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Inflation or Deflation?

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Inflation or Deflation? - Page 23 Empty Let me distill Armstrong's analysis of the Swiss franc devaluation

Post  Shelby on Thu Sep 08, 2011 3:33 pm

http://armstrongeconomics.files.wordpress.com/2011/09/armstrongeconomics-swiss-devalue-franc-090711.pdf

Essentially he said that the Swiss action redirects capital inflows from transient franc-denominated financial assets which pay 0% (thus are not attractive if franc will not be allowed appreciate relative to Euro) to devalued hard assets within Switzerland. Either way, Switzerland will experience stagflation, now instead of consumers holding a bunch of imported cheap goods in exchange for hot money inflows, the Swiss central bank will hold a boatload of Euros and Swiss consumers will pay higher prices for imported goods.

Armstrong says this is brilliant because it reduces the risk of sudden hot money outflows, and again Martin shows that he is not a free market thinker.

It is better for the govt to not intervene and let the Swiss consumers have ownership of their capital than central bank centralizes the ownership of the imported capital. Armstrong is wrong.

He is correct that this will drive more safe haven capital to gold. He doesn't make the point that it also exports the capital of Switzerland to support the Euro bailout.

The main point is that Switzerland has joined the EU monetary union. That is massive bullish for gold long-term (not necessarily short-term), because one-by-one every country that was not a disaster, is joining to become a disaster.

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Inflation or Deflation? - Page 23 Empty Reminder about the sudden end to the dollar coming in 2012

Post  Shelby on Fri Sep 09, 2011 12:39 am

Discussion from February 2011:

Shelby wrote:Andy it is very interesting to ponder how the debasement of the dollar is going to play out at the end game.

I had reasoned and asserted in 2010, that global HYPERinflation would be impossible for any extended period of time, because hyper-inflating commodities would shut down production globally and it would quickly crater into global depression and chaos.

When there is a single country that is HYPERinflating its currency, then production only stops within that country. The production of commodities and services continues on indefinitely in the vast majority of the world, so the HYPERinflation can continue in that country for some time.

[...]

So yes, we will get a hyperinflation, but it will be nearly instant. You will either have gold and silver or you won't. Most westerners won't.

The other way it works is a stampede to gold & silver (and not commodities), with supply constrained by the globalists themselves, thus most westerners won't get any that way either. Which is what I think would happen if the westerners woke up and tried to buy gold & silver in massive quantities too soon. I wanted to test this theory by trying to find a way to market gold & silver at an exponential rate to westerners. I think it probably is just a pipe dream though.

anonymous wrote:Shelby,
Agree it will be nearly instant, travelling like a shock wave, agree it will probably be set off by something in Europe, then a short delay before the shock wave appears.

I think it will all happen very quickly, a game of musical chairs with 2 billion or so people and very few chairs to buy, it can’t last long once it starts.


Shelby wrote:Note that this chart if used the correct ShadowStats.com data, it would look much worse. It would instead show the fall continuing straight down off cliff after 1975 and not slowing down and down to less than $0.01 (1 penny) already. Also the historic volatility between $0.40 and $1.00 would look much smaller and be squeezed to the top the chart (due to the correct logarithmic scaling). Logarithmic scaling is the only way for humans to correctly visualize the exponential function (proportional change):

Inflation or Deflation? - Page 23 Dollar_USD_Purchasing_Power-753629

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Inflation or Deflation? - Page 23 Empty changed my mind

Post  Shelby on Mon Sep 12, 2011 6:41 pm

Having thought more about how the entropic efficiency is aided by "the path of the least resistance" in terms of orders moving faster to their demise, I think Armstrong is correct. This action forces Swiss citizens to buy gold instead of cheap imports.

Shelby wrote:http://armstrongeconomics.files.wordpress.com/2011/09/armstrongeconomics-swiss-devalue-franc-090711.pdf

Essentially he said that the Swiss action redirects capital inflows from transient franc-denominated financial assets which pay 0% (thus are not attractive if franc will not be allowed appreciate relative to Euro) to devalued hard assets within Switzerland. Either way, Switzerland will experience stagflation, now instead of consumers holding a bunch of imported cheap goods in exchange for hot money inflows, the Swiss central bank will hold a boatload of Euros and Swiss consumers will pay higher prices for imported goods.

Armstrong says this is brilliant because it reduces the risk of sudden hot money outflows, and again Martin shows that he is not a free market thinker.

It is better for the govt to not intervene and let the Swiss consumers have ownership of their capital than central bank centralizes the ownership of the imported capital. Armstrong is wrong.

He is correct that this will drive more safe haven capital to gold. He doesn't make the point that it also exports the capital of Switzerland to support the Euro bailout.

The main point is that Switzerland has joined the EU monetary union. That is massive bullish for gold long-term (not necessarily short-term), because one-by-one every country that was not a disaster, is joining to become a disaster.

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Inflation or Deflation? - Page 23 Empty Dallas Fed, Richard Fisher - deadcat bounces, as dollar breaks out?

Post  Shelby on Tue Sep 13, 2011 9:04 pm

Says that he didn't agree with QE2, the Fed has monetized some of the debt, and that all the members don't want to throw in the towel and get runaway inflation like in Weimer or Argentina. That is a pretty strong statement. It seems to me to indicate that it is very unlikely the Fed will act on QE3 on Sept 20.

We might get a natural bounce in the markets now, if Greece makes it past Wednesday, and with China vowing to buy Italy's bonds. DAX is probably due for a bounce. Gold is having trouble moving up with the dollar also moving up, as I expected. We might get a relaxation in the dollar back down to the breakout line at around 76.5, before the move towards 81. That might give gold one more chance to move up. It is looking to me still like there is going to be some final capitulation in S&P by November, perhaps as early as Oct or late Sept.

Gold could make another run up, or it could languish down into a range, or even drop.

At this point, I looking to put or call any extremes, and waiting that capitulation to do my final loading of silver. I do think eventually the USA will do a QE3, even if it just takes the form of the SuperCongress approving a big stimulost package, which the Fed is then obligated to fund to maintain low interest rates through 2013. This is clearly the final peak for the US Treasuries, because the Fed has thrown in the towel by making such a guarantee. So Fisher can say this or that, but the reality is the Fed already threw in the towel, it is just that the Fed govt has to actually do the spending. This won't be hyperinflation, but it will be severe stagflation, by a series of SuperCongress actions. It is the possible that we need that selloff on the markets in order to give the SuperCongress their cover for pushing through the stimulost.

http://finance.yahoo.com/blogs/daily-ticker/dollar-rebounds-richard-fisher-not-happy-being-nicest-171013340.html

I see a potential bearish H&S on the S&P which projects down to about $1030, and on gold a bearish descending triangle and H&S that projects to below $1700.

PIIGS spreads are skyrocketing:

http://market-ticker.org/akcs-www?post=194035

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Inflation or Deflation? - Page 23 Empty China CONSUMER consumption falls from 46% to 34% of GDP in past 10 years

Post  Shelby on Fri Sep 16, 2011 5:23 am

http://www.bloomberg.com/news/2011-09-15/short-seller-muddy-waters-block-says-chinese-consumer-demand-overstated.html

Note though that GDP is much larger now.

This means that China's GDP is becoming more capital asset intensive, not less. Hmmm. China is going to crash hard, when it finally crashes. They are going to have a massive oversupply of bridges to no where, and buildings in the wrong places.

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Inflation or Deflation? - Page 23 Empty China's blackmarket loan market crashing?

Post  Shelby on Wed Oct 05, 2011 7:23 am

http://globaleconomicanalysis.blogspot.com/2011/09/china-loan-shark-market-crashes-scores.html

China's "cash crunch", yikes!:

http://www.bloomberg.com/video/75962446/

Signs that Chinese are repatriating cash.

We could have liquidity crunch as I had been expecting since May. This would be the emergency that spurs the global QE3 reaction.

As I have said, we are heading for the bottom on the next selloff of silver and commodities. Be prepared to buy the fear and lockin your huge gains for 2012.

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Inflation or Deflation? - Page 23 Empty China's consumption share of GDP has dropped from 45% in 2000 to 34%

Post  Shelby on Tue Oct 25, 2011 3:27 pm

I share this because it is so striking. China's consumption share of GDP has dropped from 45% in 2000 to 34%, which is apparently unprecedented in the history of the world. Normal ranges are 50 - 65%, and recession lows perhaps to 45%. The implication is that China can not escape from a near-term implosion of their over-spending on infrastructure and subsequent decades of slow growth in the 3% range. Refer the link at the bottom of this article:

http://www.financialsense.com/contributors/michael-pettis/2011/10/21/chinese-malinvestment-is-worse-than-most-people-think

I extrapolate the implication is that the developing world is like a coiled spring of rising relative wages, that will be accelerated once China's mercantile model implodes and they become another developing consumer engine. It looks like China's mercantile model will hit the wall at about the same time that the western debt props do.

==============
China driven inflation to continue to at least 2013

http://mpettis.com/2011/07/no-hard-landing-but-no-solution/

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Inflation or Deflation? - Page 23 Empty Re: Inflation or Deflation?

Post  Shelby on Mon Nov 07, 2011 3:36 am

http://esr.ibiblio.org/?p=3894#comment-335858

The most impressive capitalist moment I had was seeing a store built in a day. As in, the first day, the street corner was empty. Second day, construction. Third day, a free standing, fully staffed and operational cosmetics store.

Another sign that China is overinvested (malinvested) in capital infrastructure.

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Inflation or Deflation? - Page 23 Empty BIG PICTURE: Muni crash underway

Post  Shelby on Wed Nov 09, 2011 7:17 am

http://www.infowars.com/the-municipal-bond-market-is-imploding/

The real estate sector which is the source of local taxes, it going to get much worse:

http://www.infowars.com/ten-million-american-families-sliding-towards-foreclosure/

Cities can't borrow, states can't run a deficit but they can cannibalize city tax revenue:

http://humboldtlib.blogspot.com/2011/10/ca-ground-zero-for-muni-bond-crash.html

My conclusion is that within a few months, we will need another massive federal stimulus, and this will also give the Feds more control (i.e. the states will capitulate on Real Id, TSA police will supplement local police, etc.). Also I think the EU is dragging their feet, and at some point we will get a global contagion and need a massive global stimulus.

The question is that does come at us in multiple blows with only small half-steps on renewed stimulus throughout 2012, and then when the big crackup comes does the system fail perhaps by 2013 or 2014.

Or do we get some severe contagion within the next 3 months or so, then a huge stimulus reaction like in 2008.

Perhaps that question is irrelevant in terms of our investments. The central banks will have to debase, they have no other choice. They will debase until the inflation rate and thus "rationing" is so high that the masses riot in the streets by the millions. At that point, they will reset the currencies with a gold backing and super high interest rates.

We want to be in silver for as long as China still has the capacity to debase more and pump up their economy again. I think China can go through another debasement cycle before their population erupts into massive riots.

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Inflation or Deflation? - Page 23 Empty Outlook through 2012

Post  Shelby on Sat Nov 12, 2011 11:57 am

My crystal ball has become more lucid again.

I suggest reading the following linked article carefully, including watching the video and the linked PDF file near the end of this article:

http://www.financialsense.com/contributors/doug-short/2011/11/11/http%3A/%252Fadvisorperspectives.com/dshort/updates/ecri-weekly-leading-index

What is apparently happening is that the moderation of inflation since May, has caused consumers and producers in the USA to splurge a little bit on back-to-school spending (buy while the prices are low!), by increasing their debt.

Shelby wrote:
I am very curious what this entire report says?

http://www.shadowstats.com/article/no-396-3rd-quarter-gdp-october-confidence-september-durables-orders-and-home-sales

Denninger has some similar comments:

http://market-ticker.org/akcs-www?post=196634
http://market-ticker.org/akcs-www?post=196699

It is important to know if the government is cooking the numbers, or what is actually going on, so we can determine if this rally has long-term legs or is just a quick deadcat bounce as Denninger is implying below:

http://market-ticker.org/akcs-www?post=196679


But a tsunami of municipal bond defaults is underway (already at $11 billion 2011, which is greater than $8.5b in 2008, and accelerating with $4 billion Jefferson county default last week):

https://goldwetrust.forumotion.com/t9p555-inflation-or-deflation#4644
http://www.huffingtonpost.com/2011/08/02/meredith-whitney-there-are-increasing-double-dip-recession_n_916200.html
http://finance.fortune.cnn.com/2011/06/06/meredith-whitney-state-finances-are-worse-than-estimated/ (states spending 36% more than tax revenue, Fed backstop ended in June)
http://www.zerohedge.com/news/will-meredith-whitney-be-proved-right-end

The recession will hit Q1 2012 in USA.

However, this is coincident with China about ready to start easing again (China will not hit the wall until after 2013 when they've wasted all of their savings):

http://www.financialsense.com/contributors/chris-puplava/2011/11/11/stage-is-set-for-possible-china-surprise-in-2012

And EU is about ready to apply their "bazooka" QE:

http://www.nytimes.com/2011/11/11/world/europe/11iht-letter11.html?_r=2&partner=rss&emc=rss
http://yrah53.wordpress.com/2011/11/10/binismaghi/


So what we have is a mixed bag bottoming process in terms of commodity inflation. The Fed and SuperCongress will be forced to bailout the failing municipalities in terms of providing unemployment assistance, food stamps, etc.. So the QE worldwide is going to be back on the upswing, starting first in China and EU, then USA to follow by Q2 2012.

Thus I see massive inflation before the end of 2012, with an easy double in the silver price to $65+. The commodities have probably already seen their lows, although we might get one more dip of silver into the $26 - $30 range, if you are lucky.

Oil flow from the middle east is likely to be shut off in 2012. The elite appear to be going for a massive inflationary event before 12/12/2012 to bring the world to its knees. This severe inflation will cause the world to go into such debt debt, that after 12/12/2012, we will enter a very chaotic period with the global economy in disarray.

=========================================================================
My recent comments on why I think the EU will integrate into a fiscal union with plenty of QE
=========================================================================

Read this linked article:
Out Of The Ashes Of The Collapse Of The Eurozone Will A "United States Of Europe" Arise?

Also, Germany pushes towards EU fiscal unification before end of 2012.

Shelby wrote:

Armstrong has so many errors in this paper. I find it to be one of his worst, e.g.

There will be only two
possible solutions; (1) MONETIZE the debt or (2) DEFAULT on the debt.

The govt can also force retirees to hold the debt as their retirement investments.

This problem is a political one, where no one wants to give up their govt benefits, thus monetizing is not a solution either, because the demand for benefits will always increase (Iron Law of Political Economics).

Thus monetization and default are the same, the only potential difference could possibly be how the pain is distributed.

Bottom line is that everyone who sucks the tit of govt, and does not get their savings out of paper, is going to lose.

The pertinent timing indicator for gold is that when the monetary system is backed by gold, interest rates will climb, and that is the time to sell gold for equity investments.

Some people will prefer to buy bonds at that point, but saving-at-interest is the same as encouraging debt and pooling capital, and is how society ends up where it is now. It is also severely underperforms equity investment:

https://goldwetrust.forumotion.com/t124p30-theory-of-everthing#4640

I am hopefully going to make an online academy, and there one of the subjects I will teach is Economics. Adam Smith was wrong, Martin Armstrong is wrong, etc (Jason Hommel is correct):

https://goldwetrust.forumotion.com/t182-technology-that-changes-everything#4645

As for silver, when the world has moved to default stage where interest rates will be allowed to climb, then silver will collapse too, because there will be very little capital (paper will be destroyed) and thus growth in China will slow down to maybe 3% or negative for a while.

Some people think the great default is as soon as 2012. The central banks can keep printing money for as long as inflation is not out-of-control.

So the first thing we need to see is silver going crazy $75+ (probably $150+), before the central banks are out of ammunition.

The rollercoaster gyrations between QE and pause, are accelerating and shortening in cycle period, and this keeps people out of silver especially due to the volatility.

I think the govts and central banks are going to pause and delay as long as they can, but ultimately they will QE everything. And silver is going to rocket higher, probably sometime in 2012.

It will be a very volatile ride. Because the politics is much more fractured, and the inflation bomb fuse is very short now. The central banks and govts are trying to not have their hand forced, but they soon have no choice but to light that fuse.

Some people argue that Germans will never allow it, but of course all those retirees with their life savings in bonds, they want higher interest rates, but the system of saving-at-interest is a theft system that encourages debt formation. Thus there is no way they are going to get what they want. Instead the default will fall on their backs, as it should, because they did an evil thing their whole life.

Another factual error by armstrong

Armstrong wrote:
In Germany, two thirds of Germans surveyed in recent
polls believe that their parliament should NOT ratify more money for the euro-zone bailout fund and
agree with former chancellor Helmut Kohl that Angela Merkel's government is undermining Germany's
influence abroad. Chancellor Merkel is facing a revolt in her own party within parliament over a
September 29 vote to ratify more money and powers for the euro rescue fund. She is being publicly
criticized even by her ex-mentor Helmut Kohl who was the architect of German reunification. The real
danger is that Merkel’s refusal to restructure the euro-debt threatens far more than Greece. The
German people cannot be suppressed forever. They will get to vote one day and Merkel will be kicked
out the back door. Germany will turn inward and far more isolationist and the trade barriers will rise in
Europe

But he is wrong. Former chancellor Helmut Kohl is calling for more money printing:

http://www.spiegel.de/international/germany/0,1518,782757,00.html

Kohl. In recent years, he said in an interview this week with the magazine Internationale Politik, Germany "has not been a reliable power -- neither in domestic policy nor in foreign policy." He claimed to often wonder "where Germany stands today and where it is heading."

Halting Efforts

Kohl, who originally plucked Merkel out of obscurity to make her a cabinet minister in 1991, was referring primarily to trans-Atlantic relations and to concerns that the US no longer sees Germany as a vital foreign partner.

Kohl provided the hard place. His criticism of the chancellor in the Internationale Politik interview was not limited to her foreign policy profile. The committed European also repeated his vociferous critique of Merkel's halting attempts to prevent the euro zone from crumbling. He said that "we have no choice" but to provide aid to Greece. Europe, he feels, needs "energetic action and a package of forward-looking, intelligently thought-out measures free of ideology with which we can get Europe and the euro back on track and secure our future."

http://www.spiegel.de/international/europe/0,1518,775085,00.html

You can clearly see that the people of Europe want the "discipline" of a political union:

http://www.spiegel.de/international/europe/0,1518,775085,00.html

Europeans are collectivists! They will always opt for collectivity over efficiency! Anyone who has worked with anyone from Europe will know this is true!

Even the "populist" parties in Germany, are not calling for less government. In fact, one of them calls for free education for everyone. And they were angry at Merkel for not joining the "liberate Libya" war.

Soros on EU

Read this together with my prior 2 emails on Armstrong, then I think you will see what is coming is the "bazooka" as I had expected:

http://www.nytimes.com/2011/11/11/world/europe/11iht-letter11.html?_r=2&partner=rss&emc=rss


Holding silver for $75+. Govts will massively QE again. They have no other choice. The people want govts to fix the problem. They don't want their retirement accounts (in Germany for example), i.e. their investments in debt, to decline in value.

Everybody has a vested interest to see interests rates continue to decline. Remember when interest rates rise, then bond investments lose value, i.e. retirement plans will implode.

Europe is mostly retirees.

People get this logic backwards, they think rising interest rates are good for retirees. No! The opposite actually. Rising interest rates means the economy is imploding and the retirees are being wiped out.

Actually retirees should stay away from bonds entirely, but that is my bigger point about that people are too stupid and want debasement.

re: Soros on EU

I simply don't view it as force. The Germans want their cake and eat it too. Europeans are hypocrites. The German retirees want to be able to buy bonds of the PIIGS, then sell them manufactured goods and take all the money back, then expect their retirement plans to be solvent. That is a collectivist model and not capitalism. The Germans don't want capitalism. And so they will not get it. Soros is not forcing socialism on them.

No I was expecting a crash of S&P to about 950, not as massive as 2008. I expect the next massive crash after 2012 (when inflation brings the global economy to its knees).

On Oct 2010, I wrote an article published at marketoracle (when silver was $22), predicting it to go to $45 - $47 before summer of 2011, then to drop to $25 - $27.

That is exactly what happened.

I don't think the drop in the S&P is done yet. ECRI is still expecting another wave of recessionary forces.

I expect EU, USA, and China will be back in stimulating monetary mode before summer 2012. And that is why I am speculating on a double of the silver and oil price before end of 2012.



>
> Not surprising hardcore globalist Soros wants to force Germans onto the EU
> Titanic. Thanks for the link, I wasn't familiar with his "bazooka"
> metaphor.
>
> Weren't you expecting a massive PE crash (and I assume an economic crash)
> this November?

78% of Germans want what Soros wants

Soros is not forcing EU integration on them, they want it:

http://finance.yahoo.com/news/poll-78-percent-germans-see-102232348.html

Refer to my prior post "re: Soros on EU".


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Inflation or Deflation? - Page 23 Empty Printing press is being readied to spread the pain to the masses

Post  Shelby on Mon Nov 14, 2011 10:24 pm

http://www.financialsense.com/contributors/john-mauldin/2011/11/14/where-is-the-ecb-printing-press

France will want the Eurozone to bail out their banks, and that means the ECB. If France gets such a deal, Ireland will certainly demand – and get – one, too.

But the choice is print or let the euro perish. I see no other realistic solution, aside from massive austerity, willingly accepted by Europeans everywhere, along with the nationalization of their banks, etc., as described above. I think there is even less willingness to endure all that.

It is a hard choice, I know. If you held a gun to my head and asked, “What do you think they will do?” I would have to say, “I think the ECB prints.” But not without a lot of rancor and solemn pledges and maybe a rewriting of the treaty in order to get Germany to go along.

Make sure you read the entire article. He made most the same points I made recently. See below...


==========================================
my logic on resolution of the current socialism

Ultimately the ECB and Fed are going to have to print more money. The EU will require new agreements. It will be simple threat to the EU members:

"vote for NWO style fiscal integration, or face economic collapse"

The retirees in EU have no choice, ditto the retirees in the USA.

To make it more sure, they will drive chaos in ME to drive price of oil to $150+.

Socialism doesn't escape into early defaults and adaption. It increases concentration until it results in some form of totalitarianism. Every time in history.

We could probably trace all of this back to the wiring of the brain for rewards and positive feelings (of security, primitive survival instincts, etc).


===============================================
It is easy to get people to vote for a new treaty, when the offer is they vote or they don't get ECB+Fed monetization and they get kicked out of EU and experience economic collapse.

They will use Greece as the example of what happens when you get kicked out. They will turn Greece into a scorched earth.

This is why they plan to take oil to $200 in 2012, so that those who don't vote yes, end up in starvation.

Yes we will be getting serious contagion throughout 2012, but at the same time, massive monetization for those who vote "yes" to the NWO.

Those who vote "no", are going to be set out to starve.

Now how do you think they plan to deal with us owners of gold and silver? They surely will...


============================================
Socialism until death do us part

yellowcaked wrote:nice quote from Armstrong:

http://www.martinarmstrong.org/files/Speak-See-Hear-Nothing%2011-09-2011.pd

The assumption that the ECB can save the day is up there with Santa Claus.

He is missing the point.

The point is either you get on the monetization bandwagon, or you watch your country starve. Iceland was an exception.

The politics will be that "everyone shares the pain, so that none of us starve".

"You are either for us, or against us."

"One for all, and all for one."


============================================
yellowcaked wrote:My guess is the EUR market this week feels some shakedown because the ESEF cannot attract buyers for their bonds to backstop Italy.

Could be some real volatility ahead:

http://www.zerohedge.com/news/european-ponzi-goes-full-retard-efsf-found-monetize-itself

Indeed that is very important in the near-term. Thanks.

Into 2012, the central banks will monetize. If necessary, the US Fed will do the monetization for the EU.

===============================
the printing press enables the vested interests to unwittingly enslave themselves

I think countries who vote 'no' or 'yes' will get scorched at $200 oil.

The key difference is that printing money means the inflation tax affects the middle class and savers the most.

The point of printing is it enables those who don't save to steal from those who save. This will be maximized. This is to maximize the totalitarianism that will result, i.e. NWO, more restrictive governance, etc..

This is simply the "borrower is slave to lender" coming true. Bond holders (e.g. retirees via their retirement plans) didn't realize they were actually debtors. This is true, their so called asset is really a liability due to the fact that it is denominated in fiat. This is more complex than I feel like explaining right now.

http://www.financialsense.com/contributors/charles-hugh-smith/2011/11/14/the-world-is-drowning-in-debt-and-europe-laces-on-concrete-boots

Inflation or Deflation? - Page 23 Total-debt-9nations

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Inflation or Deflation? - Page 23 Empty Printing presses on your mark, get ready, set, and go...

Post  Shelby on Thu Nov 17, 2011 8:16 pm

Moment of printing truth imminent for EU:

http://www.financialsense.com/contributors/gonzalo-lira/2011/11/16/we-are-in-the-middle-of-a-run-on-europe-and-it-is-gonna-get-worse

Recently read, Fed voting member Ballard also said Fed would also print if needed to shore up EU.

=================
http://www.financialsense.com/contributors/bruce-krasting/2011/11/16/thin-ice

Bruce thinks Germany won't bailout the rest of EU. I think he fails to appreciate the real politics, which is German retirees don't want their retirement plans to go bankrupt. Their banks loaned money to the rest of EU. And if EU implodes, so do German exports and economy. Thus driving interest rates sky high in Germany too, thus crashing the value of existing German bonds (i.e. retirement plans with domestic bonds).

The Germans have just as much debt ratio as USA. They will print. Their political "saving face" is to talk tough against printing, but when SHTF, no one wants to crash.

Besides, the Fed will print for the ECB, if necessary.

I think the only question is how deep they let this contagion run before they bring out their bazooka.

That is why I say buy as there is this fear of collapse. The fear will soon be reversed to a fear of inflation.

========================
China is nearly bankrupt:

http://www.financialsense.com/contributors/michael-shedlock/2011/11/16/chinese-banking-system-nearly-bankrupt

I say one more round of desperate money printing for the world, and that will be inflation hell and end game. It will accelerate, probably runaway inflation in late 2012.

===================
Remember Lindsey Williams said must get out of paper

The MF Global scam of lending our your cash in your brokerage accounts is widespread:

http://market-ticker.org/akcs-www?post=197706

http://market-ticker.org/akcs-www?post=197702

=================
In my opinion, we need to buyers here, and especially any dip below $30, back up the truck with the remainder of cash. I think silver leads on the way down, and lags on the way up. So silver should be about done with finding a bottom, as I believe the world is going to print like mad sometime in 2012. I think silver and copper have already sniffed this.

Maximum downside i see for silver on this bottoming process is $21. But I doubt lower than the $25 - $27, I had predicted back on Oct 2010:

http://www.marketoracle.co.uk/Article23786.html ("Silver will bottom at $22, then $45 by March 2011, then crash to $25")


==============
Don't forget the end game:

http://www.marketoracle.co.uk/Article20327.html

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Inflation or Deflation? - Page 23 Empty re: China is nearly bankrupt

Post  Shelby on Fri Nov 18, 2011 12:08 am


> I'm sure you've read about all of the Chinese protesters smashing sales
> offices and building models in high-rise apartments that have lost much of
> their value. The Asian culture used to value thrift and saving, how
> quickly they succumbed to the globalist debt greed model!

Two things about Asian culture afaics:

1. The men love gambling, alcohol, women, since the time of villages and cock fighting. The women tend to save for spending on the children's education, but here they demand conformance (females being focused on security and faith in social systems).

2. They prefer to save in terms of capital infrastructure, e.g. buildings. They save only very small portion in gold and silver. Even the Indians love usury-- they are the "5/6" lenders here in Philippines.

Sorry but the image people have of Asians is not reality.

The Japanese have a per capital debt of $69T, versus only $30T for USA.

==========================
> Thanks for the insight. The Asian [I knew]
> grew up in a different era and came from well educated families, so their
> fixation on saving money is not a good representation of the whole group.
> The older one was surprised at how frugal I am and how I eschewed any type
> of debt (mortgage, car loans, etc.), he told me I was into saving like the
> Chinese. The other influences on my view came from the cliches of main
> stream media - not a reliable source!

Perhaps I was slightly unclear. Asians do save more and borrow less personally, but they don't do very accurate economic assessments of where to invest their savings. The females put it in the fractional reserve bank "where it is safe", and the males invest "in a business", which typically means buying a building as it can produce an income and it is sign of accomplishment (big and visible).

If a capital investment can also have a capital gain, this fulfills all their core values:

1. "safe"
2. "a business", e.g. an office building
3. gambling culture

And once a majority (or significant minority) has a building, it becomes a social status symbol, then everybody has to have it, so they start borrowing to achieve social acceptability.

For Asians, social peer pressure is enormous. Look at how it is considered anti-social in Japan to move away from a irradiated region and not be stoic.

Then they are corrupted in governance, where they milk it for maximum personal gain. Thus via the banks and their savings, through the government borrowing, they are actually net debtors.

The Japanese debt is predominantly in the government and banking, not personal:

http://www.financialsense.com/contributors/charles-hugh-smith/2011/11/14/the-world-is-drowning-in-debt-and-europe-laces-on-concrete-boots

Asians need to "save face" in the social perspective. This is why they can steal from themselves at the government level, where they are respected leaders who are "doing the good for the people" ("hey look how many buildings we built for our people").

The fundamental cultural value is that Asians view economics in terms of social good, because of their desire for social harmony. Thus they fall into any traps that head towards centralization, pooling resources, etc.. Which is very low entropy and failure directed. I would guess off-top-of-my-head, this is probably the fundamental cause of all Asian regression over the centuries.

Again refer to my entropic economic theorem.


============================================
Another evidence that Asians love real estate "investments"

http://www.financialsense.com/contributors/mark-nestmann/2011/11/18/foreign-investors-in-u-s-real-estate-beware

Since the beginning of 2011, nearly one out of every four purchasers of real estate in the Phoenix area has been a foreigner. Wealthy Chinese and Indian investors, among others, regularly visit the area, sometimes in “real estate investment tours.”

It’s not hard to see why foreign real estate investors find Phoenix attractive. The weather is near-perfect most of the year, and prices are 50%-70% below their 2007 peaks. I’ve confirmed from contacts in southern California, Las Vegas, and Atlanta that foreign buyers are very active in those real estate markets as well.

===========================
People who have money and don't have any knowledge of how to optimally allocate it for society, get sucked into ponzi schemes and lose it.

Saving more doesn't really make a culture a more effective saver. If everyone is saving into the same things, then it is bubble and they will lose their savings.

It is the Parable of Talents in the Bible.

http://en.wikipedia.org/wiki/Parable_of_the_talents_or_minas

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Inflation or Deflation? - Page 23 Empty Euro-zone Will Print or Perish

Post  Shelby on Mon Nov 21, 2011 6:04 am

The ECB is already printing:

http://www.zerohedge.com/news/complete-and-annotated-guide-european-bank-run

So just why again is it that anyone accuses the ECB of doing nothing? When all is said and done under the current regime, the ECB balance sheet will be just under €2 trillion, and that is without any incremental printing, courtesy of the farce that is "sterilization" with banks which exist only due to the ECB, thereby making said sterilization about the most idiotic thing ever conceived. Yet that is what spin is for...

http://www.marketoracle.co.uk/Article31651.html

The Germans would like the rest of Europe to get their budgets and deficits under control BEFORE they have to accept those costs. Not getting those agreements means that there will be no end to the amount of money Germany will have to pay. It will all too soon be enough that it would put their own credit rating at risk. They can envision how that works out. Without real spending controls, what disciplines a nation to not spend as much as it can get away with?

What Germany wants is for some mechanism to insure (and assure their voters) that the rest of Europe will control their deficits. And that means some type of European-wide control on spending and for governments to give up their sovereignty in exchange for the backing of Germany and/or the ECB. Otherwise, go ahead and default and see how that works out for you.

That is a perfectly rational position. But it is a huge gamble, as allowing the crisis to go a “bridge too far” would mean an economic crisis of biblical proportions, from which the recovery would be long and brutal.

While I think that eventually Germany allows the ECB to print, that is not a foregone conclusion.

Hold that thought as we look at a rather sensationalized article in the London Telegraph, in which we learn that “Angela Merkel, the German chancellor, is today expected to tell David Cameron that Britain does not need a referendum on EU treaty changes, despite demands from senior Conservatives for more powers to be repatriated to Britain. The leaked memo, written by the German foreign office, discloses radical plans for an intrusive new European body that will be able to take over the economies of beleaguered eurozone countries.

“It discloses that the EU’s largest economy is also preparing for other European countries, which are too large to be bailed out, to default on their debts — effectively going bankrupt. It will prompt fears that German plans to deal with the eurozone crisis involve an erosion of national sovereignty that could pave the way for a European “super state” with its own tax and spending plans set in Brussels.” ( http://www.telegraph.co.uk/news/worldnews/europe/eu/8898044/Germanys-secret-plans-to-derail-a-British-referendum-on-the-EU.html)

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Inflation or Deflation? - Page 23 Empty Somebody will print

Post  Shelby on Tue Nov 22, 2011 8:25 am

Tangentially, note there is a more complete (adds images and important links) and easier-to-read version of the essay Understand Everything Fundamentally.

For example the text in the first bullet point, "deflation of unsocialized defaults", should be linked to the following explanation of why socialized defaults will cause continued monetary inflation:

https://goldwetrust.forumotion.com/t9p570-inflation-or-deflation#4664

============
We have a lot of fear the markets, but no sovereign-scale (MF Global is not a $trillion default) unplanned ("disorderly" in Merkel-speak) defaults have occurred. The ECB is providing the liquidity necessary while letting the economies roll deeper into recessions, so that the political support will build for the treaty changes necessary.

http://www.financialsense.com/contributors/john-hussman/2011/11/21/why-ecb-wont-shouldnt-print-money

Okay so sterilization means they are stealing money from German bond sellers and giving it to PIIGS bond sellers. That is debasement. That is printing.

If they run out of German bonds, then if USA starts to implode, the Fed will print to shore up affected US banks.

But when the Germans and other Europeans feel their economy imploding, they will decide to print, in exchange for some concessions on the ability to control the budgets of the PIIGS.

Meanwhile in China the Premier is trying to talk down any expectation of easing to not spur real-estate speculation. But when their economy starts to implode, they will double-down on some kind of stimulus. The alternative is Tienanmen Square type revolt.

Where does it all end? When inflation kills demand, and printing is no longer able to stimulate demand and feeds directly into inflation. We are probably at that point now (i.e. the "onset of hyperinflation" stage in the bankster business model), but they will need to print to realize it.

At that point, the bankster business model will be complete, so then they can move into the capital controls phase and towards a reset of the financial system:

http://www.silverbearcafe.com/private/01.10/thinklikeabanker.html
http://solari.com/blog/david-ickes-choose-decentralization/

====================
Btw, the longer version of the first article is quite an interesting read:

http://www.hussmanfunds.com/wmc/wmc111121.htm

Ah ha! But I see how easy it is to get the new treaty.

Perhaps what Germany and France could do is announce a new treaty and that any PIIGS that don't ratify it, won't be getting continuing disproportional liquidity from the ECB. Thus the ECB would need to sell the disproportionate share of that unratified PIIIGS's bonds, thus sending those unratified members into an economic wasteland. I think there are perhaps performance measures for membership in the EU, so that might also cause such a member to be expelled, although I think read some where that members can't be expelled. They can choose to leave though.

In any case, treaty ratification could be quite swift given the above carrot and stick situation, and especially now that Goldman Sachs has its people at the control of the important PIIGS nations:

http://www.independent.co.uk/news/business/analysis-and-features/what-price-the-new-democracy-goldman-sachs-conquers-europe-6264091.html

I clarified the above idea at the following linked comment:

http://www.marketoracle.co.uk/Article31774.html#comment129891

==========================
http://www.zerohedge.com/contributed/euro-schizophrenia-germany

Germany has a plan D, however: exit the Eurozone and start a mini-Eurozone of like-minded states who believe in the exotic concept that a currency shouldn’t lose its value. The ECB could monetize the debt of the 12 or so remaining members. The mini-Eurozone with Germany at its center would issue its own currency. The 27-member European Union would remain in tact, trade would continue, and life would go on after some tumultuous times in the markets. But that solution doesn’t have any support among my German contacts, who dread the unknown and don’t want to switch currencies again.

Most of the comments think Germany will not support printing.


Last edited by Shelby on Mon Nov 28, 2011 1:37 am; edited 5 times in total

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Inflation or Deflation? - Page 23 Empty Fallacy that defaults = deflation

Post  Shelby on Wed Nov 23, 2011 5:07 am

http://www.marketoracle.co.uk/Article31685.html

The above article is correct that the world production will decline, because there is too much debt-induced misallocated production.

The article is correct that the timeline for rise of the new Phoenix global currency is 2018.

What I don't agree with is the notion that socialized defaults can occur without inflation of the price of gold and silver, i.e. monetary inflation if gold is your unit-of-account.

The problem is that free markets defaults don't occur over a period of years, but rather are disorderly, abrupt implosions. Because the free market doesn't want to waste time with further malinvestment.

In other words, if the govts don't manage these defaults, then Germany and every country in the world will be in some severe implosion for couple of years.

So the govts are not going to allow this. Instead they are going to try to manage the deleveraging (and do redistribution, as centralized action can never do just one thing). Thus we are going to see continued money printing and inflation of the price of gold and silver, while at the same time seeing some austerity and controlled defaults take place. This is why it is going to take them 6 - 7 years to deleverage.

With free market defaults (i.e. if everybody went out and traded their fiat for gold and silver tomorrow), then the elite won't get their world govt currency. They must manage the defaults in order to use this as a carrot and stick to bring about the treaty changes in the EU and other centralization of governance they want to achieve. And the people want to give it to them, because the people don't want free market defaults either.

How much easier could this be to analyze. I don't understand why people get so confused.

===================
Stephen Leeb - Expect QE3, QE4 and 40% to 50% Inflation:
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/11/22_Stephen_Leeb_-_Expect_QE3,_QE4_and_40_to_50_Inflation.html

====================
I was wondering why infant formula is 300% more expensive in the USA than in Philippines. Socialism strikes again:

http://www2.hawaii.edu/~kent/The%20High%20Price%20of%20Infant%20Formula%20in%20the%20US.pdf

There is a little rule I would like people to get into their thick skulls, "anything the govt touches will get more expensive if you need to buy it and less valuable if you own it"!

=====================
China and others preparing to ease, and then I hear from Jim Chanos that China has cut their reserve requirements recently:

http://www.kitco.com/ind/Trendsman/nov222011.html

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Inflation or Deflation? - Page 23 Empty Symphothy of printing

Post  Shelby on Wed Dec 07, 2011 6:40 pm


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Inflation or Deflation? - Page 23 Empty Hyperinflation

Post  Shelby on Thu Dec 08, 2011 10:01 am

http://fofoa.blogspot.com/2011/12/unambiguous-wealth.html?commentPage=2

Shelby wrote:
Shelby (remember me?) linked to this fofoa article.

http://www.marketoracle.co.uk/Article31926.html

Gold-to-house Price Ratio May Plunge

At that site, I published an article Oct. 2010, that predicted silver would drop to $22, then rise to $48 before summer 2011, then drop to $25 - $27.

It did exactly that.

If there is any hyperinflation, it won't last more than a year. The point I was trying to make before is that when all currencies hyperinflate in unison, then the global economy implodes. Contrast this to when only one country hyperinflates, it can go on and on for years, because the global economy is not threatened.

Make sure you read this:

Understand Everything Fundamentally

Cheers to all.

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Inflation or Deflation? - Page 23 Empty occular inspection

Post  Shelby on Tue Dec 13, 2011 5:36 pm

Look similar? I don't think so.

Inflation or Deflation? - Page 23 Gc12Inflation or Deflation? - Page 23 Gc211

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Inflation or Deflation? - Page 23 Empty Fed targets the incredibly shrinking prices of grocery products

Post  Shelby on Tue Jan 31, 2012 12:29 pm

Personal consumption expenditures as a measure of inflation:

http://www.financialsense.com/contributors/bruce-krasting/2012/01/26/bernanke-goes-all-in

The prices are going down, because consumers are buying smaller products:

http://www.google.com/search?ix=heb&sourceid=chrome&ie=UTF-8&q=shrinking+size+of+grocery+products

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Inflation or Deflation? - Page 23 Empty USA real GDP shrunk -25% (1/4) since 2001

Post  Shelby on Thu Mar 08, 2012 2:44 pm

So it will take +33% real growth to get back to former level, and that doesn't count an increasing population. Factoring in the 1% US population growth rate. that is a -38% contraction since 2001, meaning it will take +61% real growth (over 0 years) to get back to prior level. Say it takes 20 years to get back, so that means +83% real growth needed (factoring in population growth over the 20 years).

And the worst hasn't hit the USA yet...

Inflation or Deflation? - Page 23 Sgs-gdp

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Inflation or Deflation? - Page 23 Empty Why houses are not net worth

Post  Shelby on Tue May 01, 2012 6:55 am

http://relativisticobserver.blogspot.com/2012/04/transparency-way-of-future.html?showComment=1335853960828#c6186459436900250998

Houses are always liquid (in the future) at some price, but since we are trying to anticipate the future outcomes, it is the assumption of the current market price in the future (a snapshot in time), which is an erroneous mathematical model. An analogy is if we erroneously assume a mass on a spring will be moving down in the future, because it is at current time snapshot. The correct model of the velocity is a differential equation of all the forces involved:

https://www.youtube.com/watch?v=JbwGlTz0wqk

The key point is that the market prices of houses is HIGHLY LEVERAGED to the interest rate, thus any snapshot of net worth including a snapshot of the current market price of a house, is an incomplete and erroneous mathematical model. The market price of houses is based on the intersection of the supply and demand curves, and the demand price curve (the maximum prices the buyers can pay) is based on the monthly payment, which mathematically can not exceed (a reasonable % of) the buyer's income.

Since we can see from the net worth statistics, that at least 49% of the people are (or nearly) bankrupt if the market price of their house drops significantly, we can see that there is contagion risk. If interest rates rise significantly enough, the market prices of houses will plummet.

Next let me explain how I know mathematically that eventually interest rates must rise significantly.

The above contagion risk is why the Fed is forced to hold the short-term bond interest rates down near 0% and long-term bonds down around 3% currently (which translates to roughly 4% mortgage rate as you said).

What does free (nearer to 0%) money do to an economy? It encourages investment in less productive sectors. Low interest rates redistribute capital from the most productive sectors to the lowest ones. This is true because capital (unlike money or finance) is finite. Capital is actual productive resources. We use money and finance to allocate it. Labor (your brain and mine) is one main example of capital. Raw materials is another lesser significant one (in this new knowledge based economy).

Thus while we keep interest rates low, we are destroying (wasting or misallocating) capital.

We can see this is capital destruction is ongoing if we calculate the aggregate statistics using methods before the Clinton hedonics, as ShadowStats.com does for Fortune 500 clietns. There we see that real GDP has dropped by 25% since 2001, and real GDP growth has remained negative. We see that unemployment is continually worsening.

We can't tighten fiscally without gutting the income and thus also plunging the prices of houses. We can't raise interest rates also.

So what we are doing is borrowing to delay the inevitable crash, and misallocating more capital and making the end crash worse.

Remember also that the value of a bond is highly leveraged to the market interest rate. Thus an owner of a bond profits when the interest rate continues to drop. Bonds plummet in value if the interest rates rise significantly.

The interest rates have been perpetually declining since the early 1980s, when Paul Volcker used double-digit interest rates to contain inflation and tame the gold and silver prices. This declining interest rate regime has been sustaining the misallocations of capital that occurred along the way. It is a mathematical bubble.

All bubbles have to be popped eventually. We are sustaining the historic misallocations, by piling on more debt and misallocations. Interest rates will eventually rise, and the massive accumulated misallocations will default.

============
So far, the USA real GDP shrunk -25% (1/4) since 2001

http://www.shadowstats.com/imgs/sgs-gdp.gif?hl=ad&t=

Factoring in the 1% US population growth rate. that is a -38% contraction since 2001, meaning it will take +61% real growth (over 0 years) to get back to prior level. Say it takes 20 years to get back, so that means +83% real growth needed (factoring in population growth over the 20 years).

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Inflation or Deflation? - Page 23 Empty Long Wave Cycle

Post  Shelby on Tue May 01, 2012 5:36 pm

I haven't verified whether this long wave cycle principle repeats throughout history, but I assume he has, since he said he spent 10 years perfecting it:

http://www.longwavegroup.com/principle/lefi_map/lefi_map.php
https://www.youtube.com/watch?v=58qtcPst2OI

I had read an article that ties this cycle into generational cycle attitudes. I am trying to find it, as I think it explains a difference in world view between Boomers, Gen X, and Gen Y.

===========
Okay I found it:

http://en.wikipedia.org/wiki/Strauss-Howe_generational_theory#Defining_a_generation
http://www.financialsense.com/contributors/james-quinn/2011/11/03/bad-moon-rising
http://www.financialsense.com/contributors/james-quinn/the-gathering-storm

Code:
        Prophet      Nomad        Hero        Artist
High       Childhood    Elderhood    Midlife      Young Adult
Awakening  Young Adult  Childhood    Elderhood    Midlife
Unraveling  Midlife      Young Adult  Childhood    Elderhood
Crisis      Elderhood    Midlife      Young Adult  Childhood

High = Spring
Awakening = Summer
Unraveling = Fall
Crisis = Winter

Prophet = Boomers (born 1946 - 1964), 40 percent of the workforce
Nomad = Gen X (born 1965 - 1979), 16 percent of the workforce
Hero = Gen Y (born 1980 - 1994), 25 percent of the workforce
Artist = Gen Z (born 1995+)

Boomers = vision, values, and religion (loyalty, idealistic, entitled)
Nomad = liberty, survival and honor (survival, pragmatic, alienated)
Hero = community, affluence, and technology (order, righteous, protected)
Artist = expertise and due process (continuity, flexible, overprotected)

Some links on different attitudes between the current generations:

http://www.reliableplant.com/Read/2431/boomers-generations
http://jojackson.suite101.com/veterans-baby-boomers-gen-x-gen-y-and-gen-z-a185353
http://www.enotes.com/soc/discuss/what-different-characteristics-generation-x-e-90271

I made some interesting comments here:

http://relativisticobserver.blogspot.com/2012/03/hackers-part-3.html?showComment=1335903496830#c239549748064135439

I presented the generational research in the Transparency blog, which explains why we are not going to agree on the use of the government to enforce values:

http://relativisticobserver.blogspot.com/2012/04/transparency-way-of-future.html?showComment=1335900204476#c1703906618219560883

At least we can be rational about understanding why we have different political philosophies.

We Gen X did not grow up entitled. We have to struggle on our own to get where we are. We don't feel entitled, and thus we are not stakeholders in the society that the Boomers built. We trust the free market, because that is what we were dealing with on our own. Social security won't be there for us. The boomers took more than all (debt every where). We've had to scrap and negotiate hard to get some. And instead of giving back to us now the peace of individual freedom that we want, they want to put their value system on us (which will continue to escalate the wars).

So there is conflict ahead.

The Heros are going to rebuild new institutions and fighting the wars to tear down the current corrupt ones. We Nomads are caught in the cross-fire and just trying to find a way to not get squeezed out. Thus we have no choice but to discard the social contract, as it won't be rebuilt in time for us.

http://relativisticobserver.blogspot.com/2012/04/transparency-way-of-future.html?showComment=1335900204476#c1703906618219560883

So now we can understand why boomer's (you) politics are loyalty, enforcing idealistic values, and maintaining entitlements.

And Gen X's (me) politics are liberty, pragmatic survival, individualism (honor), and distrust of values and institutions. I am libertarian anarchist. So trying to convince me that the entitled state should enforce values, is like me telling you that we should privatize the government.

Fascinating.

It explains why we are going to disagree about any political/social topics, such as Hackers, Transparency, media's role in society, etc..

===========
Some useful tables (although I think this deviates in some cases from the generational theory in the prior comment):

http://www.financialsense.com/contributors/james-quinn/2011/11/03/bad-moon-rising

The Boomers (elders) and Heros (youth) are archtypes and will be at odds. Boomers will judge them to have threatened values (remember the Heros are protected), yet ironically the above link claims the Boomers did more drugs, volunteered less, have lower college education, and higher teen pregnancy than the Heros do.

Inflation or Deflation? - Page 23 The+Long+Wave

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Inflation or Deflation? - Page 23 Empty Globalization is the devaluation of passive capital in response to technological shift

Post  Shelby on Thu Nov 08, 2012 5:35 am

MAGNUM OPUS: Globalization is the devaluation of passive capital in response to technological shift

The following is probably the apex of my magnum opus polymath-like contribution to the field of economics. So I better get back to
programming now.

http://www.mpettis.com/2012/06/11/what-is-globalization/#comment-18964

Shelby wrote:
Globalization is the devaluation of passive capital in response to technological shift.

Professor, your thesis is almost correct, but as far I can see, you may have missed a very important cause and effect relationship.

I have got it all figured it out now.

globalization process is driven primarily by monetary expansion and the consequent increase in risk appetite

Agreed.

every period of globalization coincided with a stage of the industrial revolution in which accompanying the expansion in international trade and capital flows is a major technological boom, driven also by monetary expansion<

midst of a technological boom that seemed to be changing the globe beyond recognition, and certainly beyond the ability of his elders to understand. As part of that boom, capital flowed into remote corners of the earth, dragging isolated societies into modernity. Progress seemed unstoppable

But in spite of the enthusiasm for science that accompanied each wave of globalization, as a historical rule it was primarily commerce and finance that drove globalization, not science or technology, and certainly not politics or culture. It is no accident that each of the major periods of technological progress coincided with an era of financial market expansion and vast growth in international commerce. Specifically, a sudden expansion of financial liquidity in the world’s leading banking centers — whether an increase in British gold reserves in the 1820s or the massive transformation in the 1980s of illiquid mortgage loans into very liquid mortgage securities, or some other structural change in the financial markets — has been the catalyst behind every period of globalization

Financing becomes available for risky new projects such as railways, telegraph cables, textile looms, fiber optics, or personal computers

My thesis is that the monetary expansion is caused by technological shifts (not the other way around as you have it), via the mechanism where the majority of the population has been reduced in relative knowledge value w.r.t. to the knowledge producers of those technological shifts. Thus all forms of passive capital have to be devalued, and the most expedient political mechanism for such adjustment is monetary expansion.

The proof is that new (as opposed to existing) knowledge production can not be acquired with money nor finance:

http://www.zerohedge.com/news/2012-11-04/bitcoin-seen-through-eyes-central-banker#comment-2951089

http://www.coolpage.com/commentary/economic/shelby/Demise%20of%20Finance,%20Rise%20of%20Knowledge.html#FinanceabilityofKnowledge

Globalization takes place, in other words, largely because investors are suddenly eager to embrace risk

Remember on a long enough timeline all persistent borrowers and speculators end up bankrupt. Risk is statistically speaking, another way of saying "devaluation". I provided quantitative evidence, even for Coca-Cola dividends over 46 years:

http://www.coolpage.com/commentary/economic/shelby/Demise%20of%20Finance,%20Rise%20of%20Knowledge.html#KnowledgeInvesting

Other monetary expansions were sparked by large increases in U.S. gold reserves in the early 1920s, or by major capital recyclings, such as the massive French indemnity payment after the Franco-Prussian War of 1870,

In all these cases, you will find that there was some technological shift that caused passive capital to devalue and adjust. These adjustments are painful, because passive capital due its definition is an inherently bankrupt economic model that delays adjustment, as I have explained at the many links in this post.

support for globalization quickly wanes. Populist movements, never completely dormant, become reinvigorated. Countries turn inward. Arguments in favor of protectionism suddenly start to sound appealing. Investment flows quickly become capital flight

The technological change doesn't reverse! Rather the passive capitalism is devalued and there is an adjustment process called
"globalization", which is really just the technological destruction of top-down power (and passive capital, nation-states, etc). The top-down power (and its masses of dependents) tries to consolidate by retreating to greater economies-of-scale, i.e. greater centralization, e.g. supranational institutions.

The result is increased fragmentation by decreasing the size of the fragment closer to the individual (e.g. the combustion engine or the personal computerization), while the passive capital gains a greater fragment size, e.g. from tribes to feudals to nations and now heading to world governance. But the top-down control is losing power as its fragment becomes larger.

This is an incredibly important and profound realization!

Please (Ctrl+F in most browsers) search for the word fragment "automat" at each of the following linked posts of mine, to understand how I see that computerization is driving the current global monetary expansion. For example, China is using a Yuan peg monetary expansion to price its manual labor (up to -800%) below the profit margin of automation, thus stalling the onslaught of computerization.

http://www.mpettis.com/2012/10/27/when-the-growth-model-changes-abandon-the-correlations/#comment-18795

http://www.mpettis.com/2012/10/27/when-the-growth-model-changes-abandon-the-correlations/#comment-18823

http://www.mpettis.com/2012/10/27/when-the-growth-model-changes-abandon-the-correlations/#comment-18682

http://www.mpettis.com/2012/10/27/when-the-growth-model-changes-abandon-the-correlations/#comment-18648

But in the meantime, the computerization epoch is accelerating with billions carrying a PC in their hand (Android and Apple's iOS). See also the discussion of acceleration of computerization development models with the "inverse commons", "cathedral vs. bazaar", and "top-down vs. decentralize" at the following links.

http://www.coolpage.com/commentary/economic/shelby/Demise%20of%20Finance,%20Rise%20of%20Knowledge.html#FinanceabilityofKnowledge

http://www.zerohedge.com/news/2012-11-04/bitcoin-seen-through-eyes-central-banker#comment-2951115

http://www.zerohedge.com/contributed/2012-10-18/shipping-news-and-bit-more#comment-2904368

As your quote of Alphonse Rothschild indicated, most people simply can't see the technology that we see accelerating, and thus they have all the wrong theories about cause and effect. The following links are very entertaining, once you understand the correct cause and effect I explained above.

https://goldwetrust.forumotion.com/t182-technology-that-changes-everything#4754

http://www.mpettis.com/2012/10/27/when-the-growth-model-changes-abandon-the-correlations/#comment-18959

http://www.zerohedge.com/news/2012-10-28/charting-undoing-credit-fueled-globalization#comment-2926945

http://www.zerohedge.com/news/2012-10-21/chinese-gold-imports-through-august-surpass-total-ecb-holdings-imports-australia-sur#comment-2908306

http://www.zerohedge.com/news/2012-10-21/chinese-gold-imports-through-august-surpass-total-ecb-holdings-imports-australia-sur#comment-2908534

This is so profound, I am hopeful that you and others will help promote this understanding, as I don't have the capability to spread such
information, as my field (of computer programming and computer science) is rather abstruse and obfuscated from the mainstreams.

Professor, sharing your thesis and allowing blog comments, helped and motivated me to arrive at this understanding. Thank you. You are one of the knowledge producers and you are participating in this new computerized, inverse commons, bazaar is better than cathedral, knowledge age.

The above is probably the apex of my magnum opus polymath-like contribution to the field of economics. So I better get back to programming now.

Email from unnamed source, with my response:

We are both so pressed for time. I was hoping someone who writes for a living would be interested.

I need to get back to what I do for a living. I am crossing the chasm momentarily to try to convey the ideas to those in the fields of economics and writing.

>
> you say; "My thesis is that the monetary expansion is caused by
> technological shifts (not the other way around as you have it)."
>
> i would propose something a little more complex (and probably a little
> more intuitively appealing to someone like you): money is part of a
> feedback loop between changes in underlying "liquidity" and changes in
> the technology that responds to changes in money. this means, of
> course, the changes in liquidity are reinforced both on the way up and
> on the way down.

I see an even more complex relationship, but I think it is opposite to the relationship you are thinking. The *ADOPTION* of knowledge production accelerates as the liquidity peaks and declines, which is reinforcing its crash on the way down. This acceleration is because the technological shift becomes popularized, as the liquidity peaks and its bankruptcy is revealed.

Right now the shift that is changing the world is open source software, but this seems ludicrously narrow to assert. Wait until the liquidity peaks, then you will observe open source goes mainstream adoption (by the new Art generation, as I explained with the link to the Long Wave Cycles):

https://goldwetrust.forumotion.com/t9p570-inflation-or-deflation#4735

The increase in liquidity is the way the damn breaks as the epochal fragmentation of power by the technological shift (e.g. combustion engine or the personal computer) causes a huge swath of labor to fall out of the marginal profitability of *UNleveraged* supply and demand, and this unemployment drives the demand for debasement and leverage. This runs until it reaches peak bankruptcy at minimum liquidity.

I believe you are thinking that *new* knowledge production (i.e. innovation) responds to liquidity. I think that premise is entirely false. I can't find any evidence whatsoever that the micro-economic phenomenon of the efforts of a few random individuals is driven by liquidity. Bill Gates wrote Microsoft BASIC with very minimal capital from his partner's income, and a lot of personal sacrifice, given by his desire to innovate, not liquidity. Ditto Steve Jobs. Ditto myself on one of the world's first WYSIWYG word processors in the 1980s (pre-dated MS Word). Ditto Eric Raymond who wrote The Cathedral and Bazaar (that is driving globalization via open source). There only needs to be sufficient wealth, that we had time to do this, but this was static wealth, not responding to any near-term changes in liquidity.


> this may explain the violence of the credit cycle,
> and it may also explain the classic minsky recommendation that rather
> than try to prevent crises (which is impossible) we try to manage them
> by embedding countercyclical mechanisms into the financial system.


Try to tell billions of people to get with open source now, and they will look at you cross-eyed. You simply can't do the adjustment any other way, than bankrupt the masses with liquidity first.

Open source will be in everything, not just for programmers. All processes that involve policies and procedures.

Global open source adoption growing at 91% per year

http://slashdot.org/topic/cloud/android-the-800-pound-gorilla-of-smartphones-idc/

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

http://www.mpettis.com/2012/06/11/what-is-globalization/#comment-18984

Shelby wrote:
Correction on the logic.

Note that as *new* knowledge production decreases, then the passive capitalists' accumulate more *proportion* of global wealth via compounded interest rate, e.g. in the extreme degenerate case automation replaces all labor and no one has an income to buy the production but this also drives production and wealth to zero (100% proportion of 0, is still 0).

Monetary expansion can not drive *new* knowledge production, because ingenuity and innovation is not driven by liquidity, but rather by individual creativity and dedication, which has nothing to do with some hard resources capital limitation. If anything, more liquidity distracts more people towards consumption, and away from innovative discipline. This is even more obviously true in the software programming age we are in now, e.g. the Mythical Man Month proves that adding more money, can not increase the rate of productivity in software creation.

We can think of productivity as being the ratio of *new* qualitative knowledge production per tangible measurable of production, since all value-added comes from knowledge production. Since we can't measure the former, we typically measure the proxy of production per employee, but this isn't correct as I explain below.

Monetary expansion can drive the adoption of *existing* technology (i.e. existing knowledge), because technology adoption is analogous to the professor's point about China's infrastructure being too expensive to be justified by the level of value-added (*new* knowledge production) in the economy. Liquidity can allow many people to have access to technology that they can't yet justify in terms of their *new* knowledge production capability, i.e. misallocation of capital. For example, multitudes use their smartphone to do mindless and addictive activity of tweeting their every daily action. Note the wireless tower and network build out in the USA is a negative ROI business.

The misallocation can drive *new* "knowledge production" to be misallocated, e.g. too much software development to service mindless activities. Thus in a sense, this isn't *new* knowledge production, because it is mindlessly misdirected by liquidity. So liquidity can as I alluded earlier misdirect away from *new* knowledge production.

But what causes liquidity to increase? It is because the passive capital can not be returned and the multitudes can not be employed, because the true productivity (as I defined it) is not increasing fast enough. Remember my extreme example of if we automate everything and there is no *new* knowledge production, then there would be no employment and no income to buy the production.

Another possible conclusion is that monetary expansion runs at equivalent to the rate of compound interest, which was shown to be true:

http://www.goldmeasures.co.nz/2008/05/fiat-debt-money-how-it-drives-countries.html

Any (non-misdirected) *new* knowledge production (not the "knowledge" activity driven by liquidity) is not spread uniformly in the society and money expansion can not cause *new* knowledge production. Thus passive capital is not focused on *new* knowledge production (the returns only aggregate with the fewer *new* knowledge producers), thus is not obtaining sufficient ROI to be paid.

So we can't conclude for sure that *new* knowledge production causes monetary expansion, but we can conclude that monetary expansion devalues passive capital and the multitudes, relative to the fewer true knowledge producers. And we can conclude that if *new* knowledge production was not occurring, then standard-of-living would not be inexorably increasing.

So rather than concluding that *new* knowledge production is causing globalization, we can conclude that *new* knowledge production becomes amplified in relative value coincident with the monetary expansion of globalization.

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Inflation or Deflation? - Page 23 Empty Crackup Boom Accelerating

Post  Shelby on Sat Feb 16, 2013 4:46 am

http://www.mpettis.com/2013/02/14/what-ill-be-watching-in-2013/#comment-21486

Shelby commented:
Crackup Boom Accelerating

Refer to my prior comments below the "Recognizing the need for economic adjustment" article, for more elaboration on the stance I will summarize below.

In conclusion, the political and financial system is spiraling the toilet bowl and accelerating into maximum deception and free money misallocation as was the case up to 1929 due to the century-periodic technology paradigm shift and symbiotic globalism expansion and contraction. There is no way to stop it now due fundamentally to the impossibility of a meritocracy in the collective.

Head to gold and the computer age revolution and await the devastation and reversal of global trade circa 2015 - 2017, which will then persist for decade or more. The repetitive jobs are permanently lost to robotics. Even doctors will be unemployed due to IBM's more accurate (Watson) diagnosis computer, which socialized health care will accelerate due to cost rationing. The new jobs will come from different forms of hacking (and less technical derivatives of the new capabilities such as arts and entertainment), e.g. proliferation of open-source leverage and even selling zero-day exploits.

Spain's bond rates did not fall due to increased confidence (Michael correctly pointed out the mad rush to extract capital from Spain), rather Spain raided its social security fund to buy sovereign bonds.

The $1000 trillion (quadrillion) of bond derivatives hinge (refer to the Lehman example) on the key collateral of sovereign bonds. Only recently is there action towards allowing gold to be an alternative Tier 1 collateral asset.

As Kyle Bass recently pointed out, Japan has likely entered terminal velocity when it entered current account and trade deficits, thus the a currency crisis in Japan within two (2) years will likely set off massive bond derivative dominoes. The central banks will print free money like mad and send the globe into inflation hell, as they have no other choice.

The Fed is following the oscillation theme that Michael (and I) mentioned in the comments of the prior article "Recognizing the need for economic adjustment". The global free money capacity limit will be reached within 2 to 5 years.

France (and Italy) are also sliding into the abyss which will drag Germany into it as well. Global contagion can not be avoided.

This is also known as the Long Wave Cycle (or the Great Turning) in action.

I found zero evidence that knowledge production is created by monetary or credit liquidity.

http://www.mpettis.com/2013/02/14/what-ill-be-watching-in-2013/#comment-21487

Shelby added:
Add two points, a) Fed is pumping billions into EU now, so it is a global "all for one, one for all" slow burn descent into the abyss, b) Socialized labor (i.e. minimum wage, laws against layoffs, mandatory health care, etc) will also accelerate the shift to robotics, because it becomes too expensive to hire humans, while robotic (computer) technology is halved into cost every 18 months due to Moore's Law.

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