Brutto

Gold: The Only Remaining Bubble?

Well said. Modern Governments rely on "moderate" inflation to bail them out: even the "acceptable" inflation rate of 2 per cent virtually halves the real value of Government debt over 30 years. Long Term Treasuries, anyone?


On Feb 19 07:39 PM BrucePile wrote:

> Let's think about the bathtub thing:
>
> "The inflation argument is one in which the inflationists are premature
> if not just plain wrong. The fallacy in the argument is in just
> looking at one action without observing the bigger picture. The
> analogy I like to use is a bathtub. The water is flowing, and the
> inflationists are fearing that it will overflow. What they fail
> to realize is that the drain is running even faster."
>
> This is, in fact, a good way to think about the economy, money supply,
> and inflation. But the full picture can only be seen if you connect
> the drain back into the pump/supply circuit.
>
> The water that is always flowing into the drain is thought of as
> "wealth destruction". But the investment markets don't really destroy
> wealth; they transfer it. For every loser in the markets, there is
> an equal and opposite winner. All that investment money is still
> out there, it has just changed hands many times since stocks were
> sold years ago, money was spent to build stuff, and so on. The "deflation"
> problem is that the money VELOCITY has suddenly been slowed way down.
>
>
> That's why you have a pump, surge tank, and a complete circuit and
> an army of government analysts armed with rooms full of computers
> - to regulate this complex flow and keep the tub level (inflation)
> rising at the safe, optimal level of 2% a year lest we all get swept
> down the drain.
>
> Investors don't destroy money. Banks do. You had money destruction
> in the Depression when most banks went out of business. Today, you
> don't have massive money destruction with FDIC. On the contrary,
> as a glance at any money supply chart now plainly shows, you have
> rabid money creation.
>
> What has happened with the bathtub is this. We had a stable, smoothly
> running flow with our beloved 2% goldilocks inflation. Then along
> came the housing bust that created a violent surge down the drain.
> All the powers that be are now slamming open all the valves in the
> pump system and are even adding new pumps. Unless most of the banks
> go out of business, we will likely be facing some very tricky and
> dangerous tsunami waves of inflation. It's been pointed out that
> we are following a very similar sequence of events that Germany did
> in the 20's hyperinflation. Let's hope it all winds up being more
> stable than that.
>
> As all this relates to the price of gold, we could get slammed with
> some deflation followed by inflation and then who knows what. What
> gold seems to respond to more than anything is monetary instability.
> And I think we've got plenty of that coming for some time. Splish
> splash.