As HP'ers know, I've been struggling (like many of you) with this inflation/deflation question. Earlier this year gold seemed the way to hedge against spiraling inflation. Then as housing and oil and 10-year T-bill interest rates fell off the cliff, it seemed like we were heading for sure deflation. No matter what, these are interesting economic times we live in...
Houses, gold and oil are all suffering massive price cuts now - 20%+ for all of 'em from their peaks (we all know the truth on home prices vs. the "official" numbers don't we wink wink). People are going to cash, fast, and they're selling their hard assets and commodities hasta pronto to get there. Classic post-bubble behaviour. HP included though - I'm 100% cash except for my 2012 COP options and January retailer put (short) positions.
No sacred cows - if, like Japan, deflation is indeed the world's fate post-housing-bubble, besides going to cash, what else are you doing to prepare?
From wikipedia:
In the recent years, economists have also started to advocate including asset prices such as stocks and housing and other production goods into the general price level. They then speak of inflation or deflation in asset prices. Indeed, policies designed to fight inflation in goods, services and wages, have seemed to spur stock and housing price inflation, or asset bubbles.
Consumers and producers who are in debt, such as mortgagors, suffer because as their nominal income drops, while their payments remain constant.
Deflation may set off a deflationary spiral, where businesses slow or stop investing, because the investment risk is perceived as higher than just letting the money appreciate due to deflation.
Since deflationary periods favor those who hold currency over those who do not, they are often matched with periods of rising populist sentiment, as in the late 19th century, when populists in the United States wanted to move off hard money standards and back to a money standard based on the more inflationary (because more abundantly available) metal silver.
From the trading action yesterday:
Funds 'Stampede For The Exits' On Gold Drop
"Gold in New York tumbled the most in three months as plunging energy costs reduced the appeal of the precious metal as a hedge against inflation. Gold is down 21 percent from a 26-year high of $732 an ounce on May 12, partly because the price of oil has dropped 24 percent from a record in July. Crude oil fell below $60 a barrel to a seven-month low."
"'Everybody is getting out of their positions,' said Nick Ruggiero, a trader at Eagle Futures. 'Crude came off almost $3 this week, and gold is following.' Losses accelerated after gold fell below $600. 'That was a big number,' Ruggiero said. 'We had a lot of sell stops for long positions.'"
October 04, 2006
Wonk Alert: Is deflation here? Gold, oil and housing prices tanking
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69 comments:
As with any investment vehicle, you have to BUY when everyone else is running in panic for the exits.
Gold is, and will always be, money.
Do you ever wonder why Central Banks across the world hoard gold? If it's an ancient relic, as stated by Maynard Keynes, why store gold today? I guess because it really is money.
Credit needs to be given where it is owed.
Dogcrap Green is a freaking Genious
Lets think about this for a moment.
You bubble hads can't cal anything and you insist housing numbers are fabricated. Dogcrap Green is spot on EVERYTHING ALL THE TIME.
May be he is right on as to what we should do with our money.
Buy stock in Toll Brothers
dogcrap house prices are crashing. you've been telling people for a year about an "upcoming housing boom"
you look like a twit
I think that in the next 6 months real money will be real again and all the paper and digi digits will be what the really are....worthless
The west has as much chance of going into deflation as I have of making the hollywood A list!!
If I hear about Japan once more I shall scream like a big girl.
Japan has full employment, savings up the wazzoo, and people kill themselves rather than lose face by asking for a handout after losing their job.
Does this sound like any western economy you know of?
Keith, my advice to you is you're better off sticking your money in the building society drawing 4%.
Because everytime Gold loses $3 you cash it in!!
If you ever grow a pair, buy yourself 30 krugerrands, put them in a sock and forget about them!!
Dont waste your time on GLD etc, as all they are is paper promises, you don't even know for sure if the gold really exists, and you can't even cash your certificates in and draw gold on them.
The US alone has liabilities of over $40trillion in depts, once all this comes crashing down, and the riots and looting start, think NOLA, they'll print and handout because people dont riot with a crackpipe in one end and a hooker on the other.
As for confiscation, they have to find it first, and there's about ZERO chance of the government rifining down grannies wedding ring and those faberge eggs!!
Instead of comparing the US situation to japan's deflation you might want to look at what happened in Argentina in the 1980's. That is the more likely outcome for the US.
This is what bugs me most (almost most) about threads like this...Keith reads gold and oil plunging so therefore in his mind it can only be deflation.
You see Kieth- if you would have done some research and understand some really basci fundamentals - you would know that oil is poised to go to the moon (minimum 100.00 next year) - and REAL inflation will set in. That is REAL inflation Keith...oil costs more - EVERYTHINNG we use requires oil...so Keith REAL inflation.
You would be served well to read a little on this pesky concept of peak oil.
And with the increase in oil...so too will gold soar.
Front page Charlie - huh keith??
Its a tough call...cash out or hold long?
IMO, cheaper oil and gold prices are for only the short term. It's created for the uncoming election and to give shoppers more gas in their tanks to get to the malls.
I sold small amounts of my gold funds and energy, but still long on most. Dont want to jump out completely because just when you think oil is going down...it goes up. The same with gold.
You want to see inflation take a walk through Home depot..the Plumbing section. $33 for a 10 foot piece of L copper pipe. That is inflation
HousingPanic makes news this Wednesday. Stay tuned...
-----------------------------------
Do you remember this post on monday keith?
Well. Todays wednesday, so whats the news?
Gold is not completely useless.
If the bank fails, then you might want some physical gold. Better yet cash too in the home vault.
Given all the bad loans it would appear that bank failures are a good possibility.
Funny, Chavez wants to cut oil production now. Meanwhile, hand out discount oil in the bronx. Whose poor is he hurting with higher oil prices? Chavex is a total hypocrit.
Think I read an article stating lumber is down 30% too. Supply and demand. Looks like those trackters are turned off.
agter the run up in gold and oil, a pull back in needed. granted this is a large pullback, but these things arre very volatile.
european central banks have been selling gold, this will stop soon as the agreements are met.
opec wants to reduce output by 5%, is this a voluntary move or is peak oil forcing them too? whatever it is, oil supplies look as if they will be lower soon.
russia has called up 123000 for the army.
the ike carrier group is headed to the persian gulf, 1 month ahead of its seculded refurbishment date. whats the rush?
the markets up, cramers happy and gas prices down-just in time to make you feel good going into november elections and the christmas shopping season.
have you bought your freeze dried food from mountain house yet?
Not so sure.
There are a lot of inflated dollars out there looking for somewhere to go.
They are awaiting the next bubble. The Dow Jones is being tested as that next bubble but it will flop I think.
Don't underestimate peoples' old fashioned reactions.
The next bubble will be gold and silver.
The U.S. is going to have to have a purging of it's non-productive ways but it will require some major international players to stop importing dollars.
"You know what's wrong with this country? We don't make things anymore".
--- Sobotka
Get this..
The Kuwaiti's are going to cut oil production to help keep the crude price high.
Ungrateful clowns.
No more rescuing countries, ok?
Get this..
The Kuwaiti's are going to cut oil production to help keep the crude price high.
Ungrateful clowns.
No more rescuing countries, ok?
I will buy gold and silver on these dips. Nat gas at $4.50 and oil at $55 are very cheap. Cash is awful handy too.
It is hard to see the realityt of this from far way England Keith. I am vacationing in SoCal with my folks. We drove around a place called French Valley and Temecula here in SoCal yesterday. Not near as many for sale signs as I thought but a lot of empty houses in these $400K+ monkey trap subdivisions. 10 feet apart, no yards. The ones that the developer had finished and split had a bunch of sale and rent signs.
I left this sh*thole in 1979 because it was too expensive - in 1979. Now it is much worse. The malls were just teenagers and the used to be teens strolling around with their new babies. Not many people with any purchases. JCP already has Christmas stuff out and it is 10/3.
Get real, this is just starting. GS and their unleaded gas fix made a few sheeple happy and maybe some borrowed to get new big cars/SUVs. All you have to do is look at the debt, the wages, the savings.
Like I said, inflation or deflation, it is gonna get ugly. Better stock up on REAL gold and silver. If you were in a location that allowed gun ownership I would suggest a few of those too.
When the Federal Budget is balanced, then maybe we will see some deflation.
Until that happens, though, the Fed has to continue to sell enough Treasury bonds to offset the deficit, and continue to create money with which to buy those bonds.
Rising money supply equals inflation, it's just a matter of where that inflation is spilled over to.
The US, in short, is not Japan.
something wicked this way comes
There are some evil plans in the works for October.
Too many things are happening too fast and too far behind the scenes to be legitimate.
While the nation reels over gay pedophiles in Congress and gathers around Woodward's useless book, which by the way was interestingly timed, the US and Israel are not just plotting to attack Iran - they're putting everything in motion.
First, devastating attacks against Lebanon and continuous genocide in Gaza - wearing down any viable opposition. Last week, an unprecedented order to dispatch a major strike group to the Persian Gulf and a secret meeting between Olmert and a Saudi official, notwithstanding the denial.
This week, news that the US plans to immediately evacuate Iraq (fairly credible given what Ret. Colonel Hammes said about cutting and running in last week's Senate hearing), and throughout it all, repeated threats by Israel to annihilate Iran if the US doesn't.
These are not coincidences.
SupaDupaDubya and his Scum handlers are about to turn the whole Middle East into a blistering Hell.
But to kick it off, they're going to have to stage something grande.
Something wicked is brewing on the horizon. What could it be????????
The Postman
Dead Cat Bounce. Nuff said.
As a few have mentioned earlier, in addition to holding physical gold and silver, invest heartily in lead. It might be a good idea to move out of, and away from places like jew york, Seatle, LA, ect. as well.
Hebrew house lender,
Have you moved to Iran yet? Maybe Afghanistan would be more your style. Or Kazakhstan, from what I've seen of that Borat guy, they really hate jews in that country. You'd fit in perfectly. Well actually, Tucson, Arizona, would be more like it. What a country we have. If hate could be bottled, our trade deficit would be history.
Yeah, We sure have a hell of a lot of "hate" here in the states. So much so, that we continue to allow the jews to rule over us, steer us into wars for israel, and flood our once great nation with third worlders. Definatly a lot of "hate" around these parts.
paintblot, what ethnicity are you, may I ask?
Also, an anti-semite is merely someone who tells the truth about the jews. Jews have never been persecuted, they have always been prosecuted for their crimes agaist there host nation, nearly every nation or empire throughout history in fact.
Here is the Wednesday news:
Contrary to what Keith was saying two months ago:
GOLD stinks
COP is awful
Autofx is screwed
and the Dow is at an all time high
Deflation? Yeah, sure thing Keith. The bottle of Coffemate I bought this morning now costs $2.08. Last year it was $1.50.
Yes, deflation is upon us...
I'm buying more shares of CEF and BEARX today. See ya in hell suckas!
hebrew house lender,
"Also, an anti-semite is merely someone who tells the truth about the jews. Jews have never been persecuted, they have always been prosecuted for their crimes agaist there host nation, nearly every nation or empire throughout history in fact."
Wow. You are obviously an unbelievably stupid neo-nazi. Have fun with your hate, dude, and please don't procreate.
Ok - after reading all these posts -
Keith is a moron
nuff said
Funny - a few months back most ANONs (and Thinker) were bashing on police state, motives for 9-11 (ummmm....oil in ME) and other connspiracy "theorists"...
They are pretty quite now...
Care to point out what was so stupid (aside from a few typos) in what I said. And neo-nazi????? I see you have been fully jew indoctrinated, go ahead and get back to the talmudvision, what we are doing as a nation is completely rightous and in our best interests of course.
Two Weeks ago...
HELP ME KEEP UP
Exactly - Keith is confused...just keep hitting the ads so he can get beer money together.
bought gold and oil and then decided quickly against it - reported on the blog. made a profit on the trades, but this deflationary cycle really is heating up - crushing anything and everything in the path to cash. the hedge fund blow-up was a good sign for me.
blue chips and the dollar are seen as the only other safe things. everything else will deflate as people and institutions get out of risk and into safety
cash is king. cash is king.
"then decided quickly against it"
translation...
read another blog
you can have inflation on consumables (cough drops, candy bars) and services (health care, shoe shines) at the same time you can have deflation on assets (houses, gold, oil, lumber, etc)
that's what we have right now.
flight to safety, the mother of all recessions/depressions coming, look to the bond market, housing market, oil market and gold market - they're all telling us something.
I used to live in the midwest and hear the tornado sirens at night.
There's one wailing right now. Just listen, you'll hear it.
Head downstairs HP'ers.
richard - it's called being open minded.
did I know the hedge fund would blow up? No, I wasn't psychic. Did I have the latest bond and housing data? No, I'm not psychic.
Smart folks look at environmental factors and respond. My response is clear and solid - cash.
cash.
cash.
"look to the bond market, housing market, oil market and gold market"
Keith flips again...
Great to be open minded....
Japan has a huge government deficit and debt, and yet they had near deflation.
Karl 'golly-gee goebbels' Rove, in private, has promised Republicans an "October Surprise".
What do you think this will be....
1) We're withdrawing from Iraq---via Iran.
http://www.theonion.com/content/node/30931
2) He too, loves to fondle strapping, hairless teenage boys
"Japan has a huge government deficit and debt, and yet they had near deflation."
Uh, actually, when the Japanes economy went into recession, they had a very large fiscal surplus and an enourmous current account surplus.
Japan didn't start running a fiscal deficit until they were well into their deflationary spiral in 1993, when they tried to jumpstart their economy by increasing government spending while tax receipts were simultaneously falling.
As I said, the US is not Japan.
Autofx said: "Oh for crying out loud, it's not deflation, it's govt manipulation.
There's an ELECTION coming".
Agree. We are not in deflation...this is government trying to make everything nice right before the election. I say watch out for December and January. Shhhh, we dont want to scare the sheeple.
Remember, this is October, the stocks always sell off now, so whats happening with the dow going up??? Things are not reacting the way they are sapose to, so close your eyes and stop checking out the stock market so much this month.
This blog provides a forum for individuals to share anecdotal evidence of what is really happening out there. While the MSM is conveying the REIC’s recent message that “the housing bust is over; there is a slight correction,” HP-ers see what is actually happening and are sharing it with one another on this blog.
Speaking of anecdotal evidence contradicting what is coming out of the foul mouth of the REIC, on 9/20 I wrote a post on HP about a new manager who just moved here (the Seattle area) from Florida. Despite suggesting he wait before jumping into a home purchase, being a true manager, he ignored this sage advice from an underling and just bought a $390K home, complete with granite countertops.
I concluded this post with: “Let’s wish him lots of luck selling his Florida property! The first time he whines about making two house payments I will post his comments to this blog. Stay tuned!”
Another poster responded with, “We'll be waiting!”
_____________________
The whining has commenced, hence the reason for today’s post. This morning he made the comment, “I wonder how long I am going to have to make two house payments?
When I asked him how the house sale was going, he complained that it was only being shown at the rate of once a week. He said that there were a lot of speculators who brought property in the area and who now have these on the market, so the local market is saturated. He also mentioned that there are now three foreclosures a week in the county where his house is located.
He emailed a link to the website where the house is listed, and there in the corner was an icon that reads, “Just Listed!” (although it has already been on the market for a month). So much for truth in advertising...
Anyone interested in future developments of this anecdotal saga, or do you prefer to just reading long dry articles copied & pasted from the MSM news?
Look for some serious price deflation on this $344K house!
-Mammoth
Mammoth, keep us posted, its like an episode of 24, i'm on the edge of my seat.
Hi all,
I like this blog, I'm not an economist, I survived hyperinflation, recession and terrorism in South America, and I am checking several blogs and other sites trying to make sense of this chaotic situation. I just don't like when sometimes posters get too personal and aggressive, but I guess in a (still?) free country everyone is entitled to his/her own opinions...
Everything that is happening is following Dr. Roubini's forecast see this link:
http://www.rgemonitor.com/blog/roubini/150119
so it's the siren song luring us all confused sailors into the abyss of financial darkness, beware!!!!
my own forecast is that given an assumption of global recession and credit contraction and the necessary ensuing correction of global imbalances, it would be wise to consider positions in gold to preserve capital, even at $ 600 back in March gold was still a mid-term good idea, the same as Euros, given that assumption. I can't see how Oil would accomplish this, any uptick created by a war would be temporary, as demand in a global recession would bring prices crash down again eventually as it is happening now, no more speculation to save Oil prices (hedge funds would be mostly bankrupt by then).
I tend to agree with the view that some posters have presented in a few sites, based on how things are unraveling, that the sequence of events could be like this:
- recession hits Q1 2007
- Bernanke jumps on helicopter and floods everything with Dollars trying to rescue the sinking ship, creating
- hyperinflation for a short time (1-2 years)
- having failed and given the then expected status of the economy, deflation finally ensues
this as someone said in here is eerily similar to Argentina in the 80's - some other countries experienced this too in LATAM
What solutions would be available to avoid all this pain, especially to the poorest ones????
A friend of real freedom and justice living in America
If anyone care's I found this over @ Mish's from a forum post.
Very interesting to say the least.
M3 is back & we are F'ed
http://tinyurl.com/m7bs7
Go back to your glue.
Veeerrrry eeenteresting... That M3 curve looks bad enough, THEN you realize that the first derivative (blue curve) is vertical! The Fed hasn't just opened the spigot on M3, they've blown a hole in Hover Dam!
You guys calling for deflation are 110% wrong, and you'd better stock up on gold before this little monetary photon torpedo hits the economy as a big spurt of price inflation.
DOW THEORY ANALYSIS SAC
September Newsletter
Inflation or Deflation
Enrico Orlandini
Oct 4, 2006
"In conclusion, it appears to me that a combination of poor fiscal management, bad foreign policy, and political myopia are all about to combine into some sort of strange brew at precisely the worse time, and it will lead to a financial crisis. This crisis will be worse than the Depression of 1929 owing to the staggering amount of debt in the U.S. In 1929, the US was a creditor nation and had the resources to deal with the problem. That is obviously not the case now. The only "solution" will be to print money, and at first it will work like a drug addict's fix bringing temporary relief, but the end result will be economic death. I also believe that people in the Fed as well as the government know this is going to happen and are making "contingency plans". It won't be pretty and it will lead to social unrest. You can't pull away the punch bowl from three hundred million American's and expect to slide through on you good looks and a few witty remarks. Things will change and it won't be for the better. How long this takes to unfold will be anyone's guess; weeks, months, or even a couple of years. But I believe it will start now and you will be able to identify it if you really want to. Given the predominance of the internet, I believe we are looking at weeks or months rather than years. Throw in trillions of dollars of unregistered over-the-counter derivatives that very few people understand and even fewer can quantify, and a bad situation could turn down right ugly in days. I think that goes a long way toward explaining the record volume seen in the gold pit recently. The smart money is quietly picking up all they can get while the getting is still good. It is better to trade all the fiat paper you can for the only true store of wealth that has stood the test of time. My best advice is to bundle up because it is going to be a long, cold, crude winter."
Japan 1989: Huge Trade Surplus, Real Estate and Stock Market Bubbles.
US 1929: Huge Trade Surplus, Real Estate and Stock Market Bubbles.
Result of each, almost identical long deflationary and depressionary downward cycles of their economy that could not be resolved no matter how much liquidity or fiscal stimulus was added.
US 2006: Doesn't look like either one of those situations. We have a huge trade deficit, not a trade surplus like we did in 1929 and Japan did in 1989. Our economy isn't export based and the flow of money that has created the bubbles isn't coming from foreign countries. Instead we are creating the money and foreign countries are supplying the products.
So, what do we look like?
Germany 1930 or Argentina 2002 might be more apt comparisons, but each of these had huge differences. Germany had to deal with an overwhelming debt of war reparations. Argentina had a trade deficit that was more due to foreign investment than it was domestic consumption. Each had less stable central banks and currencies.
I can't find a good comparison. Has there ever been a case where the largest economy in the world was running huge trade deficits and had back to back stock and real estate bubbles pop?
All I know is it probably won't look like US 1929 or Japan 1989 or Germany 1930 or Argentina 2002, but may exhibit similarities of all 4 of those situations.
In any case, it's gonna be a bumpy ride.
bought gold and oil and then decided quickly against it - reported on the blog. made a profit on the trades, but this deflationary cycle really is heating up - crushing anything and everything in the path to cash.
With all due respect. I got the mocked big time when I stated WE HAVE DEFLATION on the day the Feds report the largest inflation jump in 11 years. Now we all know I was right.
Stop being a shoe shine boy and chasing the news. Look at the elements that create the news.
you can have inflation on consumables (cough drops, candy bars) and services (health care, shoe shines) at the same time you can have deflation on assets (houses, gold, oil, lumber, etc)
Wrong again. WE had a cost driven inflation. While energy cost was rising. Industry was racing ahead of the rise and pricing what they thought it would cost to build their products - We were second guessing the price of copper pipe to install water services, we were second guess the cost of fuel to calculate trucking and equipment cost - EVERY industry was doing this. If Desil was at $3.60 and the project OR the SHELF DATE was 9 months out, Desile of $3.90 was used to calculate the price.
When the bubble popped as I told you it would. Not only do you pop the cost to manufactor. YOU POP THE PROJECTED COST. The most obvious impact is at the fuel pump. A barrle of oil drops 15%, and yet gas dropped 33%. But it is not only happening at the fuel pump. It is happening everywhere. The crushing impact on inflation pressure will be huge over the next 6 months.
READ MY BLOG - LEARN HOW THE WORLD WORKS - AND BUY STOCK IN TOLL BROTHERS
I don't have to flip my mind. True knowledge never has to.
Carefull tabasco, you got awfully close to naming the jew there with the 1930 Germany.
Dogcrap Green,
I think you may accidentally be onto something. I don't think what we're seeing right now is deflationary but rather a correction. But linking the oil bubble with the real estate bubble really isn't so far off. I think 2000-2001 was a sea change in investment cycles from paper assets to hard assets. Similiar to 1981-1982 which was a change from hard assets to paper assets.
In 1987, paper assets crashed, 5 years after the bull had began. Oh, was it painful, and some money flowed to hard assets again and there was a short term bull market in real estate. But after it was over, paper assets regained their dominance and the 90's were the culmination of the long term bull market when it went through the roof.
This year, 2006, the same scenario could very well be happening again, except with paper assets and hard assets reversed. Hard assets like real estate and commodities are crashing, and it's going to be painful. There is a flight to paper assets and the stock market is going through a short term bull market. But over the next 3 years, we very well could see a huge pickup in the hard asset bull markets again. Paper assets would lose their allure as a flight to safety isn't enough to sustain a longer rally and they start dropping to muti-year lows again. Commodities would rebound much quicker than real estate due to greater liquidity, but both would rebound and start making new all-time highs again.
So, if that were to happen, we would see a recession followed by hyperinflation. Not too implausible if you ask me. And yes, Toll Brothers might not be a bad buy in the long run.
As for confiscation, they have to find it first, and there's about ZERO chance of the government rifining down grannies wedding ring and those faberge eggs!!
There is also no reason for the government to come after gold. Few own it, and it's not what our Fictional Reserve is based on.
The government could "come after gold" without sending a single marshall or FBI agent. All they need to do is slap an excise tax of precious metal transactions. A 50% tax would shut down metals sales without making them illegal or running into the hornet's nest that confiscation would cause.
"Japan has a huge government deficit and debt,"
You have a cite for this?
"The government could "come after gold" without sending a single marshall or FBI agent. All they need to do is slap an excise tax of precious metal transactions. A 50% tax would shut down metals sales without making them illegal or running into the hornet's nest that confiscation would cause."
That only works if there's a worldwide 50% tax.
If the US imposes such a tax, and Canada keeps the status quo, how do you suppose you'd stop Americans selling gold in Canada?
Autofx, my last post was not directed at you in regards to checking stocks daily...I ment it in a general way for anyone who is constantly worried about losing money this month. Sorry, if I offended you.
"question-- if you were buying a 1oz. krug. from say a pawn shop. what would he charge you above the spot price at the time of purchase.
4-5% same as any coin/bullion dealer.
If you want to buy quantity, haggle, as pawn shops buy at 1/3 of value.
This may seem excessive, but they have to hold the item for 3mths and the value could drop to nothing in that time.
yep Keith, how wrong you were. Oil and gold off, inflation slowing, Dow new highs. Just plain wrong (again).
"That only works if there's a worldwide 50% tax. If the US imposes such a tax, and Canada keeps the status quo, how do you suppose you'd stop Americans selling gold in Canada?"
The Canadians might go along, but even if they didn't, it would not be a big deal. You can't stop people from breaking the law or evading taxes. The ones that get caught will pay big fines and/or face time in federal prison. I doubt many Americans will have sympathy for "tax evaders", any more than they have now for drug dealers.
Jailing them on those charges would be a hell of a lot easier than jailing them because they refused to turn in their gold.
"Isn't it ironic how so many goldbugs could see the real estate bubble so clearly but then got sucked right into the gold bubble?!"
Since '01 gold has doubled. The S&P 500 is mostly unchanged from its level in '01. Gold is down 20% from its peak in May, and the S&P is up 40% from its lows in '03.
About the same volatility but $10K of gold purchased in '01 is worth about twice as much today versus the same $10K "invested" in the S&P.
Yeah it's really ironic, gold is definitely a crappy store of value.
Real, generalized, deflation is broad-based. Gold going down off a parabolic peak is not "deflation".
What happened in Japan was also different in another way: gradual. And its a huge mistake to think that what was wrong with Japan's economy was deflation: in fact, what was wrong was setting up the "yen carry trade" conditions, which allowed for free speculation in the US, and caused the "smart money" to evacuate Japan.
Here's a little arithmetic experiment for you. Divide GDP by a positive rate of inflation. It goes down, right? This is more or less what is done to nominal GDP numbers to get the "real" GDP. So clearly inflation harms economic output.
Now take a slightly deflationary environment. Instead of shrinking GDP, the scaling now grows it. This is what was going on in Japan. The deflation, by the same analysis, actually *helps* real economic output.
So the problem isn't the deflation itself, its the meager real GDP.
"Unfortunately, if there is real chaos and social breakdown, gold will be worthless. In that case your wealth will consist of what you know, your skills, your health, your weaponry, your access to food, etc."
But having gold doesn't preclude not having any of the above now does it?
October 04, 2006
Diatribes of a Deflationist 2 ?
Why They are Still Wrong
by David Petch
"The US economy has been rolling along with the aid of other countries purchasing US debt instruments to fund the current account deficit. Removal of this additional money and the US faces a sudden negative influx of capital. When this situation arises the US government has 2 choices:
1. Deflation, which would absolutely collapse the entire US economy to a functional level of less than 20% of the population.
2. Monetary inflation to cover the bills so that the economy hobbles along."
This is for Keith.
http://www.321gold.com/editorials/petch/petch100506.html
Hold on to that gold.
I pray and pray for deflation.
What in the heck is so great about prices rising to the moon?
Plus, as a saver, I will personally benefit!
Spent time in Japan during their deflationary period (96/97) and for the life of me, all seemed fine.
I mean it was NOT some horror story of homeless, starving people which Americans seem to envision when they think about deflation.
And here's another thing: we've already got a ton of homeless people NOW in these inflationary times.
Deflation: Bring it on.
Hebrew House Lender-
Why move away from places like LA, Seattle and New York?
I'm thinking Seattle is a reference to bombs from N.Korea, but I don't think they'd reach LA.
WA coast and possibly down to Oregon is what I've heard.
japan real estate and market, i read, collapsed 85% while they were the top industrial manufacturers, at least they could afford it on savings and holding, yet it is still way, way down
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