchangable money over there, so they have to get ours and for that matter are deeply invested in our money. Third, they need something to buy resources from the rest of the world. It is very clear that all involved could go broke Also, when dealing with currencies, we are dealing with bank credit, not actual money. The bankers, not countries will have more say about this.

[zev]

"Zimbabwe and Weimar: The government printed enormous amounts of money, deflating the currency, and there was no credit bubble to counterbalance it. You can think of the $700 billion bailout as being similar to "printing money," but it's tiny compared to the tens or hundreds of trillions of dollars in the real estate bubble, credit default swaps, and other credit derivatives. It's the collapse of the credit bubble that offsets all other factors that might otherwise be inflationary."

Imaging telling the US gov't that - it's like telling a kid, 'I bet you can't eat all that candy'. Any politician who knows they can print all the money they want without worrying about inflation would proceed to print all the money they want. What's stopping them?

And what about the opposite - that to print all the money you want, you just have to initiate a credit bubble, then let it deflate; why wouldn't all those places dealing with inflation just create a credit bubble and allow it to deflate?

[axis_of_evil]

"Zimbabwe and Weimar: The government printed enormous amounts of money, deflating the currency, and there was no credit bubble to counterbalance it. You can think of the $700 billion bailout as being similar to "printing money," but it's tiny compared to the tens or hundreds of trillions of dollars in the real estate bubble, credit default swaps, and other credit derivatives. It's the collapse of the credit bubble that offsets all other factors that might otherwise be inflationary."

Imaging telling the US gov't that - it's like telling a kid, 'I bet you can't eat all that candy'. Any politician who knows they can print all the money they want without worrying about inflation would proceed to print all the money they want. What's stopping them?

And what about the opposite - that to print all the money you want, you just have to initiate a credit bubble, then let it deflate; why wouldn't all those places dealing with inflation just create a credit bubble and allow it to deflate?

Lmao, you can't just print money to offset all that debt. Money would become useless and people would trade in goods rather than money if that happens.

Also, you can't just "create" a bubble, because people have to be confident about the value of the currency, the economy, etc. in order to borrow and lend, and that wouldn't end inflation, it would just cause even more inflation.

The bubble was created because of the illusion of more real wealth than there actually was, so people have been trading in imaginary wealth and this means that printing more money would not create the wealth that was perceived to have "lost" when the bubble deflated because it wasn't actually there in the first place and so could not be created any more than a car that had never existed could be "recreated" through the creation of a certificate for the ownership of the car. Therefore, printing more money would simply make goods the same value as it was as a fraction of the average man's total amount of money owned. So if bread during the bubble was $5, if during the bust it is $1, and you printed enough money so that there would be as much money in circulation as the total amount of credit during the bubble, then the bread would be worth $500, because people have finally understood that there isn't enough bread to go around, which they thought was more than enough during the days of the bubble.

[silver2008]

with the fed deciding to enter the commercial paper market and buy commercial paper, will that facilitate the rollover of short term loans and unfreeze the lending by banks unwilling to lend to business?

[freddyv]

On oil I agree with Rafaelloello. Oil was very over sold and my charts indicate a bounce back. Currently I am looking at Brent Crude reaching $ 118. Lets see what happens

We saw what happened and it wasn't pretty. I am just sitting on my SDS making momey hand over fist just amazed at how absolutely nobody else sees this obvious strategy.

Look, you could short oil but if Israel decides to attack Iran or Putin decides to embargo...

You could go with gold but if we're in a deflationary spiral, which looks to be pretty obvious at this point...

You could try and trade in and out of the market but aside from all the other problems what happens when things REALLY get panicky and you need to make a trade and you broker can't execute for you?

All of these leads me back to shorting the market. Get a short position and stay there and hope that this all isn't so bad that by the end we aren't living in caves.

--Fred

[malleni]

...
If the world war completely destroys the US infrastructure, then the
dollar may indeed become worthless, but that scenario seems unlikely
to me.
...

John,

If no war destroy US infrastructure, but the US alone - what would happened?

With other words - the power of the dollar was always in connection to the US power... (mainly industrial power, but of course even military power.)
Today - US industry is almost destroyed (or outsourced).
Less than 15% of all jobs in USA are production... All others are service jobs.

It is enough to take look on the "automotive giants" from D. Now they are - midgets living only because the state giving help to them.

(The producer of toy GM cars - Mattel - is more worth than completely GM)
And this is mass production.
Admittedly the automotive industry has also problem in the other part of world, but the "giant from D" had them almost a decade jet!
They were late in each aspect.)

So with best will I can not understand your stand point that "dollar is the value" and that people escaping to it, because "it " is not much on the market.
I can understand that creditors who have a huge amount of dollar in the treasuries (China, Japan, EU, Arabs and perhaps even Russia) would like to support dollar - even WITHOUT value behind, because of the own interest.
They can for sure try to keep "nothing" to the some level and for certain time. BUT not forever.
Moreover when "nothing" is multiplied - by "printhouse" with exceeded speed. (For sure that "printhouse" can "print", as many trillions you wish. They do not need paper for it, and logic that destroying of trillions on stock market is "faster" then printing and that is the main reason for "value" - I can not understand.)

Additional aspect:
You often talking about "war against China".
Why for Gods sake, China will credit US if it will be attacked?
With which money US can do it? ("Printed" of course, but is it logical to think that China (or Russia or even EU) - will just stupidly stay and look?)


What happened when all ballooned derivatives disappear from the market - and for sure trillions of the ballooned "value" clear off the stocks.
Definitely, many investors will loose money, because they invest in value backed by the US dollar!
But, on the end - I am sure that always remained the "real thing" (that is perhaps meaning of the deflation)

And "real thing" saying in my opinion:
1. US dollar has NO value when it counts.
2. The temporary "scarceness" of dollars - is just that - temporary... (Logic is simple. If you started to "print" and you can do it as you want in believe that other MUST take this "paper" as value - you are in great calamity. Because "the others" have own priorities and those are definitely NOT US and its "over-printed" currency.)
3. "Printing" are on the "table" now for all nations, but US is the great source for all these derivatives and "fast and easy money". The others will probably played for a while to winning "time" - and in same time try to get rid of the currency reserves of this kind.
4. In same time mainly creditors will try to organize and to establish a new system without US dollar as anchor.


Best regards

malleni

[TheCoinCollector]

Just a thought, I completely agree with the deflation argument and I know the credit bubble is huge and that a few trillion won't cover it but with all these government deposit guarantees and bailouts? Won't that just lead to inflation eventually, globally debasing all currencies that jump on the band wagon? I guess the fear could be that is they try to bail their way out of this crisis, then america and the rest of the would would be f___ed, after all, most nations if not all are fiat currencies allowing the central banks to print at the nations own peril.

[John]

> Just a thought, I completely agree with the deflation argument and
> I know the credit bubble is huge and that a few trillion won't
> cover it but with all these government deposit guarantees and
> bailouts? Won't that just lead to inflation eventually, globally
> debasing all currencies that jump on the band wagon? I guess the
> fear could be that is they try to bail their way out of this
> crisis, then america and the rest of the would would be f___ed,
> after all, most nations if not all are fiat currencies allowing
> the central banks to print at the nations own peril.

If you take current trends and extrapolate them forward through time
indefinitely, then you may well get hyperinflation.

But we're at a very strange time right now, where almost all
countries around the world are cooperating with each other in
financial policy. That's perhaps the most amazing thing about what's
going on right now.

But at some point, some country or group of countries is going to say,
"Hey, we're really getting screwed by all this feel-good cooperation.
We're going to do something different to protect ourselves."

I really expect this era of good feeling to end before long. There
are just too many inequalities building up between nations and
currencies. When that happens, I expect the fundamental deflationary
spiral trend to take hold for the dollar, and other countries to
inflate or deflate their currencies according to their own national
interests.

Sincerely,

John