Buygold…………
The inflation/ deflation issue is simply the absolute most important thing to get right for the next several years. Thus, it is better to over do it rather than to under do it, me thinks.
Silver_Rider………You are correct, and that is all that matters…….
The Fed has upped the ante to monetize debt, and the “condition of the Dollar” will always determine the environment in terms of price inflation or price deflation in the general markets. Everything else is simply a distraction as we have seen in the markets since March.
Gheesh
Here it comes again
Some further thoughts about the issue
A blog about how a deflation can develop:
theautomaticearth.blogspot.com/2009/07/july-6-2009-inflation-least-of-your.html
snip:
” Perhaps I should clear up a point that Stoneleigh didn’t emphasize in yesterday’s The unbearable mightiness of deflation. We fully expect inflation to set in in the US, and likely in many other parts of the world. But that will become an issue only after debt deflation, propelled by a deleveraging that boggles the mind, will have run its course. And, as I’ve indicated before, the damage to our societies caused by this deflation scourge will be so severe that inflation will be the least of your worries.
“The deflation we’re talking about will be a scourge of truly Biblical proportions. And it won’t be so short that it can be brushed off, either, as I saw Peter Schiff contend recently. Our economic and financial system lived the high life off the credit expansion of the past few decades. Now the bill is presented in the (yes, predictable) form of a credit contraction, and there’s no way we can escape it, or wish it away, or outsmart it by creating more debt -as our political class tries to make us believe-.
“Yes, there is a huge risk of inflation, but it’s not now. And when we get there, we will all have completely different concerns from the ones we have now. Or, at least, that is, should have.
“:We are not alone in warning of this debt deflation. Today alone, I can present Steve Keen, Martin Weiss, Hugh Hendry, Niels Jensen, John Mauldin, Antal Fekete and Minyanville’s Mr. Practical. They all predict deflation. … ”
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Here is a snip from: The unbearable mightiness of deflation, mentioned above:
” An understanding of the scale of the inflation we have lived through requires far more than looking at CPI or even casting an eye over conventional money supply measures. It is necessary to appreciate the role of credit and the massive scale of a credit expansion that largely took place in the unregulated shadow banking system. Credit is the critical factor, as the ‘moneyness’ of credit in a myriad different manifestations drove the expansion of the effective money supply.
“As John Rubino explained in 2007:
” ”Doug Noland has for years been pointing out that one of the drivers of the credit bubble has been the ever-broadening definition of money. As the global economy expanded without a hic-up, more and more instruments came to be used as a store of value or medium of exchange or even a standard against which to value other things—in other words, as money. Thus mortgage-backed bonds and even more exotic things came to be seen as nearly risk-free and infinitely liquid. In Noland’s terms, credit gained “moneyness,” which sent the effective global money supply through the roof. This in turn allowed the U.S. and its trading partners to keep adding jobs and appearing to grow, despite debt levels that were rising into the stratosphere. For a while there, borrowing actually made the world richer, because both the cash received and the debt created functioned as money.”
“Mish agrees in his response to Gary North:
“We have a credit based economy and anyone watching money supply and not watching credit is simply wrong. This is a statement of fact, not idle conjecture.”
“Mish is right. However, credit only functions as equivalent to money during the expansionary phase. Once the credit ponzi scheme has reached is maximum extent, the quality of ‘moneyness’ disappears. As the value of credit collapses, so does a money supply of which credit has come to comprise the vast majority. This is deflation, not the fall of prices, and there is precious little central bankers can do about it other than to play a desperate confidence game, hoping that they can obscure reality long enough for confidence to return by itself. … ”
=================================================
My comments: I think that this is a good summary of how the collapse of the credit markets have resulted in deflation. The losses there have not been equalled by the efforts at Quantitative Easing. TQ
kitcoblows @ 12:26 pm.
You wrote:
“Sprott even raises the point that the US is buying its debt clandestinely, how long before the rest of the world says me too?”
It may have been clandestined, but now Pimco is writing about it. It seems that even CNBC is willing to say it on air. Go to the 1:30 mark in the video in this link and listen to what Erin Burnett (former GS exec, CFR gal) says about it. But it makes no difference, everything seem to keep rolling along. Move along folks nothing to see here.
Bank Failure #4 in 2010: Barnes Banking Company, Kaysville, Utah
by CalculatedRisk on 1/15/2010 08:03:00 PM
From the FDIC: FDIC Creates a Deposit Insurance National Bank of Kaysville, Utah to Protect Insured
Depositors of Barnes Banking Company, Kaysville, Utah
Barnes Banking Company, Kaysville, Utah, was closed today by the Utah Department of Financial Institutions, which appointed Federal Deposit Insurance Corporation (FDIC) as receiver. ….The FDIC will mail checks directly to customers with CDs and IRAs. …
As of September 30, 2009, Barnes Banking Company had $827.8 million in total assets and $786.5 million in total deposits. …
The cost to the FDIC’s Deposit Insurance Fund is estimated to be $271.3 million. Barnes Banking Company is the fourth bank to fail this year and the first in Utah. The last FDIC-insured institution closed in the state was America West Bank, Layton, on May 1, 2009.
No one wanted this one.
Who creates money?
I just read that article written by Saville and his analysis is not that of an academician by any stretch.
Money is created based on one factor, demand. If the consumer or a business or a government demands money then it “can” be created. The Federal Reserve and other central banks worldwide, discourage or encourage the demand for money via interest rates, but so do other banks!
The Federal Reserve and other central banks want to maintain a slow and steady growth of money as population increases with a fairly steady interest rate. This is manipulation, that is why it is pointless to talk of real value, when the very essence of money via interest rates are manipulated constantly, it is at its very base level, almost impossible to determine value.
What is the value of money? On a deserted island, none, faced with a terminal disease, none, in a jet about to crash, none. So debating the value of money is truly circumstantial. I can build a home for 150,000 dollars in the US most anywhere. I can build that same house for a fraction in many Latin American countries. Is my money better served building a home in Latin America or in the US? What is a better value?
Money moves around the globe seeking value faster than at any time in history and that is part of the reason why booms and busts are occurring more often than ever before.Capital concentrates and then it exits in a flash, stairs up and elevator down.
Now back to the article at hand. It is surprising to me that more people do not understand the root cause of the problem here. It is debt levels and the ability to finance them. Big banks are cutting off credit left and right by raising interest rates. The demand for money is very high but it must be cheap. It is now expensive. Banks are trying to repair balance sheets by keeping rates very high, while getting money for free. They believe in time that the spread will repair the problems.
Fortunately, rational consumers are defaulting and cutting back. So, the banks plans are failing. This is resulting in a never before witnessed contraction in the usage of money. It is falling like the elevator scenario. To counter-act this, companies have dramatically cut staff and inventory levels to maintain pricing. The obvious problem here is what happens next. If consumers continue re-trenching and money usage continues to fall, you will see another round of bankruptcies.
Since the Federal Reserve understands this, it is allowing the spread between short and long term debt to widen even more. It is to further help the banks offset the consumer re-trenching.
So what is the fatal flaw? The fatal flaw is to assume that the government can continue borrowing to infinity. It cannot. This is where Saville believes the Federal Reserve steps in to buy debt and create inflation. This same logic applies to Japan and it has not worked as Japanese citizenry continues saving. The largest holders of Japanese debt are its citizens, hence deflation. The US government has been able to maintain its inflation all the years because the debt is purchased in large quantities outside the US. If that stops and it has according to some, the deflation takes hold.
We are on the threshold of a very unique situation, sovereign bankruptcy. Iceland went first. Greece looks to be next and Japan is inching ever closer, with Britain on its heels. Certainly the US and the rest of Europe are there as well. The real question is what to do. Everyone is trying to debase but that cannot be the answer, so what is the answer??
What is not the answer is to assume that the Federal Reserve can simply print money all it wants. That is hopelessly naive. What will Japan, Switzerland, Britain, Europe do in return? The Federal Reserve does not operate in a vacuum. Sprott even raises the point that the US is buying its debt clandestinely, how long before the rest of the world says me too?
So in conclusion, it is wrong to suggest the Federal Reserve will print money and get away with it. The rest of the over-leveraged world will follow suit and the whole planet will be ravaged by hyper-inflation. Perhaps, that is the master plan. I don’t know.
Remember, banks create far more money than central banks. Central banks act as garbage men, cleaning up their mess. Sometimes, central banks create their own messes but in most cases it is the other way around. Unfortunately, it is a global problem now and the system is horribly broken and there isn’t anyone that can pinpoint what the final outcome will be.
I like Katz…he has a way with words
The puzzling thing was that, as gold climbed above $800/oz. (in early 1980), the entire official economic community refused to admit that it had happened. It was one thing to fail to predict the rise in gold in advance. That merely shows one to be an incompetent economist. But these people failed to comprehend (or admit) the rise in gold AFTER IT HAD HAPPENED. This was no longer just a matter of being stupid. It was a matter of being so incredibly stupid that there is no word in the English language (or any other language) to describe it.
www.gold-eagle.com/editorials_08/katz011110.html
Gradually I realized what had happened. Everybody in economics who had some kind of a title was a blithering idiot. None of them had any knowledge at all. Harvard had defrauded me when it told me that its professors were economists, and this same fraud was being perpetrated over the entire world on a much larger scale.
VIRTUALLY EVERYTHING YOU HAVE BEEN TAUGHT IS A LIE.
“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”
–Joseph Goebbels
Scruffy re Pole shift
Thanks a million, mate. I am so relieved I don’t have to rush out and buy new compasses which point South instead of North, at least not for a few thousand years anyway. That’s OK, I’ll be able to afford them by then - surely the HUI will be UP by then?
On the other, I guess I could buy some of that insurance Ike is selling just to be on the safe side. Along with my new FEMA Flood Insurance, which I’ll definitely have to get. We’re in the flood every day.
Re: Tungsten Bars
Someone was asking, not sure if you have read this:
http://www.surfingtheapocalypse.net/forum/index.php?id=234287
“Manipulation”……….
Tonight, JS written along the lines of something that I have often suggested- that the the real “manipulation” is the fact that we have a derivative paper gold market in the first place, with no true physical Gold market.
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Posted: Jan 15 2010 By: Jim Sinclair Post Edited: January 15, 2010 at 11:10 pm
Filed under: In The News
The Skinny on Gold, Silver and Position Limits:
It is a matter of NO concern. In the unlikely case the CFTC had any success in limiting positions (most unlikely as deemed hedgers would be exempted) it would be bullish to price.
The paper exchange is where the price of gold is manipulated daily and generally that price is lower. Anything to emasculate paper gold trading would serve to emasculate the platform for manipulation.
Close the COMEX. Gold will still trade, and better.
Illusion……..Some things to consider…….
Yes, earlier in this decade the M3 numbers were followed to track Dollar inflation via the FRB multiplier effect on the currency, but that method of Dollar inflation was ended as the putrid derivatives held in the banking systems asset bases were “marked to market” to practically zero creating the deflation scare. The Fed quit producing M3, probably in an attempt to prevent a clear apples to apples comparison- one that would have raised a lot of questions at the inflection point of the deflation scare.
Thus, the mark to market of the derivatives held in the banking asset bases created the deflation scare that for the short-term changed the psychology of investors to one of panic, creating a massive sell-off across the board. It was a psychology shift of investors from one of “Dollar Inflation” to one of “Dollar Deflation” as investors expected the whole banking system to quickly implode- creating a complete reversal of the Dollar Inflation that had been created by the FRB multiplication process of Dollars to that point.
Yet, that deflation scare ended rather quickly in typical “nickel-flip design” as the Fed did what nobody thought they would do- they scared Congress into allowing them new rules that allowed them to vastly increase their balance sheet, in fact according to Paulson at the time, to potentially expand the Fed balance sheet to “infinity under certain conditions.” ………………. a statement, IMO, aimed at a “go for broke” Dollar inflation plan to continue into the cycle. Thus, though the Dollar deflation psychology still permeates some portion of the investor population, the Fed reversed the deflation scare by using newly allowed Fed credit and by using debt monetization processes. These actions are best observed in the changes in the chart of the Fed’s adjusted monetary base, an example of which Scruffy posted earlier, today. Thus, in that chart that Scruffy posted we can see that the Fed’s monetary base expanded at a linear rate from 2000 to 2008 (? wave one design in terms of EW) rising from around 600 billion to a little less than 900 Billion, or about a 50% rise over about 8 years.
With the newly found balance sheet expansion powers granted by Congress in late 2008, we can see a sudden logarithmic advance in the monetary base from late 2008 to late 2009 from less than 900 Billion up to 2,100 billion………a 130% increase in one year…….a historical explosion in the monetary base. Below, is a quote I found on an economic site.
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“The major source of the adjusted monetary base is Federal Reserve Credit. ”
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Thus, with the end of the deflation scare as the Fed gained the right to expand its balance sheet “to infinity under certain circumstances”, it appears that the monetary base expansion has been primarily through “Fed Credit” from a balance sheet expansion that has never been seen before in history- not from simple Dollar printing where more dollars chase the same number of items in the system. To me, this implies a relative devaluation of the Dollar by the markets with the advent of the increase in Fed balance sheet and Fed credit offered to the banks, including the Fed’s Begging Bowl trade of treasuries for worthless derivative products. Such a Dollar devaluation by the markets would effect higher prices through the simple inherent math fraction involved.
We have seen the response in inflation pricing in the stock market, the PM market, oil, and the base metals markets……….as all have risen fairly dramatically. We have NOT seen the inflationary response in areas that are dependent upon a true expansion of the banking credit system, ie. the FRB multiplication of money created by loans. Thus without credit expansion to the people and private businesse via the FRB multiplication system, it is logical to expect bankruptcies and foreclosures to continue in those private segments and for the economy to continue to deteriorate for years
Historically, an environment of inflation or deflation is a long rather than short-term definition that describes the environment of pricing within the markets. I see no reason for the Fed to do anything into the future but to continue to monetize debt as they really have no choice. Thus, I can see no reason for price inflation to “not” continue to rise in continuing to track the late 70’s.
IMO, for anybody to see deflation into the future in terms of the historical definition, other than by a bastardization of the long used definition of the word, itself, I think that person would need to explain away the sharp and historic rise in the adjusted monetary base of late 2008 to late 2009, and its relationship to market price rises that began from that period to the usual 6 months, later. To me, that sharp rise in the adjusted monetary base was a shot over the bow for Bond investors in the huge, huge bond market to “get real” by moving to inflation hedges of “real things.” Thus, I see no reason at all for the almost perfect fractals in the Gold, the PM stocks, the Dow, the base metals, the Bonds, etc……………..to all continue to play out like they did in the late 70’s. Chart of the adjusted monetary base, below……………….per Scruffy’s post.
Have a great weekend…………………….
all
I told you guys I was tipped this stuff was here in abundance….revised estimate of oil in Spanish Lookout…from 6 to now 20 million bls.and more coming online by Belmopan probably another 10 million in reserves…and even more in Gallon Jug..my dog whisperer says over 100 million bbls .oh Deadeye I needed ya here.you could have had a ball….read the lead news item in the Amendella tonight …a lot of Irish[Dublin] involved but it is not all roses there are shareholder beefs.too…
Coupled with the gold, silver and lead report…I am glad to have a gold and other precious metals recon permit in hand….
Now I have a little handle on what the heck all the maneuvering was about.lately…no wonder Manny Esqueviel was given the Queens blessing…he was the only Austrian schooler in power here…there is still a lot more to this story…..9+ stories deep with the U.S Embassy…meeting a guy from Becktel that gave me the exact election results for Feb 2008[three weeks before it happened]
RNO quick get down here …..