Comments on: WHY DEFLATION REMAINS THE GREATER RISK

By: Mark

Mark — Tue, 26 Jan 2010 23:19:16 +0000

Currencies (money) is only a medium of exchange used for buying. The fact that the Feds printed money like drunken sailors trying to re-flate asset prices only strengthens the defaltionary forces we will be faced with in the short term and probably long term. The money that was created out of thin air will not fuel inflation and will be wasted on the current fake recovery. Only “real consumption” caused by job creation and real wages will do that. Without a “REAL ECONOMY” (not a government stimulated one) the worlds production capcity, consumption, wages and job creation will be under-utilized, causing a protracted downward spiral in real GDP, which will lead us into a Depression.

By: David Tolhurst

David Tolhurst — Sun, 24 Jan 2010 18:36:21 +0000

The cause of inflation is government spending more money than it raises through taxation and honest borrowing times velocity or putting it in laymen’s english defrauding the currency by printing money. There is at present no velocity due to the enormous debt in the world. Guvernment, state, company and individual bebt. So your conclusion is at present correct. Once the irresponsible borrowed money pushed out into the system by governments throughtout the world goes to money heaven then we will see savage deflation and depression.

David Tolhurst

Bury St Edmunds

By: Todd

Todd — Sat, 16 Jan 2010 04:29:24 +0000

Monetary and fiscal policy is about the ability to control the economy by offsetting economics stress in one area with offsetting policies. You can analyze stats all day long to look for trends in one direction or another, but neither inflation or deflation will happen until the Fed looses control due to some unforseen disruption which is large enough to knock Benanke on his proverbial back side. I would guess that monitary policy nudging here and there may work to create a long and flat economy to buy time to bail America out of its excess borrowing if no major disruptions occur. To that point, I would suggest we will have neither deflation or inflation without a major catalyst. Perhaps a terrorist attack or large global default that nobody sees coming?

By: Amy

Amy — Sat, 16 Jan 2010 03:20:09 +0000

My response was to the point that you seemed to infer that we could not be tied to gold if we were an electronic society which I believe is wrong. I was not commenting on whether we would go back to a gold standard. I do however think that gold will continue to play an important role going forward as it has through out history. This is especially true whenever a society continues to print copious amounts of currency.

By: Frederick

Frederick — Sat, 16 Jan 2010 02:33:48 +0000

TPC: Gold need not ever serve directly as a future currency to have it go up long and hard in U.S. Dollars.

I agree that it would be impossible to take the U.S. Dollar back onto the gold standard after having been taken off.

Also, I agree it won’t expressly ever become in and of itself a new, or born again, currency. It is simply too rare at a .9999 fineness to accomodate 6.7 billion humans and counting to be the actual coinage.

But, a currency has to be linked to a physical, tangible entity in the real world no matter how electronic we ever get.

Ask cutting edge gamers about online currencies, and what eventually happens to them. I know people who have literally lived for months in the real world off currencies of online games by selling them back to other players online. Eventually those electronic currencies blow a gasket due to poor, or even no, money supply management and inflation destroys their worth, and then they all go create a new game and start again. Sound familiar?

By: jt26

jt26 — Fri, 15 Jan 2010 23:30:35 +0000

Broad inflation (ignoring narrow inflation, e.g. oil, particular assets etc.) could be sparked when the showdown with big special interests comes to past … healthcare & public employees are two good examples … watch for tax hikes and state cutbacks, public pension issues, layoffs, … and pushback …

By: TPC

TPC — Fri, 15 Jan 2010 22:19:46 +0000

I am dying to hear a coherent and logical argument why we would move back to a gold standard? It’s quite obvious that any future move would be to a currency basket or a commodity basket that is based on copper, gold, oil, etc.

There is almost no evidence that we would ever move back to a gold standard. Let’s get real here.

You can accumulate all the gold you want, but the evidence does not suggest that gold will serve as a future currency.

By: Amy

Amy — Fri, 15 Jan 2010 22:15:28 +0000

whether we are in an electronic world or not has no bearing on gold being a valuable source of money or part of a basket of assets that currency is tied to

By: TPC

TPC — Fri, 15 Jan 2010 19:29:02 +0000

Thanks Paul. I enjoy the back and forth debate. It’s all part of the discovery process so please don’t stop with the “hard time” comments.

Have a nice weekend.

By: Paul

Paul — Fri, 15 Jan 2010 19:22:34 +0000

TPC,

I usually give you a hard time, but this time I have to give you a lot of credit. A very lucid and simple discussion of what seems to me to be the key issue in the next few years. Hats off to you on this one.