-- Posted Thursday, 2 April 2009 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Thursday, April 2, 2009
“Phenomenally accurate forecasts”
Yesterday’s challenge – explain how inflation will get off the launching pad in a deflating economy – went unanswered, although the topic itself provoked quite a response in the Rick’s Picks forum. The question was not rhetorical, since, in order to produce inflation, there has to be a mechanism for all of that printing press money inflationists keep blathering about to physically make its way into the consumer economy. Anyone who thinks massive fiscal spending alone can create inflation should read Hayek’s The Road to Serfdom, since the equally massive borrowing needed to finance a public works economy will place a severe drag on the productive, private half of the economy (and that’s assuming there will even be a private economy once President Obama completes his fascist project of merging The Government with America’s biggest corporations).
One of the more interesting comments in the forum came from reader David White: “There will be no policy changes,” David writes, “only more of the same until the situation is so dire that handing out checks will be the only way to get money into consumer’s hands, thus depreciating the currency to save the economy. For a little while longer, at least. Rick obviously doesn’t believe that Bernanke won’t do what he said he would. But I assure you he will. For that matter, the government started handing checks out last you, setting the precedent for bigger and bigger checks.”
When Government Gives Up
My response: “Exactly: “…until the situation is so dire that handing out checks will be the only way to get money into consumer’s hands.” This is what I meant when I wrote the following: ” Hyperinflation will arrive when The Government decides that fiscal stimulus alone cannot ever get us out of debt, given the vast sums of debt that need to be inflated away.”
But I am not talking about some piddling $1800 tax refund; rather, the checks that the government hands out will need to be as big as the “underwater” part of everyone’s mortgages — plus some substantial cushion of perhaps $50k to $100k– in order to “solve” debtors’ problems and keep consumption numbers up. The cushion would tide us over until good jobs return — hardly a given, since the U.S. without a banking industry has little left to sell the world.
Bernanke Still Behind Curve
Concerning Bernanke, a political stooge, he hasn’t come even remotely close to shoveling $100 bills out of helicopters. Whatever the guy said he would do, and regardless of what he allegedly learned studying the Great Depression, in practice he has been too chicken-hearted to do what it would take. That’s why the $11 trillion shot at the problem so far has done nothing to reverse the deflationary slide in real estate. Bernanke has been behind the curve since the beginning, and he still is — still hasn’t copped to the fact that the only solution to deflation, other than via deflationary liquidations, is to hyperinflate, literally distributing large bills to the populace.”
The comments, in the forum, of “Jack” also raise some provocative questions. He believes in deflation but cannot see why, if that’s what’s coming, an investor should stick with gold:
“This is a great debate,” he writes, “and I appreciate everyone’s thoughtful opinions. Your opinion that deflation is a certainty and is underway is logical and I have no argument there. But you also say that inflation is not going to happen and that hyper inflation is only a possibility.
Sell Gold Now?
“Let’s assume that you are 100% correct and that deflation continues and that the possibility of hyperinflation does not occur. If that is true then wouldn’t I be better off to sell my gold and silver and stuff the cash back in my safe deposit box? With continuing deflation and no inflation then gold will soon be below $500 an ounce and my treasury bill hoard will double in value. Well, won’t it?
“The cash will buy twice as much gold and should also buy twice as much milk, eggs, gas…
“Or, am I missing something? If your deflation theory is dead on then how can U.S. treasury notes not be a better investment than gold or silver? I do believe you are right about the deflation but I just can’t force myself to make this trade.
Bogus Bills
“As an aside, did you know that the treasury says that 50% of all the U.S. paper money in circulation is outside of the United States? And they also admit that 50% of the money circulating outside of the U.S. is counterfeit. Not copy machine quality but bills printed on the same printing presses the Treasury uses and with equal quality printing plates, ink and paper. They are printed by sovereign governments and are pretty much indistinguishable from genuine currency.
“Just a thought. Rick, you may be right on but I’m going to hold back a little bit of that gold and silver. Jack.”
The short answer, Jack, is that Gold is likely to do well regardless of whether we hyperinflate or deflate. If the latter, bullion will be one of the very few monetary assets on earth that is completely unencumbered by debt.
On these and other matters we welcome your further comments, dear readers, since we don’t claim to have all the answers. Let the dialogue continue.
***
Rick's Picks publishes a daily trading newsletter for gold, stock, commodity, and mini-index traders 240 times per year. Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers' initials will be used unless express written permission has been granted to the contrary. All Contents © 2009, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Thursday, 2 April 2009 | Digg This Article | Source: GoldSeek.com
