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Poll : The Fundamental Issue

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I am posting this on the main forum because it is the key issue facing our times. Mods please move it when you think fit.

Just take a look at the following two contradictory posts. Who is right?

Cgnao the gold bug...

QUOTE(Bart of Darkness @ Feb 7 2006, 09:26 PM)

Hi cgnao.

I know you're a confirmed goldbug but would you feel secure having all your money in gold.

75% seems a pretty high percentage already.

On the contrary. I have actually started to feel reluctant to more than £1000 or equivalent in sterling or any other paper currency....

When I have converted the remaining 25%, I'll just keep £500 in cash, £500 in my current account and anything left on top of this every month will be converted into gold as soon as it hits the bank.

I have no need to make a return ON my capital. All I want is the return OF my hard earned capital.

Or jonpo the ex goldbug....

Why Im bearish on metals and even gold,

Interest rates going to 5% USD ?

Imminent end to the Yen carry trade?

Interest rates going up everywhere ?

Soaking up of the huge liquidity bubble the global markets are awash with ?

deflation ?

did you notice nearly ALL MARKETs went down today ? ! ! that means money came out of everything !! did you also notice the unwinding of carry trdes in the JPY crosses versus ALL the majors?

what happens when the BOJ rates interest rates to 0.25% ?

the end of free money. did you hear me the end of free money? gold is only any good in a freee money society because in a free money society assets can have any value you like, inflation can explode you have to hold gold to have any purchasing power. but when the money dries up how will everyone finance the huge liqudity that permeates even the crappest of US and UK assets. thats why i would sell every last ounce i had gold is a flag of inflation but in deflation as in 2002 gold is crap as an asset the best you can do is sell it before everyone else does.

I know what your thinking I'm mad, consensus say gold is good, gold is contrarian, all that glitters is gold, beleive me ive been there, I liked gold too. but then the facts have changed and so have I.

Regards

crazy gold bear.

What a choice !

Who is right?

Edited by Bubble Pricker

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I am posting this on the main forum because it is the key issue facing our times. Mods please move it when you think fit.

Just take a look at the following two contradictory posts. Who is right?

Cgnao the gold bug...

Or jonpo the ex goldbug....

What a choice !

Who is right?

its a tough one but i think they are both right to a certain extent.

inflation first - printing lots of money to fight deflation (but they will lose) - in the end it will be deflation but i'm not sure of the timing of it.

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Good topic this, and a very important one. Hope this gets a few responses.

I'm in the deflation camp, although I expect the money supply to expand for a little while longer.

The supply of money has expanded too far too fast. When people and governments service their debts, pay them back, start saving, stop borrowing, watch the pennies, cut back jobs, stop investing, lose confidence etc then the supply of money will contract. There is very strong correlation between money supply and asset prices.

The dollar is likely to weaken as foreign investors no longer have the surplus to buy US Treasuries, Yanks won't spend and the Chinks won't have a market for their cheap TVs and underpants.

The only thing Americans are any good at is spending borrowed money badly.

All business cycles are caused by government intervention in the market. Specifically, the central bank (the Fed in the case of the U.S.) artificially lowers the interest rate, flooding the economy with money. This money is then invested in capital goods that would not be justified at a market level of interest rates.**i.e. Houses** The low interest rate cannot be sustained forever without an increase in inflation, so the Fed inevitably has to raise interest rates. When this happens, the investments that were "justified" under a lower interest rate must be liquidated. Any prevention of this liquidation by further government intervention will simply prolong the re-adjustment and thus exacerbate the recovery.

I'm convinced this is a rational, inevitable consequence of the prolonged, unprecedented credit expansion that we have seen.

The question is how this tallies with a Fed Chairman who has spent his entire adult life studying deflation and its antidotes.

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With Greenspan advising Brown I think we can say inflation, but then I think we've seen inflation take effect already hence the house prices. Goods are now cheaper eg. Tesco whinging about profit margins, deflation? But oil prices are going up, sh!t I don't know!

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With Greenspan advising Brown I think we can say inflation

But Greenspan has been raising rates in America. Maybe Brown is finally going to admit defeat, and blame it on Greenspan: 'not my fault that rates went up and trashed the economy, I was following the advice of the greatest economist the world has ever seen'.

Or not.

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I'm glad you guys put this in the main fourm It will be interested to see what resopnses are forthcoming. I only really defected over to the deflationist camp when I started to see that fed credit and UK consumer credit wen't growing as quickly as I would have thought normal, It made me wonder about where money in the real economy actually comes from and how and why it grows like it does. having thought about it long and hard I came to the conclusion that the liquidation of credit via insolvency and reposessions would be deflationary by writing off money on bank balance sheets.

lets see shall we :unsure: .

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I think we will see inflation then deflation. Not all goods/commodities will follow the same pattern, so it will be a mixed situation.

Chinese made consumer goods will continue to deflate due to over investment and hence over capacity. We may, however see the associated transport and logistical costs increase significantly, so I believe in general that this deflationary side may be muted. As the Chinese ecconomy grows at around 10% we may even see some wage inflation creep in. Pressure on energy and raw material costs will not allow much more deflation in this area IMHO.

Home produced items and services will continue to inflate as the pressure on wages (due mainly from higher taxation) and fuel costs drives prices higher. The government will be reasonably happy with this as it allows them to balance quite high home inflation against moderate deflation to come up with the much cooked figure (spot onto target) of 2% inflation.

Western banks will continue to pump money into the overstretched ecconomies. The money supply increase is currently running at about 7% per year!

The problem is that inflation tends to have momentum. We have pretty much played the Chinese deflationary card, but the inflationary component is already a runaway train. As the deflationary effect dies away we are left with the inflationary component. As the western governments try to battle the inflation with the only thing at their disposal....interest rates, they will seal the fate of their own ecconomies by snuffing out the only thing keeping them running....consumer spending. The over in-debted consumer will have nowhere to go.

We will then go into a deep recession, possibly worldwide depression.

The (already over-capacity) far east manufacturers will then be faced with trying to sell to the most difficult markets ever. They will cut costs (and maybe even increase output) in an effort to get market share an to make the ecconomies of scale work for their already built factories. Golbal demand and prices will tumble.

Deflation like we never had before will take over.

As ever the timescale for these events is the hard thing to predict.

James.

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Thank you for your reply. This raises another question. If the answer is deflation on a worldwide scale then the current bull market in commodities will come to grinding halt, as will any hopes of return from property. The wise will move all their assets into cash.

It is time to keep ones eyes wide open.

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Thank you for your reply. This raises another question. If the answer is deflation on a worldwide scale then the current bull market in commodities will come to grinding halt, as will any hopes of return from property. The wise will move all their assets into cash.

It is time to keep ones eyes wide open.

Correct...best strategy is to keep your wealth in assets which do well in an inflationary environment for the moment. Then by luck or judgement, call the top and pile into cash.

Cash is king in a deflationary environment. The banks/gov'ts have one more trick up their sleeve though. To prevent people holding cash they may introduce a "stamp duty". This is where you have to take your cash to the bank to be stamped (for validity!!!) every year and they then charge a fee for this say 2%. In this way they raise revenue and make people spend! Wnakers!!!

Edited by jpidding

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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