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Inflation or Deflation?

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Inflation or Deflation? - Page 19 Empty No hyper-inflation; end-game

Post  Shelby on Tue Sep 28, 2010 10:51 pm

http://www.marketoracle.co.uk/Article23030.html#comment95050

Shelby wrote:There can't be hyper-inflation unless the central banks drop money from helicopters directly to the masses, because the masses have negative net worth:

http://www.getmoneyenergy.com/2010/03/net-worth-of-whole-entire-world/

By hyper-inflation, I mean a sustained period of monthly double-digit price inflation.

What is more likely at the end game, is a quick devaluation (replacement of fiat system with something new), which leaves the masses impoverished. This will come after years of declining interest rates (1%, 0.5%, 0.25%, 0.125%, etc) wherein each halving of interest rates, also halves the interest payments on the fiscal public debts, thus enabling the public sector to take on orders-of-magnitude more debt between now and the end game time.

We will see inflation in commodities, because the declining interest rates and public sector debt crowding, is a deflation that forces companies to lower labor costs to stay alive. With 7 - 10 developing world workers hired for every outsourced westerner, demand for basic commodities increases.

We have deflation of the western hemisphere and inflation of the developing world. Mixed in with this is massive mis-allocation of capital due to centralized interference, e.g. Yuan peg is causing real estate and export infrastructure bubble because capital can't escape to greener pastures.

Thus the end game is implosion of the western hemisphere which will drag the developing world mis-allocations into their Great Depression (as what happened to USA in 1930s as Europe imploded).

This is why gold & silver are the most preservative, i.e. gold has the highest marginal utility of any commodity due to its highest stocks-to-flows ratio (copper etc have only 6 months supply above ground).

See also:

http://jasonhommelforum.com/forums/showthread.php?p=55571#post55571

======================
ADD:

http://www.marketoracle.co.uk/Article22959.html

Shelby wrote:Lira's description is accurate, but it doesn't make a good case for hyper-inflation, because this is not getting into the hands of the masses as cash, because total debt is not increasing, rather public sector is merely displacing losses in private sector economy:

https://goldwetrust.forumotion.com/economics-f4/inflation-or-deflation-t9-435.htm#3684

And networth is negative:

https://goldwetrust.forumotion.com/economics-f4/inflation-or-deflation-t9-450.htm#3709

So unless the central banks start dropped cash from helicopters in amounts sufficient to increase total debt faster than the negative networth is increasing, then hyper-inflation can't happen.

Another point to remember about the stampede to commodities, this only works when it is one country, not th entire globe. If the entire globe tries to move to commodities, it is not a flight to safety, but a greater fool move to implode the global economy, with commodities crashing in price soon thereafter.

Shelby
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Inflation or Deflation? - Page 19 Empty Re: Inflation or Deflation?

Post  Shelby on Fri Oct 01, 2010 3:13 am

http://esr.ibiblio.org/?p=2653&cpage=2#comment-280801

> Decades? I severely doubt it. We passed the event horizon in March, when Social Security went cash-flow negative

It does not amaze me that most people have not studied enough to have a very good understanding of the current macro environment.

That hyper-inflation theory only works when the rest of the world has a strong currency to run to. The world saves in US dollars (and Euros), e.g via the Yuan peg, so there is no danger of a run away from bonds any time soon. The entire globe dumping dollar reserves for non-monetary (i.e. low stocks-to-flows) commodities doesn't work either because it would implode the global economy-- that only worked when a small portion (e.g. Weimer Germany, Zimbabwe, Chile, Argentina, etc) of the world flighted to commodities. Instead, the world has no realistic alternative but to allow the central banks to monetize the debt via perpetual lowering of the sovereign bond interest rates in order to prevent an interest expense spiral[1].

Fundamentally the nature of a global debt trap is that no nation-state has enough free capital to write off the debt or standards-of-living deficit, thus all governments have to continue to be supportive of piling on more debt. The developing countries have an excess of idle human capital which counts as a liability greater than their accumulated production-- much of which is badly mis-appropriated to exports and speculation.

We will see inflation in commodities, because the declining interest rates and public sector debt crowding, is a deflation[1] that forces companies to lower labor costs to stay alive. With 7 - 10 developing world workers hired for every outsourced westerner, demand for basic commodities increases.

We have deflation of the western hemisphere (any finance-able "asset") and inflation of the developing world ("things every human buys"). Mixed in with this is massive mis-allocation of capital due to centralized interference, e.g. Yuan peg is causing real estate speculation bubble and export infrastructure bubble (driving profit margins near 0, or actuarially negative) because individual Chinese capital can't escape to greener pastures (e.g. other less developed countries). The western countries are complicit in enforcing the Yuan peg (so they are either lying about wanting, or too compartmentalized to get, a free market for the Yuan to appreciate).

Private gold ownership is of no near-term threat to the Yuan peg and resultant mercantalism, so it provides a near-term release value for inflation. China is very wise to promote gold ownership, as it allows them to continue their Yuan peg longer. And at the end game, they can confiscate this gold, just as USA did in 1934.

The end game comes when the public sector has displaced so much of the private sector, that rationing of production becomes intolerable for voters, i.e. riots and war. The Obama health care bill is a rationing mechanism. Thus the end game is implosion of the western hemisphere which will drag the developing world mis-allocations into their Great Depression (as what happened to USA in 1930s as Europe imploded).

This is why gold & silver are the most preservative, i.e. gold has the highest marginal utility of any commodity due to its highest stocks-to-flows ratio (copper etc have only 6 months supply above ground). However, it is likely at the end game, monetary metals investors will find their gains stolen via taxation.

P.S. Hyper-inflation is a shortage of cash, and the government must replenish the cash to masses, else hyper-inflation can not occur. The western masses have a negative net-worth, so any cash they receive will be used to pay down debt. The developing world has rising Gini coefficients with capital controls, so personal savings is mis-allocated instead of solving the mass standard-of-living deficit. This high global debt and standard-of-living-deficit load on the masses, is nothing like the situations that caused hyper-inflations.

[1] http://professorfekete.com

http://www.marketoracle.co.uk/Article23053.html#comment95123

Shelby wrote:I will be submitting an article to explain this difference between Japan's deflation and the current global deflation, which ends up being inflationary as priced in every currency except for gold and silver.

Suffice it to say that the current deflation of financed "assets" is forcing companies to lower labor costs, and 7 to 10 developing world workers for every outsourced western worker, means more basic commodities consumed (but not 7 to 10 times more, because developing world people save more).

Also Japan internally financed much from their very high personal savings rates, which is opposite of the current situation.

Keep an eye out for my new article tomorrow. It is going to explain everything about inflation versus deflation succinctly.

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Inflation or Deflation? - Page 19 Empty Perpetual Deflation Causes Inflation

Post  Shelby on Fri Oct 01, 2010 11:09 pm

Published:

http://financialsense.com/contributors/shelby-moore/perpetual-deflation-causes-inflation

"Global perpetual deflation relative to gold, causes price inflation"

Shelby in email wrote:Antal you are wrong about China

http://financialsense.com/contributors/antal-fekete/the-donkey-in-the-china-shop

The centralization of fitness is always a weakness. Maximum annealing to optimum fitness only occurs with a free market of individual trials. I am sure you understand why I say, this is why only gold is money.

Read my recent article for weakness of China's centralized economic and monetary policy:

http://financialsense.com/contributors/shelby-moore/perpetual-deflation-causes-inflation

Another link about trade wars coming:

http://www.marketoracle.co.uk/Article23142.html#comment95152

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Inflation or Deflation? - Page 19 Empty you still don't get it

Post  Shelby on Sun Oct 03, 2010 8:02 am

Good article.

A pretty good description of what is to come and SOON.

http://www.businessinsider.com/how-hyperinflation-will-happen-in-america-2010-9

Differentiate between a parabolic increase in price, and 10,000% increase in price (99-to-1 loss of purchasing power).

The former is a stampede that ends once everyone has traded their cash for goods. The masses do not have 99 times more cash than the value of all commodities right now. The latter is the one where the government keeps handing out more cash in every greater quantities DIRECTLY TO THE MASSES.

The latter is not happening and can not happen, because it would allow the people to pay off their debts. There is no way the elite will ever allow that. They will not waste this opportunity to move to a one world government system.

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Inflation or Deflation? - Page 19 Empty Another bout of food inflation now!

Post  Shelby on Sun Oct 10, 2010 5:05 am

Could this be the big one, that starts the rationing of food?

http://www.agweb.com/article/shockwaves_from_fridays_usda_production_report/

My take on this is that we are likely to get another inflation run (higher interest rates, lower dollar) starting now and running until the next liquidity crisis in 2011 or 2012, a repeat of early 2008. Then the liquidity crisis will rescue the dollar and send the interest rates to new lows, a repeat of late 2008. This global crash will again abate the demand temporarily and crash commodity prices again. Remember that runaway hyper-inflation is impossible (the negative net-worth of masses is a margin call), unless the governments respond by handing out cash in orders-of-magnitude more than current cash flow of consumers. The governments are instead going to bail out the "too big to fail" and sustain the entitlements. What is underlying through these gyrations between inflation and deflation, is that each gyration will take another segment of the western population into poverty. This is the Great Harlots regression towards a one world order (global socialism) of the "share and share alike" level.

Btw, this gives further validation to my chart reading that silver is heading to $32- $47.

http://financialsense.com/contributors/stewart-thomson/the-great-gold-revaluation

Stewart Thomson wrote:This is crash season for the stock market, and for you, and it extends from the start of August to the end of October, approximately. Today is October 5th. Not Oct 31. I’m enjoying my financial holiday from the market while the market achieves zero...

...Historically, the reason the stock market crashes has to do with farm crops

24. Here’s a look at the CRB General Commodity Index Chart. Note the massive consolidation in place. It’s a consolidation because prise has risen up into a sideways pattern, for time, from the lows. The Great Gold Revaluation is beginning to spread its wings into the general commodity asset class. Are You Prepared?

================

We are having El Nino drought in Philippines this year, so much so that we are seeing brownouts during the peak time during day here in Davao, because the hydro-power dams have low water levels (well so they say). Also Davao is booming too much, but that boom came largely on the back of electricity being 1/3 the cost in Manila. Electricity prices must go up.

Shelby
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Inflation or Deflation? - Page 19 Empty bond bubble won't end soon

Post  Shelby on Sun Oct 10, 2010 12:52 pm

http://www.marketoracle.co.uk/Article23304.html

Shelby wrote:amelia, the free market will always overrun socialism in time. I urge you to read the links I will provide below.

I agreed with everything Doug Casey wrote in this article, except as I have emailed his editor-in-chief David Galland last year and this year, and also his chief economist Bud Conrad this year, and explained why they are wrong about the end of the 3 decade bond bubble and interest rates sustaining rises any time too soon:

http://www.marketoracle.co.uk/Article23162.html
http://www.chrismartenson.com/blog/prediction-things-will-unravel-faster-than-you-think/45297?page=5#comment-90474
http://www.chrismartenson.com/blog/prediction-things-will-unravel-faster-than-you-think/45297?page=2#comment-90391
http://www.chrismartenson.com/blog/prediction-things-will-unravel-faster-than-you-think/45297#comment-90249
http://www.chrismartenson.com/blog/prediction-things-will-unravel-faster-than-you-think/45297?page=3#comment-90396
http://www.chrismartenson.com/blog/prediction-things-will-unravel-faster-than-you-think/45297?page=6#comment-90646

The basic problem with rising interest rates is that the world is bankrupt. The west masses have a negative net-worth, and the developing world has a huge liability of massive underemployment. If the interest rates rise, not only does the sovereign debt interest payments increase, but the tax receipts plummet, meaning the governments will default if they don't QE. The rising interest rate scenario is the end game, because it is the death of the dollar, and the death of the world economy.

We will restart from a much smaller world economy.

So yes it does come at the bitter end, but the world will resist it and wither into it instead, with increasing socialism and bringing the west down to the level of the developing world in a "share and share equally" mantra.

This current inflationary run, which is getting ready to accelerate, will also peak and implode into another liquidity crisis, because the masses and the debt load is unserviceable. Rather upon the liquidity crisis, the only thing to do is QE some more:

https://goldwetrust.forumotion.com/economics-f4/inflation-or-deflation-t9-450.htm#3755

This is the Perpetual Deflation Causes Inflation, that I wrote an article about as linked above.

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Inflation or Deflation? - Page 19 Empty Mortgage payments funneled to TBonds?

Post  Shelby on Tue Oct 12, 2010 5:45 am

http://www.marketoracle.co.uk/Article23387.html

Shelby wrote:Barry, are you saying that the Fed is funneling all the mortgage payments into Treasury bonds, from the mortgages it obtained during the crisis?

So are you saying it tries to renegotiate mortgages so people can keep paying, and it tries to re-inflate the housing market (even indirectly via the wealth effect of re-inflating stocks as the banks deposit Tbonds with the Fed and earn an interest and banks are earning a huge interest rate differential now to on deposits), so people can sell and pay off their mortgage?

There are perhaps 10% of mortgages in there that are performing. This provides a steady cash flow to buy more Treasuries and keep the value of the Fed's balance sheet from falling. The Fed can control what % of those mortgages perform, simply by increasing or decreasing QE.


Last edited by Shelby on Tue Oct 12, 2010 3:41 pm; edited 1 time in total

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Inflation or Deflation? - Page 19 Empty hyper-inflation impossible

Post  Shelby on Tue Oct 12, 2010 3:40 pm

http://www.marketoracle.co.uk/Article23427.html

Shelby wrote:Nadeem,

Excellent article and analysis. You may be the best trend technical analyst I have read. Your dollar projection for probable rally to 80 soon (and thus possible consolidation in gold dollar price), then a drop to 70 by mid-2011, is very well supported by the technical chart as you show, and is also supported by the macro-economic events I see on the horizon.

Specifically we are in the stage of the QE reflation from 2007/8 crisis (correlate elapsed time to the 2002/3 dot.com crisis where next crash started 2007), where it feeds through to a blow off move up in commodities that thus bankrupts the cash flow of westerners again, and coincides with a new peak in mortgage resets in USA by summer 2011:

http://www.chrismartenson.com/blog/prediction-things-will-unravel-faster-than-you-think/45297?page=6#comment-90991 (see end of blog post)

So very likely we get a renewed liquidity crisis (or scare) by mid-2011, that gives us another rally in the dollar as you predict. After that, I see the wheels falling off the commercial real estate in USA by 2012, thus dollar plummets out of that wedge on your chart to new lows below 70, all in agreement with your forecast.

I also commend you on the refuting the perma-dollar bears and bulls, and rather pointing out that the NECESSARY re-balancing of the world is instead taking place by rising commodity prices and rising NOMINAL wages in developing world (REAL wages flat or declining, except rising for those who land outsourced jobs or lift themselves with education, but with PPP rising for all which is reflection of the overvalued dollar), with falling REAL wages (NOMINAL wages flat) and increasing unemployment (i.e. falling average wages if unemployed included) in the west.

However, the one critical error I find is in your analysis of the "debt as % of GDP", the possibility of end of the bond bubble, and hyperinflation in USA.


  1. Private debt and total debt in USA has peaked and shrinking. Here is a chart from market-ticker.net:
    http://market-ticker.denninger.net/uploads/2010/Jun/debt-2000onward.png

  2. Public debt in USA is increasing, but interest payments as a % of total deficits are shrinking, because interest payments are chopped in half for each halving of the interest rate, which has no mathematical end, e.g. 2%, 1%, 0.5%, 0.125%, 0.0625%, etc.. This means there is no mathmatical means by which the Fed must stop QE. The only way to stop it, is for oil producers to refuse to sell for dollars, but of course that is why our military is in the Middle East, and that is why we install socialist dictators in countries such as Venezuela (who ever agrees to keep the oil priced in dollars).

  3. Although the nominal GDP is shrinking faster than the total debt (i.e. marginal-utility-of-(new-)debt is negative since 2008), as long as rest of world can buy oil with dollars, they have no incentive to dump dollars but rather to beggar-thy-neighbor competitively devalue as you point out. The masses of the USA have no way to run from the dollar to commodities, because if they attempt to, they will find they have no cash flow and will turn around and sell in order to eat. You can't compare the "stampede event" of single nation-states to the stampede from the world's reserve currency. I explained this is more detail at following blog:
    http://www.chrismartenson.com/blog/prediction-things-will-unravel-faster-than-you-think/45297?page=5#comment-90474


I respect your work very much, so you know my comments will remain respectful. If you can provide a compelling counter argument, I want to be swayed. Otherwise, perhaps my link above will sway you?

P.S. The current period is actually deflationary, but one must price everything in gold in order to see it. This is the end of the Bretton Woods system (and a move back to gold as money), which started in 1971 and now in its final end game (which will last on the order of a decade more), which will culminate in chaos (gold as money) and then a new global fiat system reconstituted with gold. As priced in fiat, this is an inflationary period.

P.S.S. The Yuan peg is a problem, because any centralized distortion (price fixing) _ALWAYS_ causes misallocation of capital. For example, it forces very smart people in China to work like slaves producing junk (and career experience) at near 0 profit margins, instead of developing and using their skills to invest abroad and employ less skilled people in other developing countries (producing goods that have more free market need, i.e. profit margin). This causes a waste of human capital, and they don't get the years back. Once China moves over its demographic peak in 2025, there won't be enough new youth to support their retirees, and they fall into similar trap as the west is in now. Misallocation of human lifespan time is very important factor that causes pain, impoverishment, and war. The (banksters and socialized masses of the) west are complicit and desire the Yuan peg:
http://www.marketoracle.co.uk/Article23142.html#comment95152

P.S.S.S The way the end game will play out, is basically a trap in the form of a decade of volatile withering of quality-of-life in USA (and much of the west), ending up at fascism and rationing (including rationing health care) at least in USA. The bond bubble won't end in any major western nation as this is the death spiral bubble for this global financial system, pension plans (retirees) will never be allowed to sell by the time it becomes clear they should (capital controls), besides the Fed can QE forever, as long the military backs the dollar for oil. It is the perverse nature of holding a bond, that its value increases as interest rates fall, so retirees stay vested until the bitter end. Eventually (10 years?) the commodity inflation will choke the developing world too, that is when the world heads into world war, gold as money, and out of that chaos will come the new world order system, with a new global currency "backed by gold" (but only those who pay their taxes can participate, all tax havens will be closed). Any one who wants a different outcome, has to compete with the banksters (and their military), to provide a better solution for feeding the billions of masses. Afaics, they've won already on the fate the masses. The only game remaining, is for the individual to save him/herself from this maturing global socialism heading into fascism.

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Inflation or Deflation? - Page 19 Empty Fed is distributing cash via bonds

Post  Shelby on Thu Oct 14, 2010 8:00 am

Shelby wrote:Oh and here is more of the same nonsense:

http://www.kitco.com/ind/Summers/oct112010.html

#2: “There are only about $550 billion of Treasuries outstanding with a remaining maturity of greater than 10 years.”

This horrifying fact comes courtesy of Morgan Stanley analyst David Greenlaw. And it confirms what I’ve been saying since the end of 2009, that the US has entered a debt spiral: a time in which fewer and fewer investors are willing to lend to us for any long period of time… at the exact same time that we must roll over trillions in old debt and issue an additional $100-150 billion in NEW debt per month in order to finance our massive deficit.

And only $550 billion of the debt we’ve got to roll over has a maturity greater than 10 years!?!?

So we’re talking about TRILLIONS of old debt coming due in the next decade.

The Fed is going to QE. The more debt that has to be rolled over, the faster the average interest rate on the outstanding debt can drop.

People don't seem to understand that our money is made out-of-thin-air. It costs nothing to make as much as is needed.

The only thing that can stop that trend, is for the masses to walk away from the dollar. But they can't. They can't eat without dollars, because they have no capacity to survive outside the current financial system. They have no savings. They have huge debts.

You forget Steve, the borrower is slave to lender. The borrower can not escape this servitude to the banksters.

What you do not apparently realize is that the Fed can drop the interest rates at will, simply by underbidding all bidders on Tbonds. Whether they do it in their own name or via proxy banks is irrelevant-- important is they do it.

In this way, the Fed is feeding as much cash as they want to the public who holds bonds (drop in interest rate, increases the nominal value of the existing bonds).

This is how they reflate and control the money supply now.

Nobody wants out, it is too lucrative, because basically what is happening is the world economy is being parasited by bond holders and the end game is a withering of real capital and a growth of public spending.

As long as oil is still available in dollars, then no one can stop the Fed from controlling interest rates this way. This is why our military is based all over the world. It is all about protecting the Federal reserve system:

http://www.marketoracle.co.uk/Article23427.html#comment95419

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Inflation or Deflation? - Page 19 Empty China crash ahead

Post  Shelby on Fri Oct 15, 2010 11:45 pm

http://www.marketoracle.co.uk/Article23491.html

Shelby wrote:Excellent article and he even mentions the perpetually declining interest rates at start:

http://www.marketoracle.co.uk/Article23162.html

Yup! I have been writing similarly about China and misallocation due to the Yuan peg:

http://www.marketoracle.co.uk/Article23142.html#comment95152

I explained it more and in context of the end game of the global economy:

http://www.marketoracle.co.uk/Article23494.html#comment95500

And end game from perspective of dollar analysis:

http://www.marketoracle.co.uk/Article23427.html#comment95419

Much of China's supposedly high personal savings rates are circular loans to themselves:

https://goldwetrust.forumotion.com/economics-f4/inflation-or-deflation-t9-435.htm#3566


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Inflation or Deflation? - Page 19 Empty China demolish new buildings

Post  Shelby on Sat Oct 16, 2010 8:53 am

Following linked article shows photos of China demolishing new buildings, to re-build again, another way of keeping their false economy pumped up.

As soon as my new ZeroHedge account signup is approved, I will be adding the following rebuttal to the following comment on that page:

http://www.zerohedge.com/article/china-proudly-demolishing-buildings-completed-pursuit-great-housing-bubble-perpetual-engine#comment-608246

tmosley wrote:...The most useful predictor of a nation's long term global power is this: population/(Government spending as a fraction of GDP). There is likely an exponential term in there somewhere, but this is the simple version...

1. Your myopia is that govt regulation, especially the Yuan peg, is a similar capital misallocating paradigm to govt spending (heck local govt in China are forced to invent projects in order to meet Communist Party GDP targets):

http://www.marketoracle.co.uk/Article23491.html#comment95518

2. The exponent you are missing is the entropy function, and the increasing order that results from centralizing decisions, regardless of whether activities are centrally controlled via macro economic controls (e.g. Yuan peg and regulations) or tax-and-spend:

https://goldwetrust.forumotion.com/economics-f4/is-capitalism-or-is-socialism-increasing-t18-60.htm#3736

Follow the sub-links within the two links above, in order to dig into the substance and math of my analysis.

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Inflation or Deflation? - Page 19 Empty from the 1983 movie "Rollover"

Post  Shelby on Sat Oct 16, 2010 5:01 pm

http://www.marketoracle.co.uk/Article23481.html

statesman of Wall Street wrote:...first you'll see a lot of jawboning by the president, and that won't work. Then, they'll take to selling gold, and that won't work. And then you'll see capital controls!

And that will be the end. Then you'll see a Depression that makes the thirties look like a Kindergarten!...

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Inflation or Deflation? - Page 19 Empty gold reserves illusions

Post  Shelby on Sun Oct 17, 2010 1:21 pm

http://www.marketoracle.co.uk/Article23546.html#comment95566

Shelby wrote:Frank, on #1 and #2, the 26 grams is about 8/10ths of a troy ounce, which is roughly how much gold exists above ground per human on earth.

The outlandish size of the fiat supply will tell you that it has to implode in order for our global economy to get back to sustainable growth, and not the current mis-allocating, parasitic fiat model, which enables China to build new buildings then demolish them to build them again:

https://goldwetrust.forumotion.com/precious-metals-f6/silver-as-an-investment-t33-255.htm#3777

On #3, no the Chinese economy will implode when there is move back to gold as money, because it is a parasite, fake economy. Yes if they are only IOUs and we are still using a fiat system, then yes they will end up in China. Good point.

Lastly, I am afraid the USA probably also does not have the German gold which your central bank is using as a reserve for your currency, and thus the Euro. Some speculate that your govt recently asked for it back (see the day with Obama documentary and he was interrupted with an emergency about Germany in 2009), but didn't get any gold back.

None of the gold is there at the west central banks. Even the transfer of gold to India was just a paper transaction, for physical gold that was long ago sent there by central bank leasing. The gold is being positioned at the BIS for a world currency.

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Inflation or Deflation? - Page 19 Empty Fed inflating globally

Post  Shelby on Mon Oct 18, 2010 3:00 pm

Minor sell-off in stocks and metals by Nov. 3, then resume the upwards trend.

http://www.marketoracle.co.uk/Article23571.html

Shelby wrote:Nadeem, give yourself 3 diamonds on this one! Oooh this is article really nails it. Sooo clairvoyant and lucid.

Nadeem wrote:...Therefore investor sentiment suggests immediate upside is limited with a relatively minor correction more probable to setup bearish investor sentiment ahead of the next big rally...

Correlates with your call for a rally in dollar to 80?:
http://www.marketoracle.co.uk/Article23427.html

Nadeem wrote:...the official policy of the U.S. since the midst of the cold war has been to control the worlds financial system by means of operating a continuous large trade deficit [...] the Fed intends on INFLATING THE WHOLE WORLD ! It is pushing the worlds governments reliant on exporting to the U.S. into devaluing their currencies by means of printing money...

I am so happy to read someone else write that! I have been trying to explain that for a long time.

Nadeem wrote:...Those that have constantly been calling for the Dollar to collapse still don't get it that despite having been wrong for the past three years that ALL currencies are spiraling lower together...

Exactly! There is no imminent hyper-inflation! (nor deflation, unless you price everything relative to gold, then yes deflation)

***** NADEEM, WHY DO YOU NOT NOTE THAT THE STOCK MARKET IS DECLINING RELATIVE TO GOLD SINCE 2001? *****

The actual mega-trend is deflation! The inflation mega-trend is for those who don't own gold, and instead play with paper bits. However, your analysis of the paper instruments is still important for those who want to speculate for leverage (can't get leverage multiples in physical gold).

Nadeem wrote:...the Chinese are more like rabbits frozen by fear, trying hard not to become road kill in the face of Fed actions and Congress's endless deficit spending debt accumulating binge with the worlds reserve currency...

It is true the US Treasury secretary once said to the developing world, "it is our dollar, but your problem". And we know that the European banksters (who were the genesis for the USA banksters, aka gangsters), did destroy China both addicting them to opium to get their silver back in 1800s, and then driving the price of silver lower with subsidies in american mining to hyper-inflate China in early 1900s:

http://en.wikipedia.org/w/index.php?title=First_Opium_War&oldid=387546499#Background
http://www.gold-eagle.com/editorials_05/moore070306.html

But make no mistake that China is also a parasitic, mis-allocating, socialistic mess that is complicit with the bankster dollar policy that sustains the parasitic, mis-allocating socialistic mess in the west (in short west and China are complicit):

http://www.marketoracle.co.uk/Article23546.html#comment95571(follow sub-link too)

The people of China may be trying to game the system, but by doing so in flipping real estate, stock market speculation, master planning for local government, etc.., they are also deep in the socialism poop.

Nadeem wrote:...Off course having a global military presence plays its role in supporting the U.S. Dollar as the worlds reserve currency...

Oil must be available in dollars to keep the world addicted and locked into to dollar trade deficit paradigm.

Nadeem wrote:...My in-depth analysis during August warned of the U.S. Treasury bond bubble that was primed to burst (26 Aug 2010 [...] each new round of QE will prove less effective and more inflationary. Falling bond markets mean rising market interest rates which will eventually force the Fed and other central banks to start raising their rates as the economy is the real economies will be in far more robust shape than the official data will suggest...

This is where we may disagree. The interest rates will oscillate within that channel until the end of the dollar fiat system. Are you saying that 20 year bond channel on your chart will soon break???????

You don't seem to understand that QE guarantees falling interest rates. The more dollars created, the more demand for Treasury bonds. Go back to the official trade deficit policy above that you correctly identified. I think this is your one macro-economic mistake. Can you explain????

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Inflation or Deflation? - Page 19 Empty re: Dow/gold

Post  Shelby on Tue Oct 19, 2010 6:18 pm

http://www.marketoracle.co.uk/Article23571.html#comment95610

Shelby wrote:Dow/gold says that owning gold has been more profitable than owning the Dow, since 2001.

Correct, the gold/Dow is a loser since that exact month of March 2009 only, but it is a winner any time before that (even Feb 2009) and any time since then except if you bought at the peak in June 2010:

http://stockcharts.com/h-sc/ui?s=$gold:$INDU

In past 3 years, gold has outperformed the Dow by 2.5 time, i.e. a 36% per annum more return. Since the bottom in 2001, gold has outperformed the Dow by 5 times, i.e. a 20% per annum more return.

I agree you can't trade the ratio, but the ratio is useful for those people who want to put some % of their capital into physical gold and leave it there until the ratio reverses its secular trend. It is also useful to tell you buy gold instead of the Dow, when you want to bullish on Dow longer-term, as this isn't always true over shorting trading periods.

Also the ratio is significant, because just about everything is declining in price relative to gold. This proves we have deflation, since gold is the only true money.

The only inflation is in the paper digits.

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Inflation or Deflation? - Page 19 Empty Devaluation versus Hyper-inflation

Post  Shelby on Sat Oct 23, 2010 7:37 pm

...Shelby believes the Chinese are in bed with JP MORGAN and HSBC. I believe as Ted Butler contended a few years ago that the CHINESE were the big short, but I believe they are no longer. It made sense for them to be the BIG SHORT as it allowed them to acquire silver concentrates from all over the world at a lower cost. But now that they are halting 40% of the silver exports, it no longer makes sense for them to be the BIG SHORT...

The logic doesn't follow. The (central) bankers are the shorts, and there are (central) bankers in every country. Yes! The central banks are the shorts. Think about that deeply. They do it to keep the fiat from immediately going to its intrinsic value of 0, because it costs them 0 to be short. Actually they make money being short, by lending to the public and earning interest on money they can produce out-of-thin air. China's central bank oligarchy is no different.

...Shelby tells me a D-E-V-A-L-U-A-T-I-O-N, is not Hyperinflation. When the US Dollar gets devalued 50%, everything costs twice as much, and everyones bank accounts gets a 50% haircut. And we must remember, there is no such thing as ONE DEVALUATION. Hugo Salinas Price the billionaire in Mexico trying to get the Silver Libertad issued as money, has had several interviews warning of devaluation and states that there is NEVER JUST ONE devaluation. After one, soon comes another.

Debating whether or not we will have HYPERINFLATION, DEVALUATION or whatever is like betting on which way someone will fall when they have a MASSIVE HEART ATTACK...does it really matter???...

The difference is that in devaluation, there is a surplus of cash (credit), and in hyper-inflation there is a shortage of cash. That is crucial.

In devaluation, you get capital controls from the outside. In hyper-inflation, you get capital controls from the inside. We can already see this has started with Thailand and other Asian countries recently taking steps to block the inflow of foreign capital.

Global devaluation means there is no place to run to. Capital just dies on the vine. Hyper-inflation is a stampede and some get out. Mathematically there can't be a global hyper-inflation, I explained that in my earlier postings.

Thus in devaluation you get declining interest rates, whereas in hyper-inflation you get rising interest rates (because there is an alternative to run to):

http://www.marketoracle.co.uk/Article23162.html

Devaluation is much more insidious.

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Inflation or Deflation? - Page 19 Empty Devalution = controlled, hyperinflation = free market

Post  Shelby on Mon Oct 25, 2010 2:16 am

Shelby wrote:...The difference is that in devaluation, there is a surplus of cash (credit), and in hyper-inflation there is a shortage of cash. That is crucial.

In devaluation, you get capital controls from the outside. In hyper-inflation, you get capital controls from the inside. We can already see this has started with Thailand and other Asian countries recently taking steps to block the inflow of foreign capital.

Global devaluation means there is no place to run to. Capital just dies on the vine. Hyper-inflation is a stampede and some get out. Mathematically there can't be a global hyper-inflation, I explained that in my earlier postings.

Thus in devaluation you get declining interest rates, whereas in hyper-inflation you get rising interest rates (because there is an alternative to run to):

http://www.marketoracle.co.uk/Article23162.html

Devaluation is much more insidious.

Devalution = controlled, hyperinflation = free market.

In hyper-inflation, people have another currency to run to. In devaluation they have no where to run (except precious metals).

=====================
http://www.marketoracle.co.uk/Article23427.html#comment95781

Shelby wrote:re: Inflation export to developing world

Sam, I know you probably want the author's reply, but I will offer my insight too.

The developing world will offer capital controls on incoming capital. Competing currency devaluation is a scenario where there is no current to run to, thus hyper-inflation is impossible:

https://goldwetrust.forumotion.com/economics-f4/inflation-or-deflation-t9-465.htm#3810

The only place to run is gold and silver. Commodities don't work, because if whole world runs to commodities, then we can't afford to eat or buy so globa economy implodes, then we have to sell commodities again. Hyper-inflation of all commodities only works locally for one currency not globally. That is Gordon Lira's mistake.

But the problem at the end game for gold and silver, are taxes:

http://www.marketoracle.co.uk/Article23680.html#comment95745

Gold and silver are still good investments. After the coming dip to $21, I expect silver to reach $47 in 2011, then crash again, then again break $50 going forward. Silver will outperform gold, but it will be more volatile.

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Inflation or Deflation? - Page 19 Empty Gresham's law & digital gold

Post  Shelby on Wed Oct 27, 2010 6:11 pm

http://www.marketoracle.co.uk/Article23655.html#comment95879

Shelby wrote:Gresham's law only applies when there are two forms of legal tender, and one has a higher commodity value than its legal tender face value.

Thus the premise of the article is flawed. Digital gold is not legal tender and thus its face value is always the same as its commodity value, thus it has nothing to do with Gresham's law.

The bad money is always eventually driven out-of-circulation when it loses confidence and returns to its intrinsic commodity value of 0. That is not Gresham's law in reverse, because no one is trading bad legal tender for lesser face value per commodity value ratio.

The author invented a strawman that violates what Gresham's law applies to. Gresham's law only applies to the ratio of the face value (the value in trade) and the commodity value.

Sorry but no cigar.

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Inflation or Deflation? - Page 19 Empty Hooray! Jim Willie finally gets it!

Post  Shelby on Thu Oct 28, 2010 3:59 am

You got to love the way he writes, e.g. "their jobs were shanghaied on a ship to China":

http://www.marketoracle.co.uk/Article23830.html

The USDollar will suffer. Rather than fall versus other major currencies, the wrecked monetary system will take down all major currencies. Each fiat paper currency is being exposed as illegitimate in different ways. The consequences will be:

* All cost structures will rise, causing a worse global recession, a very heavy painful consequence.
* Income levels will not rise to meet the challenge, since monetary inflation destroys capital and erodes wealth engines in corporate structures.
* The US$-based bond markets take on a racketeering glow in global view.

The vast monetization schemes are set to come into motion for the bond market in general. The objects are hardly just USGovt debt securities, not even just Fannie Mae mortgage securities, but big bank Corporate Bonds as well. The scheme will paint the USDollar in a light with a RICO tint, as in racketeering, sanctioned by the US finance ministry and shielded from prosecution by US legal authorities and regulatory bodies. Worse still, the Financial Accounting Standards Board has permitted accounting fraud to the big dead US banks. Since April 2009, they have been permitted to declare any value they wish on their toxic balance sheets. That has enabled them to take advantage of USGovt largesse, direct USFed redemption of toxic bonds, called widely banker welfare. That has enabled them to tap the 0% money tree that produces carry trade profits.

The US financial platforms are unraveling. The USDollar will follow a path to oblivion, locked in a destructive spiral. The Competing Currency War assures that other major nations will undermine, debase, and devalue their currencies rather than seek out, plan, and establish a new monetary system. The investment in a broken system will soon be realized as infinite, with unchecked aid, even $trillions tossed in Black Holes. The sound money experts have always argued that accelerated funds are required to maintain a bubble. Gold will therefore skyrocket in price, as the monetary system will be actively ruined from unchecked money creation. The silver price gains will be at least double the gold gains.

So now he understands the Perpetual declining interest rates and the "forever Depression" (no hyper-inflation):

https://goldwetrust.forumotion.com/economics-f4/changing-world-order-t32-120.htm#3831

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Inflation or Deflation? - Page 19 Empty Deflation, not hyperinflation

Post  Shelby on Thu Oct 28, 2010 7:49 pm

http://www.marketoracle.co.uk/Article23162.html

Shelby wrote:I thought I explained it sufficiently in the above article, yet people continue to follow the incorrect logic of this writer Gonzalo Lira. He writes recently that the recent fast rise in commodity prices is a sign of arriving hyperinflation:

http://gonzalolira.blogspot.com/2010/10/signs-hyperinflation-is-arriving.html

It is impossible to get hyperinflation with respect to general commodities, when the unit-of-account (the currency) is global and wages are not increasing at same rate as commodities are, because if the entire world has to pay runaway spiring up prices for commodities, then pretty soon no one has any more money to buy anything, and the global economy implodes. At that point, no one can sell the commodities they held, and there is a crash in prices.

In other words, the stampede (aka public confidence, Sinclair "currency event") logic doesn't work, and thus it is impossible to get hyperinflation when the dollar is the global reserve currency, all other currencies must devalue with the dollar, and hyperinflated quantities of currency are not literally and physically being distributed to all the people every where in the world. The reason all other currencies must devalue with the dollar is because oil and commodities are always available to be purchased with dollars. This is why the US military is stationed all over the world, to make sure that the dollar remains liquid for purchasing commodities and oil. We know that socialism's entitlement and other distributions are just barely keeping the people level in terms of nominal cash flows, no where near hyperinflated increases in distributed currency to the general populace and especially not worldwide in every country.

Hyperinflation can only occur when a local currency is destroyed, by a stampede out of that local currency to commodities. In that case, the price of commodities rise in runaway upward spiral with respect to that local currency, but do not rise with respect to the currency that the rest of the world is using. Thus such hyperinflation is sustainable until the local currency dies.

The only hyperinflation that is possible on a global reserve currency is relative to gold and silver. And this is happening now. This is actually DEFLATION, because everything is getting cheaper with respect to real money (gold and silver). And deflation is exactly what is expected during a debt implosion.

Commodities will rise in price only as fast as the developing world wages rise. We will see periods of boom and bust over the next years or decade, as the global reserve currency (the current fiats all hinged to dollar) dies with respect to gold and silver.

I have made dozens of comments on this site, which further detail my logic:

http://www.google.com/search?q=site:marketoracle.co.uk+Shelby+Moore

I have also discussed this in great depth and quoting from numerous articles (from this site) at my forum (which is free, I sell nothing, I am software developer, ad-hoc economist, and ad-hoc theoretical physicist):

https://goldwetrust.forumotion.com/economics-f4/shelby-s-newsletters-t38.htm#3834

I recently explained that we are in global devaluation, which is not the same as hyperinflation, and is much more insidious, perpetual, and hard to escape from:

https://goldwetrust.forumotion.com/economics-f4/shelby-s-newsletters-t38.htm#3816

Cheers.

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Inflation or Deflation? - Page 19 Empty Fiat is not capital

Post  Shelby on Thu Oct 28, 2010 9:44 pm

The thesis of the following article is that where ever real interest rates are the lowest, i.e. where inflation minus interest rates is the greatest, then investor fiat "capital" will flow to profit on the rise in debt-based economic activity that will be greatest where the real interest rates are lowest:

http://www.kitco.com/ind/Guild/oct272010.html

I agree with that, except I will show that is not "capital" but rather dumb money with eroding value. The author of the above linked article makes the implication that the west should compete with the developing world to create more inflation (or further lower interest rates), so as to encourage more such fiat "capital" to flow back to the west. This is the typical Keynesian fallacy.

Debt does not create capital, it destroys it by misallocating the finite years of a person's life.

That system is eroding itself.

The only way to grow capital is to have growth in savings, not debt. Savings is a reflection of restraint and reallocating resources to maximum utility.

Unfortunately so few people today have any reasonable grasp of economics, and if the author is correct that Jim Sinclair sanctioned this nonsense, then I guess Sinclair is a fool too.

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Inflation or Deflation? - Page 19 Empty China's roaring 20s

Post  Shelby on Fri Oct 29, 2010 10:15 pm

http://www.marketoracle.co.uk/Article23862.html

Shelby wrote:China is going through its version of what the USA did in 1920s, before the Great Depression. At that time, USA was displacing the rest of the world in commerce, and Europe was in a fiscal mess. The capital was running from Europe to USA, causing the Roaring 1920s. We all know the misery that followed for the USA, even though the USA would go on to be the strongest economy in the 20th century.

Mish is correct about deflation, but only if we use gold as the unit-of-account. Gold is the only thing that can retire the global debt. Since mankind refuses to go to gold willingly, then it will come in the form in an capitulation to debt slavery, aka the one world (NWO) currency (SDRs):

https://goldwetrust.forumotion.com/economics-f4/changing-world-order-t32-120.htm#3831

I have many posts about China's misallocation of capital:

https://goldwetrust.forumotion.com/precious-metals-f6/silver-as-an-investment-t33-255.htm#3777

http://www.marketoracle.co.uk/Article23862.html#comment95938

Shelby wrote:DEFLATION proof

Any one can receive their earnings in gold, simply buy gold when you receive the fiat.

And thus we see that if someone's earnings are not increasing about 20% per year since 2001, then their earnings are deflating, i.e. DEFLATION.

Nadeem, it is a meaningless statement to say that the gold price would fall in deflation, because for example during hyper-inflation some governments have removed some zeros from their currency, to pretend the hyper-inflation does not exist, and thus the price of everything falls instantly to say 0.0000001 of the former price, but that is not deflation.

Rather the meaningful metric is to ask what is the purchasing power of gold. During deflation, the purchasing power of gold increases, and during inflation, the purchasing power of gold decreases. From 1980 to 2001, we had inflation, because the purchasing power of gold was declining. But in 2001, the debt bubble peaked and now the purchasing power of gold is increasing, because only gold can retire debt (no fiat can retire debt, because fiat is debt).

The problem that the world has is that the masses don't keep their mental unit-of-account in gold. This is why they can be manipulated and fooled as to the true of what is going on.

In reality, the 309 year public inflation wave (growth of socialism since birth of USA) ended in 1998 and the private wave deflation (growth of free market and gold back to money) has begun:

https://goldwetrust.forumotion.com/economics-f4/changing-world-order-t32-105.htm#3818

http://www.marketoracle.co.uk/Article23862.html#comment95942

unit-of-account matters

Nadeem,

You know that I agree there is price inflation in fiat. I have also busted those who argue otherwise as evident in numerous of my comments on your site.

However, you are confused about what deflation and inflation are. It is impossible to define anything in life, if you use an arbitrary measuring stick such as fiat. Fiat is nothing more than plastic chips in a casino-- the house determines their value at will. They can create more at will. They remove zeros at will.

The only stable metric is purchasing power. That is what matters to people. They want to know how much they can purchase with their money.

From 1980 to roughly 1998, people could purchase less with gold. Since then, they could purchase more with gold.

No I am not picking what has risen over a short period of time. Since 1913, the purchasing power of gold is roughly constant in terms of raw materials (adjusted by any technological productivity improvements). Whereas, the fiats have lost 95+% of their purchasing power.

It is meaningless to talk about inflation versus deflation if you unit-of-account is fiat, because fiats NEVER deflate. They inflate (lose purchasing power) until they return to their intrinsic value of 0.

So we might as well just stop the entire discussion if we are going to use fiat as our measuring stick (i.e. unit-of-account), because there is never deflation in that case.

The only meaningful discussion is to use gold as the unit-of-account. This has been true for over 2000 years.

You are arguing about a non-argument. I don't disagree with you that there is always inflation for those who are stupid enough to use fiat as their unit-of-account.

For those of us (like Rothschild) who use gold as our unit-of-account, we are interested in inflation and deflation with respect to gold, because it enables us to be richer and smarter than the masses.

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Inflation or Deflation? - Page 19 Empty no signs of hyperinflation

Post  Shelby on Sat Oct 30, 2010 10:02 pm

http://www.marketoracle.co.uk/Article23901.html

Shelby wrote:I been waiting for this article to appear on marketoracle, because I refuted it 2 days ago:

https://goldwetrust.forumotion.com/economics-f4/inflation-or-deflation-t9-465.htm#3838

My overall understanding of where we are headed macro-economically:

http://www.marketoracle.co.uk/Article23862.html#comment95969

I suggest you do not miss the following sub-link:

https://goldwetrust.forumotion.com/economics-f4/changing-world-order-t32-120.htm#3850

I want to say to those who have been reading my articles and comments, I am reached that point where I am repeating myself. I need a break. Have to stay more focused on my real job. I hope enough people have understood my writings, in order to re-explain them numerous times when people get off on their usual myriad of misunderstandings about the way the world really works. But I know it won't be-- it is a special understanding I have been afforded. But I can hope, can't I?

My best wishes to all. I will still be around sometimes, but not to refute and comment on every mistake I see. Takes too much of my time and energy. I do hope someone can adopt my past role.

Lastly, I want to thank Nadeem for providing such an open forum of expression. I am confident he and others will be able to do the same with any sites I create (social networking or general publishing/blogging, not financial).

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Inflation or Deflation? - Page 19 Empty [de|in]flation points

Post  Shelby on Mon Nov 01, 2010 5:29 am

http://www.marketoracle.co.uk/Article23909.html#comment95997

Shelby wrote:1) I have consistently said we are not in deflation in terms of *fiat* prices, except for the over-leveraged sectors, e.g. housing, finance, and western consumer consumption. Nadeem has no argument to pick with me on that, I have consistently agreed. See my past rebuttals of Mish Shedlock and Karl Denninger.

2) However, both Nadeem and I are actually wrong about #1, with respect to developing world, because wages are rising in real terms here. And that is what I began commenting on just recently. Nadeem provides the perfect example:

"If there were deflation then workers would get richer"

Well actually they are getting richer in many developing countries. Their purchasing power has been rising radically since the mid-1990s and accelerating in nominal terms. I am seeing people here in the Philippines who couldn't eat, and now are working in call centers earning literally 7 - 10 times more in REAL (inflation adjusted) terms than they could before.

Apparently what Nadeem is missing in his focus on local fiats, is that the prices of everything in the world are decreasing relative to gold. This started around 1998, when gold stopped falling in price. You see 1980 to 1998 was a period of inflation for the developing world, their real purchasing power declined. Since 1998, their real purchasing power is increasing.

What you see in west and call inflation, is just because westerners refuse to use gold as money (as their unit-of-account). If they did, there would be instant shift to deflation, because the fiats would worthless and the western debt based economy would implode. Real wages would start to go up again in gold terms after rebalancing to the developing world levels.

The wage demands in China are because China is pegging the Yuan to the dollar instead of to gold. The people are getting these wage demands and they are seeing their purchasing power continue to rise. The Chinese people are in effect making something like gold their unit-of-account, regardless of what the nominal amounts in paper Yuan are. Caveat, in the upper and middle class sectors of the Chinese economy, there is rampant speculation, so a big chunk of that economy will need to deleverage at some point too.

Nadeem also wrote:

"government would shrink in size"

In the developing world, wages may be outpacing the growth of government.

I am not refuting the concept that we have inflation in fiats every where. I agree with Nadeem as I stated in #1 above. What I am saying is that the debt based economy is deflating in real terms, and that means relative to gold. Anything that is related to debt, speculation, finance, or anything that fiat inflates, is actually deflating now relative to gold. And those things which are based on honest hard work are gaining value, i.e. deflation.

3) I have recently strongly argued against the possibility of hyperinflation, and this has nothing to do with the inflation and deflation argument. However, the fact that the westerners have nothing to run to, except gold and silver is very important to understand.

4) I am sorry I won't be able to spend the time now to adequately explain this. I am literally programming a new site 18 hours a day, and my eyes are very heavy and my head is very foggy. So in order to come present a very compelling argument that covers all the angles, I would need to take some time to rest up. I do suggest Nadeem put together a real-time Skype debate between himself, myself, Mish, Denninger, and Gonzalo Lira. In a real-time debate setting, I would be able to address all their misunderstandings more convincingly.

All the best.

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