Inflation, deflation, gold and currencies

[Higgenbotham]

Bernanke has said 3 things about inflation/deflation:

1. That deflation can be prevented using the electronic equivalent of the printing press.

2. That an explicit inflation target is appropriate policy and the target is about 2%.

3. That he is 100% certain that any inflation that exceeds his target can be dialed back.

It would seem to me that anyone who wants to believe what Bernanke is saying would need to believe everything he is saying.

[RDRUNR]

I just realsied, all the gold-bugs and financial doomers need to get a life and some perspective, either they do not read recent history or were born in the late 80's but we have been MUCH closer to the "end of the world" than worring about money!

One example is the Cold War, the Cuban Missle Crisis, Star Wars... How many seconds to midnight were we?

Gold is just a cold metal, no more valuable than salt. (infact, salt was the first word currency, not gold/silver)

[richard5za]

It would seem to me that anyone who wants to believe what Bernanke is saying would need to believe everything he is saying.

Higgie,
I am certainly not going to believe everything Bernanke says. The point here is that he says a government can print money to prevent defaltion, and thats what he believes, and I believe that he will print money to prevent defaltion.
Richard

[jdcpapa]

People already understand it, which is why hyperinflation will not happen in the US. I'm with John. Deflation will be the wave of the currency.

I am not understanding. Lets discuss:

Inflation is an increase in the money supply without a corresponding increase in goods and services. For example, if we take a hyperthetical example of a totally closed economy, such as an island somewhere with no contact with the outside world: Say a shirt costs $ 2 and then you suddenly double the amount of money on the island, very soon the shirt will cost $ 4. Inflation is a monetary matter at its essence.

Coming back to the USA the economic growth rate for the last 10 years has averaged less than 2.5% per annum but the supply of money has increased much faster than this. The consqence must be inflation sooner or later. And the faster they print the money the higher the inflation.

I don't think that hyper inflation will be permitted, but 10% to 20% for a few years would make a wonderful difference to the USA real debt: This is the route I think is most probable for the medium term at least. (This is a so called 'beggar my neighbour' economic method and will probable result in global currency wars which may have unpredictable consquences)

It would be economic suicide for the USA monetary authorities to allow deflation in a substantial debtor nation with the dollar as the world's reserve currency as well. Deflation will only happen if for some reason control of the printing presses is lost, or the USA government is overwhelmed in some way.

It was in one of Bernanke's speeches some years ago that he reminded the audience that the government had printing presses and could ensure that deflation didn't happen. I'll try to find the speech but can't promise.
Richard

Good morning!

Hypothetical scenario (help me out):

If the US dollar hyperinflates (while it is a world reserve currency); hyperinflation will be experienced worldwide. If and when the world abandons the US dollar, a whole new set of dire events could be triggered and the US could experience hyperinflation.

"Inflation is a rise in the general level of prices of goods and services in an economy over a period of time."
http://en.wikipedia.org/wiki/Inflation

An example on the hypothetical "Island":

The local producer of widgets is forced to raise wages because his employees want a better way of life. Since he wants to maintain his standard of living, in order to avoid a "walk-off" he raises wages and increases prices. He passes it on to the consumer. This is an example of inflation.

Hyperinflation is inflation on steroids. Generally attributable to an excess money supply:

The workers want to move to a better neighborhood and own their own homes. So the "government" decides to make "money" available by turning on the printing presses and monetizing debt at low adjustable variable rates. This causes housing prices to sky rocket. Housing prices tripled, labor rates tripled, etc. This is hyperinflation.

Now on the "island" the money supply dries up. The demand for housing stops. There is high unemployment. Houses are foreclosed and abandoned. The housing values drop like a rock. Consumption of goods and services declines. This is deflation.

The "government" turns on the printing presses again to stimulate the economy of this paradise. But to no avail. Then someone cries foul! The money is no good! Buy gold! Gold goes through the roof. The economy continues to deflate and contract.


"the Bernanke" has used most of the options discussed in his speech. Especially the fannie freddie swap.

[richard5za]

I just realsied, all the gold-bugs and financial doomers need to get a life and some perspective

Well I think I have a very fortunate life.

I have a very happy marriage, children and grandchildren. I have excellent health and enjoy vigorous exercise. I have a lovely 400 sq m home on 2000 sq m of ground in a secure and very good area and I have a great interest in, and enjoyment from, gardening.
I have accumulated enough money to live very comfortably for the rest of my life as long as it’s sensibly managed. I have no debts. Not even one dollar on a credit card.
I have a deep interest in religion, and read widely on the subject, and am an active member of my church (Catholic) For many years I ran the Alpha Course (Tuesday evenings) but now that I am older I help by facilitating the older groups.
I am semi retired and work for a charity in ECD the focus of which is the poorest of the poor; in essence to try to put back a little something of what I have received. I have an enjoyable job without stress and the satisfaction that I have made a considerable difference to the charity.
My wife and I have local holidays at least once a year, and we travel overseas once a year. Last year we spent 4 weeks visiting Rome, the South of England and my daughter and grandchildren in Switzerland.
I have a deep interest in economics and politics and financial matters. This gives me a great deal of pleasure, including investments in gold.

Do you still think that I should be trying to get a life?

[jdcpapa]

I just realsied, all the gold-bugs and financial doomers need to get a life and some perspective

Well I think I have a very fortunate life.

I have a very happy marriage, children and grandchildren. I have excellent health and enjoy vigorous exercise. I have a lovely 400 sq m home on 2000 sq m of ground in a secure and very good area and I have a great interest in, and enjoyment from, gardening.
I have accumulated enough money to live very comfortably for the rest of my life as long as it’s sensibly managed. I have no debts. Not even one dollar on a credit card.
I have a deep interest in religion, and read widely on the subject, and am an active member of my church (Catholic) For many years I ran the Alpha Course (Tuesday evenings) but now that I am older I help by facilitating the older groups.
I am semi retired and work for a charity in ECD the focus of which is the poorest of the poor; in essence to try to put back a little something of what I have received. I have an enjoyable job without stress and the satisfaction that I have made a considerable difference to the charity.
My wife and I have local holidays at least once a year, and we travel overseas once a year. Last year we spent 4 weeks visiting Rome, the South of England and my daughter and grandchildren in Switzerland.
I have a deep interest in economics and politics and financial matters. This gives me a great deal of pleasure, including investments in gold.

Do you still think that I should be trying to get a life?

I have a very similar life. I also have a thirst for knowledge.

[Higgenbotham]

It would seem to me that anyone who wants to believe what Bernanke is saying would need to believe everything he is saying.

Higgie,
I am certainly not going to believe everything Bernanke says. The point here is that he says a government can print money to prevent deflation, and thats what he believes, and I believe that he will print money to prevent deflation.
Richard

He did say that (back in 2002), and I think he did believe it (until recently). He has printed money. To some extent it prevented deflation, at least temporarily.

To some extent I also believe it moved the deflation from some areas to other areas. For example, housing prices have now fallen more than they did during the Great Depression. The ability to prevent deflation long term is partly based on the ability to hold asset prices above their corresponding debt levels. Bernanke was sure he could do this, but so far it hasn't worked. In order to attempt to get enough housing inflation to get rid of the underwater mortgages and bank insolvencies, I believe he will have to risk very severe inflation in other areas, maybe on the order of 50-100% annually. And even then it might not work.

[richard5za]

For example, housing prices have now fallen more than they did during the Great Depression.

Dear Higgie,
I am not a scholar of USA house prices but in other parts of the globe house prices have fallen substantially in times of significant inflation. Inflation / deflation is really a monetary matter. Also falls in the stock market in times of inflation simply because of a falling PE ratio.
Richard

[RDRUNR]

Do you still think that I should be trying to get a life?

I don't but you obviously do based on your own actions.

You wouldn't have replied if you thought otherwise to "defend" what you think is a good life.

The question was only aimed at a very specific type of person (those who suffer from gold fever and have no life), whom it seems, you think you are.

Hey, don't hate me, I didn't make you reply and no where did I say "richard5za" or "jdcpapa" has no life.

What I DO find interesting was you choose to take 1 line out of complete context (for hate I assume) rather than read and understand the main points of my post... that being, in history, there have been greater points of "the world is ending" than the US dollar being "devalued".

[richard5za]

You wouldn't have replied if you thought otherwise to "defend" what you think is a good life.

..... Hey, don't hate me,

I don't hate anyone, thank goodness. I replied with some "force" because it is an 'immature' and a " a typical nineteen year position" to claim a generalisation that gold bugs need to get a life. What intellectual crap!!!
Richard