Possibilities of a cute waitress delivered, small town steak dwindling rapidly, I will cut to the chase quickly.

You can't read D consistently and not observe real fear in his writing.

The real fear is justified, the extrapolations are sound, but as you state, conditions change and extrapolations often fail to accurately predict the future.

In the meantime, the key ingredients in historical economic crises, are tax rates, currency stability, and herd instinct, panic, in a word.

If D could tone down any certainty, or, if not possible, we can maneuver past his apparant certainty, we can possibly avoid a self fulfilling prophecy none of us, including D, wants.

Extrapolations don't always pan out, negating certainty of failure, and panic, is HUGE factor is just abut ALL past economic crises that went all the way to zero, or close enough not to matter.

Calm, in a crisis, spreads, slowly but often decisively.

Panic spreads out of control.

Night, all.

You are far, far from alone.

Cliff Notes:

Inflation is like we did back under Jimmy Carter when prices got more, and more, and more expensive.  Wages went kinda up some, kinda up some.

Deflation is when prices get lower and lower.  Too bad not many people have jobs or any money to buy anything at all.

Right now we have some degree of deflation going on.

During times of deflation, the government gets the bright idea to print more money –– which causes inflation.

Hyperinflation is Zimbabwe.

Time for me to shut up and let somebody better educated than me tidy that up a bit.

Put all of your PM in a box labeled "inflation".
Take a similar dollar amount in small denomination FRN's and stick them in a box labeled "deflation"

Hey!!!

He a C- CUH -COMMUNIST!

Uh guys. You all need to read this one RFN!



http://theburningplatform.com/groups/quinns-daily-dose-of-reality/discussions/money-market-funds-no-longer-guaranteed-september-18

Don't sell yourself short ma'am.  Economics should be plain and simple, as all honest truths.   Not the voodoo quasi-religion (with it's own perverse language) the economic intelligentsia have made it out to be.   But we no longer have honest money.  Bretton-Woods collapsed.   We no longer have constitutional money.  All we have is a FIAT currency who's very existence is only maintained by popular delusion, to be frank.   Specifically, the suspension of disbelief and/or hypocrisy that the present debt-currency is, in fact, unconstitutional and dishonest.  I mean, seriously people, the power to create money from nothing and in the hands of who precisely?    Oh yeah, I trust that would go swimmingly with absolutely no chance for corruption.    I think that would be an interesting socio/psychological phenomenon to study; the cognitive dissonance in carrying the collective burden of hypocrisy and what it takes to snap.   Paging John Law!!  lol!  But I digress...

Back to topic: Inflation - this is one example of how a word with a simple meaning has been conflagrated and confused in the popular vernacular.  Inflation is always a monetary phenomenon.   That means an increase in the supply of money is inflation.  Inflation in prices, consumer inflation, etc., is a separate issue... and almost always lags monetary inflation.

So, what do we have today in common terms?  Well, if the definition of inflation and deflation you want to use deals only with prices, it depends on the price of whatever it is your pricing.  lol!   My answer to the will we face deflation vs inflation (in prices) question is always: BOTH.  Housing = deflation (quite the bubble there, neh?).  Since we have just gone through an unprecedented run up in debt, essentially pulling forward massive demand (purchasing on credit), all the businesses that built up production to meet demand will now be going in rather the opposite direction as the great deleveraging (liquidating debt) and defaulting (ch11?) continue in earnest.  All those excess products... gonna be cheap with no more buyers = deflation here, at least for awhile.  When those products are gone, the production no longer exists and the massive "stimulus" (monetary inflation!) catches up?  Whoosh - pricing might swing the other direction very rapidly (at least for useful products).  But common necessities like food, ammo, etc.,?  Trending up in price steadily and consistently methinks.

Well... there it is.  I wish everyone the best and good luck in timing this.  I think the recent run up in precious metals is indicative of those with true capital (savings!) voting "no confidence" in casino capitalism and hedging against inflation.  I'm surprised to see it rise so much so soon actually.  I was thinking the deleveraging and defaulting, unemployment, etc., etc., would be putting more downward pressure on any and all stores of wealth.  It has me curious to see what will happen when the ponzi scheme is really busted.   <bzzzzzzz - GAME OVER>

ETA ~>  just found this youtube vid where Peter Schiff addresses the inflation vs deflation debate.

I'll just leave this here.

Michael Moore on Jay Leno.

MOORE: Yeah, well, capitalism, capitalism is actually legalized greed. Uh, it's, it's, it... There's nothing wrong with people earning money, doing well, starting a business, selling shoes. That's not what I'm talking about here.

We're at a point now, Jay, in this country where the richest one percent, the very top one percent, have more financial wealth than the bottom 95 percent combined.

And how is this different from the past?





 

Wow!...my world is just falling apart...:-)

Funny how people spout that we are just posting doom and gloom...this is my world...

I am really trying to keep my remaining six employees...employed...

We had 14 hours of work on the books...for this week

I just looked at next week....we have a total of 8 hrs booked for the entire week of next week...

A recovering economy my ass...

I worry about my employees...

Back to topic: Inflation - this is one example of how a word with a simple meaning has been conflagrated and confused in the popular vernacular. Inflation is always a monetary phenomenon. That means an increase in the supply of money is inflation. Inflation in prices, consumer inflation, etc., is a separate issue... and almost always lags monetary inflation.



I cut this so people would read it again.  

Chris

Doesn't remind you of somebody?

Good advice.  You must be Dave Ramsey listener.  

So many people have overleveraged themselves on "future" earning potentials just because everyone else was doing it.

I miss Carlin. And Russo. And all the others that weren't afraid to speak truth..........

Wonder what really happened to them.......

If you want to understand inflation, you first need to understand that currency isn't money. Money is the result of people working, currency is simply the marker chips we use to transfer money (work output) from place to place.

A poker chip is a commodity, just like an apple or silver coin. If people want more poker chips, and the supply of poker chips remains steady, the price will rise. If they want fewer poker chips and supply remains steady, the price will fall. This happens all by itself. At any given price, some are inclined to sell poker chips, and some are inclined to buy. If more people want to sell than want to buy, one guy will offer to sell at a lower price and induce one buyer to buy. Eventually the number of buyers matches the number of sellers and the price finds stability, at those levels of supply and demand. Simple, and automatic, no adjustment needed...or wanted.

Since dollars are just poker chips, they are subject to supply and demand too. If I want more dollars, I swap something in exchange for dollars, maybe an apple, maybe a rifle, maybe some of my time and sweat. The more I want dollars, the more value I am likely to swap for them. Here's where most people get confused, if paper dollars are what we use as a yardstick to measure price, how do we measure the price of dollars?

One way might be to measure dollars compared to how many hours of work it takes to obtain them, but this will not be a very useful measuring device, since I might be willing to work X hours for a given quantity of dollars and somebody else might be willing to work more or less hours for the same quantity of dollars.

Another way to measure the price of dollars might be to measure how many apples one dollar will buy, but there again, some people like apples better and some people hate them. Further, in dry years fewer apples will grow to maturity, so apples are scarcer.

In both examples, the changing supply and demand for an object, gets in the way of using that object as a yardstick, to measure the value of a dollar.

The perfect value yardstick for dollars would be something nobody wants, for any reason at all, except as a dollar yardstick. There would be a fixed quantity of this material, which changed very closely in proportion to the population change of a given area. Ten people need so many yardsticks, a million people need a different number of yardsticks. The demand for this yardstick material, would be low, outside it's yardstick value, and new uses for this material would not be found often, because then demand changes for the yardstick, would mess up it's ability to measure dollar value.

We do not have a perfect dollar yardstick. The best we can find, the best we have been able to find for centuries now, is a largely useless material, of which the total quantity changes very slowly, less than 2% per year, a material that does not get used up, and a material for which the demand changes slowly or not at all.

This imperfect yardstick for currency value is gold. You can't eat it, you can't burn it, you might find a new supply in small quantity, but not large piles of it, so the demand stays fairly constant. It is used in dentistry, in small quantities, in electronics in microscopic quantities, and in jewelry, enough there to affect demand but to a small degree, and that's it. There haven't been many new uses for it discovered, which is why over the long term, it's value has remained relatively unchanged for centuries.

It's not perfect, but it is the most stable yardstick we have.

So, we measure the price of dollars, (poker chips, remember?) against gold. This many dollars trades for one ounce of gold, when supply and demand are equal. If people want dollars more than gold, the demand for dollars goes up, the supply remains the same, the price of dollars goes up, meaning less dollars will buy one ounce of gold.

That's deflation. You night call that demand deflation because the price change is driven by demand. There's another kind of deflation too, where demand for dollars stays the same, but the supply of dollars is short, the price rises, fewer dollars buy one ounce of gold, and you have supply driven deflation. Either way, the value of dollars is up, and the price is up too. It takes more gold to buy a dollar.

On the other side, if people want gold more than dollars, the demand for dollars drops. Dollars are valued less. It takes fewer ounces of gold to buy dollars, it takes more dollars to buy gold. But we already said that demand for gold changes little, and this is why we use gold as a yardstick. This can't happen can it?

Well, not early on in the process of establishing a yardstick standard, and not with a perfect yardstick. But gold is not the perfect yardstick, so SOMETIMES, the price of gold in dollars, or dollars in gold changes because of demand changes in gold. Much less often due to supply changes in gold but that can happen too. The most common reason demand for gold changes really is not due to gold, it is due to perceived weakness or strength of dollars. Dollars are better than gold for day to day currency for many reasons. Dollars are much lighter, easier to carry around, and can take up less space. If people believe in the dollar, they will usually prefer those to gold, but if they doubt the dollar, the perceived safety of gold outwieghs the advantages of paper and the "demand" for gold changes.

In this case, the demand for gold really doesn't change, it is a demand change for dollars. Unless a new supply of gold is found, or a new use for gold is found, demand remains largely unchanged. Gold demand will change when gold jewelry comes into of goes out of fashion, and that is guaranteed static, confusing "noise" in our system, it muddies the waters when using gold as a yardstick for dollars, but there's nothing we can do about it, except note that the effect is usually minor and move on past.

So...by and large, more so than with any other yardstick, we measure the price of dollars in gold, and from the price and price changes, we can determine both the supply and demand for dollars. If the value/price of dollars is rising (deflation, gold costs less dollars)) then we know that either demand is rising, or the supply is contracting.

If the value/price of dollars is dropping, (inflation, gold costs more dollars) then either demand is dropping or supply is increasing.

We always know what the supply of dollars is, (unless Iran or North Korea are counterfeitting them again), because we print them up to begin with. Since we know what the supply is doing, and we know what the price is doing, we can extract useful data about demand for dollars.

In a well managed economy, we can hold the price steady over very long periods of time, centuries in fact, simply by altering supply to meet changing demand. There is nothing wrong with borrowing "future" paper dollars today, simply to make sure we have enough in circulation that people don't hoard them, as long as we do it properly. Proper currency management is where the central bank sells bonds (borrows money) for currency, which then sits in their vault. This removes currency from the system, and offsets decreases in demand for dollars, keeping the price up in times of inflation.

In times of deflation, the Fed could buy those bonds back, putting more currency into circulation, easing the shortage (high demand high prices) of paper dollars.

Shortages or oversupplies of paper dollars are called currency crises, and they can wreck an economy very quickly, because people WILL hoard dollars when they are in short supply, and they will...dump...dollars when there are too many. They will try to buy gold (or something else useful or valuable) with those dollars, because too many paper dollars means each paper dollar is worth less. The decreased dollar demand will correct itself, all by itself, and if it does not the Fed can adjust the supply by buying or selling bonds (loans).

But we don't do that.

The reason we don't so that, is that currency crises are not the only type of economic crises we have, we also mave money crises, or better stated, monetary crises. Remember, money isn't paper dollars or gold, paper dollars or gold are just poker chips, no, money is the effect of work. Sometime the people don't work hard enough for them to pay their bills, or for the government to meet its obligations, either internally, to its own people, or externally, to other countries. Actually, it usually isn't a case of people working too hard or not heard enough, instead, it is a case of output, or efficiency, or random chance negative events like a big hurricane which disrupts services enough to affect total work output, but sometimes, a monetary crisis very much is a product of people quitting work.

In any event, governments are made up of people just like you. They start out to try and understand how all this fits together, and as soon as they see that gold is not a perfect yardstick, some small amount of confusion creeps into the thought process.

Then the terminology finishes them off every single time. "Inflation" means "gets bigger" right? But when the dollar inflates, it takes more dollars to buy gold, so each dollar gets smaller, right? The value goes down. How can a dollar get bigger and get smaller at the same time?

It can't. When the dollar inflates, it gets smaller because the SUPPLY of dollars inflates. Inflation refers to the total supply, NOT the value of each one.

But 99% of all the people trying to understand this get hung up in the terminology, where inflation seems to make dollars smaller and deflation makes dollars bigger, and they stop trying to make sense of it. From there on out, they do not understand the rest of the logic, they either accept it because somebody tells them it is true, or they reject it because somebody tells them it is true, they do NOT understand the simple math.

Since they don't understand the simple math that ties it all together, they become easy targets for predators, and they become easy targets for intellectual bigots who ALSO do not understand the simple math, but who WISH to be seen as understanding the big picture_A, and who conjure up cubic yards of bullshit and smoke clouds to explain that which really IS unexplainable....IF you don't understand the simple math.

If you understand the simple math, you realize that the supply of dollars must be used to offset currency problems, situations when too much or too little currency is in the system, causing clogjams. You DO NOT listen to predators or economic bigots who tell you to do anything else, if there is a supply problem with the currency you ALTER THE SUPPLY OF CURRENCY.

How much, or how little you alter the supply, depends on two things, how much the demand is out of whack with the supply, and how accurate your chosen yardstick is. If you let the value of your dollars wander all over the place, prices will follow it, but they usually can't follow it fast enough to keep chaos from breaking out. If I borrow ten bucks from you today, and that ten bucks buys one ounce of yardstick, but tomorrow you pay me back with ten bucks that buys a quarter ounce of yardstick, I get screwed and I might just decide to shoot you over it. Shooting is inefficient. Shooting impedes production, and production, remember, is money. A well managed currency will stay close to the same value, as measured against the best yardstick you can find, for the longest time possible. If you think our little overnight bet caused problems using an unstable dollar, think what happens to 30 year mortgages (that ring any bells here lately?) when dollar values flop around like fish.

So....so far...you're either with me or you're still hung up on inflated dollars getting smallert. If you're with me, you know money is work, currency is poker chips, and poker chips change value based on supply and demand. A well managed currency keeps the price of poker chips constant over the short term and long term by adjusting poker chip supply.

Hang tough, we are almost home here.

The OTHER economic crisis type is monetary, ok? Too much work effect (production), or not enough work effect (production), usually not enough. How much production takes place can change ENTIRELY INDEPENDANT of currency supply, currecny demand, or currency price.

A hurricane doesn't care whether your poker chips are priced too high or spot on, and it doesn't care how many are in circulation either. It just sucks up your factories and nobody goes to work for weeks afterward. The hurricane screws up output, production, and since those are MEASURED in currency, it can have a SECONDARY CURRENCY EFFECT, but the currency effect is a SYMPTOM, not the ROOT PROBLEM.

The root problem is the bare foundation where the factory used to be.

If you try to fix a monetary problem, a problem with work output, by adjusting currency supply YOU WILL FAIL, and in the process you WILL fuck up the currency, you WILL bounce the price of poker chips all over the place and everyone who owes anyone a nickle WILLbe shooting at each other, or will be WANTING to shoot at each other in less than five minutes....


AND....


...when people want to shoot at each other, what happens to work output?

Efficiency suffers, production suffers, and your "solution"...just MADE THE ROOT PROBLEM WORSE.

So....what if you do precisely this, fuck with currency supply to fix a production problem, and production still sucks, and you, in your ignorance fuck with the currency supply FURTHER, still not understanding that your "solution" is now part of the problem?

Ahhh...bring her on in, boys and girls, we are home. Now you understand what not one politician in 100, and not 1 economist in 1000 understand.

Now you understand why deflationary and inflationary DEATH SPIRALS begin.

They can happen all kinds of ways, with a trigger of a hurricane, or simple ignorance allowing a currency supply problem to affect work output. They can start with a tax increase or tariff. I make widgets, you buy widgets, Joe Buckethead gets in the middle and takes his cut, by tax or tariff, your price goes up, you buy fewer widgets, duh.

That's how they start, but how they spiral out of control is when an ignorant politician uses an advisable fix for a currency crisis, to fix a production problem. It doesn't work.

It never works.

We spent most of the 1970's and all of the 1980s going from bad to worse, shooting totally in the dark, never understanding why the "solutions" weren't working.

We were using hammers to fix screwdriver problems.

And the hammers made the screwdriver problems worse.

Here you go, all you need to know to run the Fed.

1. Adjust the currency supply to maintain currency price stability and adjust for currency demand changes.

2. Address work production output and efficiency problems by addressing work production, efficiency, and barriers to trade. Leave the fucking currency ALONE, unless the work production issue creates a secondary currency supply issue and EVEN THEN, don't fuck with the currency  till you have the production problem under control (seeing measured growth).

3. Use a QUALITY yardstick to measure currency supply and demand, and to keep your currency price as stable as possibe, for as many consecutive CENTURIES as possible. If you have or find a better yardstick than gold, fine by me. If not, use the best yardstick we have and quit trying to blow smoke up my ass.

I see YOU...and I WILL make a profit off your stupidity, long before I let your greed or ignorance throw my sweat and hard work in the trash. It is EASY to see an economic fool coming, from a  mile away, and the profits to be had on the efforts of that fool...

...are ENORMOUS.

Don't take my word for it.

Ask Soros.

What's it gonna be, gentlemen? I'm easy, choose your poison.

You bring up an excellent point; some sectors are experiencing inflation, others deflation.  As an example, the price of electricity is going up in my area by 10-14% depending on whether you're a business or residential consumer.  I've also noted that food prices have increased from last year.

OTOH prices on big ticket stuff like housing and on toys/luxuries (ATV's, boats, horses, etc) have all dropped pretty dramatically.

Why is that?

Why is food getting more expensive, and cars getting less expensive?

Let's arbitrarily hold dollars versus gold steady, just to simplify the answer.

Real simple...not enough food to hold the price steady, too many cars to hold the price steady.

Those are work output issues. Production issues. NOT currency issues.

Fuck with the currency to fix production issues and you mess up production even worse.

You can sit back and let the markets fix the production issues. More profit in food, less profit in cars, autoworkers quit or get laid off, and become farmers.

Simple.

And slow.

People starve to death waiting for market forces to turn auto workers into farmers. It can take generations to effect the change.

So...look at the government. Is the government making enough money to pay the bills, without robbing our grandchildren blind?

For simplicity, say yes, assume we are spending a balanced budget and have zero national debt.

Simple fix, tax cars, lower tax on food, overall revenue neutral. Now you speed the market resolution process up. Now auto workers have even more reason to start farming. If you don't want your auto workers to starve while they learn to farm, you might tax cars just a fuzz heavier, or reduce food taxes just a little less, and use the extra tax revenue to help the auto workers till they learn to farm. There's a billion other ways, this is just one.

If your government budget isn't balanced, then you adjust the taxes to fix the production problem, and at the same time, fix the budget shortfall or surplus.

What you DON'T do, is artificially adjust the currency supply to fix a production problem.

What IS Obama doing?

Artificially adjusting the currency supply to fix production problems.

Where does that lead?

See the title of this thread.

I see YOU...and I WILL make a profit off your stupidity, long before I let your greed or ignorance throw my sweat and hard work in the trash. It is EASY to see an economic fool coming, from a mile away, and the profits to be had on the efforts of that fool...

...are ENORMOUS.

Don't take my word for it.

Ask Soros.

What's it gonna be, gentlemen? I'm easy, choose your poison.





I am not much into the currency markets like Soros but I do have a good understanding of real estate. I can't tell you how many times in 01/02/03 we looked at places to purchase and after a quick run of the numbers thought..."Whatever person buys at these prices has GOT to be stupid". But yet someone always bought.

For the CRE guys on here we sold a duplex at the peak for 265X monthly rents. Make those numbers work.

Chris

It's not easy for me - what specifically are you recommending that one do if one wishes to make enormous profits?  

Thx & indeed I've observed same.  Essentials (energy, food, etc.,) are increasing in price, non-essentials ("luxury" items, etc.,) are dropping.  The "money" supply is in total flux.  I put money in quotes because, in the current system, debt/credit is money and multiplied perversely via fractional reserve banking.  So that $1 created from thin air can turn into a $9 loan, which can be deposited and then another $81 loaned out, etc., etc., ad nauseum.   Welcome to the world of "debt money".  In this world, saving is destructive.  

Analogy: Two credit cards.  Every month pay the min amount due from one with the other.  Repeat.  When you hit the limits, get them increased.  As long as those limits can be increased there will never be a problem.  Right?   The US financial sys is facing that same issue.

I've heard of hypotheticals before but... wow - that is really.. erhm, extreme!   I mean, what point could realistically be asserted from such unrealistic, hypothetical criteria?  

The points I did gather from your post is that the currency is irrelevant ("Those are work output issues. Production issues. NOT currency issues."), free markets are inadequate ("People starve to death waiting for market forces to turn auto workers into farmers."), and that central economic planning is preferable ("Simple fix, tax cars, lower tax on food, overall revenue neutral. Now you speed the market resolution process up.").   No, no & no.

Currency is absolutely relevant to pricing.  Here's a hypothetical; If every man, woman and child in this nation was gifted $200,000,000.00 USD do you think pricing might be affected?  The supply of "money" affects pricing.  Supply and demand works on the currency side also, not just product.  The non-hypothetical is the real increase in U$D supply.

Do you have any examples of people starving to death waiting for the free market to work?  Heck, do you have any examples of a real free market at all?  You can't have a free market without a free currency.  Legal tender laws prohibit that.  Further, there is no capitalism without capital.  Capital is not debt.

Central econ planning via "appropriate" taxes will speed a recovery?   Unintended consequences of artificial financial influences are legion.

I do agree that increasing the currency supply is not a solution.  What do you think has been happening since 1913 and especially since the collapse of Bretton-Woods?  "Helicopter Ben" is just the latest iteration.  The FED is inflation.   And, whatever rate the intellegentsia decides is an "acceptable rate of inflation" do please remember to project that out in real terms (e.g. 5% inflation = doubling of the money supply every 14 years).  Those exponentials gonna getchya!  

Hmm, what do you want to bet that he'll die of  "natural causes" soon?

The movie Repo Man is becomming more and more relavent.  

"It happens sometimes.  People just explode.  Natural causes."

George Soros recognized that England had mismanaged the pound sterling. Not necessarily England's fault, they had halfway joined the EU and pegged the pound to the Euro at exchange rates the market was not supporting. He used gaps in regulatory policy to short the pound while going long in the US dollar (many currencies could have played the foil, the key issue was pound value) at leverage (amplified thru borrowing) many times the usual rates.

He was right. The market pressure on the pound (down), plus Soros manipulation of the markets, allowed him to suck $1.5 billion dollars worth of profit out of the system for his personal use when England was forced to devalue the pound versus the Euro. he has manipulated markets in Malaysia, Brazil, Argentina,  Hong Kong and Russia in similar fashion.

If you think the US dollar will increase in value, due to improper currency management, or due to economic recession, you can simply move assets into dollars, from gold or other currencies, wait for the rise in dollar pricing, then swap back to whatever other assets to lock in your gains. The process works just as well in reverse if you see inflation on the horizon, or even taking place day by day like it is right now.

If you use leverage in a standard currency trading account, usually 200x, you can multiply those gains by 200 times. be sure of your forecasts when losing leverage, you will also multiply losses by 200 x if your hunch is wrong.

When you see a government attempting to fix production related issues using currency management tools, it is rather simple to anticipate the results. Due to partial collapse of the US prodcution economy, Obama is dumping dollars into the US system, increasing the supply, inflating it artificially and in a misguided attempt to change the status quo.

This should decrease the value of individual dollars, compared to gold and compared to other currencies, and in fact, this is precisely what began happening last week. Gold shot from $950 per ounce to above $1020, and the Euro gained on the dollar by moving from around 1.425 dollars per Euro to almost 1.47 dollars per Euro, a fall in the dollar's value of about 3.1 percent.

With Obama continuing to print dollars at high rates, it is not hard to forecast the direction of the US dollar's value, and if you can accurately forecast future currency values, you can speculate on same with stunning results.

You will have taxes, as long as you want roads, military, law enforcement, and a courts system, no matter what. You can levy those taxes so as to maximize production, and minimize dislocation, or you can levy those taxes so as to minimize production and maximize dislocation. Pick one.

"Starve" is a euphemism, it means bad juju, for lack of money. People today are losing their homes, because  they lost jobs in businesses where they supplied more product than buyers wanted, dropping prices until they were laid off. In the 1930s, they lost their homes at first, then they did, in fact, starve, many of them. This depression hasn't reached that point, yet. It may or may not.

You are precisely correct regarding Bretton Woods. Nixon suspended dollar-gold convertibility in 1971, and erased the dollar-gold peg in 1973, and the 1970s and 1980s saw wild gyrations in the relationship between gold and dollars, rampant inflation for bigger parts of two decades. No coincidence, the inflation was pre-ordained the minute we stopped using the yardstick to adjust the value of the dollar. He attempted to resolve production problems by adjusting the currency supply, and like every other attempt of its kind, it failed, again and again, for nearly two decades.

There are thousands of examples where monetary and currency policy have stabilized economic foundations and allowed for periods of long stability and growth. Japan and Germany after WWII, Mexico several times since, Argentina at least three times since the 1980s, Brazil, Thailand, Malaysia, Hong Kong, Korea, all in the 1990s, the numbers are legion and the examples are anywhere you care to look.

The reverse is true just as much. Yugoslavia, Turkey, all the above listed Asian economies in the 1990s, for starters. The causes and effects are always the same.

The currency destabilizes, either from lack of any yardstick or from a variable length yardstick. Ignorant government attempts to fix the currency problem with monetary policy, normally raising taxes or tariffs, and makes it worse. Eventually, one way or another, the correct solution is found, and the economic gyrations lessen or cease, depending on the degree which the correct solution is implemented. Astonishing growth curves are possible with correct solutions applied generously. Japan in the 1970s and 1980s, and China, right now, today, are prime examples. China is on target to hit 8% growth this year. Show me 8% real growth anywhere else.

The other half of the dislocation problem is as descibed previously, when government attempts to fix production problems with currency supply manipulation. It doesn't work. It keeps not working until desperation sets in and eventually the correct solution occurs as a matter of random chance.

There is a fine line between central planning and central policy. Central planning attempts to control everything via planner whim. Central policy attempts to nudge free market forces thru the judicial use of policies that must be exercised in any event, such as taxes.

Central planning fails because the free market corrective feedback loops are absent. It just takes too much effort to keep everything in balance manually, and any errors in judgement rapidly spiral out of control.

Central policy adjustment is the better choice but it quite often fails in today's world, due to ignorance in application as discussed throughout this post. The first step is to set some type of currency value yardstick. The second step is to use the yardstick to correctly identify problems, whether they be currency related or production related. The third step is to apply non trade restrictive policy adjustments to achieve the desired effect, and undo the root cause problem idnetified by the dimensionally stable yardstick. The fourth step is to assess and re-adjust policy as necessary. The fifth step is to sit back and watch the economy double or triple production every five to ten years.

It happens.

In fact, it happens every single time currency and economic policy combine to find the sweet spot of maximum production, almost always a combination of low barriers to trade and currency stability over longer terms.

In the absense of currency stability, and/or the presence of significant barriers to trade, the exact opposite is guaranteed. Where we are now, and where we are headed tomorrow. Our currency is being deliberately inflated, and barriers to trade are about to massively increase, in the form of Cap and Trade tariffs, "free" health care taxes, and the expiration of Bush's tax cuts on 12/31/2009.

Maybe it is just the wacky selection of people I talk to and news sources I frequent...

... but there seems to be a ubiquitous sense of impending something.  

And I talk a lot with women.  They are afraid.  

Women are afraid and men are angry.  Flipsides of the same emotion(s).

Some figuratively throw up their hands, and refuse to "deal with it" (whatever "it" may be)

Others feel called to prepare for "it", and are already eyeing our plump neighbors as potential bar-b-que'd protein source.

What the hell is "it"?

Sometimes I reckon we'll know "it" when "it" gets here.

Other times, I gut-deep know that "it" will feel intensely familiar.  And that is not necessarily a comforting thought.

ETA We will all do just fine.  Other folks will not know what hit them.

There is a lot in that statement.

Let he who has ears, hear.

HoleSight:  Mr Chairman,  gold has increased almost 300% in the last 8 years.  If this is a very early stage of the move away from paper currency, what kind of percentage increase would you expect at the end stage?

Alan Greenspan: Uh, no comment.

HoleSight: Well, Mr Chairman, most early bull market moves, only represent about 10-20 percent of their highs. Your "early stage" comment suggests that $1000/oz gold could reach $9000-$10,000/oz. ?

Alan Greenspan: Uh, well, uh, hmmm...no comment.

HoleSight: Mr Chairman, why are you fascinated that gold is still the ultimate form of payment?

Alan Greenspan: Well, uh, uh, we have operated as if fiat money is gold.  

HoleSight: Oh really?  So you're fascinated that people are not believing that?

Alan Greenspan: Uh, well, yes.  We have...., uh.

HoleSight: Mr Chairman, I know earlier in your career you were a strong defender of gold.  What changed
your mind?

Alan Greenspan:  I'm done with this interview.  No comment.  I'm going home. Goodbye.

HoleSight: Ok. Well thank you for your time Mr Chairman.  Enjoy your mansion and fat bank account.      

Yeah, what I hear is a guy who, turns out crashed an economy, is still spewing bad info.

Gold is not going to become currency.  Governments will see to that, there is no power, no control and no way to manipulate gold so it will never be there means of trade between nations.

40K will buy a nice house in Vegas, holy hell that place must be a 3rd world shithole now....





 

"Fascinating" people trust a hard asset with no counterparty risk used as money since the beginning of recorded history more than they trust pieces of paper and digits on computer screens conjured up out of thin air at the whim of corrupt politicians in collusion with greedy banksters––pure fiat money backed by absolutely nothing except the largest debt bubble in the history of the world with payment due to banks and foreigners through the inevitable multi-generation debt bondage of the American people.
It's so hard to understand that a brilliant economist like Alan Greenspan––supposedly the "sage" of American capitalism––cannot grasp the concept that gold is still money.  It's so hard to understand why the American people no longer trust their government; why they no longer trust their banks; why they no longer trust ever larger amounts of freshly printed Monopoly money that the federal government and the so-called "Federal" Reserve are injecting with fire hoses into the lifeless corpse of the US economy, trying to stop the debt bubble from collapsing but instead creating a massive new government debt bubble; but it can't be stopped and the American People know it.
It can't be stopped because the federal government is corrupt; it can't be stopped because politicians and bankers are conspiring in multiple acts of fraud and collusion; it can't be stopped because economic reality is different from what government officials and the mainstream media claim––different by orders of magnitude; it can't be stopped because government by its very nature the worst possible vehicle to manage or to "stimulate" an economy––because government is rife with waste, pork, and abuse; it can't be stopped because the Congress openly defies the will of the people and acts against their best interests with an arrogance that has not not been seen in American since King George, and they have the expectation of absolute impunity because their true masters reward them for their criminal acts; it can't be stopped because the economic theories and policies that brought the US economy to this point are wrong, yet they continue on a larger scale than ever before; it can't be stopped because the piranha feeding frenzy of crime devouring the wealth of the American people is beyond the point of no return; it can't be stopped because while the American people are being ass-raped by the worst criminal gang of rats, traitors, liars and leeches ever to infest Washington D.C. in the history of the United States––while the value of the 'prison labor' of the American people is handed out to banksters as bonuses and pledged to foreigners in the form of trillions of new debt––the political polices intended to solve the supposed injustice of the 'rich getting richer'––a trend caused by government incompetence, meddling, corruption, collusion and fraud––are totalitarian socialist policies that are the exact opposite of the Constitution of the United States and that guarantee the final and utter destruction of the US economy and of the Constitution; it can't be stopped because the grandiose delusional socialist ideal of redistributing  wealth is in fact nothing but the conspiracy of a cabal of special interests seeking so-called "social justice" for themselves at the expense of all others––political payback and power grabbing in the name of "universal" good; it can't be stopped because the majority of US citizens are already net recipients of government benefits rather than net producers; it can't be stopped because the political and economic system––even as it balloons to colossal, distorted proportions––is already straining under its own weight; it can't be stopped because no amount of Monopoly money will be able to stop the world-destroying government mega bubble from detonating and taking us all out with it.
But, no, economists believe that public debt is good and we should have more of it because the more you borrow and spend the more the GDP grows and the richer everyone become––there's no limit; the debt magically shrinks away as tax revenues rise naturally with economic growth––and that's exactly what politicians want to hear.   Economists and politicians believe that no one ever really pays the price and that's the ultimate license for recklessness and unaccountability.  They believe that foreigners will continue lending us their capital to blow on consumption and waste.  But the problem is it doesn't work.  The problem is we have millions unemployed, millions bankrupt, millions of lives destroyed, whole industries bankrupt; banks that are still broken; more failures in the pipeline as the consumer base continues to contract: the system doesn't work.  It's just so hard for Alan Greenspan––perhaps the chief architect of America's economic demise––to understand why people trust gold.  And that's exactly why you ain't seen bad yet, but it's comin'.
 

Not quite. But I don't live or work in the worst parts of it, so couldn't tell you for sure.

The whole issue I have is today is unpredictable. I can't count on anything although I have a great well paying job, no debt except a small mortgage, good net worth, etc.

But so what?

Do I take 40 grand outta my cash and pay off the house? Well, if we have hyperinflation tomorrow, that would have been stupid. Do I cash in the 401K and buy gold bullion. Well, we can see
where that would fail. Do I move my money overseas to protect it from this idiotic administration? No, he'll probably sic the IRS on me. Do I buy real estate? Who knows! Buy money markets? Welp if there's a panic tomorrow....    Do I put my cash in a safety deposit box? Well in a panic, they'll confiscate. I MEAN WTF!!!    I can't even protect my principle today.

I'm flying blind with a Kenyan pilot who is on a giveaway binge and is mentally unstable and is not well grounded in economics.

You are exactly where they want you to be.

Not entirely where they want us.

We here are thinking, researching, and evaluating.

We can be damned sure they do not want us doing those things.

Maybe they want panic,

or perhaps they want us deer-in-the-headlights.

Happily lulled by Entertainment Tonight, or letting off steam shouting at televised Beck.

Maybe spending sprees of plastic, or rationing out toilet paper to our families.

We can't exactly know what they do want.  But we can feel fairly confident that they do not want a group of Constitutionalists discussing various ideas, calmly debating, respectfully disagreeing,  throwing out ideas, and pondering our own respective best options.

What they do not want is rational decision making on our part.  Or reliance upon sound ancestral wisdom.

We can also know that they do not want courage.

They want us to fear.  And we wisely, rationally do fear.  

They are calculating upon fear to make us either compliant or recklessly defiant.

They do not want us to practice wisdom.

We here together are building wisdom.  Actionable wisdom.  Wisdom with strength and foresight.

We do the best we know how, and I think we do it very well.

If you're smart you'll take all of them out of that box.
During THE LAST depression you had to have IRS present to open a box........and gold was siezed.

Greenspan's comments here, fitted into the context of his long term position, are basically an "I told you so".

He's been an advocate of a gold peg as far back as i remember, he told a Senate Committee as much and even admitted he might have been the only gold peg advocate at the Fed.

If you're going to bang on Greenspan, it would have to be for backing off the implications of his belief in gold during the 90s and letting he currency get hammered instead of maintaining its value as compared to gold.

Regarding the Greenspan comment here, you can either go back and read what he has said in the past to put recent comments into perspective, or you can just tack the following comment onto the end of what he said here, IMO:

"It's fascinating that gold is still money....and you ignorant bucketheads STILL won't see it."

Moving right along, IMF says their going to dump gold, as of today, there's links here at AR-15 if you're interested.
400 tons and change. They say they are going to sell it for currency to increase liquid assets so they can make loans to poor countries, and they say they will sell it so as not to affect market price.

400 tons is a fair amount of gold. Lots of possibilities if the stated reason for the sale isn't the real reason, including a shot across China's bow. Interesting times ahead, and those of you who want to firm up metals positions...might....find entry prices a little easier to justify if the IMF sales do move the price.

Article on CR about strategic defaults...


Calculated Risk on Ruthless Defaults



Saturday, September 19, 2009
Report: Strategic Defaults a "Growing Problem"
by CalculatedRisk on 9/19/2009 11:55:00 AM
From Kenneth Harney at the LA Times: Homeowners who 'strategically default' on loans a growing problem

National credit bureau Experian teamed with consulting company Oliver Wyman to identify the characteristics and debt management behavior of the growing numbers of homeowners who bail out of their mortgages with none of the expected warning signs, such as nonpayments on other debts.
...
[Some results:]
...

The number of strategic defaults is far beyond most industry estimates –– 588,000 nationwide during 2008, more than double the total in 2007. ...


Strategic defaulters often go straight from perfect payment histories to no mortgage payments at all. ...


Strategic defaults are heavily concentrated in negative-equity markets ...
This fits with recent research from Guiso, Sapienza and Zingales: See New Research on Walking Away and here is their paper: Moral and Social Constraints to Strategic Default on Mortgages






This was a big concern of mine. I have heard a couple of severly upside down people at work discussing this. If this truly takes hold in a major way the smoking hole in the ground will be the previos RE market...  


Chris

Why don't you go ask Motown Steve about the "wealth" he's managed to build? You need to understand something: a house is just a roof over your head, nothing more. A big part of the reason we got into this mess is people thought of their homes that way, they then turned them into ATMs via HELOCs, now with the housing crash they're assfucked, no lube. This "homes=wealth" meme is a fucked up mentality that needs to go.

And the reason for a large downpayment is for a couple of reasons, first off it means you start off with a decent investment in the home, which means you're much less likely to jingle-mail it when things get tough. It also shows that you're a responsible person who can budget and plan ahead, since you were able to save up a larger amount of money with blowing it on consumer crap and partying. Both of those things mean you're more likely to be a good credit risk for the bank.

IMO if you can't save up enough for a decent downpayment then you simply have no business buying a home.