ABG

Enlightening the Gold Bugs

One more thing. I don't know if this author is intentional inventing fake history, or whether he simply doesn't know what he is talking about.

Gold was NEVER $17 per ounce in 1932. Prior to the gold confiscation in 1934 by the Roosevelt administration, the dollar was "good as gold." You could sell your gold to the government, and they would buy as much gold as you offered them, for $20.67 per troy ounce.

From 1929 - 1932, it is a well known historical fact that Americans were contemptuous of the dollar, and stricken with gold fever. They were feverishly turning in dollars for gold, at the rate of $20.67 per troy ounce, and putting the gold into their basements and safe deposit boxes.

The basic problem by 1933 was that the government had printed far more dollars in the 1920s than it had gold. So, the government had lied to the people. The dollar was never "good as gold". There wasn't enough gold in the federal treasury to meet the conversion demands. So, the first thing the government did was declare a moratorium on conversions to gold.

By 1932, the Treasury was begging to buy gold, but no one was selling to them. Everyone, including foreigners, were simply demanding gold for their dollars. To balance the loss of gold against the number of dollars outstanding, the Federal Reserve tried to reduce the dollar money supply from 1929 to 1933 by 1/3rd. That, according to Fed Chairman Ben Bernanke, was what launched a severe recession into a Great Depression.

By 1933, the U.S. Treasury was severely depleted of gold, and by 1934, the government forcibly confiscated the yellow metal from its citizens. People DID NOT voluntarily sell their gold back to the government. In short, there wouldn't have been a run on the U.S. gold reserves, in the early 1930s, if people were happy with the dollar. Yet, deflation was in full swing, and people were still contemptuous, because they no longer trusted the government, or the banks, just like today. They turned to gold, just like now.

There was tremendous demand for gold in 1932, and had the government not fixed the price at $20.67, it probably would have doubled or tripled or more from 1929 to 1934, in spite of the general condition of deflation in all other things. But, one thing is for sure, the revisionist history that is described in this author's commentary, NEVER HAPPENED. Gold never sold for $17.00 per ounce.

Enlightening the Gold Bugs

The problem this author has is that he is looking in the rear view mirror. There are many reasons for the current dollar pop, not the least of which is the U.S. Treasury's need to sell bonds to finance all the bailouts. Let us consider some points:

1) a nuclear armed Iran on is the way,
2) we already have a nuclear armed Pakistan and an angry nuclear India,
3) gold mine production falling in spite of higher prices,
4) gold bullion demand exploding all over the world and smelting operations unable to keep up with demand,
5) the Fed and all other world central banks promising to use all "tools" meaning it will print whatever cash is needed to restart the credit cycle,

In short, either the unprecedented cash printing works, and we get incredible levels of inflation, or it doesn't work, and we get an economy that is falling apart, where so many dollars, euros and pounds have already been printed that they still won't buy much in a depression-era economy. In either scenario, gold will be the best investment.

The author can keep his money in cash. Better that way. It will help keep the price of gold and silver down for now, so that wiser folks can buy for reasonable prices. By the time folks like this author turn away from the rear view mirror, to see what is happening in front of him, he is likely to crash. But, that is his choice, and, apparently, he is very determined to get that result.

Coming Inflation To Boost Stocks, Gold

It would have been more accurate to call the "Predictions" section of this article "Numbers I would not be surprised to see." It is, of course, impossible to exactly predict future events, but, as a general idea, I think the nominal number estimate will, nevertheless, prove fairly accurate. Remember, nominal numbers must be converted to real numbers, by appropriate inflation adjustments. Failing to adjust those numbers is one way in which statistics can be used to lie to people.

The reason I have used nominal numbers is not to tell you that the stock market is going to be the absolute best place for your money. It won't be. Rather, it merely illustrates that money in the stock market will do a lot better than money stashed in a bank account, under your mattress, or in bonds. The worst possible long term investment, right now, in spite of the current cash mania that has temporarily engulfed the world, is cash.

Coming Inflation To Boost Stocks, Gold

You are describing real values for the DOW, not nominal values. Neither the real value of gold or the DOW will jump as much as the nominal value. Indeed, DOW 27,000, three years from now, assuming the level of inflation is consistent with that described in the article, means a real value in line with your prediction, after subtracting inflation.


On Nov 05 08:47 AM Beabaggage wrote:

> Ridiculous to believe that inflation, especially the 70's -80's type
> inflation we are in for due to the massive monetary stimulus going
> on that has no end in sight, will be good for stocks. Gold/Oil/Commodities?
> yes. Stocks? heck no, we are looking at Dow 4500. People are still
> far too bullish, thinking it's over it's over. it is not. The massive
> stimulus will just make another bubble and you can bet it will be
> spent on hard assets. This actually may be good for realestate.
> Would you rather own a hotel or Kellogg Stock trying to raise prices
> to keep up with soaring costs? The monetary base is growing exponentially.
> This plus federal stimulus world-wide, low interest rates and shrinking
> sources of commodities and food will make the next decade the most
> inflationary of all time. Loss of faith in company financials and
> management will push people into cash, with rates low, they will
> start to chase yield, great for oil, gas, other commodity stocks
> with good yields.

Coming Inflation To Boost Stocks, Gold

It is far more difficult to predict the price of the DOW or gold or anything else, tomorrow, than it is to project forward for 3 years.

Coming Inflation To Boost Stocks, Gold

I don't think it is impossible to predict approximate minimum prices, several years forward. The current price of gold could have been calculated in 2000, simply by taking the money supply in 2000 and increasing the price for 8 years, in line with the increase in the money supply. Then, one could have simply added a modifier in the form of two smaller factors -- increased world political instability, increased difficulties in mine production due to the exhaustion of easily tapped mines. The same is true for the DOW, prior to the current crisis, except that, with the DOW, you would exclude the political instability factor.

Since it is almost certain that current money supply trends will continue, or become more pronounced in an Obama Presidency, it is rather simple to predict the minimum gold price in three years. The unpredictable events are where the + symbol comes into play...


On Nov 05 09:47 AM Rhett wrote:

> Nobody but nobody can come close to projecting the price of anything
> in 2012. But for now, gold is about to jump. You heard it here first.

Coming Inflation To Boost Stocks, Gold

I-Bonds are tax deferred for up to 30 years. That is a long time for Hank Paulson to wait for his money.

Dollar Bulls and Bears Struggle for Dominance

I should note that they sold $9 billion worth of euros to perform the dollar pump which started on July 15, 2008, but ran out of them last week. Now, they've bought more, but they've got precious few euros left, so they won't be able to do this much longer. Beyond that, the euros are quickly exhausted when you use them up to buy derivatives. Unlike China, the USA does not hold enough foreign currency reserves to really affect the currency markets without the use of leveraged derivatives.

Dollar Bulls and Bears Struggle for Dominance

Sorry, but there are no real dollar bulls, except for simple people who don't know much about the market for currencies. Everyone who understands the currency market is a bear on the dollar. The only bull is the United States ESF (exchange stabilization fund) which sold another $900 million in euros, and is now using them to buy dollar denominated derivatives to keep part of the existing dollar supply from rising. That is the only reason the dollar is showing strength. As soon as they run out of the money, they won't be able to pay interest anymore on a trillion or so worth of dollars, and the dollar will collapse.

What Effect Will Hyperinflation Have?

There are differences between America, today, and Germany of the early 1920s. For one thing, the German mark was not the international exchange currency back then. The British pound was. The fact that so many foreign nations are dependent on the value of their U.S. dollar reserves means we will get more a lot help from abroad than the Germans got.

So, the article does not propose that we will have hyperinflation of the same extent as Weimar Germany. Weimar Germany is simply the most studied example of hyperinflation. I consider rates of 20-30% per year to be hyperinflation.

I don't see the dollar at 1 trillionth of its present value by 2011. But, I do think that a 75% devaluation is very reasonable, given the circumstances. Weimar Germany is used as a model, in this article, not for the numbers, but, rather, for the type of behavior leading to high inflation.