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Gold is "Death Watch deflationary?
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Is gold to 'see the death of deflation? The argument revolves around credibility to the surface – but the conclusion is far from satisfactory.
Is gold on "Death Watch deflation?
A number of readers sent me emails with versions of this question, we'll tackle head today.
For information, some commentators have bearish case for gold – but none hit the table hard as a guy named Nick Guarino. (I was informed by correspondence from you.)
Guarino, working outside of Canada, is affiliated with the so-called "Wall Street Underground. "
I do not know … Nick Guarino I've never seen his work or read his business. But a handful of you have mentioned that the source of this deflation Guard Death "idea.
Here's the gist of the argument, Guarino excerpt from a text that seems to go:
Some of the more crazy loans – Ever more qualified borrowers – were made. Now we face a wave defaults on loans. In our system, which is the destruction of money. The money is destroyed as never before in the U.S. Therefore, we entered into a deflation a year ago. As the mass destruction of money (loan repayment) continued uncontrolled that deflation has become a full-fledged depression.
The banks are not lending to higher leverage. It is a fact. They are not money creation. You can not do it for a decade or more. They are still too busy trying to cover their losses massive loans, which because of derivatives are literally hundreds of billions of dollars.
While we are witnessing the destruction money on a large scale. And we have deflation in wholesale prices as crash everything in sight. And the default is the destruction and inflation is not far from the imagination and [a] real disaster for gold bugs in this dish washers operating end view of gold worth less than $ 200 [a] ounce.
I agree with the thrust of this argument. The logic is right on everything except the fact that "hundreds of thousands of millions" is an exaggeration.
The Asian Development Bank estimates that the value of $ 50000000000000 value in all the stocks, bonds and currencies lost last year – roughly the equivalent of one year's production for the economy world as a whole. Several estimates of the decline in market CDS (credit default swap) in U.S. $ 50 trillion and … and most of the mortgage assets toxic flew balances banks deserve to be written clearly, but not all the way to zero. So basically, there is no way that "hundreds of billions" applies.
But what about the most important point? In the case of gold on its way $ 200 per ounce due to the scale of "destroying the money" you have witnessed far outweigh any effort to encourage through the press?
The short answer to this question is "no."
Again, I agreed that the sharp drop global trade and commerce (and the financial black hole created by the loans vaporized) is serious deflation. I also agree that the world is facing with a downward spiral of prices of goods and services, companies crouch down and consumers cut back traumatized.
But the argument and the conclusion have a substantial lag.
CliffsNotes version of my response to "deflationary death watch" argument is that, as contained in my response to reader Dan C.:
deflation is no "right" in the eyes of central bankers. In Deflation reality is perceived as little short of a disaster by all central banks are aware of what happened in the Great Depression.
Therefore, beyond All that said [For Guarino], the No. 1 task for central bankers is to recover an inflationary environment. sustained deflation is not acceptable … inflation should return all the coast.
So when you're at the bottom of a deep hole of deflation can not stay here … when they return inflation to the altitude above the ground … What to do?
Use of dynamite. In necessary.
The assumption that central banks can still loco Japanese-style deflation in the world is the place which goes wrong. They will not. They do whatever it takes.
Now, we extend this response a little.
Dirt-cheap gold phenomenon is a good time
For starters, what the world looked when gold was very cheap before. The shares rose … the price of oil was low … good times are rolling and the storm clouds are nowhere in sight.
There were serious difficulties in the 1990s – the Asian currency crisis, the Russian default, and so on – but for most, Alan Greenspan, led to an avalanche of money easy. The world was a shiny happy place for investors.
That is, gold does not go when paper assets are doing well – and vice versa.
This makes sense because, in addition to its role as a barometer of inflation, gold is also a form of insurance crisis. Who wants to buy insurance crisis when there is more than the blue sky as the eye can see?
Environment contrast pink now. insurance crisis suddenly something that I do Can not get enough of. Each individual investors to sovereign states want protection against the threat of financial collapse.
The euro is huge crack. The U.S. Dollar and U.S. Treasury bonds are strong, for now, but both are seriously cheating. Tensions resulting from collapse of world trade could lead to unpleasant results. The flow of news is not pleasant.
This is the kind of environment in bright gold.
Gold is rare in relation to long-term demand
As mentioned previously in these pages, all the gold mined since the beginning of time only adds a $ 4,000,000,000,000 or $ 5 dollars (more or less). If you took all the gold and stacked as a cube, which would be ample in a field tennis. Also note that only a small proportion of gold is for investment or sale.
And if, in terms of its role as alternative currency and a form of insurance crisis, the supply of gold relative to demand is very low. To say that this picture will change dramatically, ie the insurance crisis need – and protection from the debasement fiat money – Disappear in the short term.
If central banks succeed, inflation is positive Back
The threat of deflationary spiral is enough to give nightmares central banker. When a trend of falling prices wages, goods and services is blocked long enough, the result may be an economic disaster.
Deflation is particularly scary because the system is designed to have an inflationary trend. There are always new workers to new jobs, new investments needed to raise new taxes and so on. The wheels of capitalism are lubricated by a positive trend in prices and wages and profits rise slowly.
With deflation, all that is thrown back. The pain is especially severe for economies that need to constantly add jobs and investment do to avoid popular discontent. (If the group Work is more, the lack of growth, unemployment is increasing the resources too.)
This is why deflation is not an acceptable phenomenon. Deflation persists longer, the risk of long-term destructive effects. And if, as Bernanke and Co. s battle against pressure deflationary, the stakes get a little more each day.
If the stakes are high enough, could see some really crazy things down. What leads us to our next point …
The Fed has not gone mad, however,
Most of you have Having money letter that looks like a hockey stick, which shows the large amount of reserves the Fed has injected into the system. We also discussed expansion of several billion dollars in the Fed's balance sheet, and now everyone has heard of the government's recovery plans.
But you know what? When it comes to generating inflation efforts, all day is just warming up.
The big fear is that the winds of America and Japan, so we'll use an analogy Japanese: the monster movie classic.
Deflation Monster as an image 200 feet tall. Mothra, perhaps. Except instead of attacking the cities, Mothra is razed entire sections of the U.S. economy.
What the Fed has done so far is equivalent military response to the standard, even in a large scale. They called in tanks and warplanes. They sent bombers to drop napalm Mothra head. next step the Fed is the line TALF multibillion-dollar credit. If that fails, they have exhausted all options … except one.
Can call Godzilla.
If deflation is then Mothra Godzilla, a little in our analogy represents the actual inflation … stomping, screaming, spitting fire, melting eyes inflation.
If the Fed and the Treasury to go really crazy and increase Godzilla depths, as it seems? Here are some possibilities:
• The government could announce a massive portion of tax pay, at a cost to blow everybody's mind, which should not be returned.
• The government could announce a one-time effort, refused to pay tens of thousands, even hundreds of Thousands of mortgages under water.
• The Federal Reserve banks could achieve a drastic departure tax – some thing like the charge usurious vigorish in reverse. Each day that passes where the ABC bank has paid 100 million dollars of its reserves, a sentence of detention is $ 50,000 imposed. Or something.
• The Fed and Treasury can not say, "You know what, screw you check Let Every U.S. citizen age 18 with Social Security numbers are $ 10,000 -.. found in the mail. "
Why we have not seen any of this already? Because, again, the above options are the equivalent of calling Godzilla. Mothra Godzilla could kick his ass is? Oh, no doubt. The problem is Mothra died after the small details that you have to deal with Godzilla.
Ben Bernanke knows all this … as well as players Smart Buy gold
Ben Bernanke knows that the Fed could lead to inflation if you will. Heck, who boasted openly that in 2002 his famous "helicopter" freedom of expression.
What happens is sweet Ben really, really, really do not want to let go Godzilla, unless you absolutely have to. Because the rate of inflation could cope with the explosion of our way out of this hole would be deflationary … Well … monster-rific.
There are a number of very intelligent players important to establish the positions of the investment Long term gold today. They did it with math Bernanke, and they know where different paths lead.
So Guarino is therefore false. About the world in the fight against deflation spiral right down Now it is true. But the idea that we can afford to let this continue downward spiral is a great big "No Way Jose." Deflation persists time, most central bankers become terror – and the greatest risk they are willing to assume.
These risks include calls of Godzilla … make a real all-out, mega-eruption "Helicopter drop" direct consumption once the average spread over large chunks of money to the semi-insolvent banks fail.
Deflationary pressures and crises meddling in international
Last but not least, there is another possibility … even the possibility that Bernanke and company are prayer.
This last possibility is that through a combination of market emerging domestic demand and stabilization in the West, global growth comes back online.
If the world manages to heal, then Trade dollar began to sink … The Commerce Department to collect … Optimism returns … and deflationary pressures fade on its own will.
But even then, if this situation occurs Fortunately, the pendulum of deflation on the side of inflation. The stimulus that already been injected into the market a ripple effect. This is why Warren Buffett has recently expressed his views on CNBC that could be in a fight with inflation in 1970 in style – growth AFTER global returns online.
Investing in gold compared gold trade
Let me conclude by adding that gold investment and trade in gold are two different things.
Under the trade, gold should continue with the usual program of events decreases aggressive and sometimes stomach wrenching. (Thus it was in the 1970s too, so no great surprise.)
I still believe the best solution for gold investment is a constant accumulation and slow, with the understanding that it will remain high and low. On the commercial side, is a question points to be agile and an election accordingly.
http://www.taipanpublishinggroup.com/taipan-daily-031309.html
About the Author
Justice Litle is editorial director for Taipan Publishing Group. He is also a regular contributor to Taipan Daily, a free investing and trading e-letter, and editor of Taipan’s Safe Haven Investor. He is the founder and editor of Taipan’s newest research advisory service, Justice Litle’s Macro Trader.
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