Is It Time to Abandon the U.S. Dollar and Go for Gold? 36 comments
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Everybody knows that ‘quantitative easing’ or printing money is just around the corner, and the Bank of England yesterday was the first central bank in the world to receive government permission to go ahead.
Such is the size of the coming U.S. budget deficit amid market interventions on an unprecedented scale that turning on the printing presses will be the answer. Karl Marx would likely see this as capitalism in its final death throes, but his face is still unlikely to appear on dollar bills.
However, it is a very socialist turn in world affairs and, to turn Marx back on himself, every experiment with socialism has ended badly; often with inflation ravaging the incomes of the poorest and retired in society, completely the reverse of the doubtless well intended effect.
Inflation guarantee
Printing money guarantees inflation. As Milton Friedman wrote inflation is always a monetary phenomenon. More money is by definition inflation.
So what is holding up the U.S. dollar? Why has it rallied recently against every major currency?
First, this is a reflection of the even worse economic performance of national rivals: Japan is sunk in deep recession; the eurozone has a crisis over lending more than a trillion dollars to Eastern Europe; the U.K. is swamped by its outsized banking sector and housing crisis; even Switzerland’s economy is none too chipper.
Secondly, as global financial markets have sold off, and continue to sell off, then assets are liquidated mainly into U.S. dollars and this creates a demand for dollars that supports its relative value.
Market bottom
So when will the inevitable impact of printing money catch up with the greenback? It surely has to come when financial markets reach a bottom and end their sell offs. That could take a matter of months but almost certainly not as long as a year.
And once money is piled high in dollar bills and treasuries, and stocks have a clear ‘buy’ sign over them, the stock market will rally and the dollar will crash in value along with bonds.
That will be the point at which you want your money out of the U.S. currency and into hard assets like precious metals which will then be the currency of last resort. For as the stock market recovers all that newly printed money will flood into the system from the bank accounts where it is presently being hoarded, creating inflation and devaluing the dollar.
It will not take long for investors to catch on and this flood will be channeled into the narrow gold and silver markets creating huge price increases.
Disclosure: None
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Buck the Trends, its the Contrarian thing to do.
Go ahead, the Ides of March commeth.
The real question is: how many are actually buying Physical Gold, not just holding on to what they have?
I'm buying the undervalued Miners and shunning the metal itself. (my personal approach to current trends)
However, if that time does come gold could be very, very expensive. This may be the ideal time to begin the acquisition of a little gold. Just in case...........
Mv=pY dude..look it up in any economics text.
This is true, but loss of purchasing power only can occur when prices are rising. I don't think we will see rising prices until the credit markets are working again. It will be the action of bank lending through the magic of fractional reserve banking that will cause rising prices. Printing money will add to base money which will give banks additional reserves to lend. Gold market is anticipating this event.
"The Federal Reserve has announced the first wave of new money creation for the TALF program: lending money to lenders who lend to students, car dealers, and credit card issuers. There will be $200 billion of new funds. "
This is "printing money". All of this money will go directly into the economy (to the lenders) as it is released. The $200 billion will serve as the basis of $2 trillion in new money as the "magic" (aka fraud) of 10:1 fractional reserve banking does its thing.
In other words, inflation is just around the corner. It will be gradual at first, but expect it to be very significant by the end of the year, maybe sooner. You have been forewarned.
On Mar 04 07:59 AM brain wrote:
> "Printing money guarantees inflation." Absolutely. But we must take
> that statement literally. Part of the reason the USD remains strong
> is for the LACK of physical money. Plenty of the digital variety,
> but it still takes the physical stuff to conduct many business transactions.
> The future will see a dichotomy of adjusted inflation based on electronic
> vs. physical USD. The USD will remain strong for the immediate future,
> possibly longer.
>
> But you can't go wrong with gold. If is slips back to $850, I'm personally
> going full tilt for some expected huge gains in the 3rd & 4th
> quarters.
On Mar 04 10:30 AM lance sjogren wrote:
> "I am not into gold but I think putting the dollar back on the gold
> standard if at least temporarily would do wonders for the market
> and confidence."
>
>
> You can't print paper currency in unlimited quantities if the currency
> is tied to a hard asset like gold.
>
> The US will need to print trillions of dollars out of thin air to
> buy the treasury bonds that will be issued to pay for stimulus, bank
> bailouts, etc. Nobody else is going to want those treasury bonds.
> If we had to sell them on the market we would have to raise interest
> rates, dealing a second deathblow to the real estate market.
>
> It is impossible for the US to adopt a gold standard at this piont.
> After our money-printing binge and the inflationary kick in the gut
> it will deliver to Americans, maybe then there will be some political
> support to throwing out the entire rotten Federal Reserve System
> and Fractional Reserve Banking system and adopting an old-fashioned
> "sound money" based system.
>
> At the present time, it is out of the question.
US$ credit evaporation: $ 2000 billion, just in the US,
probably more than that overseas.
Global Fiscal Packages, including US: $ 1930 billion
to be spent in 2009/2010, sloooowly.
Gold did a nice run based on capital preservation,
I hope you enjoyed as I did, but global macro figures still not enough strong to inflate prices... sorry for that, gold will see his
sunny day but not this summer...
short all kind of asia money now
In other words, Deflation will be in the figures for another quarter or so. IMO
However, come the last quarter and afterwards, it will work in the opposite direction just as the Obama Stimulus package kicks in...
That's when the really good Gold stuff will accelerate and the USD will not be along for the ride. IMO
Yes, certain sectors have lower prices (auto, oil), but we still technically have inflation, which is about to get way worse.
Prices may not jump quickly, but when the Fed begins buying its own treasurys, the dollar will devalue. It has to. This is inflation whether it shows up in prices promptly or not.
On Mar 04 04:54 PM CLH wrote:
> Buying gold during deflation makes no sense. As debt is eliminated
> the money supply goes down. It took 40 years after the last deflation
> for inflation to go up. Dont waste your money on gold which is grossly
> over priced.
All he would have to do is try grocery shopping once. Granted, buying a TV or similar electronics is a breeze now, but how many TVs does one need? Eat?
When we are close to parity on the Euro, I might start to buy some. That should be in about 6 months or less after the banking system in the Euro Zone defaults from their Eastern European debt exposure. GE tanked today from its 26B Eastern European exposure. Thats peanuts compared to the Austrian Banks and their percentage exposure. (they can't even print their way out of it, too bad.)
Not that the US banks are not insolvent, but at least we already have that priced in. Next up, the Ireland debt default and Euro Zone comedy as the ECB has to start Q.E. just like the B.O.E.
Gold just might hit new highs, but it will be from Foreign buyers and not from those in the U.S, at least not until late 2009 or 2010. Then the US pays the price and I will be buying Aussie and Can. Dollars and Gold.
I have my Nuclear war gold, but otherwise why bother with gold when the dollar is so strong. I try not to guess, I wait for the charts to show me the next "great" thing. Right now, the action in Gold stinks, it looks like a double top. I am waiting for it to prove me wrong. I have a massive buy order at $1,070. I will keep it in the system forever. Either way it pans out, I will make money.
On Mar 05 02:49 AM Snoqualman wrote:
> I think you are right. I just wish gold mining wasn't such a damaging,
> polluting business. Hard to feel good about owning a piece of it.
> But I suppose there really isn't much difference versus owning bullion.
> The damage from it occured in the past. Everything has its unpleasant
> side...
i am doing just that. sitting on gold and silver i bought in the past. looking for a big pullback to add and trading the miners. novagold was very nice to me. it's fun to hit one like that. i have been adding to silver the last couple of years but only in a small way.
i never meant to be a trader. oh well. i am playing at it. not risking much. i noticed you like calgon carbon as an investment. water makes sense to me but the market doesn't anymore. i hope you do well with it if you re-buy.
plumstupid
i tried to answer your thoughtful response a couple of days back. we got to do somthing about that handle. you are most definitely not stupid. i suggested ps at least for me.