lance sjogren

The End of Gold, Part Three

And the other thing:

I do not buy the notion that deflation is an inexorable process that can't be stopped.

Print enough money and I guarantee you will lick deflation.

And, I also guarantee that the Fed will do that up the yin yang, and we will have heavy inflation, not deflation.

The End of Gold, Part Three

By the way:

Inflation will also help with the housing crisis. Real estate prices are still too high. But it is a big problem for them to fall in nominal dollars because it puts more and more people underwater on their mortgages.

If you devalue the dollar, however, then real prices for real estate can continue to go down even as nominal dollar prices of real estate stabilize.

Basically, it means you are devaluing the debt held by creditors until it has declined enough in value that the debtors are able to make the payments on their mortgage and other debt.

And creditors should be happy as well, because they are better off getting 50% back than losing 100%.

The End of Gold, Part Three

I don't subscribe to the hyperinflation scenario.

I believe the US will devalue the dollar about 50% over the next 4 years, and then work extremely hard to strengthen the dollar so that it doesn't fall further.

A 50% devaluation of the dollar will wring out a lot of excesses in the system. The mountain of debt of different forms (govt, consumer) that the US currently has is far too big to pay off. There are two alternatives, one is for the US simply to default, the other is to devalue the dollar to the point where our debt burden becomes manageable. The latter is the obvious course. That is the cours the treasury and Fed are embarked on even if they probably would never say so and may not even be aware that is what they are doing.

Gold should do well over the next 3-5 years. Once the dollar stabilizes at its lower level then gold will probably flatten out or decline slightly.