GG Posted October 5, 2009 Share Posted October 5, 2009 .. and I've had a lot of arguments and debates with a lot of people over a long period of time--SDS, Gavin, Lamb, Darrin, GG, and many others. To my recollection, no one has ever been wrong here! OK, I need to add to the "debate" Your an idiot. Link to comment Share on other sites More sharing options...
Magox Posted October 6, 2009 Author Share Posted October 6, 2009 First, yes I am truly an idiot, and someone still needs to make a breathalyzer for computers... M, I agree with your statement that inflation devalues the $, but your example does not happen in the real world. If "money" were gold, as it was a century or so ago, then you'd be closer to correct; but money is not gold. Most of it is created by the banking system when loans are made. And if it is created when loans are made, then it is destroyed when loans are repaid. You also seem to be confusing "money" in circulation with bank reserves. The $1 trillion swap the FEd made with the financial system is mainly sitting as excess reserves, which the FED now pays interest on. Greenspan and I are saying the same thing: as the economy recovers down the line, those reserves will have to be "unwound." That is the Fed's stated plan. You may be correct, that the fed may not have the political will to restrain inflation below its 2-3% target, but it will not let inflation go any higher than 4-5%; that won't be a bad thing, as it will reduce the cost of outstanding debt held by businesses and consumers. TPS, you are confusing the Federal Reserve's Balance sheet and the Money Supply. What you are referring to with "money" with bank reserves has to do with the Money Supply where as when referring to the Federal Reserve's Balance sheet has NOTHING to do with what you just stated. The Federal Reserve's Balance Sheet has more to do with the Treasuries Securities, Bills, Notes and bonds, Federal agency debt, Mortgage-backed securities and Repurchase agreements. When you hear Money Supply it refers to all physical currency held at the central bank, savings and money market accounts held at depository institutions, deposits at banks, CDs, deposits of eurodollars and repurchase agreements. The unwinding of the Federal Reserve's Balance sheet and soaking up liquidity from the Money Supply are two different things, in which case I am fairly certain that the unwinding of assets on the balance sheet will be very difficult to achieve for the reasons I had mentioned earlier. I also believe that the soaking up of cash in the Money Supply won't be easy as well. I know that the Federal Reserve is talking about offering bonds issued by the Federal Reserve itself to soak up the money it has lent to the banking industry, and I do believe that will have a certain degree of success, but I don't believe it will be able to achieve as much as they hope it for it to work. While I also agree that inflation is realized in commodity prices, I disagree with the inclusion of gold. Gold is not a commodity used in production--unless you include weddings; it is a speculative asset. If your definition of inflation includes assets, then we're a bit closer in agreement. Right now commodities have rebounded mainly from speculation on a rebounding economy; there will be a correction very soon, including gold. I mention Gold because it is a measure of fear in currency devaluation, excess liquidity and inflation. Gold is a very complex market, and in my view is a leading indicator of the things that I just had mentioned. Within the next 5 years I believe you will see Gold reach $2000 an oz. and the days of $1000 gold will seem very cheap. Approximately 50% of my liquid assets are in Precious Metals and I have been advising my clients over the last few years to have a 30% allocation in it as well, and I can tell you this, my clients have been doing very very well, and much better than what most other investors have been doing. I'm fairly certain that precious metals will continue to outperform the stock market over the next 5 years. Why? Because the dollar is heading south and inflation WILL be progressively heading higher. In regards to corrections, maybe, there always is. However, I don't see any significant correction in Gold until spring of 2010. We may see one in late November early December, not a huge one, but a correction none the less. Usually when the Gold markets are rallying heading into Christmas, it is quite normal to see traders book profits for the holidays, as we have seen that happen in 3 out of the last 4 years. The biggest problem I see in the US or global economy has been too much money chasing financial investment opportunities, which leads to asset-price speculation: tech bubble, housing bubble, and commodity bubble. If anything needs to be fixed by re-regulation it is to reduce the influence speculators have on commodity prices (I don't care about gold, because I can't eat it or fuel my car with it). If you want to speculate on oil, ag products, minerals, then buy stock in the companies that produce them. I agree that asset bubbles occur way too often, but that's the way the markets work, and they always correct themselves. If a speculator is willing to take a risk and happens to make a profit when a market is over inflated, then so be it, he took the risk. If he loses money because he chased after a market, then guess what? He'll get punished for it. In regards to the housing bubble, that can be blamed on many things; interest rates too low for too long, poor underwriting and an explosion of money available through Mortgage bond offerings. Last point for you, it is very possible that we will experience a long period of low growth and somewhat higher prices (not hyperinflation). In my view it will be because of the lack of productive investment within the US. Where will jobs come from? The strongest private sector area is medical--my generation is aging. Finance is shrinking, and should shrink; there will not be a construction bubble again for quite some time; maybe a government directed "green revolution" as some think, but that is a longer term solution. The US is at the end of its superpower reign because we no longer have the economic muscle to support the military one. So we are in somewhat agreement about the possibility of stagflation but for slightly different reasons. We'll see. I agree, and in regards to hyperinflation, I don't believe it will happen, but it is a possibility, and if I had to put a % on what is the likelyhood of it occuring, I would put it at between 5-10% Concluding remarks: I've been around these parts since TBD started some 14-15 years ago (?). It's been a good and mostly fun outlet, but it's time to move on. Sometimes I take it a bit too seriously; when, in essence, it's simply an internet posting board where people should be able to say (almost) anything they want. I have posted less and less, in part because I've gotten busier, but in part because I don't find it as entertaining--that's more about me, not about anyone here. There have been some really colorful characters at PPP and TSW--funny and intelligent people. I can't really tell now, but this place was mostly populated by conservatives in the early years, and I've had a lot of arguments and debates with a lot of people over a long period of time--SDS, Gavin, Lamb, Darrin, GG, and many others. To my recollection, no one has ever been wrong here! Seriously, the people and discussions here force you to really think and know your positions--that has been the strength of this place. Thanks for the ride and Go Bills! Time to find my own bunker... TPS Sorry to hear that, and good luck on your search Link to comment Share on other sites More sharing options...
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