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  • macr0zzy macr0zzy Jun 6, 2012 6:54 PM Flag

    Thoughts On Barrick

    You subscribe to popular theory that says the printing press magnifies the quantity of money and so the purchasing power of money is debased because more dollars (M) will chase the same quantity of goods and services (GDP).
    It has yet to be borne out by data. No inflation, rather a whiff of deflation is in the air. Witness housing prices, commodities, etc. Of course, M has been increased through our QE's, but all that does is ending up as reserves sitting idle in banks, not out there chasing stuffs.
    When it does, we will see if the Fed will keep its promise to mop up the excess liquidity. Yes, it bears watching, but that is later. They may or may not succeed. Until then, gold bugs are jumping the gun. They are not aware of the holes in their argument. Slowly, it is dawning on them. They have been shouting fire, but there is still no fire.

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    • Yes it is true, an increase in the reserves held at our banks via fed monetize policy alone does not create inflation. Without an uptick in the velocity of money, those reserves being lent out into the real economy, creating growth, jobs, higher wages et cetera one would not normally see too much demand chasing too few goods...

      But what you fail to recognize is the powerful force of expectations. Not only is the tinder in place for a large fire in the forms of huge reserves...Risk taking based on negative real interest rates, unprecedented fed policy, expansion of their balance sheet, backstopping of all forms of debt has been creating bubbles for quite some time, not only in the developed economies but the emerging markets as well.

      My point is banks are not the only source of lending nor inflation. Govts, stock markets, individuals, companies are already acting on expectations...

      What has happened is we now have a world economy addicted and more importantly relies on money printing to resolve all that ails us. The answer to our debt problems has been clearly more debt, this travesty has been taking place for nearly 3 decades now and the many maladies associated with this madness are making themselves known across the globe.

      Bottom line, money in theory should be a storage of value, Bernanke has destroyed that premise, has lost our credibility as a reserve currency. We will soon find out as the European crisis unravels how devastating that sin will be...

      One buys gold not only for the fear of inflation, but the credible trepidation our system is broken. My view is we either collapse or suffer some form of severe stagflation. No in between, goldilocks ending, hence my ABX position.

      • 2 Replies to mooseonaplane
      • You're kidding me.
        OK You print money to prop up your BUDY banks, that won't lend.
        Ask yourself why.
        They're not in it for the people, but there multi million bonuses.
        There will be blood in the streets.
        The USA is Greece on steriods.
        Think about it.

        Keeping interest rates down doesn't help the situation.
        They won't lend.
        What does that indicate.
        Insolvency maybe.

        The game is over, everyone else sees it and are taking steps to replace your all might reserve currency.

      • !Bottom line, money in theory should be a storage of value, Bernanke has destroyed that premise, has lost our credibility as a reserve currency. We will soon find out as the European crisis unravels how devastating that sin will be...!
        Money is meant to be traded for something more desirable, as for a profitable business, an investment that produces money that you can spend on another invesment, not as a store of value. I don't keep money. I keep it only reluctantly and only for a short time. I spend it as soon as possible. If gold is money, which I don't think it is, then you should likewise spend it. But you can't spend it on a hamburger, or on buying a house, not until you have traded it for dollars from another gold bug.
        Unlike you, I am not as sure about the set of expectations you have selected, their powerful forces that must in the end bring down the system, and therefore you must trade in for gold at whatever price. I don't know how I can make that kind of forecast, given the fact that money has already been debasing at roughly between two per cent a year recently and almost double digit in the seventies. A debasing currency is nothing new, just like rising real income for myself and most Americans. If the system is gummed up and needs a little help of the printing press to force people out of paralyses from fear, so be it. After all, didn't Robert Shiller the great bubble buster economist say that we need rekindling of the animal spirit to help us get out of the present funk? Now where is the double digit inflation that would justify the deep into double digit annual rise that you come to to demand of gold in the future?

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