If Inflation Was To Be Their Plan...

[General Congreve]

Interesting post, thanks. Any links to where the 25% and 0.8% come from?

I hold all sorts of stuff, including gold and sterling. Gold seems an excellent hedge, but I'm not sure it is in line for the 25/0.8 = 3100% rise that you imply. As time goes on I'm leaning more towards an inflationary scenario, but I'm still not sure.

If we get into a situation where:

- Greece and other PIIGS default

- Most big banks blow up as a result

- Political pressure makes bailing them out again untenable

- The banks are allowed to go bust, with huge falls in stockmarkets and losses of savings resulting

This would be amazingly deflationary - 2008/9 all over again but worse. We could easily see 40%+ falls in stockmarkets and house prices. Money wouldn't rush into gold - the point is they'd be less money. It would have been destroyed in the defaulting.

I think it might have been Moneyweek where I read the stats on wealth held in gold. However, I do have the attached graph with a stated source. Even if the latest figures are out by a margin of 100%, that still only means 1.6% is held in gold (correction: I note the graph includes mining shares in that figure - so actual physical gold is an even lower percentage), so there is huge upwards scope for wealth to return to gold.

I agree that we would be unlikely to see a linear increase in value by 3100% if wealth in gold went back to historic norms. But the current differential certainly bodes positively in gold's favour for a substantial large potential increase in value, should wealth start to flow back into gold. Everything about the current state of the global economy points in the direction that this is happening and will continue to happen as the situation worsens.

I understand what you are saying about the potential for a deflationary collapse. Personally I think they will man the printing presses, it is a more palatable solution for incumbent politicians, but if they don't the outcome will be the same at the end of the day.

A deflationary collapse that destroys savings will destroy the economy, by destroying business assets held with banks and destroying saved wealth when savings accounts vanish into thin air, it will also cause government default, as deflation means the burden of debt on debtors increases. In a situation where an economy has collapsed and a government is in default, the currency also collapses. You cannot have a strong currency with a weak economy.

So instead of the steady scourge of inflation, we will have outright devaluation instead. Two sides of the same coin. Not only will gold protect wealth against devaluation, but as the currencies devalue and other assets like property collapse and bonds collapse in value, the wealth will try to escape from those assets - enter stage left: Gold. Supply and demand dictates that with gold being a relatively fixed asset, more demand equals a higher price in real terms.

So, in summary not only does gold protect wealth from inflation and devaluation, but an inflationary or deflationary scenario will cause a flood of investment demand into gold from wealth seeking safety, thereby forcing up the value of gold (just as we have seen happen with houses in the last decade), making it not only a protector, but an investment with the potential for remarkable speculative gains.

Of course, they may well come a point when the current crisis is resolved where it is prudent to sell gold (unless we end up going back to a gold-backed currencies of course) and ride the next bubble, or at least count your winnings. But with the fiat currencies, property, bonds et al in the state they are currently in, that time is a way off.

Edited June 22, 2011 by General Congreve

[Timm]

(...)

If we get into a situation where:

- Greece and other PIIGS default

- Most big banks blow up as a result

- Political pressure makes bailing them out again untenable

- The banks are allowed to go bust, with huge falls in stockmarkets and losses of savings resulting

This would be amazingly deflationary - 2008/9 all over again but worse. We could easily see 40%+ falls in stockmarkets and house prices. Money wouldn't rush into gold - the point is they'd be less money. It would have been destroyed in the defaulting.

Political pressure may well make bailing out the banks more difficult next time.

This may be why they are already selling QE2 as something to prop up the economy, not the banks.

[50sQuiff]

My interpretation of the situation is this:

The bond market and the plutocracy that control it love QE. It means they get their money back. It means they get it back first to buy assets long before the sheeple's purchasing power starts to erode. Without QE, there is default and the plutocrats lose everything. That's why we will have QE to infinity.

Debt is the essence of fiat. When debt defaults, money is destroyed. But hyperinflation is the act of converting all debts to cash, 100 cents on the dollar.

TARP, TALF, GMC, QE, QE2, SMI, FNMA, FDMC, RBS, TSB, HBOS... and every other bank you've never heard of that got a stealth bailout from the Fed or ECB.

Has anyone not been made whole yet? Oh yes, bond holders love the printy printy.

[Sour Mash]

FACT: They are going to inflate, they have no other choice. I mean we borrowed £250 for every man, woman and child in May alone to keep the ponzi scheme going, do you honestly think we'll ever pay it back in real terms? If they don't inflate, the UK defaults. So, they have chosen the insidious and politically more acceptable path of stealth default through inflation. END OF STORY.

So, please stop acting so surprised. And while you are screaming bloody murder, I am punching the air in jubilation.

Keep your savings in paper and Merv is public enemy No. 1. Buy some gold and silver and every time he goes near that printy, printy button Merv is working for you.

How anyone can still think there will be deflation is a mystery.

The actions of the govt/central banks since 2007 demonstrate exactly what their policy is regarding the threat of deflation. It's proven that they can kick the can down the line by pumping new money into the economy and now that the last batch is wearing off, the countdown to the next batch (which will be even bigger) has started.

Each cycle of printing will be bigger and the effects shorter lived of course ... but that won't stop them keeping going until they hit 'game over' point with a hyperinflationary bust. In the meantime, those at the top are using their first access to freshly printed money to accumulate assets. By the time the end comes for the current monetary system, they'll be sitting pretty on solid assets having increased their net wealth considerably at the expense of all the people who thought that the authorities would keep the value of money stable.

[General Congreve]

How anyone can still think there will be deflation is a mystery.

The actions of the govt/central banks since 2007 demonstrate exactly what their policy is regarding the threat of deflation. It's proven that they can kick the can down the line by pumping new money into the economy and now that the last batch is wearing off, the countdown to the next batch (which will be even bigger) has started.

Each cycle of printing will be bigger and the effects shorter lived of course ... but that won't stop them keeping going until they hit 'game over' point with a hyperinflationary bust. In the meantime, those at the top are using their first access to freshly printed money to accumulate assets. By the time the end comes for the current monetary system, they'll be sitting pretty on solid assets having increased their net wealth considerably at the expense of all the people who thought that the authorities would keep the value of money stable.

Exactly.

In a nutshell, the banks, via central banks and complicit governments, are enforcing repayment of debts through inflation. So the bankers end up getting paid (rather than going bust) and society is forcibly made to pay the outstanding debts to the banks by having their wealth stolen via inflation.

It couldn't be plainer than day. Buy hard assets to protect wealth, because your wealth is diminishing by the day.

Any of you don't believe me? How about petrol at £1.40? Car insurance up 40%? Bread at £1.40 a loaf?

A picture is worth a thousand words, so here's a couple:

[scottbeard]

If it looks like a duck, waddles like a duck, and quacks like a duck, then it probably is a duck!

In 1929 it looked like US stock prices would spiral upwards forever. They didn't.

In 2007 it looked like UK house prices would spiral upwards forever. They didn't.

Now it looks like gold prices will spiral upwards forever. Is it a duck or not?

So, in summary not only does gold protect wealth from inflation and devaluation, but an inflationary or deflationary scenario will cause a flood of investment demand into gold from wealth seeking safety

I'm very interested to read your posts, but I still can't see why a deflationary scenario would cause a run on gold, and why in a deflationary situation i'm not just better to have a bunch of £10 notes under the bed than a pile of gold coins, whose value in £ terms is decreasing. Or to put it another way, if gold is the way to riches in deflation, why isn't every household in Japan awash with gold coins and millionaires?

How anyone can still think there will be deflation is a mystery.

The actions of the govt/central banks since 2007 demonstrate exactly what their policy is regarding the threat of deflation.

I explained above how the inevitable Greek default could plausibly trigger the biggest deflationary event since 1929. I still contend it is a possibility, even if other possible scenarios are more likely.

I'd like to think those in charge of the UK economy would see what happened to Zimbabwe and Robert Mugabe and choose a different path. But I agree - it's possible they will not.

[General Congreve]

In 1929 it looked like US stock prices would spiral upwards forever. They didn't.

In 2007 it looked like UK house prices would spiral upwards forever. They didn't.

Now it looks like gold prices will spiral upwards forever. Is it a duck or not?

I'm very interested to read your posts, but I still can't see why a deflationary scenario would cause a run on gold, and why in a deflationary situation i'm not just better to have a bunch of £10 notes under the bed than a pile of gold coins, whose value in £ terms is decreasing. Or to put it another way, if gold is the way to riches in deflation, why isn't every household in Japan awash with gold coins and millionaires?

I explained above how the inevitable Greek default could plausibly trigger the biggest deflationary event since 1929. I still contend it is a possibility, even if other possible scenarios are more likely.

I'd like to think those in charge of the UK economy would see what happened to Zimbabwe and Robert Mugabe and choose a different path. But I agree - it's possible they will not.

Gold won't go up forever. At some point fiscal sanity will have to return, whether that is before pounds, dollars and euros are totally worthless and new currencies are issued, I don't know. But until fiscal sanity does return, hold the gold. I would second that I have never advocated holding gold until death. At some point it will probably be prudent to swap it for other assets. We are some way from that time though. I should also add future currencies could be gold-backed, in that case gold could well be a very long term hold.

I thought I explained about deflation? But for clarification:

Debt is the elephant in the room. The government and banks are mired in it. If there is less money sloshing round the economy (deflation), people start defaulting on private debt. This puts the banks at risk and people's savings - I say at risk, they would be f4cked. That also causes a sharp contraction in the economy, a depression, because there is less money to buy things, so unemployment goes up and wages goes down. Without the debt it wouldn't be such a big deal, a new equilibrium would be found quite quickly. But the govt. has bills to pay and is getting a lot less in tax to service those bills, so it's burden of debt goes up,so it struggles to repay existing debt and takes on more to cover the shortfall (a downwards spiral to default).

The deflationary outcome, of collapsing banks taking savers money with them, the economy crashing and the government defaulting leaves you with a country that is severely economically weakened. This automatically causes the value of the currency to plummet. As the UK is a net importer, those £10 notes will drop in value significantly. It is true that deflation means falling asset price too and gold is an asset, so prior to collapse deflation may weigh on gold, but as a monetary metal/stable currency, it will fly as other currencies collapse, as it is hard money, backed by its rarity, its properties and the efforts taken to mine it, not the fortunes of any particular economy. Also people losing money in falling property, defaulting bonds, crashing shares, will be looking for somewhere to save guard that money and devaluing fiat currency won't be it.

If you need further evidence look at Iceland when they defaulted and had their 'deflation', the value of the Kroner collapsed, but the value of gold in kroner rocketed.

Edited June 22, 2011 by General Congreve

[pezo]

Gold won't go up forever. At some point fiscal sanity will have to return, whether that is before pounds, dollars and euros are totally worthless and new currencies are issued, I don't know. But until fiscal sanity does return, hold the gold. I would second that I have never advocated holding gold until death. At some point it will probably be prudent to swap it for other assets. We are some way from that time though. I should also add future currencies could be gold-backed, in that case gold could well be a very long term hold.

I thought I explained about deflation? But for clarification:

Debt is the elephant in the room. The government and banks are mired in it. If there is less money sloshing round the economy (deflation), people start defaulting on private debt. This puts the banks at risk and people's savings - I say at risk, they would be f4cked. That also causes a sharp contraction in the economy, a depression, because there is less money to buy things, so unemployment goes up and wages goes down. Without the debt it wouldn't be such a big deal, a new equilibrium would be found quite quickly. But the govt. has bills to pay and is getting a lot less in tax to service those bills, so it's burden of debt goes up,so it struggles to repay existing debt and takes on more to cover the shortfall (a downwards spiral to default).

The deflationary outcome, of collapsing banks taking savers money with them, the economy crashing and the government defaulting leaves you with a country that is severely economically weakened. This automatically causes the value of the currency to plummet. As the UK is a net importer, those £10 notes will drop in value significantly. It is true that deflation means falling asset price too and gold is an asset, so prior to collapse deflation may weigh on gold, but as a monetary metal/stable currency, it will fly as other currencies collapse, as it is hard money, backed by its rarity, its properties and the efforts taken to mine it, not the fortunes of any particular economy. Also people losing money in falling property, defaulting bonds, crashing shares, will be looking for somewhere to save guard that money and devaluing fiat currency won't be it.

If you need further evidence look at Iceland when they defaulted and had their 'deflation', the value of the Kroner collapsed, but the value of gold in kroner rocketed.

So you think even now is a good time to get into gold? I'm seriously spooked by the rise in gold and the ramping by the BBC.

[LuckyOne]

Gold won't go up forever. At some point fiscal sanity will have to return, whether that is before pounds, dollars and euros are totally worthless and new currencies are issued, I don't know. But until fiscal sanity does return, hold the gold. I would second that I have never advocated holding gold until death. At some point it will probably be prudent to swap it for other assets. We are some way from that time though. I should also add future currencies could be gold-backed, in that case gold could well be a very long term hold.

I thought I explained about deflation? But for clarification:

Debt is the elephant in the room. The government and banks are mired in it. If there is less money sloshing round the economy (deflation), people start defaulting on private debt. This puts the banks at risk and people's savings - I say at risk, they would be f4cked. That also causes a sharp contraction in the economy, a depression, because there is less money to buy things, so unemployment goes up and wages goes down. Without the debt it wouldn't be such a big deal, a new equilibrium would be found quite quickly. But the govt. has bills to pay and is getting a lot less in tax to service those bills, so it's burden of debt goes up,so it struggles to repay existing debt and takes on more to cover the shortfall (a downwards spiral to default).

The deflationary outcome, of collapsing banks taking savers money with them, the economy crashing and the government defaulting leaves you with a country that is severely economically weakened. This automatically causes the value of the currency to plummet. As the UK is a net importer, those £10 notes will drop in value significantly. It is true that deflation means falling asset price too and gold is an asset, so prior to collapse deflation may weigh on gold, but as a monetary metal/stable currency, it will fly as other currencies collapse, as it is hard money, backed by its rarity, its properties and the efforts taken to mine it, not the fortunes of any particular economy. Also people losing money in falling property, defaulting bonds, crashing shares, will be looking for somewhere to save guard that money and devaluing fiat currency won't be it.

If you need further evidence look at Iceland when they defaulted and had their 'deflation', the value of the Kroner collapsed, but the value of gold in kroner rocketed.

I agree with your analysis that it makes much more sense to own "things" rather than "promises".

Where I differ in opinion is that I think that there is a wider universe of "things" to consider than just gold : parts of well run corporations, agricultural land etc.

I also think that investing exclusively in "things" can be draining for some as their prices can be quite volatile. I don't mind owning some "promises" from people who are likely to be able to repay in something that might be useful. Swiss or Norwegian bonds spring to mind.

[General Congreve]

If you read this blog:

My link

you will get an idea of a deflationary collapse and what it looks like for gold. I had to search through and pick out the figures for gold, because the blogger is looking at the effect of the collapse on a portfolio comprised of 25% shares, 25% short term Icelandic bonds, 25% long term Icelandic bonds and 25% gold. Here's the figures:

Gold went from 47,700K to 117,680K (Beginning of 2008 to end 2008) - a 259% gain.

Krona devalued by 69% against the Euro over 2008.

So, if you held Krona you lost 69% of your purchasing power against the euro and similar against most other major currencies. Your 47,700k effectively became worth 14,787k. It folded in 3 and then some!

If you held gold you made a gain of 259% in Krona, but accounting for devaluation of the Krona of 69% you only made 36,480k. This was, a 23.5% loss, but a smaller one than those holding cash.

This is obviously still a negative outcome for gold when it comes to buying imported goods. But still a better one than cash by a long way and according to the blog those holding gold were actually 8% better off when buying Icelandic property due to relative price movements in property. Same can't be said for those in cash (or the shares and bonds also covered in the article - they bombed too).

One massive caveat must be applied here too. Gold in most currencies, especially the euro and dollar went down in 2008. So there was outside pressure on gold at the time, mainly from a flight to cash (dollar/euro) for safety in the wake of Iceland and Lehman Brothers. However, as we can see from the Iceland example, cash is hardly safe in deflationary times, especially when it is backed by governments that are broke. The story will be different for gold next time, if deflation goes global and starts hitting major currencies. Then it will truly shine, as it will be recognised as the true safe currency, not the debt-laden-to-death dollar or euro.

Edited June 22, 2011 by General Congreve

[General Congreve]

So you think even now is a good time to get into gold? I'm seriously spooked by the rise in gold and the ramping by the BBC.

Pray tell? What ramping? How did they frame it?

They have briefly mentioned gold in the past in business news, alongside the exchange rates with little explanation or fanfare. I think I only ever saw it twice, it wasn't a regular feature.

I haven't watched that sh1t for a while now though, prefer to get more realistic news from RT if I'm watching the news.

[Guest spp]

So you think even now is a good time to get into gold? I'm seriously spooked by the rise in gold and the ramping by the BBC.

Here we go again. One born every minute on this site.

BBC ramping!??

How about...spooked by the fall in currencies and the collapse of the debt based monetary system.

Good luck!

Please move off topic mods! Even though property continuous to crash...when valued in Gold.

[General Congreve]

I agree with your analysis that it makes much more sense to own "things" rather than "promises".

Where I differ in opinion is that I think that there is a wider universe of "things" to consider than just gold : parts of well run corporations, agricultural land etc.

I also think that investing exclusively in "things" can be draining for some as their prices can be quite volatile. I don't mind owning some "promises" from people who are likely to be able to repay in something that might be useful. Swiss or Norwegian bonds spring to mind.

No harm diversifying into assets if you feel safer that way. But I think holding purely fiat will prove a lot more 'draining' on the resources of most people in the longer run, than the drama of a little short term precious metals volatility.

Edited June 22, 2011 by General Congreve

[General Congreve]

Here we go again. One born every minute on this site.

BBC ramping!??

How about...spooked by the fall in currencies and the collapse of the debt based monetary system.

Good luck!

Please move off topic mods! Even though property continuous to crash...when valued in Gold.

Oh, I see they were 'concerned' at the rise in price/fall in sterling?

Edited June 22, 2011 by General Congreve

[pezo]

Pray tell? What ramping? How did they frame it?

They have briefly mentioned gold in the past in business news, alongside the exchange rates with little explanation or fanfare. I think I only ever saw it twice, it wasn't a regular feature.

I haven't watched that sh1t for a while now though, prefer to get more realistic news from RT if I'm watching the news.

Just type BBC gold or BBC news gold into google. Around xmas they were saying how it was an ideal present to give to people!

I agree BBC is terrible and RT gives a better view of what's going on but it's always interesting to me to see what the government wants everyone to buy.

[pezo]

Here we go again. One born every minute on this site.

BBC ramping!??

How about...spooked by the fall in currencies and the collapse of the debt based monetary system.

Good luck!

Please move off topic mods! Even though property continuous to crash...when valued in Gold.

Sorry just a genuine question and a statement of concernes!

I think I missed the boat with gold just thought I would ask the sites biggest goldbug!

[General Congreve]

Just type BBC gold or BBC news gold into google. Around xmas they were saying how it was an ideal present to give to people!

I agree BBC is terrible and RT gives a better view of what's going on but it's always interesting to me to see what the government wants everyone to buy.

What, like this you mean?

BBC Gold Bubble - May 2011

This is the latest article online I could find from them. Cleverly starts out clearly stating the virtues of gold and why gold is being seen as a sensible investment in the current environment. But then steers the reader into thinking that is all lies by speaking to Yogi Dewan, chief executive of Hassium Asset Management (whoever the f4ck he is?) and only him (Peter Schiff, Dominic Frisby, Bill Bonner, Marc Faber, Bill Gross, Rick Rule, John Embry etc. must have all been unavailable that day ):

The current surge in the gold price is based on "speculation and fear trades," he says.

"It's absolutely crazy [for the price] to be at $1,500 - we are clearly in bubble territory."

Didn't I hear that when it was $500/Oz? And of course, there's f4ck all to be fearful about, is there? Ever heard of Greece Yogi?

Edited June 22, 2011 by General Congreve

[Guest spp]

Sorry just a genuine question and a statement of concernes!

I think I missed the boat with gold just thought I would ask the sites biggest goldbug!

No you didn't miss it...you are still on it!!

'goldbug'...so obviously biased.

DYOR

[General Congreve]

No you didn't miss it...you are still on it!!

'goldbug'...so obviously biased.

DYOR

He's not swearing at you Pezo - he means do your own research. Although quite frankly if you hang around on here for a bit you'll pick up most of what you need to know.

[Guest spp]

[pezo]

What, like this you mean?

BBC Gold Bubble - May 2011

This is the latest article online I could find from them. Cleverly starts out clearly stating the virtues of gold and why gold is being seen as a sensible investment in the current environment. But then steers the reader into thinking that is all lies by speaking to Yogi Dewan, chief executive of Hassium Asset Management (whoever the f4ck he is?) and only him (Peter Schiff, Dominic Frisby, Bill Bonner, Marc Faber, Bill Gross, Rick Rule, John Embry etc. must have all been unavailable that day ):

The current surge in the gold price is based on "speculation and fear trades," he says.

"It's absolutely crazy [for the price] to be at $1,500 - we are clearly in bubble territory."

Didn't I hear that when it was $500/Oz? And of course, there's f4ck all to be fearful about, is there? Ever heard of Greece Yogi?

Check this out though talking about housing bubble in 03.

http://news.bbc.co.uk/1/hi/business/2814809.stm

I guess the Only thing that can be taken out of all of this is one min they will tell you it's a great way to make money the next they will say it's a sure fire way to lose a load of money. Eventually they will be right one way or the other of course but basically they haven't got a clue and need to fill some time.

[General Congreve]

Check this out though talking about housing bubble in 03.

http://news.bbc.co.uk/1/hi/business/2814809.stm

I guess the Only thing that can be taken out of all of this is one min they will tell you it's a great way to make money the next they will say it's a sure fire way to lose a load of money. Eventually they will be right one way or the other of course but basically they haven't got a clue and need to fill some time.

Nice find. You've got a good point. I suppose they need to keep all bases covered, so then they can always be right! Therefore not a great source of information, I prefer some conviction with my analysis.

Tis, also true that one day gold might be a bubble and it might pop, all depending on a number of factors, chiefly with regards to the global future of currency. If you bang the bubble call long enough, one day chances are you'll be right.

As an example, I bought a flat (to live in) in 2002, if I'd sold out in 2003 on warnings of this article I'd have made a few quid and then watched as I missed out on 4 years of gains. I used my own judgement and sold at peak and ultimately bought gold with the proceeds. Timing is everything. The best way to judge timing is to understand your market, to do your own research and use your own judgement, not invest based on kneejerk reactions to random calls from the mainstream media.

Edited June 22, 2011 by General Congreve

[pezo]

No you didn't miss it...you are still on it!!

'goldbug'...so obviously biased.

DYOR

I have done my own research I have come to some conclusions nothing discussed here is going to change my mind. For what its worth I don't think gold is great right now but that could all change in the next 2 weeks depending on what happens in Greece. I was just interested in other people's opinions, isn't that hat a forum is for? Sorry if I have some how offended you!

[pezo]

Nice find. You've got a good point. I suppose they need to keep all bases covered, so then they can always be right! Therefore not a great source of information, I prefer some conviction with my analysis.

Tis, also true that one day gold might be a bubble and it might pop, all depending on a number of factors, chiefly with regards to the global future of currency. If you bang the bubble call long enough, one day chances are you'll be right.

As an example, I bought a flat (to live in) in 2002, if I'd sold out in 2003 on warnings of this article I'd have made a few quid and then watched as I missed out on 4 years of gains. I used my own judgement and sold at peak and ultimately bought gold with the proceeds. Timing is everything. The best way to judge timing is to understand your market, to do your own research and use your own judgement, not invest based on kneejerk reactions to random calls from the mainstream media.

Your correct, I tried to buy some gold last year and cocked up the cheque (first time I filled out a cheque) took that as a sign I needed to do more research (would have made a couple k by now but oh well it's only numbers), I did more research and decided gold was only worth getting into if the BOE carried out more QE so depending on what happens in he next couple of weeks concerning Greece and the fallout I probably won't be in sterling much longer but gold isn't the first choice at the moment.

[DTMark]

Until we started buying our own bonds I thought that one of the biggest purchasers as a group was insurance companies, who buy them because they're required to hold AAA rated instruments. Like our fantastic quality debt, lovingly rated by those same agencies who did so well in assessing risk in the past.

I did hear today that the Rothschilds have instructed that they will purchase certain gold coins (special years) at any price. Make of that what you will. No, I can't disclose the source, but it is credible enough to quote.