Historically gold and silver have been seen as an inflation hedge. Their meteoric rise in the 70’s was during a period of strong inflation and arguably a lot of what drove the 2000’s bull run was the expectation of inflation, likewise the jump through the GFC was on the expectation of inflation due to the extraordinary money printing and zero interest rates undertaken to bail out the banks to prevent a total collapse. Last week we discussed Jim Rickards points on the effect of real interest rates on gold. Essentially the higher the inflation against rates, the lower the REAL interest rate and that historically drives up gold. We’ve seen gold and silver come off since 2011. This has been largely driven by the Fed TALKING up tightening. They did eventually stop QE3 but they still haven’t done anything more than talk (as inevitably the situation got worse when they stopped printing money) and the recent rally in gold and silver is largely off the back of the growing belief this will not happen any time soon. Indeed, one Fed official even opened the Negative Rates prospect… Jim Rickards (through his various best selling books and articles) is arguably one of the most connected, strategic, and logical thinkers out there. He has just published another article via Strategic Intelligence (read here). From a macro economic point of view he puts the global debt glut and easy money we often write of clearly into perspective against gold’s current and possible role. Jim is not what you would call a ‘gold bug’, he is more an analyst and commentator on currencies, his latest best seller being Currency Wars. This makes his predictions on gold all the more robust. For those who somehow still think Australia is immune to all this because we relatively cruised through the GFC, the stats below should be sobering. In fact, likely because of the ‘lucky country’ cruise, we have embraced relatively more total debt since the GFC then nearly any other developed country. We reported last week that the US had hit an eye watering 350% total debt to GDP. Well, thanks largely to our debt fuelled splurge into property, Australia is at… 350%. The info below has the US at 370% (variance might be on the period of GDP used) US GDP is US$17 trillion x 370% = US$63 trillion total debt Australia’s GDP is $1.5 trillion x 350% = $5.25 trillion total debt Europe’s GDP is US$18 trillion x 450% = US$81 trillion total debt. This sort of debt can only be addressed by extraordinary economic growth to pay it off (of which NOBODY is predicting), inflating it away (i.e. needs inflation), or default. There is simply no other way.
I think one reason it hasn't affected much yet, is because virtually all if not all countries out there are doing the same thing...rampantly printing money. Inflating it away will of course occur to a degree, but I think your third premise is the likely premise. Perhaps for almost every country out there, they will come up with a new form of doing economics to not have to call it default. What may eventually happen is that all countries, or at least all major countries, will come up with some sort of political/financial solution to erase these humongous debts on paper, which they all have. So that they can literally write off their irresponsible financial mistakes of the past, and start with a clean slate without causing global turmoil. Of course around 50 years or so later, they'll need to do the same thing over again with yet another new form of economics. I don't expect the irresponsible behavior of politicians to abate anytime soon.
"Everyone" always points to the hyper inflation in post WW1 Germany, and what can happen to a society when the economy breaks down and the government irresponsibly ramps up the printing presses. That of course is an excellent example as that German government wasn't just irresponsible, but downright crazy. However back then, for the most part, the other countries were acting responsibly with their money supply and economic policies. Back then, if the other countries were crazily printing money in the same manner as Germany, the effect on Germany would have been markedly different. How different is a hypothetical in which nobody could accurately answer. But in any event, because for the most part all other countries of today are acting irresponsibly at this time, I'm not seeing any "collapse" imminent that some out there predict. Just the needed adjustments as previously mentioned in the prior post, that will need to take place sooner or later. Of course if a country such as Greece, acts significantly more irresponsible than the other countries, then they will be adversely affected as they are now.
Australia's outlook is clouded by the glut in commodities, in their case, primarily iron ore, but at least they will never go hungry. I'm sorry I never made it to Australia in my 20s.
100% They/Countries are not/can not/will not erase any of the Debts. This is not a option. Hyper inflation at best in modern times is a crap shoot I would not bet on it. Inflation Yes - Hyper Inflation No. But lets look at what proof in the pudding we do see now with a country/county's with what I call/think that has Extreme amount of debt, for more then one reason this Debt has built up over time. -The divide in the Mass Numbers of Poor and Low income people to Middle and Upper Class People in a country in Extreme Debt. -The divide in the Mass Amount of peoples opinions from one topic to the next topic be it the Birth of Babies to who gets to Marry who in a country in Extreme Debt. -The divide in the Military Goals for any one of the super power country's in Extreme Debt -The divide in pollution control again for any one of the super power country's in Extreme Debt -The divide in- Business first before People in a country in Extreme Debt. These are just some problems that become out of control when Debts becomes out of control and the normal, these social problems to financial problems are apparent all over the world when a person looks onto and into these country's with Extreme Debt. *Most important detail's for a PM investor is, do I own Physical PM's/-(you want to check yes here)._ *Is the PM investor wise/aware to Trade Price Patterns over the years and the history within the time of these Up Trends to PM's./-(you want to check yes here)._ Again only a few times PM's have gone up in Numbers fast worth noting. Most often thru out years and decades PM's move up slow and steady which is a good thing over all and reason in itself to Invest in PM's. The Bottom Line, The Problem of Problems with Extreme Debt being built up and not paid off is. The rottenness of a Society's along with a great deal of the Majority of peoples bad behavior/decision making in these Extreme Debt Times.
<<< 100% They/Countries are not/can not/will not erase any of the Debts. This is not a options. Hyper inflation at best in modern times is a crap shoot I would not bet on it. Inflation Yes - Hyper Inflation No. >>> A country rampantly printing money is the exact same thing as erasing debt. The country is paying off old debt of past greater value, equally with printed money of lesser value. Of course the country loses its credit and financial standing with other countries as it occurs. To take it a step further, what the general public doesn't comprehend is that rampantly printing money is the exact same thing as a tax increase on the workers of society. If the general public ever fully understands this, there would be unprecedented anger towards today's leaders who irresponsibly print money. Back to PM's. For the reasons I stated previously, I don't believe that precious metals are a good hedge against inflation in today's world. I don't think that precious metals will keep up with rises in inflation. PM's in theory might be a hedge if there was a major catastrophe, natural or man made such as a major war, but if it goes nuclear and electricity is gone for the foreseeable future, paper money would be worthless, and that gold and silver isn't going to be worth much. A gold coin wouldn't buy you a book of matches. A gold bar wouldn't buy you a manually generated radio. Overall though presuming we don't blow ourselves up, I think it's better to buy good blue chip type stocks. But the public still doesn't fully comprehend what is going on in the stock market either. "Everyone" thinks the stock market is hitting all time highs. Yes, dollar amount wise it is, but including inflation and devalued money in the mix, the stock market in reality is not even close to its all time high as far as purchasing power and value of the money.
Why can't all of the nations of the World simply get together and cross cancel each other's debts? Not as simple as it sounds. Each nation would have to first cross cancel all of it's debts internally, into one nett fund to then address the first proposal of this post. Or wouldn't the international banking community like this, by being put out of a job?
I don't believe that hyperinflation has a lot to do with relative strength vs. other currencies. Sure it's a factor since a nation trying to service its debt has an easier time if other people are willing to buy it, but that's not going to make or break anything. It has everything to do with the creation of debt based currency to pay off existing debt (plus interest) to avoid default. This is a vicious cycle due to usury. The fact is that debt is already too far out of control for GDP to counteract the compounding interest on existing debt. GDP is linear at beast, and compounding numbers are exponential. It's not a matter of if, but when. I make no assumptions or assertions about the when. If it's beyond my lifetime, then my stack will be a gift to posterity. However, it is worth noting that due to the nature of exponents that by the time things start looking like they are out of control it will already be too late. Chris Martenson provided a wonderful analogy having to do with exponential growth a couple years ago. The example was a stadium holding a sports event, and one imaginary magical drop of water that would duplicate itself every minute. So a minute goes by, 2 drops of water, nobody notices anything. 10 minutes go by, now there are 1024 drops of water, probably not enough even to fill your beverage cup, nobody notices. 10 minutes later, it's up to 1,048,576 drops. People might start to notice a little bit of flooding at the ground level and wonder what's going on, but by then it's already too late, because in another 10 minutes it will be up to 1,073,741,824 drops, enough to flood the entire stadium before people realize they need to get out. The point is, don't wait for something to force you into action. Be prepared, because if you wait until things are obvious it won't only be at the risk of being too late, but you'll also be competing with everybody else who didn't plan ahead.
Howdy folks, Nice discussion. Here in the states (and elsewhere to a greater or lesser degree) we have this ongoing problem with Unfunded Liabilities. Most put it somewhere north of $100 Trillion. This is social security, all the federal trust funds, fed debt, pensions at all levels public and private, etc. There is no way for them to cover this tab so they are forced to either deflate the currency and break promises or both. They've been doing both. Since the QE cycle started, it was estimated that they were going to have to halve the value of the dollar over the next decade or so (about half way thru and this is started with a dollar that is only 4% of what it was in 1913) and break any and all promises they can politically get away with. Now the trick is that they're doing this while trying NOT to implode the dollar and entire financial system. You place your own odds on their potential success or failure. Now whilst this is going on here stateside - printing money like drunken sailors, the dollar still is the int'l safe haven - oh and currency of exchange - and most of the other currencies look much worse for various and sundry reasons. Cripes, the dollar is strong because it's the least smelling pair of socks in the hamper. With the dollar this strong and us stateside peeps eyeballing gold expressed in terms of dollars - gold and silver become cheap in relative terms. As for a hedge against inflation - sure that is once facet of demand but you've got so many others such as: industrial, some country CB's, jewelry, dowry, survivalists, etc. In total this complicates the demand curve and places some fairly strong levels of support. Are gold and silver hitting bottoms? Geez, I have no clue. I do know that prices are becoming very attractive from a dollar cost average perspective to a stacker or acquirer. And I'm still of the camp that everyone should have some percentage of their wealth in precious metals. You pick your comfort level. My grand kids had stuffed animals they called their 'bed buddies'. Well, my wee stack is my bed buddy. peace, rono I just ordered my 2016 silver crowns and whatnot. Great prices.
Who exactly estimated that "they" were going to "halve the value of the dollar". I don't believe that statement is based in fact. It really just sounds like something the salesman at zero hedge.com made up in an attempt to separate folks from their fiat. In addition, if that was "their" goal, they are failing miserable so far. Also it is scary that bulionists seems always like to make the point that the dollar "lost" 90 something percent of its value in the last hundred years or so. Where the dollar WAS is just not relevant. The faulty logic seems to be 96% down with only 4% to go until zero, but that is simply not how it works. The truth is 96% down and 100% to go to zero. It is always 100% to zero. It is all relative.
If you go back just 4 years from today , the forum's bullion area was lamenting how weak the USD was and China, Russia, Brazil, and India was going to become the world reserve currency (BRIC), after all the Canadian dollar was 1.02 per USD and the Euro was 1.34 Dollar = 1 Euro. Today it is 1 USD = 1.33 Canadian, and its down to 1.08 USD= 1 Euro. You can do the research for the BRIC nations, but it is similar or worse. Just how strong should he USD go? As it gets stronger, the dollar won't implode, most of the world's currency will implode along with PM prices. I feel very sorry for Mexico, the peso went from 13.72 p /USD to current 16.68p/USD. Of course they have revalued currency before and will probably again. I am glad Peter named this subforum bullion investing rather than bullion stacking or hoarding or something. J/K.
Howdy, Hardly a gold buy bullionist. Cripes, I've been collecting coins for about 60 years and bought my first gold bullion in 2002-3 when it broke out. I might have bought some in the late '70's, but could only afford silver which I cashed in to help pay for my GI bill financed degree in Econ. Sorry for my miscommunication. Some times in life you read a lot of differing opinions and how I've learned to sort them out is by which fit what seems to me the best approximation of reality. The issue with massive unfunded liabilities is not new. It's be around for well over a decade and the options for dealing with it by the government (ours) are limited to breaking promises or paying it off with cheaper dollars. There used to be an expression, 'the revolution will be televised'. Whelp, the revolution is on our bloody smartphones. We're witness to history. We're seeing broken promises. We're seeing QEnth and continual printing of greenbacks. Will this destroy the dollar or the economy? Ah, that's the nut. To this question, I assign probabilities and frankly, rate financial meltdown as very, very low. Say 15-20%. More likely is that we'll muddle along and they'll somehow steer through this mess. However, the potential costs of the meltdown are so freaking enormous, that a prudent person has to take out some sort of insurance policy. My insurance policy is wee percentage of my wealth that I have in physical bullion. and so it goes, peace, rono
