Silver on its way to $80 an ounce

I didn't mean to open up the 'inflation/deflation debate' (don't know if that's a contentious bone here; it is on other sites.) I refer only to "emerging deflationary concerns" and "the first whiff of deflationary fear" NOT as textbook deflation per se, but as the preemptive excuse rationale for MORE PRINTING (monetary inflation via the M3, Fed's buying crap paper, etc.)

There have already been 2 such incidents: the first in 2002, the second in mid-2008... the next perhaps beginning,a China-import for 2013-4?

NYT 12/20/2002: "Greenspan's Speech Focuses On Deflation, Not Inflation" http://www.nytimes.com/2002/12/20/b...peech-focuses-on-deflation-not-inflation.html

12/29/2008: "Deflation is Here; How Long it Will Last?" http://wallstreetpit.com/1516-deflation-is-here-how-long-it-will-last/

I suppose the Fed's management failure is now imminent, within 3 years. No need to ennumerate all possible future Fed actions (any #/combination of which are likely) ; in response to the next deflationary threat or the incidence thereof, MORE INFLATION (depserate attempts at reflating garbage home values, ludicrously priced US stocks) will be the inevitable result. Anticipate the a similar pattern, next go-round:

a) 'deflationary fear' price shocks to PMs, followed by
b) price recovery and hikes, after high spec/dumb money investors flee their 'paper losses'

So I suppose Silver goes to $25. (2013/4?) BEFORE it goes to $80. (c.2017?)

 

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The thing that gives me pause here is that if the bond bubble pops then nobody is going to be buying US debt, and if nobody is buying US debt then what exactly is backing the dollar? They seem too intertwined to discount the ramifications and simply look at the relationship as it exists today while the bond market is at a multi-century high.

One reason I think they will choose hyperinflation over deflation/default is because any deflation at all will make the big banks insolvent as the assets on their balance sheets decline in price, thus necessitating bailouts/money printing/inflation to keep the derivatives market from imploding and tanking the global financial system. Deflation just isn't an option unless they are ready to throw in the towel completely, or unless they can figure out a profitable business model not dependent on ZIRP skimming.

 

Let the banks fail.

 

While I agree this is the moral and right thing to do, we should still be thankful that they have kicked the can long enough for us to acquire precious metals and get our house in order. A banking system failure at this point would be much worse than the Great Depression, and people back then were used to fending for themselves.

 

I agree taht a banking failure would be worse than the Great Depression, but I think this country needs that kind of kick in the butt.

 

what would happen to everyone's 401k's and loans?

 

The loans should stay intact, it is just a matter of who will own the note securing the deed. Retirement type assets, it will depend on how they are invested.

 

In a banking failure? Depends. If you are invested in stocks, they might be affected by lack of liquidity. If not, you shouldn't be terribly affected.

If this "event" created deflation, your loans would become more onerous to pay back. Deflation is great for lenders, horrible for borrowers. This is why those who are borrowers always applaud government induced inflation, their loans are cheaper to pay back. The opposite is true, though, and in a deflation environment borrowers are punished by ever rising real payments. I believe the result would be mass voluntary foreclosures of homes and other secured loans.

 

That has occurred over the past 4 years and still continues.

 

Banking failure = end of high frequency algorithms = $1.7 quadrillion in derivatives no longer having the entities that support them = ~100x more than the total money supply looking for somewhere else to go = no more risk-on buoying of markets = departure from cyberspace assets by the robots = counter party risk chains begin to destroy perceived wealth by orders of magnitude = default on outstanding debts = credit ceases to function = confidence is lost in anything with counter party risk.

 

Eh, think 1970's finance.

It was not the most efficient, and heaven forbid not everyone was allowed to borrow whatever they feel like, so you actually had to work and save.

I don't think it would be the end of the world.

 

The dollar isn't backed, and that isn't necessarily a problem since for much of history economies have operated on various forms of credit. As long as the dollar is required for payment of debt and taxes and businesses keep their books denominated in dollars, it will have value.

The reason I think deflation is at least as likely as hyperinflation is that hyperinflation will destroy the banks. I think the banks have too much political power to let that happen. Look at Greece. The people would probably prefer to inflate the debt away, but the European technocrats prefer austerity to make sure the debts are repaid to the extent possible.

 

Vaporized. Jubilee!

Mind, I don't believe the Great Reset will happen yet - I wouldn't underestimate their ability to jerry-rig the system, right up to the moment the pension funds fail (c.2016/8)
In 2018, all but the youngest Boomers will be retirement age - their cost to society will be 18% of GDP (according to estimates.) The USA is broke at that point, I'd bet.

THEN - I think - the mass-selloff of Boomer paper begins in earnest: +2-4 years.
THEN - I believe - the Paper PMs will fail and huge spreads between the Fake Spot and Real Bullion Premium will appear (c.2017)
THEN - presumably - the Investor Death Spike in PMs begins (2020/1): global race to 'monetization' ?

I don't presume a PM-backed global currency must be the inevitable outcome, but millions of individuals will make that de facto decision, regardless of what CBs do. I do suppose a new currency regime will be imposed (c.2020/2), and successfully in all likihood. The time to SELL bullion will be ~24 months after that launch (c.2022/4).

That's my reading of the tea leaves, LOL

 

It will only take one nation returning to a metal based standard to start the stampede, as their currency would immediately become far superior to all others and warrant the most investment. Other nations would likely follow, not wanting to be left out of the party. Just as China was punished for being the last nation to demonetize silver and thus lost 80% of the value of their currency decades ago when the price of silver tanked due to no longer being money, this would be the inverse effect with the last nation to convert back to a metal standard ending up with the most devalued currency. It seems these days nations are happy to devalue their currency, but that only seems sustainable for as long as people desire to use it.

 

Don't we already HAVE a method of denominating your wealth in silver, and that is called "buying silver". Sorry, I simply don't see most of the world giving a crud about silver. Yes, tying a Thai baht, (for example) to .1 ounces of silver would about guarantee the Thai baht would go up every year versus other currencies. What about the Thai people? Every year their exports would have get more expensive, or their economy would have to become deflationary. Either alternative is horrible for their economy. I believe almost any other economy attempting this would experience the same.

So, why would politicians self inflict such terrible pain on their economy all in the name of a few nutcases, (myself included), who give a rip about silver? Yes, people who already own Thai baht would have a better store of value, but to do this you would wreck Thailand's economy.

Btw, currencies go up in large part due to returns that can be generated in that currency. Why are you so sure this would be by definition, "immediately become far superior to all others and warrant the most investment"?

Read more: http://www.cointalk.com/t214858-25/#ixzz2DdyzVVl0

I can buy Brazilian currency and generate 14% returns effectively risk free today, (except country risk). Do you believe silver is more impressive than that? If this would REALLY work, don't you think Chavez or someone else who hates the West would already have done it?

Just my opinion.

 

I'm not buying Iranian rials anytime soon or after. You?

http://www.bullionstreet.com/news/iran-gold-coin-price-rockets-to-12-million-rial/3010

 

Not only do I think that Tehran looks to be going that route (effectively) but didn't the DoD run war-games on this very scenario back in 2010 or '09? Or Jim Rickards is lying otherwise?

http://www.europacmetals.com/Portals/0/newsletters/february2012.html

 

I'm sure the DOD regularly updates Jim on all of their war game scenarios. :rollling:

 

http://online.wsj.com/article/SB10001424127887324352004578136973602198776.html

I accept that at face-value. Do you have any evidence to prove otherwise?
Obviously, not.

 

I'm not following you. This doesn't say that Iran is going to go to a gold standard, just that their currency really weak and/or gold is in high demand.