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Inflation or Deflation?

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Inflation or Deflation? - Page 20 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 20 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 20 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 20 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 20 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 20 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.

Shelby
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Inflation or Deflation? - Page 20 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 20 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 20 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 20 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.

Shelby
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Inflation or Deflation? - Page 20 Empty Yuan peg trap

Post  Shelby on Sat Nov 06, 2010 9:27 am

http://www.marketoracle.co.uk/Article24050.html#comment96130

Shelby wrote:Agreed Nadeem, and I will add some thoughts of mine:

1. If the China doesn't abandon the peg, they get skyrocketing inflation and thus a renewed global collapse/liquidity crisis, which will thus cause the dollar to appreciate again and continue the dollar bond bubble. Whereas, if China does abandon the peg, the collapse also will occur, because the global system is capitalized to handle the current trade flows, not the new paradigm (West and developing world rebalanced) that will come. Thus no matter what China does, the result will be a continuation of the bond bubble. There is simply no way to escape. The only escape is gold retiring all the debt of the world in NWO system that is being prepared at the BIS.

2. The bottom line is that the entire world is built on a house of cards of debt and this has created supply and demand in the wrong areas. This will all have to be laid to waste, but every single country has a demographic age debt that can't tolerate such a reset. Thus the path to the NWO is guaranteed. The banksters are quite smug now.

3. Bernanke is also doing QE because if he doesn't, interest rates rise and the current financial system will be toasted. No matter what any one does, the current financial system is on its death march towards its intrinsic value of 0.

In short, the world is FUBAR and clusterfucked. Just look at Bernanke's oped in NY Times on past Wednesday. He said QE is working. That was basically the middle finger of the banksters to the world, "you can't stop us".

Sorry to be so frank and downbeat, but I like to call a Spade a Spade. Helps to be realistic when planning.

Should I talk about the positives going forward?

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Inflation or Deflation? - Page 20 Empty Don't expect silver to correct significantly before $45

Post  Shelby on Thu Nov 11, 2010 4:17 pm


Shelby
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Inflation or Deflation? - Page 20 Empty Keep it simple

Post  Shelby on Sun Nov 28, 2010 4:20 pm

http://www.marketoracle.co.uk/Article24478.html

Shelby wrote:Prices and economic activity are decreasing (or stagnant) in areas where credit was overused (e.g. housing). And prices and economic activity are increasing in areas where credit is increasing (e.g. China and developing world).

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Inflation or Deflation? - Page 20 Empty China can't stop!

Post  Shelby on Thu Dec 23, 2010 6:51 am


Shelby
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Inflation or Deflation? - Page 20 Empty Bernanke is not printing "money", but what is "money"?

Post  Shelby on Fri Dec 24, 2010 7:04 pm

In a 14 minute interview that aired on 60 minutes, Bernanke says:

https://www.youtube.com/watch?v=QPmmWe5iulQ

During the interview Pelley said that Mr. Bernanke's new $600 billion QE-2 stimulus plan is spending “the Fed's own reserves. It's not tax money. It does not add to the federal deficit.

During the interview Mr. Bernanke said: “We're not printing money,” said Mr. Bernanke during the interview. “The amount of currency in circulation is not changing. The money supply is not changing in any significant way.”

Look what he said in 2009:

http://michaelreinstein.blogspot.com/2009/03/ben-bernanke-on-60-minutes-complete.html

PELLEY Is that tax money that the Fed is spending?

BERNANKE It's not tax money. the banks have-- accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. so it's much more akin to printing money than it is to borrowing.

PELLEY You've been printing money?

BERNANKE Well, effectively. And we need to do that, because our economy is very weak and inflation is very low. when the economy begins to recover, that will be the time that we need to unwind those programs, raise interest rates, reduce the money supply, and make sure that we have a recovery that does not involve inflation.

Here is an attempt to sort it out:

http://blogs.wsj.com/economics/2010/12/22/is-the-fed-printing-money/

The Fed has been buying bonds since early 2009. When a private investor buys bonds, the investor uses cash or sells some existing asset to raise cash and uses that money to buy bonds. The investor might also borrow money from a bank and use the borrowed funds to buy securities on margin. The Fed can do something else. It has the power to electronically credit money to the bank accounts of sellers who in turn sell government securities or mortgage backed securities to the Fed. The banks get the money and the Fed gets the securities. The Fed isn’t literally printing $100 dollar bills when it does this. But it is creating money, electronically, that wasn’t in the financial system before. In that sense, it is printing money.

But as Mr. Bernanke has been trying to emphasize lately — perhaps clumsily — most of the money that the Fed has created isn’t circulating much through the financial system. It’s mostly sitting idly, often in deposits — also known as reserves — that banks keep with the Fed itself. Broader measures of the money supply haven’t grown that much because the money isn’t being lent on. Since January 2008, the amount of Federal Reserve notes, i.e. currency, in circulation has increased 18%, to $980 billion. During the same stretch, the reserves banks keep with the Fed has increased more than 30-fold to $995 billion from $33 billion.

Meantime, in the 12 months between November 2009 and November 2010, M2 money supply, a broad measure of money including bank deposits, retail money market fund deposits and other measures of short-term money, are up just 3.3%.

The Fed chairman seems to be trying to emphasize two points: 1) The Fed isn’t literally printing money; and 2) The money that it is creating isn’t flooding through the financial system in a way that would be inflationary.


I figured out how Bernanke thinks and why he misses the overall point and completely missed predicting the crisis. Really I believe Bernanke is totally ignorant of the evil he is doing and he thinks he is doing good. It is amazing that our SAT system for measuring IQ can measure Bernanke at a reported 1600 SAT, but yet he can be completely ignorant of the systemic issues.

The problem is that Bernanke bases all his thinking on data. It is very similar to this former $400 million hedge fund manager hotshot who thinks he can profit on the statistics of extrapolating housing starts:

http://seekingalpha.com/article/241088-homebuilders-perhaps-one-of-the-best-buys-of-the-decade

The problem is that mathematical correlation does not convey the fundamental issues involved. For example, Bernanke makes the comment near the end of his Dec 2010 60 Minutes interview (first link above) that disparity in education is the cause of rising Gini Coefficients in the USA. He cites the statistics that unemployment is only 5% among college graduates but 10% among non-grads. He completely misses the systemic reason that Gini Coefficients are rising, which is that savers are being robbed and the middle class can't grow when the real ROI on their savings is negative (compounded too!). This is because gold is not being allowed to perform its role as the regulator of real interest rates:

http://www.marketoracle.co.uk/Article20263.html (my article)

If indeed the free market decides people need to be more competitive on education, then stopping the manipulation of gold would cause the uneducated to fall harder and faster and to be more incentivized to get more education.

Bernanke is convinced from the data that was presented to him during his Ivy League education, that the cause of the 1929 Great Depression was lack of liquidity and failure of big banks causing contagion in the economy. He knows they are doing some bad things like suppressing gold, but he tells us, "the risk of not doing it, offsets the risk of doing it", because he thinks the outcome is horrible either way. That is the logic of a drug addict.

He thinks that money is the aggregate measures he has access to, e.g. M1, M2, etc, but what he fails to understand is that these are not money!!!

He can not possibly infer correct conclusions from data, when he has the wrong definitions for words. And the wrong understanding of the fundamentals about how interest rates are set by a free market using a store-of-value that is not a commodity but is monetary (i.e. only gold and silver have sufficient above ground inventory to make them non-manipulatible over the long-term by man).

But the data is starting to tell him the truth. From the interview he says that we are very borderline that the recovery is not sustainable (he mentions a 2.5% datum), and we run a risk, especially going forward on the structural deficits.

You see data readers are history tellers. They can not lead an economy. This is why a central bank never works. Only a free market of individuals with their ability to buy gold and silver and set interests rates, can lead an economy efficiency, because the economy needs a billion minds and eyeballs to be optimized every day and every place.

What Bernanke does not seem to realize is that by sustaining monetary aggregates, he is denying the truth of the market, and thus he going to make the mis-allocation of capital much worse before the data finally tellings him "FUBAR". This is because he is looking at the wrong metric. He says he looks at the gold price, then how can he say he is not creating negative interest rates (i.e. inflation)! Well because he has the wrong definition of what inflation is and how to measure it. He doesn't realize you have to set gold and silver free, in order to have good data.

Until that time, he is flying blind, 1600 SAT notwithstanding.

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Inflation or Deflation? - Page 20 Empty Portions of the Bernanke interview that were not aired on TV

Post  Shelby on Fri Dec 24, 2010 8:26 pm

http://www.cbsnews.com/video/watch/?id=7117930n

Again we can see him repeat the same logic. Interestingly he is aware that China's Yuan policy is causing them to import our inflation policy. Thus I assume that he sees gold rising as a commodity, not for monetary reasons.

Thus perhaps he does not see the systemic risks that the negative real interest rates evidenced by the gold price rise are really going to hit back to USA.

But could he be correct? Would a Yuan value rise cause China's real estate bubble to pop, which could cause the Yuan to fall in value as capital exited for the dollar, which would cause deflation in the USA (commodity prices fall, dollar rise in value)?

So yes he is probably correct, that we are facing massive deflation ahead, and we are already seeing deflation for those who hold gold and silver.

But the key is that his policy of propping up the current global situation with artificially low interest rates, is just causing the problem to get worse.

What ever metrics he is looking at and how he is defining them, his interference in the free market is destructive. If we pulled back on the inflating policy, China's bubble would collapse, they would be forced to undergo some political changes and hopefully stop their mercantile Yuan policy.

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Inflation or Deflation? - Page 20 Empty USA can contine "Inflating Deflation"

Post  Shelby on Sat Dec 25, 2010 12:20 am

Sorry SRSrocco, it is going to take a lot longer than you think...

I had figured this all out in Feb. 2006

"Inflating Deflation" article:

http://www.coolpage.com/commentary/economic/shelby/Inflating%20Deflation.html

Shelby, Feb. 2006 wrote:First world economies face an unavoidable dilemma, regardless whether globalization is switched on or off, either sacrifice now with decades of retirement demographic deflation (globalization off), or sacrifice later by inflating the deflation of globalization for temporary illusionary "wealth", which will end in a hyper-catastrophic global collapse Greater depression.

World politics have chosen "sacrifice later", and on the order of 30 - 50% of the capital in developing markets derived from globalization, as well as the matching consumption debt in first world, is "unproductive" and due to be wiped out.

Contrarian investors can drastically increase their wealth betting on hyper-inflation of commodities and precious metals.

The USA is in no danger of defaulting in the next few years, because the Feb can keep interest rates down by increasing the size of QE as necessary. Here is the math:

http://www.kitco.com/ind/Trendsman/dec232010.html

Fiat currencies have value based on the ability of government to meet its obligations. As we and others have picked up on, the USA’s interest expense is now over $400 Billion and currently 17% of tax revenue. This is with interest rates at historical lows and a national debt of $14 Trillion. That doesn’t include agency debt of $3 Trillion and an estimated $2.8 Trillion from the states.

The situation is going to get worse. The states will likely need support in 2011 and perhaps a bailout by 2013. The continuation of the Bush tax cuts adds another $700 Billion to the deficit over the next two years. The most important variable of all, interest rates is now moving in the wrong direction.

Two years from now, the US government would be dealing with over $17 Trillion in debt and at the least, a 50% rise in interest payments. Even if interest rates hold around 4%, you are still looking at an interest expense equivalent to 25% of tax revenue. And that accounts for growth in tax revenue.

This speaks to why the Fed is monetizing the debt under the guise of economic stimulus and quantitative easing. They have to, and they are just getting started. In the coming months and years, the Fed will have to monetize more as the debt burden grows larger. Moreover, the Fed will periodically have to buy bonds to try and keep rates down.

Here is the Treasury Data:

http://www.fms.treas.gov/annualreport/cs2010/lebrykltr.pdf
http://www.fms.treas.gov/annualreport/cs2010/receipt.pdf
http://www.gold-eagle.com/editorials_08/kutyn022510.html

There is nothing stopping the Fed from creating several $trillion per year to buy all the federal debt necessary to keep interest rates low. Besides, as Bernanke said, they are paying all the interest earned on their QE holdings back to the Treasury Department, so any interest rate rises don't really matter in terms of debt servicing cost for the federal government.

But this QE money is spent by the federal government and ends up at the American consumer is being siphoned off to the developing world, and thus is driving inflation in the developing world, which makes real interest rates negative, which thus causes gold and silver to go up. Here is breakdown of federal government expenditures:

http://www.gold-eagle.com/editorials_08/sutton022510.html

So what can stop this QE? What can finally cause the USA to go bust?

One would be Americans refusing to do any more bailouts or otherwise limit federal govt borrowing and spending. I say this is not likely politically.

Another is for China to overheat with inflation to the point that the government is forced to let the Yuan appreciate, which means driving more inflation into the rest of the developing world (appreciating Yuan means less capital trapped in China). But this could deflate their property bubble (capital takes profit on real estate, panic follows). A deflating property bubble in China could crash the global economy, but it seems to me that USA is mostly an import economy so this would lower import costs in USA. It would also make USA labor that much more uncompetitive as labor costs around world declined, thus accelerating the exodus of jobs from USA. But still I don't see how this stops the QE.

CONCLUSION: the QE is going to proceed for a long-time probably to 2020 or so. It is really difficult to see how this ends. I don't think it does. Gold and silver will go up for decades, until the value of fiat is very small. But there is one way that QE finally ends. And that is a huge stampede into gold and silver with a parabolic blowoff. The only way central banks can react is to let interest rates rise as Volker did.

So the real question is when do the ROI on all other global investments fall below the ROI on gold and silver and the world forces the end of the fiat system?

ANSWER: not likely for years


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Inflation or Deflation? - Page 20 Empty Re: USA can contine "Inflating Deflation"

Post  Shelby on Sat Dec 25, 2010 11:31 am

Here is the place to go for the exact interest on the national debt:

http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

I don't know how he comes up with a 3.1% interest rate but what I do know is that U.S. is more in short term instruments now, well more than 50% in short term. Just divide the debt into the interest I suppose.

But the real problem is as more and more debt is racked up in short term instruments then when those rates fly higher then game is over as interest approaches 25% of receipts and well beyond.

As you can see on that page, there is no exponential uptrend in interest expense.

Yes the interest rates will skyrocket when the developing world has no more bubbles that can outpace gold and silver.

Actually we only need about 1% of the middle class in the world to decide that their money is better invested in gold and silver. Actually less 0.1% for silver.

But I think this will take years more, because the bubbles are fairly new here (only since 2008 afaics) in the rest of the developing world outside of China.

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Inflation or Deflation? - Page 20 Empty Moving towards a post-industrial world

Post  Shelby on Tue Dec 28, 2010 10:38 pm

http://www.gold-eagle.com/editorials_08/laird122210.html

As I have been saying for over a year or more, go reach the archives in the "Inflation of Deflation" thread at my https://goldwetrust.forumotion.com

How can we employ all those engineers? That is why I am working on this:

https://goldwetrust.forumotion.com/t112p90-computers#3992

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Inflation or Deflation? - Page 20 Empty Inflation does matter, even if you can individually arbitrage it

Post  Shelby on Sun Jan 02, 2011 12:50 pm

Kid Dynamite wrote:darkmath - because my interest in silver is not to use for currency in the future, or to hold forever and give to my grandkids, or to rub on my naked chest, or to bury in my backyard (that's my absolute favorite thing, by the way - people who say to buy precious metals, seal them in PVC pipe, and bury them in the yard. unreal)...

My goal is to profit (in fiat terms! shock!) from a rise in the price of silver/gold. SLV/GLD, in my opinion, clearly accomplish this goal more efficiently (easier, faster, cheaper) than buying (and don't forget, eventually SELLING ) physical metals myself.

As for fiat: the purchasing power of the US Dollar will continue to decrease over the next 100 years, just like it did for the last 100 years - that's very different from saying that the dollar is dead/doomed/on it's way out. (side note: every time you hear someone say "the dollar has lost 98% of its value over the last 80 years," or whatever the number is, it's important to notice how silly a statement that is. I'm not advocating taking piles of fiat currency and burying them under my mattress, in my barn, or in my yard - you invest your (Fiat) money, and it has delivered a very positive real return).

Congrats on your NASDAQ top trade and your timely exit from real estate, and your relocation to the Caribbean.

http://seekingalpha.com/article/241152-jp-morgan-and-the-massive-silver-short-the-greatest-story-ever-told#comment-1377586

The 98% loss in the value of fiat is typically ignored by a fool (or callous person) who doesn't have sufficient conceptual math ability (yes I am talking to you MIT Math graduate), to understand mathematically that such "casino money system" paradigm destroys human capital on the aggregate.

Sure I agree that if you are smart (i.e. training in applied mathematics from MIT), you can use the fiat system to arbitrage (I mean steal) capital from society, and claim to your conscience that you are helping the free market allocate capital more efficiently.

But what you are missing is that physical world supply and demand curves can be distorted by interest rates, which can be manipulated by the printing press (even the new exotic forms of "money" such as derivatives, where Bernanke can thus claims he is not printing M1). I say "distorted" instead of "manipulated", but the latter requires proof of intent, the distinction being irrelevant to my point.

Any one with sufficient math visualization skills, will readily understand that any such distortions increase frictional losses, i.e. destroy physical world capital. Examples would be overbuilding, underinvesting in education, producing insufficient children to support demographics, etc. In general over-investing and under-investing in the real world.

And this paradigm leads to aggregate failure, i.e. "too big to fail". Thus fiat systems die when the aggregate does. Thus it is very difficult for you to hold on those so called "profits" in the fiat system.

But those long-tail events don't happen in every person's lifetime, so we ignore them.

Nevertheless, if we didn't use fractional reserve finance, the entire world would orders-of-magnitude more prosperous, because frictional capital losses are a compounding phenomenon. I hope everyone can appreciate the power of compounding (exponential function), even I know most people can not even understand that it is impossible for usury to compound on the aggregate if gold and silver are money, because you eventually run out of money to pay the interest on the aggregate. This is why humans will always demand fractional reserve financial systems and thus demand that capital is destroyed.

Pity the human condition.

P.S. My overall IQ is some where in the 135+ range, but my IQ in the math visualization/conceptualization realm is apparently up in genius range.

Kid Dynamite wrote:ps - Dow Industrials and Transports are highly correlated. Consumer staples and cyclicals are highly correlated. Oil and the dollar are highly correlated... lots of things that aren't "the same" are highly correlated, Darkmath. Maybe if you end up taking that stats course you were talking about, you'll learn the difference between correlation and causation. I learned that when I got my degree in mathematics from MIT.

http://seekingalpha.com/article/241152-jp-morgan-and-the-massive-silver-short-the-greatest-story-ever-told#comment-1383205

Kid, I am glad to hear you realize that correlation does not imply causation, thus it can not be a predictor of the future. I hope you also learned about long-tail (aka fat-tail) distributions? Historically that has been vitally relevant to misuse of "casino money system" data to predict the future about monetary metals.

And one thing they did not teach you at MIT, is that the Shannon-Nyquist theorem asserts that you can not know whether you have aliasing error in your signal unless there are infinite samples (regardless of the pre or reconstruction filter employed). Even if one thinks they know the Nyquist limit, it is not possible to know the period of the long-tail, thus infinite time for sampling is required to avoid aliasing error.

Aliasing error can manifest itself as a completely different reality than the one presumed from the prior set of samples. This can manifest both in the time and period domain.

Most people don't understand this, that is why they put so much faith in science. Yes science is just another religion or philosophy, Einstein, Carl Sagan, Asimov and others said this too.

You can read my long debate in the Talk section for the Shannon-Nyquist Theorem on Wikipedia (read to the end where the editors admit I am correct).

This is also the reason that Einstein's Relativity had to ignore the complex component of the Lorentz equations:

https://goldwetrust.forumotion.com/t124-theory-of-everthing#3681

Make sure you also see footnote [4] Erik Christopher Zeeman - "Causality implies the Lorentz group" - Derivation, Lorentz transformation, Wikipedia, 16:45, 12 September 2010

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Inflation or Deflation? - Page 20 Empty Re: Inflation or Deflation?

Post  Shelby on Mon Jan 03, 2011 8:43 pm

flash9 wrote:
Shelby wrote:http://seekingalpha.com/article/241152-jp-morgan-and-the-massive-silver-short-the-greatest-story-ever-told#comment-1377586

The 98% loss in the value of fiat is typically ignored by a fool (or callous person) who doesn't have sufficient conceptual math ability (yes I am talking to you MIT Math graduate), to understand mathematically that such "casino money system" paradigm destroys human capital on the aggregate.

Sure I agree that if you are smart (i.e. training in applied mathematics from MIT), you can use the fiat system to arbitrage (I mean steal) capital from society, and claim to your conscience that you are helping the free market allocate capital more efficiently.

But what you are missing is that physical world supply and demand curves can be distorted by interest rates, which can be manipulated by the printing press (even the new exotic forms of "money" such as derivatives, where Bernanke can thus claims he is not printing M1). I say "distorted" instead of "manipulated", but the latter requires proof of intent, the distinction being irrelevant to my point.

Any one with sufficient math visualization skills, will readily understand that any such distortions increase frictional losses, i.e. destroy physical world capital. Examples would be overbuilding, underinvesting in education, producing insufficient children to support demographics, etc. In general over-investing and under-investing in the real world.

And this paradigm leads to aggregate failure, i.e. "too big to fail". Thus fiat systems die when the aggregate does. Thus it is very difficult for you to hold on those so called "profits" in the fiat system.

But those long-tail events don't happen in every person's lifetime, so we ignore them.

Nevertheless, if we didn't use fractional reserve finance, the entire world would orders-of-magnitude more prosperous, because frictional capital losses are a compounding phenomenon. I hope everyone can appreciate the power of compounding (exponential function), even I know most people can not even understand that it is impossible for usury to compound on the aggregate if gold and silver are money, because you eventually run out of money to pay the interest on the aggregate. This is why humans will always demand fractional reserve financial systems and thus demand that capital is destroyed.

Pity the human condition.

P.S. My overall IQ is some where in the 135+ range, but my IQ in the math visualization/conceptualization realm is apparently up in genius range.

You forgot the most impt thing the smart people do for the system it used to be called frontrunning and stock manipulation but it's really that ALL impt function providing liquidity.

I didn't forget.

You fail to understand that it is not liquidity. Can you spend the Vegas poker chips at the grocery store? The fiat system is only liquid because people believe it is not fractionally debased (bankrupt). When the stampede starts towards the door, all their fiat will be illiquid.

And this so called interim liquidity until the end game of fiat (0 value every time in history), it really a system of friction on real capital, draining to the bone, so that the system can implode.

No sorry you lose on that point big time.

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Inflation or Deflation? - Page 20 Empty Baltic Index divergence?

Post  Shelby on Fri Jan 07, 2011 7:06 pm

http://www.marketoracle.co.uk/Article25428.html

Dominance by the non-Western consumer, Baltic Index divergence.

Could it be because the developing world is consuming more of its own raw resources and thus shipping them less?

But one would think the more the world consumes, the more trade, thus the more ships needed.

Could it be that more Asia products are shipping to Asia, which are much shorter distances, thus less shipping time needed?

Could it be that when the trade is more and more between developing nations, that the ships don't return empty as they had from the USA, but instead carry goods in two directions?

I think we are seeing the developing world growing much faster than the western world.

Thus we can conclude from the chart above, that end of 2008, was the end of the western consumer's dominance over world shipping trade?

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Inflation or Deflation? - Page 20 Empty re: Baltic Index divergence?

Post  Shelby on Sun Jan 09, 2011 2:32 am

Not the USA, I am in Asia and it is booming here like never before.

I mean there is more inter-trade between asian countries, and so the boats don't have to travel to USA and then return empty. Instead they travel a very short distance and return full. There is up to 75% of your shipping demand gone over time as developing world grows.

Also I read that there is a huge oversupply of ships because there was a huge buildup in ship building from 2008, 2009, 2010 and our growth was stunted during that period, and ships are long-term operation so they just finish the ships that were supposed to meet the demand from those 3 years where we had a net flat growth.

>
> I read it but it just doesn't ring true. Maybe its me. There are literally
> hundreds of empty ships anchored outside various ports. They haven't moved
> in months. The US produces a lot of grain but Americans aren't consuming
> any more than before.

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Inflation or Deflation? - Page 20 Empty Chinese ships competition lower the Baltic index?

Post  Shelby on Mon Jan 10, 2011 2:28 am


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