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Mix-Ansicht- Ist Cash die richtige Strategie??? - R.Deutsch, 25.09.2002, 18:20
- DIE richtige Strategie jiwet nit ;-) Denk an den Korb und die Eier, dass ist das - Ricoletto, 25.09.2002, 18:36
Ist Cash die richtige Strategie???
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Deflationists, Please Repeat After Me: We Hedge Inflation with Gold, We Will Hedge Inflation With Wealth!!!
General Commentary:
For long now, the author has tried to explain his belief, that right now, we are in the last stages of an"unrecognized", or invisible to most, de-facto Gold Standard, or in other words, a Hyper-Inflationary Depression.
I say that we are in a Gold Standard, because the price of gold is rigged or fixed to all practical appearances, within certain ranges, just like floating currency exchange rates are fixed by the"market". It is this"rigging" of the Gold Price which makes it an exchange Standard, and this allows the inflation of fiat money to proceed unhindered, exactly in the same way that the Harding and Coolidge administrations employed during the 1920's, under the Fed tenure of Benjamin Strong, but with supercharged fractional effects today under the tenure of Alan Greenspan. The super charged effect comes from the difference between fractional reserves now and then, with respect to gold.
And this process always has 2 parts, the inflationary part and the deflationary part.
Gold has always been WEALTH, and sometimes MONEY, while MONEY sometimes has been Gold, Silver, Paper, Salt, etc. Also, MONEY has always been a political fiction that serves a very good purpose. That of fulfilling, through its use, the economic needs of humankind.
In the 20's and early 30's, Gold was money, apart from being wealth, because the law said so, that you could exchange it a a"fixed" rate, independent of inflation, and you could walk into the bank and exchange your paper for coins.
That is why they had a strong deflation in those days. Because once the gold was shipped outside of the US by the bankers, the real reserves plunged so much, that the fractional scheme collapsed and MONEY WAS DESTROYED.
Today, Gold is not Money, but Wealth. You can still go to the bank and exchange your paper by coins, BUT you can do so at a FLOATING (at least in theory in these rigging days) or"Market" rate.
This is a big difference.
Today, the fractional reserve"de-facto" Gold Exchange Standard scheme is working under a paper(money) reserve ratio of 1.05% versus M1+Savings and 0.84% versus M1+Savings+Retail Money Market Funds.
As well, today, the current system is tenuously held by official gold reserves, at $327 per ounce"market price" of 2.24% versus M1+Savings and 1.79% versus M1+Savings+Retail Money Market Funds.
Therefore, mathematically, the only possible way to have REAL Deflation, under the current system, is for gold prices to diminish to 327*1.05/2.24= $153 dollars per ounce. When gold trades lower than $150 dollars per ounce, the author will concede DEFLATION, for the only way to have destruction of Money is to have PAPER (money) reserves increase from the current $40 billion to a hypothetical $85.45 billion. Even with the post September 11 pumping of close to a trillion dollars worldwide by Mr. Greenspan, reserves went up only temporarily from 40 billion to 58.2 billion, and only to come back again to the current state of affairs.
As comparison, during the early 30's, the fractional gold standard exchange system worked approximately with a fractional reserve ratio of 6.79% in 1929 with respect to an approximately equal basis of comparison to M1+Savings+Retail Money Market Funds (Substituting MMF's for Life Insurance Reserves).
So, even then, prior the the Great Depression, banks had almost three times the reserves banks actually have today.
For starters, this means, based on reserves, that the Maximum Possible Deflation today is three times less than that of the Depression.
Second, the productive/service ratio was slanted then to production, whereas the opposite is the case today. This further diminishes the capacity of deflation to rear its ugly head by another factor of 2 or 3. So we already have compounded an order of magnitude. So if in 1932 deflation was 10%, today the maximum could be only about 1%, which is close to the 1.45% deflation on the hedonic August PPI.
Third, even the hedonic CPI is accelerating right now and stands at a 1.75% yearly rate as of August 2002. The FIG right now is forecasting a yearly inflation rate of 18% for July 2003, and it might happen if the FED keeps still as it did today. The split and gap that is developing between the FIG and the FED Funds rate is a harbinger of mega-inflation to come.
Fourth, Gold, Silver, Platinum, Oil, Gas, CRB, etc., are all in the beginning phase of"visible" price inflation. This is the"DEFLATION" we get when gold is not money. The purchasing power of money simply"deflates". And the stock market bubble"deflates". The money in the stock market"disappeared" simply because it was never there, it was just an illusion, except for CNBC experts that thought it was there for real. But that is a long shot from real deflation in which money diminishes its quantity and prices drop by 5% to 10% a year.
The last time the author checked, even the hedonic CPI had not dropped 9% like in 1931, or 9.9% like in 1932 or 5.1% like in 1933.
So yes, for all intents and purposes, after the inflationary binge of the 90's, we are in the middle of a big deflation, but this deflation can only express itself through more inflation, or in other words, through the destruction of the purchasing power of money, not through the increase of the purchasing power of it.
So, Deflationists, please repeat after me: We will hedge against the coming visible inflation with Gold..., we will hedge the coming visible inflation with Wealth.
"Azteca de Oro"
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