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Thread: Inflation: Understanding the Current Economic Crisis and How to Protect Yourself

  1. #21
    [QUOTE=JetsCrazey;2559067]If you are truly convinced of this then you should be buying cans of food and move out to the middle of nowhere because it means a derivative failure chain reaction which puts us into armageddon.[/QUOTE]

    It won't be armageddon - just normal market cycles - we haven't had a true bear market IMO since the early 1990's - and even that was mild in terms of length. We are due a huge bear market, but that is not what I am basing my prediction on - it's just that the technical indicators show a bear market is on the way. The markets are forming a massive topping action and will go much lower from here over the long-term.

  2. #22
    [QUOTE=Black Death;2544998]Golds low was some years back - from memory around $250 an ounce. It is now just under $800 an ounce.

    You have to remember people were saying the same things in 1980 when the precious metals were around the same price they are now - if you had of bought then you would have had to of waited 30 years just to get your money back.

    The big rises in gold and silver are now behind us.[/QUOTE]


    Exactly. There is historical preccedent for this exact same situation. The 1970's produced great economic distortions as the commodities producing nations believed that they could gain (and in some cases blackmail) the developed economies. The Oil crisis at the time was articificial but speculation created the perception of a shortage in the US.

    The commodities producers paid for their arrogance towards the end of the 1970's- early 80's when inflation destroyed their domestic economies and the wealth they had obtained earlier had become nearly worthless as a result creatign the massive defaults in Latin America and the Middle East which produced massive upheavals in their societies which produced such effects as the downfall of the Shah and the rise of the Islamist theocracy in Iran, the social unrest in Saudi Arabia of the '80's.

    Today's situation bears the hallmarks of the 70's- only today oil prices are based on speculative factors rather than purposeful shortage. The commodities based developing economies remain dependent on developed economic financial power to invest their new funds and rely on the developed economies to provide food and technology to their citizens. When the price of commodities increases, developed economies cut back production, inflation decreases the value of the new profit of these nations and creates a situation where paradoxically, the more they try to influence the market, the more negative the influence on their socieites. The fact that commodities based economies rely on sectors that employ a comparative fraction of the total population and are instruments of corruption and patronage only contributes to social discontent. As these civil servants enjoy the benefits of success, the gap widens in their socieites- creating greater awareness and resentment.

    Just today, in Bloomberg.com, Venezuela's economy reported the slowest economic increase in 5 years (this after 2 years of unpreccedented petroleum receipts) and massive inflation rates never seen in almost 25 years- the exact same time when the Venezuelan economy then benefited from massive influxes of Petrodollars and was on the eve of its collapse. it cannot be balmed only on the nationalization policies of Chavez, as Venezuelan back then under a democratic, capitalistic government followed nationalization policies as well.

    Interestingly, just yesterday, in a discussion with a representative of a major oil producing nation after attending an economic conference in D.C., I was told that the situation had become critical for theri economies and that some suspected conspiratorially, the the developed nations were purposefully trying to undermine their economies with the current global economic situation. In these situations, when representatives voice forebodings of disaster in the midst of unbridled profit, they understand the historic implications of the current situation.
    Last edited by Equilibrium; 05-28-2008 at 10:27 PM.

  3. #23
    Stock brokers in the 90's what kind of idiot would buy value stocks over tech stocks. Real estate Brockers in 2000, what kind of idiot wouldn't be putting all their money in second homes, trading up and buying rental property. Ron Paulists today, commodities will go up forever and everything else is speculation.

  4. #24
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    [QUOTE=Black Death;2559381]It won't be armageddon - just normal market cycles - we haven't had a true bear market IMO since the early 1990's - and even that was mild in terms of length. We are due a huge bear market, but that is not what I am basing my prediction on - it's just that the technical indicators show a bear market is on the way. The markets are forming a massive topping action and will go much lower from here over the long-term.[/QUOTE]

    +1. Good posts BD.

  5. #25
    commodity bull markets last at least 15 years historically.
    Gold's bull market began in 2001-2.
    It has quite a few years left and we haven't even entered the "mania" stage yet where mainstream investors want to get in.
    Some of you guys are just plain living in la-la land
    Fact is, unprecedented amounts of dollars will have to be provided in the upcoming years to keep the economy running. This will make the values of all hard assets rise. ALL fiat currencies will suffer and investors will look for a hedge against this.
    Gold is in the process of switching from a commodity phase to a monetary phase.
    It's going to 1600 at least.

    the markets haven't formed a topping action. Gold hit an important psychological number an obviously failed the first test (same goes for EUR/USD at 1.60). They will test again and clear it. Take it to the bank. Why do you think the US Treasury long bond broke important support yesterday? BECAUSE INVESTORS REALIZE INFLATION IS HERE AND THEY WANT HIGHER YIELDS.

    There is a reason consolidation has been occurring in the gold market lately and will continue to occur. Because production cannot keep up with demand, my friends. The people who own the large gold mines and the bullion banks know exactly what is going on and they are positioning themselves.

    If you think gold is entering a bear market I got a bridge in Brooklyn I can sell you.
    Last edited by JetsCrazey; 05-29-2008 at 12:05 PM.

  6. #26
    [QUOTE=JetsCrazey;2560000]commodity bull markets last at least 15 years historically.
    Gold's bull market began in 2001-2.
    It has quite a few years left and we haven't even entered the "mania" stage yet where mainstream investors want to get in.
    Some of you guys are just plain living in la-la land
    Fact is, unprecedented amounts of dollars will have to be provided in the upcoming years to keep the economy running. This will make the values of all hard assets rise. ALL fiat currencies will suffer and investors will look for a hedge against this.
    Gold is in the process of switching from a commodity phase to a monetary phase.
    It's going to 1600 at least.

    the markets haven't formed a topping action. Gold hit an important psychological number an obviously failed the first test (same goes for EUR/USD at 1.60). They will test again and clear it. Take it to the bank. Why do you think the US Treasury long bond broke important support yesterday? BECAUSE INVESTORS REALIZE INFLATION IS HERE AND THEY WANT HIGHER YIELDS.

    There is a reason consolidation has been occurring in the gold market lately and will continue to occur. Because production cannot keep up with demand, my friends. The people who own the large gold mines and the bullion banks know exactly what is going on and they are positioning themselves.

    If you think gold is entering a bear market I got a bridge in Brooklyn I can sell you.[/QUOTE]

    Deflation is coming and it will hit gold just as it hits everything else.

    I would suggest to you that gold has already experienced a 'mania' stage earlier this year - when it was around $1000 an ounce there was 97% investor postivity on it. In other words, 97% of investors had some form of investment in gold. When that is the case, who else is there to buy it? Hence the reason it dropped to below $900 an ounce very rapidly after that.

    Almost 100% positivity around gold suggests to me a mania - a 'gold fever'.

    If you think the US Fed is going to continually inflate away you are seriously mistaken - already they have realised that their policy of lowering interest rates has had a drasticly negative effect on the price of oil.

    Also, the Fed's monetary mechanism is increasingly inoperable, and the reason for that is the huge amounts of debt in the system. This debt, despite the recent credit crunch, has still yet to be shaken out - do you recall the falls in equities and commodities when the credit crunch hit? That is nothing to what is coming.

    Yes, at the moment we are experiencing inflation - but that will give way to deflation pretty damn quickly.

    BTW I would argue that gold has already switched from a commodity phase to a monetary phase - the industrial uses of gold are nothing to its percieved quality of being a store of value.

    I don't place too much store in the price of gold from day to day, but it dropped over $20 an ounce last night and has broken through support - the next support levels are just above $800 an ounce. From here I would be surprised if it hit $1000 an ounce for some time yet.

  7. #27
    [QUOTE=PlumberKhan;2544204]Always first to blame the American worker, right Comrade? It's never the fault of a**hole CEO's paying themselves enough to start their own space program even when the economy is in a downturn. It's never ever their fault, right? How dare thes peon low class morons expect to profit from their own hard work!!! That right only belongs to empty suits and shareholders.

    I mean, can you believe the gall of these low class ingrates to expect a small fraction of the profits? They should just worry about paying the lot rent for their trailer...[/QUOTE]what about actors and ball players? do they make too much compared to the help on the set or at the stadium?

  8. #28
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    Commodities have been tanking lately.

  9. #29
    [QUOTE=Black Death;2561272]Deflation is coming and it will hit gold just as it hits everything else.

    I would suggest to you that gold has already experienced a 'mania' stage earlier this year - when it was around $1000 an ounce there was 97% investor postivity on it. In other words, 97% of investors had some form of investment in gold. When that is the case, who else is there to buy it? Hence the reason it dropped to below $900 an ounce very rapidly after that.

    Almost 100% positivity around gold suggests to me a mania - a 'gold fever'.

    If you think the US Fed is going to continually inflate away you are seriously mistaken - already they have realised that their policy of lowering interest rates has had a drasticly negative effect on the price of oil.

    Also, the Fed's monetary mechanism is increasingly inoperable, and the reason for that is the huge amounts of debt in the system. This debt, despite the recent credit crunch, has still yet to be shaken out - do you recall the falls in equities and commodities when the credit crunch hit? That is nothing to what is coming.

    Yes, at the moment we are experiencing inflation - but that will give way to deflation pretty damn quickly.

    BTW I would argue that gold has already switched from a commodity phase to a monetary phase - the industrial uses of gold are nothing to its percieved quality of being a store of value.

    I don't place too much store in the price of gold from day to day, but it dropped over $20 an ounce last night and has broken through support - the next support levels are just above $800 an ounce. From here I would be surprised if it hit $1000 an ounce for some time yet.[/QUOTE]

    Why do you think the Fed bailed out Bear Stearns so that it wouldn't default on its contracts?
    The answer, of course, is because a Bear Stearns default on its credit instruments would lead to a chain reaction of derivative failure the likes of which none of us can even comprehend. It's a house of cards. That's why Bernanke told the Bear Stearns CEO that JP Morgan was taking it over and that's that. Bernanke knew what was at risk.

    Deflation means credit default which builds upon itself leading to even more credit default, taking the whole house of cards down. That will not be allowed to happen. What you are currently seeing are PR moves, the Working Group on Financial Markets creating the PERCEPTION that all is well, meanwhile M3 goes up 17% per annum. This perception will not last long, and the yield curve is reflecting this.

    Deflation implies a falling price level and money supply. How does deflation occur when M3 is going up almost 20% per year and also while BRIC countries are exporting inflation to us for food, gas, and raw materials?

    The only thing indicating deflation to you is a chart which you think shows a top. But time will show that you are incorrect in your interpretation of a chart. Look at a long-term chart of the USDX and you will see the trend accelerating, not getting any better. Mark my words, gold will finish the year well above its current record high. You've got to look at the big long-term picture: supplies are decreasing while demand is increasing. It's a global view, not a US view. [B]Never argue with the underlying fundamentals because they ALWAYS win out[/B]
    Last edited by JetsCrazey; 05-30-2008 at 02:32 PM.

  10. #30
    [QUOTE=jetstream23;2561673]Commodities have been tanking lately.[/QUOTE]

    "The best time to buy is when there's blood in the streets" -John D. Rockefeller

  11. #31
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    [QUOTE=2foolish197;2561280]what about actors and ball players? do they make too much compared to the help on the set or at the stadium?[/QUOTE]

    Yes.

  12. #32
    [QUOTE=JetsCrazey;2562291]Why do you think the Fed bailed out Bear Stearns so that it wouldn't default on its contracts?
    The answer, of course, is because a Bear Stearns default on its credit instruments would lead to a chain reaction of derivative failure the likes of which none of us can even comprehend. It's a house of cards. That's why Bernanke told the Bear Stearns CEO that JP Morgan was taking it over and that's that. Bernanke knew what was at risk.

    Deflation means credit default which builds upon itself leading to even more credit default, taking the whole house of cards down. That will not be allowed to happen. What you are currently seeing are PR moves, the Working Group on Financial Markets creating the PERCEPTION that all is well, meanwhile M3 goes up 17% per annum. This perception will not last long, and the yield curve is reflecting this.

    Deflation implies a falling price level and money supply. How does deflation occur when M3 is going up almost 20% per year and also while BRIC countries are exporting inflation to us for food, gas, and raw materials?

    The only thing indicating deflation to you is a chart which you think shows a top. But time will show that you are incorrect in your interpretation of a chart. Look at a long-term chart of the USDX and you will see the trend accelerating, not getting any better. Mark my words, gold will finish the year well above its current record high. You've got to look at the big long-term picture: supplies are decreasing while demand is increasing. It's a global view, not a US view. [B]Never argue with the underlying fundamentals because they ALWAYS win out[/B][/QUOTE]


    The 'supply' of gold isn't 'decreasing' - gold isn't a commodity like oil, which can only be used once - it can be used many times.

    As far as deflation goes, you forget the lessons of history - most periods of great inflation, for example, the 1920's, are followed by a period of deflation. The other factor here of course is the debt - what makes the ensuing period of deflation more brutal is larger amounts of debt during the inflationary period - the debt we have now is the largest in history.

    One has to remember that, yes, the Fed did bail out Bear Stearns, but the size of the bailout was miniscule compared to the debt in the banking system. The bailout of Bear Stearns was more symbolic than anything - and the bailout wasn't a true bailout in that the Fed set up instruments that have to be called in at some stage.

  13. #33
    BTW, the underlying fundamentals are pointing to deflation, not inflation.

  14. #34
    [QUOTE=JetsCrazey;2562340]"The best time to buy is when there's blood in the streets" -John D. Rockefeller[/QUOTE]

    That should be soon because Detroit is about to win a Stanley Cup...

  15. #35
    [QUOTE=Black Death;2562887]BTW, the underlying fundamentals are pointing to deflation, not inflation.[/QUOTE]

    No they are not. The underlying fundamentals are hundreds of billions in new govt obligations, higher deficits, money supply increasing faster than ever before, and inflation in raw materials and food being imported from developing nations.

    What is possibly deflationary about that?
    Debt deflation will slow economic growth but it will not deflate the price level because of the above factors I stated.

    You also don't seem to understand the derivatives crisis and how deflation would spur a chain reaction of derivative failure. The precise reason the Fed exists is to prevent this scenario. Otherwise they would have let Bear Stearns go under to let the toxic debt work its way out of the system. But the $20 trillion in credit default derivatives would have gone under too without the counterparty of Bear Stearns and it would have created armageddeon. This absolutely will not be allowed to happen

    The banking system is currently insolvent and the Fed is making it solvent by putting toxic debt onto its balance sheet. This will be reflected in the value of the US dollar lowering and the monetary inflation will turn into price inflation. You cannot bust a central bank but you can bust its currency and that is the path that is being taken. US dollar goes down, gold goes up.
    Last edited by JetsCrazey; 05-30-2008 at 11:39 PM.

  16. #36
    [QUOTE=Black Death;2562844]The 'supply' of gold isn't 'decreasing' - gold isn't a commodity like oil, which can only be used once - it can be used many times.

    As far as deflation goes, you forget the lessons of history - most periods of great inflation, for example, the 1920's, are followed by a period of deflation. The other factor here of course is the debt - what makes the ensuing period of deflation more brutal is larger amounts of debt during the inflationary period - the debt we have now is the largest in history.

    One has to remember that, yes, the Fed did bail out Bear Stearns, but the size of the bailout was miniscule compared to the debt in the banking system. The bailout of Bear Stearns was more symbolic than anything - and the bailout wasn't a true bailout in that the Fed set up instruments that have to be called in at some stage.[/QUOTE]

    The supply increases are not keeping up with demand increases. Thus, price rises.

    Do not compare this to the 1920s and 30s when we were on a gold standard. Policy is totally different nowadays. Compare it to the 70s and its inflationary problems, the only difference then was the inflation was exported by us instead of the developing world exporting it to us as it is today. We are still a number of years off from a Paul Volcker coming in and forcing us to pay the price to restore stability. Bernanke is paying for a mess caused by Greenspan and encouraged by Clinton and then Bush.

    The bailout of Bear Stearns was indeed symbolic- it symbolized that the Fed will do whatever it takes to prevent a primary dealer in US Treasuries from defaulting on its credit derivatives! WHATEVER IT TAKES.

    One thing I know for sure: The House banking and currency committee could do a hell of a lot better job than the Fed managing the monetary system. The committee actually saw the derivatives disaster coming since back in 1993. The Fed ignored their advice, listened to the banksters, and caused this mess where we are choosing high inflation, the lesser of two evils as opposed to deflation.
    Last edited by JetsCrazey; 05-31-2008 at 12:22 AM.

  17. #37
    [QUOTE=JetsCrazey;2563160]No they are not. The underlying fundamentals are hundreds of billions in new govt obligations, higher deficits, money supply increasing faster than ever before, and inflation in raw materials and food being imported from developing nations.

    What is possibly deflationary about that?
    Debt deflation will slow economic growth but it will not deflate the price level because of the above factors I stated.

    You also don't seem to understand the derivatives crisis and how deflation would spur a chain reaction of derivative failure. The precise reason the Fed exists is to prevent this scenario. Otherwise they would have let Bear Stearns go under to let the toxic debt work its way out of the system. But the $20 trillion in credit default derivatives would have gone under too without the counterparty of Bear Stearns and it would have created armageddeon. This absolutely will not be allowed to happen

    The banking system is currently insolvent and the Fed is making it solvent by putting toxic debt onto its balance sheet. This will be reflected in the value of the US dollar lowering and the monetary inflation will turn into price inflation. You cannot bust a central bank but you can bust its currency and that is the path that is being taken. US dollar goes down, gold goes up.[/QUOTE]

    Do you know how much money the Fed pumped into the banking system? Something like a couble of hundred billion - in other words a miniscule amount compared to the actual debt.

    In the end, all debt is deflationary because it has to be liquidated. Look at any asset bubble/inflationary period of the last century and you will find that it was followed by a deflationary period - and that is because just about every asset bubble is backed by debt.

    You are ignoring the facts - the facts are that deflation has already hit the housing market/real estate, it has already hit the sharemarkets, and soon it will hit commodities.

    Anything the Fed does now is simply delaying the inevitable - and soon it will have to raise interest rates.

    Deflation is coming, pal - that's the lesson from history.

  18. #38
    [QUOTE=Black Death;2563470]Do you know how much money the Fed pumped into the banking system? Something like a couble of hundred billion - in other words a miniscule amount compared to the actual debt.

    In the end, all debt is deflationary because it has to be liquidated. Look at any asset bubble/inflationary period of the last century and you will find that it was followed by a deflationary period - and that is because just about every asset bubble is backed by debt.

    You are ignoring the facts - the facts are that deflation has already hit the housing market/real estate, it has already hit the sharemarkets, and soon it will hit commodities.

    Anything the Fed does now is simply delaying the inevitable - and soon it will have to raise interest rates.

    Deflation is coming, pal - that's the lesson from history.[/QUOTE]

    When gold is over $1100 later this year will you admit that you were wrong?

  19. #39
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    Good stuff BD and JC...

    I can't figure out which of the two I think are right. My gut leans JC's way, but can see BD's point in that how much more debt can our consumers really take on? At some point they are going to have to stop spending and start paying down...

  20. #40
    [QUOTE=CTM;2563721]Good stuff BD and JC...

    I can't figure out which of the two I think are right. My gut leans JC's way, but can see BD's point in that how much more debt can our consumers really take on? [B]At some point they are going to have to stop spending and start paying down...[/B][/QUOTE]

    Thats the whole point isn't it? Its time we start paying for the artificially low interest rates (via the Fed) which have caused this excess borrowing.... but the Fed doesn't want Americans to feel the pains of withdrawal so their job is to try to prop up the markets which need serious cleansing and the way they do this is through inflation.... We really should be going through a period of deflation soon (which we wouldn't need if the Fed hadn't gotten us in this mess in the first place) but the Fed can and will not allow this to happen. The Fed would rather monetize the debt through inflation than pay the severe economic and political consequences of retracting the money supply and having these adjustable rate loans skyrocket to 20% (something that couldn't have happened in the 1970s) and the market collapse similar to the Great Depression. Deflation will happen after the Fed does everything in their power to prevent it.... but inflation will rise dramatically in the interim and that is what people must protect themselves from... the inflation which will rob the average American of their savings can be prevented by putting money in inflation hedges such as gold, silver, platinum, etc. or in foreign currencies and companies. Their is hope to protect yourself from the coming storm, but if you don't understand what is happening you'll never make it out with your savings intact.

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