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Deflationary Depression: The Simple Explanation

I think the writer makes a mistake in treating assets as the equivalent of money. Whether a share of Google is worth 300 or 500 bucks, you can't take it to Dunken Donuts and buy a cup of coffee and a honey glazed donut. For one thing its in electronic form, and for another the educational system has so dumbed down the clerk that they would know what it was anyway. But the real point is that real estate and shares are not mediums of exchange. When I went to school, our economics prof mentioned something about money being a store of value and a medium of exchange. Well, with the dollar, and all the printing going on, the store of value is being destroyed, leaving it just as a medium of exchange.

To follow the author's example if a village has 10 bananas and $1000, then each banana is worth 100. If it has $1000000, then each banana is worth 100,000. But its still the same 10 bananas. How can the price of the banana not go up if the money supply does?

Another error is the author's analysis is that the price of an asset, at least for stocks and real estate--discounting governmental manipulation--is what a willing buyer will pay and what a willing seller will accept. It's not just a function of how much the buyer has in his pocket, but rather the return he can realize on that asset. When he believes that the return will be minimal or negative he will pay much less. The actual amount of the monetary base has sky rocketed. So here we have the paradox that the price of assets such as houses and stocks is tanking, but the price of food in the supermarket is rising at a pretty good clip. Why, because the asset valuation comes down to return on investment, but the valuation of food comes down to survival.

The higher savings rate combined with unemployment will result in lower asset prices. However, the increased rate of money printing will result in higher food prices and higher commodity prices because they are the basis of survival, which none of us can do without. In addition, gold and silver, at this point will continue to shine because faith and confidence in the system has been completely undermined.

Finally, I went on a tour recently of the NY Fed. In a short condescending film they explained that the value of money no longer rests with the gold backing it up, but rather relies on the full faith and credit of the US Government. Now I will avoid the government's credibility issue, as it has none. But rather with record rates of indebtedness, it has absolutely no mean of paying it off without resort to the printing press. At some point that has to affect its full faith and destroy its credit--which is all our money is--Federal Reserve Notes! Last I heard, a note was proof of a debt!

As History Repeats Itself, Time to Buy Gold and Silver

Interesting comment about gold confiscation. Back in the 1930's FDR took the gold because he was planning to devalue the dollar and gold was considered money back then. Now what reason would they have for taking our gold. According to Peter Schiff, it would be the act of a desperate government seeking funds to pay the army and the police. Will we have a warning. Keep it close in a safe, take it out of the safe deposit box when the civil unrest begins which it most certainly will.

As History Repeats Itself, Time to Buy Gold and Silver

To think that debasing and ultimately destroying the dollar is somehow the road to our salvation is beyond idiotic and barely worthy of comment. The fact is and it has been proven by research over and over again, everything that the government did to try to mitigate the Great Depression in the 1930's only served to extend it and deepen it. It is only through an act of extreme revisionist history that FDR comes out a saint and his socialist policies our savior. Nothing could be further from the truth. His theft of gold and devaluation of the dollar did nothing to reduce unemployment.

Until 1933, when a panic occurred, the government did nothing and within several years, the economy was back again, stronger than ever. Blame for the Great Depression and the one we are in now can be placed squarely at the feet of the government and the fed. As Buffett said, and he is as guilty of it as anyone, "The only thing we learn from history, is that we don't learn anything from history." Don't believe it, keep your eye on Dear Teleprompter.

1913: The Origin of This Whole Mess

Everyone agrees that the fed caused the depression. Friedman, et al believe it was because they didn't provide enough credit during the 1930's and also that they allowed the Bank of the United States to collapse, at least partly due to anti-semitism, thus creating a bank run which caused a 30 percent decrease in the money supply and led to massive deflation. I remember my granfather telling me stories about how supermarkets couldn't change one hundred dollar bills and that you could buy them for around ninety dollars. The Austrians believed that the depression was caused by inflation that occurred during the 1920's which went into the stock market, leading to over leveraging and eventual bust. Either way, they all agree that the Fed caused it.

Prior to the Fed, a bank had to be prepared for the possibility of a bank run. The Fed through its cash-management function was supposed to provide enough cash to its member banks to stop runs from occurring. Hah. Of course we all know that if every depositor wanted their money back at once, no bank could survive. It only happened when people believed their money was at risk. Therefore, the bank had an incentive to lend responsibly and to their lenders' businesses. In addition, they generally kept 20 percent reserves on hand. This is why old bank buildings were so imposing. So clients would be reassured of their financial strength. They wouldn't go pissing their money away on CDS's CDO's or other gambles.

SPDR Gold Trust Reaches 1,000 Tonnes

I originally invested in GLD and SLV and had a nice run up. However, the same people running these ETF's brought you the sub prime mortgage scam, credit default swaps, etc, so I decided to take a look at their filings. The are merely trading vehicles, they can sell puts, calls, lease out their gold, lease gold from others, trade numerous other vehicles, etc. You can't count on them in a financial crisis. CEF has been around since 1961. GTU as been around since 2003. They keep their metal in actual vaults and are audited twice a year. Canada has never confiscated gold before or banned private ownership. When the going gets tough in the US, the first thing this socialistic administration will do is go for the gold, you can be certain of that, FDR provided them with ample precedent. But don't worry, they will give you lots of worthless dollars in return.

Credit Where Credit Is Due

But now GMAC, Chrysler, American Express and a whole host of other companies are now bank holding companies. These guys are out there lending as their purpose is to sell cars, increase credit, etc. Eventually that new money is going to find its way into the world and when it does, watch out. The fact is, no fiat money ever lasts indefinitely. Eventually it collapses. Go back in history. The dollar will be no different. Once the politicians get their hands on the money supply its just a matter of time. And how much longer are the Chinese, Japanese and Arabs going to keep taking our green stamps? No hyper inflation is coming and it will be here sooner rather than later.

TiVo Dishes It Out in Court Again

Talk about futility. This case embraces absolutely no novel or unique points of law. If Dish wants to make a gift of another $500k to its attorneys, more power to them. Less then 2-3% of all Petitions for Certiorari are granted by the Supreme Court. If I was Dish I would be worrying about the reception I get when this case goes back to Texas. Those post-judgment damages could easily be trebled. In addition, if Dish thinks that the Texas District court is just going to take their word that their new software doesn't infringe, they better wake up and smell the coffee. Damages from the time of the "work-around" to the time in future when the District Court decides this could be massive. There is a thing called the Doctrine of Equivalents. Dish is so screwed and they could have settled this thing for $10 million plus $.25 per box per month. Now they are risking potential staggering damages. The bigger the hit Dish takes, the larger the potential payout and licensing fees from Microsoft, Cisco and Moto (box makers). This is going to be fun to watch. My guess is that if Dish doesn't settle this, they will be looking $250 million to $350 million in damages. Sounds like a material event if I ever heard of one.

Apple, Tivo Battle for PC TV Convergence

This is an interesting battle that is shaping up. I am not convinced that the real battle is between Tivo and Apple. While Apple has filed patents for a DVR, they still have not tried to market one. Creating a DVR is no big deal and they certainly have the technical expertise to create one and they have no doubt been able to do if for quite some time. So the question is, why haven't they done so. Simple reason--Patents. Tivo has them and Apple is scared to enter the market using a work around. They just saw EchoStar get banged for $128 million. At this point Apple could be risking billions to release a DVR. Without the ability to record television content, there really is no contest here. The Xbox 360 can download movies and content but doesn't have a TV tuner. MS Windows Media PC can record programs and can receive TV, but who really wants to go to their PC to play programs on their TV, only sophisticated users. And it might be infringing on Tivo's DVR software patents.

Perhaps the biggest challenge to Tivo is IP TV as presented by SBC. Their DVR can record content from multiple TV's in a household, thus eliminating the need for multiple Tivos. However, there are bandwith considerations and possible patent issues as well. The product is being perfected for an obvious national release. However, I have not heard of their convergence plans, such as showing Youtube video etc.

Finally there are many "convergence" features that Tivo currently has that are poorly promoted, such as watching movie trailers and buying tickets, flickr review of pics, home movie broadcast, ability to watch video an listen to podcasts and numerous other features like playing your computer music library through your HD TV and home theatre. With all this going for it, Tivo just needs a few lucky breaks, like adoption of their interface by Comcast, Cox, Cablevision and Time. They've already got Comcast and Cox on board.