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.
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?
I know of zero economists nor economic theory that supports your premise that that a currency should not be a storage of value and I never suggested gold will take the place of currency as a means for trade. My point, in my opinion gold will maintains it value more so than the Greenback or other currencies in the future making it a sound strategic investment which it has proven to be the past decade.
My primary view is that we our heading to some form of hyper/stag inflation, a Greece style collapse is an outlier though possible if we continue on our present path of resolving debt issues with additional debt.
The reason the system is "gummed up" as you put it, is the central banks around the world have overstepped their mandates. Neither more liquidity or monetizing the debt will resolve structural issues, it will only lead to the continued mispricing of assets, liabilities and risk.
Consequences of the above include the housing bubble, out of control budgets, pensions, wild swings in commodity prices, the birth of toxic financial engineering, et cetera.
In many ways the distortions created by the Fed's policies have murdered the free market which is extremely troubling considering free market forces will ultimately be our salvation. Kicking the can down the road, refusing to accept the pain will eventually lead to catastrophic consequences. Trashing the currency, the printing of money will not bring prosperity, it never has.