Max Boom and Gold
We’re currently in deflation, not inflation. House prices, gas prices, car prices, stock prices are all way down. Go to the mall and buy clothes—everything is on sale. These are not inflationary indicators.
The Fed’s printing a ton of money, but it’s not gaining any utility. If the Fed printed $100 trillion and buried it under the White House, it wouldn’t make a lick of difference in the price of anything. That’s what is happening now—the Fed (actually, to be accurate, the Treasury) is printing money like mad but it’s being vaulted and so isn’t leading to the inflation the media is alluded to.
"Hyper-inflation" is also a catchy buzz word among today's talking heads. Not the smart ones, mind you. We also won’t see hyper-inflation for decades if at all. It really only comes about when a nation’s population loses complete faith in its country’s currency. It’s Germany in the 1920’s and Zimbabwe today. It can’t happen here in the short term for one good reason — our military. In the extreme, if Obama is faced with a starving, riotous population demanding leaders’ heads on pikes or invading New Zealand and happily selling wool and mutton to US citizens for US dollars… well, there’s no loss in the faith of a currency if it can buy what you need. At present Uncle Sam has the guns to protect its currency.
But the government does want controlled inflation, which it’s having a tough time getting now. That will change in the future, and if you can time that right you’ll make out like a bandit. In order for the deflation mentioned above to transition to inflation, all of the excess credit has to be sopped out of the system. That’s happening slowly through foreclosures, bankruptcies, inventory dumping, etc. But home values have collectively lost over $10 trillion. That’s $10 trillion that 3 years ago could have been monetized (turned into real cash) and spent by someone, so don’t discount those credit dollars’ effect on the total “money pool” any less than the $1.6 trillion being printed. Both are sort of imaginary dollars to a guy growing and selling corn, but he sells his corn for it anyway. Additionally, the stock market has lost well over $10 trillion, which is a very real amount to subtract from the “money pool.” At present, the Fed can’t print money (and/or sell via Treasuries) as fast as the credit bubble is contracting. Declining prices are a result.
I am a recently converted gold bug and have made some purchases in the last 6 months. My reasoning is that gold is money. Drop me off in just about any country in the world and I can go to their version of a bank and convert it into local currency for some exchange rate. I’m not making a gold-as-a-commodity play to protect against inflation just yet. I’m making a gold-as-money play. Every country in the world is printing money like mad in a race to devalue their currencies and make their exports cheaper. That’s good for gold, which no country can unilaterally devalue and all hoard.
So if you’re investing in gold and watch the price go up in the short term, it doesn’t necessarily mean that inflation is setting in just yet. It could just mean that gold is being more highly valued than a dollar as a place holder for money. But the same doesn’t necessarily hold true for other traditional inflation hedges like land, which still might be contracting in price due to deflation.
Beer, however, is where I'm most levereged tonight.
The Fed’s printing a ton of money, but it’s not gaining any utility. If the Fed printed $100 trillion and buried it under the White House, it wouldn’t make a lick of difference in the price of anything. That’s what is happening now—the Fed (actually, to be accurate, the Treasury) is printing money like mad but it’s being vaulted and so isn’t leading to the inflation the media is alluded to.
"Hyper-inflation" is also a catchy buzz word among today's talking heads. Not the smart ones, mind you. We also won’t see hyper-inflation for decades if at all. It really only comes about when a nation’s population loses complete faith in its country’s currency. It’s Germany in the 1920’s and Zimbabwe today. It can’t happen here in the short term for one good reason — our military. In the extreme, if Obama is faced with a starving, riotous population demanding leaders’ heads on pikes or invading New Zealand and happily selling wool and mutton to US citizens for US dollars… well, there’s no loss in the faith of a currency if it can buy what you need. At present Uncle Sam has the guns to protect its currency.
But the government does want controlled inflation, which it’s having a tough time getting now. That will change in the future, and if you can time that right you’ll make out like a bandit. In order for the deflation mentioned above to transition to inflation, all of the excess credit has to be sopped out of the system. That’s happening slowly through foreclosures, bankruptcies, inventory dumping, etc. But home values have collectively lost over $10 trillion. That’s $10 trillion that 3 years ago could have been monetized (turned into real cash) and spent by someone, so don’t discount those credit dollars’ effect on the total “money pool” any less than the $1.6 trillion being printed. Both are sort of imaginary dollars to a guy growing and selling corn, but he sells his corn for it anyway. Additionally, the stock market has lost well over $10 trillion, which is a very real amount to subtract from the “money pool.” At present, the Fed can’t print money (and/or sell via Treasuries) as fast as the credit bubble is contracting. Declining prices are a result.
I am a recently converted gold bug and have made some purchases in the last 6 months. My reasoning is that gold is money. Drop me off in just about any country in the world and I can go to their version of a bank and convert it into local currency for some exchange rate. I’m not making a gold-as-a-commodity play to protect against inflation just yet. I’m making a gold-as-money play. Every country in the world is printing money like mad in a race to devalue their currencies and make their exports cheaper. That’s good for gold, which no country can unilaterally devalue and all hoard.
So if you’re investing in gold and watch the price go up in the short term, it doesn’t necessarily mean that inflation is setting in just yet. It could just mean that gold is being more highly valued than a dollar as a place holder for money. But the same doesn’t necessarily hold true for other traditional inflation hedges like land, which still might be contracting in price due to deflation.
Beer, however, is where I'm most levereged tonight.
posted by Max Boom | 8:36 PM
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