Inflation or Deflation?

Dan,

Assuming this is not illegal in your jurisdiction, assuming you won't owe tax on the forgiven debt, assuming you feel the banksters have looted our society and the value of money and thus stolen from us, gut your house of everything you can sell all for cash, the toilet, bathtub, doors, windows, etc.. Go buy 500oz of silver with cash, and hide it. Declare bankruptcy. Buy a $3000 used mobile home, then go park it some where free where you can grow your own food and catch fish. Wait. Within 10 years or so, you may be a millionaire (see my prior post I expect silver $400+ by then).

This video may be relevant to my justification:

https://www.youtube.com/watch?v=Cmg-41xACTA

Cheers.

Hi Brian,

Here are some replies to your questions:

1) Anyone who buys on margin can lose several times their investment. Additionally, since most people are in net debt, they are effectively on margin, even if not in a margin brokerage account.

2) I do not need to use it in a store, I can sell it for fiat. Or even lease it for rents that disguise an interest bearing return for tax purposes. The end game is where the globalists back the new regional currencies with gold, and pay very high interest rates to suck all the gold back into the banking system, and gold will be convertible at the banks. There is even a video at the Fed showing this coming future. The globalists have started hinting at this. One of their code-of-ethics is they must warn you, before they screw you.

3) People comment because they want to distill truth.

4) Bunker mentality applies generally to all forms of preparing for outcomes that are paranoid, not necessary a nuclear attack, but the general concept of not respecting the perpetual march of the maximum division-of-labor trend.

5) Yes the globalists will profit handsomely on the rise of the gold price as they purchased back at $200s, and will sell for the new bonds that will pay 20+% interest in coming regional currencies. Who said bankers will get rid of currencies? Not me. I said the end game by around 2024 or before, is to destroy the national currencies and replace them with regional currencies and regional central banks, so that the globalists have more control and we can less affect them locally. But to get this, they have to sacrifice something temporarily. They will temporarily let gold come back as money, but not as a currency, only as a store-of-value and convertible at banks. This will enable them to raise interest rate super high, and then they bring the entire world (including developing world) into their next big bond bond bubble as they then slowly fractionally debase the gold backing while no one is paying attention. Then the death of the regional currencies (like today's crisis but some decades from now), will be the final end game leading to a one world currency and end times. This has all been known and planned for 2000 years. Do you want me to show you the public plans written about 100 years ago?

6) Agreed, they are monitoring everything.

7) Correct money can not buy salvation. Jesus said so in Matthew 19, that the only way to perfection is to give it all away and walk from this life of death, to the life of life. You are getting into the philosophical. Maybe we should stay on the financial.

8.) My point is I have to buy something. I can't buy $1 million of food. What do you suggest I buy other than gold and silver? Land is also illiquid. Stocks (and bonds) are losing value relative to gold and silver since 2001 and 2004 respectively. I don't think you can find anything but gold and silver. Eventually everyone will figure this out, and I want to be early.

9) Ah 1% now, but by the end game, at least 10%, as was the case in 1980. All mass psychology phenomenons have this pattern, and it is known as the exponential function. The early adopters profit the most. The globalists were the earliest as they purchased around $200s as they told the central banks to sell to them (such as Gordon Brown who sold away most of UK's gold). The central banks have stopped selling now.

10) Since gold can always be converted to fiat, then I can profit on silver by taking profits in gold. As for the time when real interest rates go skyhigh and gold and silver fall in price (the new regional currencies coming), then I can loan my silver and gold at 0% interest rate, and watch my ounces increase as fast as the fiat interest rate. Thus I capture all the gain (the loss in the price of silver) in terms of increased ounces, while my borrower pays a 0% interest rate, while everyone else pays 20+%. I detailed the math on this at the "How will we trade..." thread in Precious Metals forum (goldwetrust.forumotion.com).

11) Not sure what you mean here, but life does not reward burying money in any form. I am eager to lease mine (a form of investing in others' businesses), or invest it directly in their businesses as soon as possible.

12) Nothing on earth has a high above ground inventory relative to industrial demand, except gold. Second is silver. Copper and everything else isn't even close. Copper has only 6 month inventory above ground. This means it can never be a store-of-value, because it is primarily consumed and thus has no store-of-liquidity and thus is a very unstable value that is not orthogonal to economic conditions. You can Wikipedia "orthogonal", it is a critical mathematical concept.

13) The idea of profiting on catastrophe is that you profit because you help make it less of catastrophe by providing some needed function, such as storing up real capital in the form of real money, and only gold (and silver) qualifies because of #12 above.

14) The globalists want you to believe that paper is money. It is only an illusion. Paper money has lost 95+% of its value since 1900. One ounce of gold can still buy a fine man's suit, just as it could in 1900.

15) Agreed gold and silver are only tools, but when you have $1 million and no other suitable investment options, then they become your main tool at certain junctures.

16) Much better people will buy gold and silver than hoarding commodities. The sooner we kill the corruption of the central banks printing paper money like crazy, the less damage will be done to the world's poor. The more we delay, the worse it is going to be for everyone.

17) Money is the root of all evil, whether it is paper or gold or whatever. That is just nature. Nevertheless still doesn't tell me what to do with my $1 million?

18) It matters. If you put $1 million in paper in 1900, you would have less than $50,000 now in purchasing power parity. If you put it in gold, you would still have the same $1 million in purchasing power.

Cheers.

Nadeem wrote:

"However the interest rate risks are transferred to the currency markets and this also suggests that the risk of hyperinflation is higher as the system is geared towards perpetually increasing debt until the bubble bursts amidst an hyperinflationary panic rather than mechanisms for less severe normalisation of debt due to just high inflation but rather an hyperinflation outcome."

This is because the currencies are not backed by anything (gold) that tracks the inflation. But hyperinflation is not sustainable when the whole globe is locked into it, because hyperinflation of commodities is unsustainable globally (no release value), thus we are certain to get bouts of renewed collapse, similar to 2008.

This is why only gold can retire the debt, so what we have is a process of transfer of wealth from those who don't have gold to those who do. The end game is those who don't have gold end up with about 1% of their purchasing power by 2021 or so.

The UK will not succeed in moderating this by 2015, that is pure fantasy. The fallacy in the GDP projection in part 1, is that it is not real GDP as measured against the increase in the gold price (the only true metric of inflation). This will become more evident as time goes on...

Nadeem, you continue to confuse _NOMINAL_ inflation with _REAL_ inflation. Nominal inflation is the change in fiat prices. Real inflation is the change in fiat prices minus the interest paid on bonds. Another measure of the real inflation is the price of gold. This is why gold increases when the interest rate paid on bonds, is lower than the increase in fiat prices.

I have written in numerous of my published articles on this site, as well as repeated in numerous comments I have made on this site as follows:

http://www.marketoracle.co.uk/Article26704.html#comment101931

"Gold stores more value than fiat, when the interest paid on fiat bonds is less than the (nominal) inflation rate, which over any sufficient period of time, is ALWAYS. Period."

So the point is that gold is telling us that the real inflation rate is much higher than the nominal inflation rate the govt is using to arrive at REAL GDP from NOMINAL GDP.

You see the globalists have you totally fooled, because they have convinced you to use nominal inflation and ignore the relationship between opportunity cost (bond interest rates) and fiat prices.

During the 1980s, the real inflation rate was negative, because the interest rate paid on bonds was double-digits and much higher than the rise of fiat prices.

And that is the entire crux of why the world is in the problems it is. Humans can not understand why gold is money, and fiat is not. I just explained why above. Fiat is the way the globalists deceive, steal, and screw up society. Why do they do it? Because we let them, and power is addictive.

Beijing also has resorted to the blunt tool of freezing prices of electricity and some other basic goods, but that is starting to backfire.

In the southeast, export regions are suffering power shortages that force factories to suspend production every other day. Power companies are squeezed between low state-set rates and high gas and coal prices, so they have avoided adding more generating capacity despite double-digit annual increases in demand.

"At the moment it is not very attractive to build an electricity plant in China and some regions have a shortage of electricity," said Louis Kuijs, a World Bank economist in Beijing. "At some point these administrative prices must be raised."

Chinese leaders have ordered local authorities to ensure adequate supplies of vegetables in markets and to pay subsidies to poor families.

In a possible effort to deflect criticism, it has imposed fines on retailers who it said cheated shoppers by overstating the size of price cuts on discounted items.

"I think you should have confidence in the Chinese government's capability in managing vegetable prices well," said a deputy commerce minister, Fu Ziying, at a news conference this week. He gave no time frame for when inflation might subside.

IMF Board Approves $36.8 Billion Loan to Portugal

Portugal has until 2013 to cut its budget gap to 3 percent from 9.1 percent of gross domestic product last year. Photographer: Mario Proenca/Bloomberg

Greek Government Bonds Slump on Concerns Over Debt Restructuring

Greek government bonds plunged, driving up 10-year yields to a record, amid mounting bets the nation won’t be able to avoid reorganizing its debt.

Greek two-year notes fell for the first time in three weeks. The spread, or yield difference, between the 10-year bonds and similar-maturity German bunds widened to an all-time high. Fitch downgraded Greece’s credit rating to B+ from BB+, four notches below investment grade, boosting demand for the relative safety of German government bonds.

“We still have the backdrop of possible Greek restructuring, and concerns over that are driving peripherals lower and pushing spreads wider,” said Peter Chatwell, a fixed- income strategist at Credit Agricole Corporate & Investment Bank in London.

The Greek 10-year yield rose 113 basis points in the week to 16.57 percent as of 5:18 p.m. yesterday in London after reaching a euro-era record 16.59 percent earlier. The nation’s two-year note yield climbed 57 basis points to 25.46 percent. It reached a record 26.77 percent on May 12.

Greece’s budget deficit is forecast to exceed the 7.5 percent of GDP target under the EU-led bailout, reaching 9.5 percent this year, the European Commission said on May 13. The nation’s debt, already the euro area’s biggest relative to economic output, may reach 158 percent of GDP this year and peak at 166 percent next year.

Our recession model typically provides several months warning before a recession begins and the 20% mark is often the line in the sand with only one false signal (1987) over the last thirty years. Given the current reading rests at a 3% probability of a recession beginning over the next 6 months, I am in agreement with the ECRI’s Lakshman Achuthan that a recession is not in the cards as of yet.

1)Yes, but not yet. It will take a decline in investment growth to reduce labor demand.

2)Yes, an increasing if still-minority number of economists now recognize that the growth model is unsustainable, although I am not sure all of them fully understand why it is unsustainable and the role of rising debt. For that reason, I think they misunderstand the nature and difficulty of the adjustment process. I suspect that after another year or two in which consumption growth continues to remain below GDP growth, there will be much greater awareness of how intractable the problems are.

Shelby wrote:...When I listen to the key man in china:

http://www.charlierose.com/view/interview/11663

I come away with the sense that they think they can solve the growth vs. inflation problem "by having everyone on the same page" (that is what he said). So clearly this is a model of totalitarianism. They are going to try to micro-manage the solution, by suppressing some sectors and subsidizing other sectors. It will of course fail horrendously, as it is a friction on the free market adjustments which thus won't take place.

So the conclusion is that inflation will get out-of-control, and it will take a year or two for China to burn itself to the ground with rampant inflation, before their growth model is proven to be unsustainable with a horrendous crash...

...expanding overseas investment...

In the first four months of this year, the investment in primary industry, secondary industry and the tertiary industry went up by 12.6 percent, 24.6 percent and 26.5 percent respectively. Grouped by different sectors, in the first four months of this year, the investment in production and supply of electric power and heat power was 228.7 billion yuan, up by 4.2 percent; that in extraction of petroleum and natural gas 49.1 billion yuan, up 8.3 percent; and that in railway transport 141.5 billion yuan, up 26.9 percent.

Analysis on projects under construction or started this year showed that in the first four months of this year, the total planned investment in projects under construction reached 38,509.6 billion yuan, up by 19.1 percent year-on-year; the total planned investment in newly started projects was 5,338.9 billion yuan, down by 1.1 percent over the same period of last year.

In terms of funds in place for investment, in the first four months of this year, 8,637.7billion yuan had been invested, a year-on-year growth of 20.6 percent. Of this total, the growth of government budgetary funds went up by 7.8 percent; investment from domestic loans went up by 10.9 percent; that from self-raising funds went up by 27.2 percent and that from foreign investment rose by 14.9 percent.

We are still early in the reflation, and the govts are going to fight for their last stand before inflation kills their printing. The inflation we have now is not yet enough to bust the "lala land" head-in-the-stand state of westerners. China will not go down in pride without wasting its $2 trillion hoard first and causing worse inflation than they have now. EU will not go down without trying to keep their monetary union with lies to themselves while they slip the money under the table.

Jim wrote:http://www.usfunds.com/investor-resources/investor-alert/?CFID=2589066&CFTOKEN=92999534

Investor Alert - Railway Revolution Builds China's Consumer Culture

The New Steel Silk Road

The project will include three major high speed lines:

• UK/Europe to Beijing (8,100 km) and then extend south to Singapore
  
• A second line will connect into Vietnam, Thailand, Burma and Malaysia
  
• The third line will connect Germany to Russia, cross Siberia and then back into China
  

Financing and planning for this monumental project is being provided by China - who is already in negotiations with 17 countries to develop the project. In return the partnering nation will provide natural resources to China.

Shelby wrote:China has to choose between destroying jobs, or spending its reserves to soften the impact of inflation on the most vulnerable sectors.

I think China will opt for subsidies instead of free market pain, because the free market pain could spin out-of-control. Listening to the vice premier, one thing I think you can see clearly is China's leaders believe in "the oriental way", meaning they will not give up their control.

Appears most of the inflation in China is energy and food related, so perhaps China will increase subsidies in that area.

I bet it will be a combination of measures, it will cool the economy somewhat, use control to suppress protest by jobless or underpaid, it will increase salaries (inflationary), it will subsidize in marginal sectors that it can not shutdown (e.g. trucking).

Now here is the key thing you need to note. Even if they cool the economy, fixed investment is still growing at double-digit rates (note exception for planned investment below), thus commodity inputs are still growing at double-digit rates. Cooling means slowing down growth in fixed investment, it doesn't mean fixed investment growth will be negative. If something is growing at say 20-40% per year, it means it is that much greater demand for commodities as compared to the prior year. I hope Chanos closed out his short-bets or plans on holding them to the end game when China does implode, because China has too much cash and savings to implode now. And any fallback in commodity prices now is going to reverse as China's double-digit fixed investment growth continues to suck in more commodities (however, note the planned investment is down 1.1%, if this becomes a trend then Chanos is correct).

http://chinadataonline.org/freesource/zixunshow.asp?id=581

In the first four months of this year, the investment in primary industry, secondary industry and the tertiary industry went up by 12.6 percent, 24.6 percent and 26.5 percent respectively. Grouped by different sectors, in the first four months of this year, the investment in production and supply of electric power and heat power was 228.7 billion yuan, up by 4.2 percent; that in extraction of petroleum and natural gas 49.1 billion yuan, up 8.3 percent; and that in railway transport 141.5 billion yuan, up 26.9 percent.

Analysis on projects under construction or started this year showed that in the first four months of this year, the total planned investment in projects under construction reached 38,509.6 billion yuan, up by 19.1 percent year-on-year; the total planned investment in newly started projects was 5,338.9 billion yuan, down by 1.1 percent over the same period of last year.

In terms of funds in place for investment, in the first four months of this year, 8,637.7billion yuan had been invested, a year-on-year growth of 20.6 percent. Of this total, the growth of government budgetary funds went up by 7.8 percent; investment from domestic loans went up by 10.9 percent; that from self-raising funds went up by 27.2 percent and that from foreign investment rose by 14.9 percent.

Railroads are more efficient than trucking and create new opportunities along their lines.

So actually started construction is up 19.1%, but planned construction is down 1.1%. The tightening measures are fairly new. We have read else where that the construction firms are scrambling to find new sources of funding to keep up their growth in fixed investment. They are doing IPOs in Hong Kong for example, in order to raise foreign money. Apparently they are raising money from private sector and we've heard rumors of dollar carry trade, or this could just be internal private savings.

Let me not mince my words, I think China's experiment with central policy is going to fail horrendously, but I am trying to understand when they run out of cash (or refuse to spend it, which I doubt). When is China checkmated, where any new credit causes a decline in REAL GDP (negative marginal utility of debt), i.e. that inflation rises faster than GDP? Right now that does not appear to be the case, except in energy and food sectors. I mean China is getting close to that point and $175 oil in 2012 will topple China's economy, as it will also the global economy. But I think China is going to try to spend its cash before they go down in flames.

I think China is reseting the economy a bit before they unload their cash. The question is do we get some kind of global implosion before they do? How? The USA is not ready to implode yet. Germany's economy is strong. Etc. The nuisance economies such as Greece, Spain, Italy will be papered over. China will unload its dollar hoard.

My basic understanding is that none of the world can back off the accelerator pedal, because it is end game implosion when they do. I am thinking we have reached the point in the crackup boom, that it is too late to slow down, there is only one direction.

We are headed for inflation madness in 2012.

Shelby wrote:http://english.eastday.com/e/110501/u1a5867424.html



If China is going to prioritize industries that are less capital intensive and more valued added, then might this not increase demand for silver?

Silver is used in high valued added products and demand for precious metals increase during negative REAL interest rates when inflation rate moves higher than growth rate and forces shifts in priorities.

Also as China tries to morph their priorities, such as opening more to making foreign investment, they are going to drive fixed investment demand in emerging markets. Sort of a handoff of the baton.

However this will probably not go smoothly.

I am back to my point that I made a few weeks ago, that volatility is going to increase.

Shelby wrote:http://www.marketoracle.co.uk/Article28222.html

In the Scotiabank Commodity Price Index report for April Mohr said “Copper could still retest the previous US$4.60 record of February 14. Chinese copper fabricators destocked copper and produced 2.1% fewer copper semis in January and February due to credit restrictions and high prices. However a big seasonal pick-up in consumption in the second quarter will lift prices."
“We see renewed strength in the second half and you’ve got to be bullish copper for the next few years. The global recovery is becoming more broad-based and you’re not going to see any new mines coming on stream for at least this year.” Christin Tuxen, analyst at Danske Bank A/S

Australian equity research firm Resource Capital Research (RCR) said it expects the copper market to move from a small surplus in 2010 to a deficit of around 400,000 tonnes by 2011.

According to JPMorgan Securities Ltd, the world refined copper market will have a 500,000-metric-ton deficit in 2011.

Barclays Capital says copper demand growth will slow to 4.1 percent this year, down from 9.6 percent in 2010 - still more than twice the anticipated 1.7 percent expansion in supply. Barclays forecasts an 889,000 ton shortfall for 2011.

Infrastructure spending geographically:

Middle East $0.9 trillion
Africa $1.1 trillion
US/Canada $6.5 trillion
South America/Latin America $7.4 trillion
Europe $9.1 trillion
Asia/Oceania $15.8 trillion

China’s already found an area where it could rapidly increase public investment to stimulate growth - rail construction.

China's total investment in high speed rail was first reported to be about US$300 billion - the Chinese planned a 12,000km high speed passenger network supplemented by 20,000km of mixed traffic lines capable of 200-250kph.
Recent reports indicate that over US$600 billion will be spent on rail construction during the 2011-2015 Five Year Plan. By 2020 there would be at least 16,000 km of passenger dedicated high speed rail. The total rail network by 2020 would be 120,000 km - 80% of it electrified.
By early fall 2010, the Ministry of Railways announced that China had more than doubled the length of high speed track to over 7000km.
China has plans to construct its high speed rail line through Asia and Eastern Europe in order to connect to the existing infrastructure in the European Union (EU). Additional rail lines are planned into South East Asia as well as Russia – this will likely be the largest infrastructure project in history.
The project will include three major high speed lines:

UK/Europe to Beijing (8,100 km) and then extend south to Singapore
A second line will connect into Vietnam, Thailand, Burma and Malaysia
The third line will connect Germany to Russia, cross Siberia and then back into China
Financing and planning for this monumental project is being provided by China – who is already in negotiations with 17 countries to develop the project . In return the partnering nation will provide natural resources to China.

Jim wrote:Chanos, among other things, teaches at Yale.

http://www.bloomberg.com/video/70128022/

The United States is a bigger economic basket case than Europe. The entire European debt crisis is way overblown. Places like Portugal, Ireland and Greece are tiny. They would be the equivalent of Rhode Island and Alabama going under; that wouldn’t exactly take down the U.S. economy. In addition, Europe has such a bloated social welfare system that it can easily cut these expenditures. Also, Europeans, unlike Americans, are willing to pay taxes for government services.

The next part of the cycle is going to be very interesting, in my opinion. Because of the 2008 market and gold price crash the fact that everything rebounded together from 2009 to 2011, people think that gold moves with the market. However, I really think the next bear market in U.S. stocks will be caused by the weakening of the dollar and inflationary pressures. Therefore, I expect a situation where bonds go down in price, stocks overall go down in price and gold and gold stocks go up. In addition, I think that once people see that precious metals are the only game in town, this will allow the sector to attract more money.

Both sides have also taken a look at changing the inflation index, which could slow the growth of benefit payments and tax exemptions.