huskerbob

The End of Gold, Part Three

Bad Dog, this quote from the great Ben Bernanke should be enlightening:
"Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. "

The End of Gold

Ding! I found a better deflation play. Sorry, but the fact that dollar denominated investments are imploding doesn't actually make dollars more valuable. Yes, there is a temporary demand for dollars to settle dollar denominated debts. This drives the dollar up, just as the need for cash spurred equity selling which drove the prices of even sound equities down.
When the dust settles, the dollar's problem remains. Every dollar represents a dollar of debt, and we have to service that debt, from tax revenues or just plain printing money.
What will happen to our tax base during a sustained deflationary period? If you need a clue, look at California.
And don't look now, but we have a few more retirees expecting their welfare, er, social security checks in the mail. Medicare, anyone?
The only way to save the dollar is to pay down debt. If you think that will happen, then yes! Short gold!
But if you think people will become wary of loaning our government money, you may want to go the other way.
America needs the world's savings to keep us afloat, and those savings will not be coming here for much longer.
Maybe you should go back to your barber for some sound financial advice.

ECB Calls Bernanke's Bluff

I wish we could go back to the original definition of "inflation": an increase in the money supply. Then it would be obvious to all consumers that prices are affected by debasing the currency.
"There are significant upside risks for inflation through commodities,” would become "there is significant upside potential for commodity prices", which is none of Bernanke's business. He would be reduced to discussing the "significant upside risks for inflation through" our inflationary monetary policy! It is annoying to constantly read about inflation in commodities, when the weakened dollar is a huge culprit. Many people ascribe their loss of purchasing power to inflation in commodities, not the other way around. They have trouble connecting $4 gas to an "expansionary monetary policy". Whatever works for the fed.
As far as Bernanke is concerned, he has already detailed his distaste for savings and preference for inflation. According to him, the only question is what rate to inflate at. Don't expect much more than a pause in the dollar's slide anytime soon!