D. McHattie

Yen, Gold and the Perfect Desert Storm

It's an interesting characterization: failure.

You use the word a few times even though gold is just shy of its nominal all-time highs even against currencies that are rising.

If you hold gold and bought it prior to this past week you're still in pretty good shape despite a significant drop today.

George Soros on the Dollar, China and Goldman Sachs

I don't always agree with Soros but when he comments on currencies I have to take note.

He is a billionaire precisely because of his currency expertise.

The USD is toast.

Inflation or Deflation: Which Will Win?

Everyday money in the form of credit is destroyed as loans default or are paid off.

Everyday new money is created via Quantitative Easing and low interest rates, given to banks.

Some assets/goods/services will get deflation and some will get inflation, depending on what is purchased with the new money and what assets were purchased with the money from loans that are defaulting and being paid off.

Recipients of FHA Loans Starting to Default: Say Hello to the Next Crisis

The question is: how do I invest to protect myself against the inevitability of your prediction?

Has Capitalism Failed?

"If we allow it to be used as a pretext for more government control, we will endure a ‘lost decade’ like the 1990s in Japan."

We will be lucky if we only lose a decade.

Reality Is at Odds with Policymakers' Optimism

Peter makes a great point: over the short term, stock prices indicate nothing.

The Obama administration, Congress, the Senate, Wall Street and it's cheerleaders on CNBC are all involved in a massive multi-pronged marketing program to make us believe the economy is turning around.

So it should be no surprise that some people have been sold on this message and bought stocks.

But, as Ben Graham said, in the short term, the stock market is just a voting machine.

All these gullible, daydreaming optimists will one day realize that it is only in the long term that the stock market is a weighing machine.

No Exit for Bernanke

"As growth overseas resumes... both consumer prices and interest rates will rise."

Exactly. Price inflation will come from abroad as our trading partners come to recognize the USD as the toilet paper that it is.

Tracking Two Depressions

Inflation is not always produced from the same source.

Our employment levels were very much dependent on the real estate bubble which will continue to deflate for the next couple years. An overheated economy as the typical source of inflation is highly unlikely to occur in our present environment.

A currency collapse, on the other hand, can also create something that looks very much like inflation - this is far more likely to occur.

Inflation: As Inevitable as Death and Taxes

I think it really depends on the kind of inflation we get. And this is where the discussion really must be enlightened by acknowledging that inflation does not effect all prices equally.

If we get inflation along with high unemployment then it hard to see how that benefits the havenots. Wage inflation will be 0, as it has been throughout this decade as long as unemployment rates remain high.

If the money supply is increased by creating money through people that are already rich, oh, say, through laundering $10B to Goldman Sachs via AIG producing record Goldman bonuses, then this money will be used to buy assets. The result is asset inflation and a cheapened dollar making it that much harder for the havenots, who live on their wages and not their assets, to obtain the necessities and luxuries of life.


On Jun 23 06:04 AM Dave Wrixon wrote:

> Inflation favors the HaveNots against the Haves. It is a great leveler.
> Basically most existing wealth is destroyed and all that is left
> is peoples ability to generate income from their wits and their labor.
> It is devastating if you are retired on a fixed pension, but often
> much better if you have debts.
>
> Deflation favors the Haves against the HaveNots. It make the Rich
> richer (relatively) and the makes the Poor Poorer (absolutely). That
> is why the social repercussions are so much more severe. If you are
> going to have revolution, it is the disenfranchised youth rather
> than bitter octogenarians which pose the greatest threat.

Liquidity Is Working... At Least in China

Sober Realist, I just read your instablog and think I understand your point a little better now. You present a compelling body of information.

The part of your story that resonates with me is the inefficiencies and misallocations of capital produced by a command-and-control economy like China's.

I'm not entirely convinced at this point since the consumption level in China is so low and their population so large that even a moderate uptick could produce the consumption necessary to absorb their supply.

But you have me thinking, thank you.

Liquidity Is Working... At Least in China

Sober Realist, do you really expect the bulk of the Chinese population to continue living in veritable poverty? By choice? Because it's part of their 'culture'?

That seems to be what you're saying, perhaps I'm putting words in your mouth.

What is Hong Kong like? What is Singapore like? It seems to me that the residents of these Asian cities have adjusted quite well to the availability of material goods - they consume them.

I'm with Peter Schiff on this one: the Chinese make stuff for us and we give them nothing in return but rapidly devaluing pieces of paper.

Why would they not just keep the stuff for themselves?

This 25% growth in auto sales, to me, points to a widespread desire among the Chinese to have the creature comforts that we have.

You know what they say in America: when the going gets tough the tough go shopping. Well the going has gotten tough for the global economy and the Chinese went shopping.

Liquidity Is Working... At Least in China

I beg to differ. If you have a nation of 1.3B people, most of whom have very little in the way of material goods, increasing supply is exactly how you expand.

There is very little end to demand for everything in China. Example: auto sales in China increased 25% last year, surpassing total sales in the US for the first time.

You don't think the Chinese would like to watch sports on a nice flat-screen tv? You don't think Chinese women like to go shopping?

Give them no return on their savings coupled with a wide variety of goods to choose from and even the Chinese will buy with both fists.


On Jun 02 07:02 PM Sober Realist wrote:

> Commodities/stocks are rising from the sugar (artificial stimuli)
> being fed into the world economy. Right now the popular thesis is
> that the stimuli are actually working to bring the "real economy"
> back. Only the Chinese are expanding into the teeth of the worst
> global downturn since the 30's. They say they will will try "a thousand
> ways and a hundred plans" to stabilize external demand.
> (online.wsj.com/article...)
> "The Chinese government has offered tax breaks and rebates to help
> exporters keep exporting whether profitable or not. It is offering
> incentives and threatening punishments for companies to retain workers
> whether necessary or not. And it is urging banks to loan more money
> — and the first four months have seen a massive increase in domestic
> loans to companies (though primarily to state-owned enterprises,
> not the private sector) to help them fulfill their employment and
> export requirements — whether profitable or not."
> There's a real danger of a trade war in the not too distant future
> when China starts dumping their cheap goods onto the global market.
>
> "The first shot was their dumping of steel onto Europe. The Euro
> zone is already complaining. You can't expand into a massive contraction.
> Free markets wouldn't do it, but the China command economy thinks
> that it can. China thinks they can avoid this downturn by expanding
> supply. I am sorry, but that is as dumb as thinking the US can avoid
> this downturn by more consumption."
>
>
>
>

Don't Be Fooled by Inflation

Bernanke promised inflation. He said he would stop at nothing to create inflation. I can assure you: he meant it.

Bernanke said he would drop dollars out of a helicopter if he had to. And then, kinda, he did: unprecedented actions buying longer and longer term treasuries and accepting fannie and freddie mbs.

Obama and Congress promised trillions in stimulus funded by debt purchased by Bernanke with newly printed dollars.

Bernanke didn't create gold and precious metals out of thin air. He didn't create agricultural commodities like wheat and soybeans out of thin air. Because he can't.

Supply and demand dictates that as the supply of dollars increases, demand remaining unchanged, the value of dollars will fall. The value of real things will rise: gold, agricultural commodities, energy.

Schiff will be proven right.

Plunge Protection Team Attacks BofA: This Ends Now

Why is gold valuable?

There are some things that naturally evoke positive feelings in people, perhaps somewhere deep in the human psyche.

Blue sky is one of these things. Flowing water is another. Lush vegetation. Flowers. And gold.

Gold is beautiful, there is no way around it. When beautiful women wear gold they become even more beautiful.

As long as gold remains scarce, people who lack gold but possess other items of value will be willing to exchange those items for gold.

Obama Summarizes Economic Policies, Misses Several Key Points

Schiff hits the nail on the head once again.

Obama mentions 'tough choices' in just about every speech but takes the easy way out every time.

What is so 'tough' about a $700B+ spending bill to be paid by a future generation?