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Yamana Gold, Inc. Message Board

  • goldmanpillageandsack goldmanpillageandsack Nov 9, 2012 8:49 AM Flag

    Fiscal Cliff

    The true dimensions of the so called "Fiscal Cliff" are roughly $700 billion in spending cuts. According to the IMF, this will result in an economic contraction equivalent to a 4.5% drop in GDP...

    What will happen?

    My guess is that after a scary downturn in the markets, they will paper it over and keep kicking the can down the road to an eventual fiscal disaster. "Eventually" can be a lot longer time from now than many think...

    Both Japan and Great Britain have proven that you can exceed 200% debt to GDP without destroying their currencies, therefore, I see no "immediate" peril for the dollar. After all, it has the luxury of being the worlds "reserve" currency and we sport a debt to GDP of a mere 103%.

    Japan even crossed the important boundary of transitioning to a negative "current account" balance without the currency collapse one would expect...

    So the common rules of national fiscal responsibility have become blurry and opaque... The dollar will continue to deteriorate in "buying power" without a total collapse against the dollar index. Why would it? None of the other currencies in the index are showing any sign of restraint in their currency printing programs...

    It won't matter until it does...

    And then there will be a relatively quick transition to the Renminbi as the world reserve currency...

    Sentiment: Strong Buy

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    • goldmanpillageandsack goldmanpillageandsack Nov 10, 2012 11:50 PM Flag

      I think that the U.S. should keep it's gold so that when what appears to be an inevitable bout of hyperinflation occurs, we have something to back our next currency with.

      Oftentime, people forget that Germany recovered after the Wiemar hyperinflation. Twice in fact, Germany has risen from the ashes of war and financial calamity. Look at it today as it carries nearly the whole of Europe on its economic engine.

      Governments and financial institutions have a lifecycle and hyperinflation has occurred time and time again. All fiat currencies fail when they are debased and yes, the dollar will lose it's value someday.

      Just remember that nations like Germany and the U.S. rebuild after these apparent crises. Resilient, hard-working people re-create their nations after these collapses.

      Today's dynamic is slightly different in that many nations are debasing their currencies at the same time. This masks their individual declines.

      Smart people think ahead and plan for these cyclical events... Some even thrive through them.

      So plan ahead, remove yourself from the big cities. Build strong relationships with family and friends. Live with a low profile and strong awareness that this apparent calamity shall pass...

      Sentiment: Strong Buy

    • If the US Government cuts spending, it won't have to sell as many bonds leaving more money for consumption and investment. It a financially neutral play.
      The US Government could make investments in infrastructure and scientific research that could payoff greatly for the country as a whole.
      Perhaps the US should sell off some of its gold reserves to pay off some of its debt.

    • I agree with everything except I think it'll be a different world when the US starts to hit that point. Japan has been "fighting deflation" for the last 2 decades, but the rest the world has been strong and people still "believe" in the world's monetary system. By the time the US is hitting the metrics that these other countries have been "okay" at, I think the world will have lost a lot of faith in the system and the US situation will degrade much, MUCH quicker than other countries have.

      • 1 Reply to tattooaj
      • AJ, Good thinking!

        Supporting your position of a more timely demise of the dollar is the fiscal cliff itself. "IF" the 700 billion in cuts are made, the Debt to GDP ratio would quickly accelerate. Sure, the cuts only represent 4.5% of GDP, but the slowdown would not stop there. The entire economy would feel the ripple effect and we would see a huge slowdown economically and a proportionate decrease in tax revenue. Combine declining tax revenues with the baby boomers spiraling medical/retirement costs for Medicare, Medicaid, Prescription Drug Benefits and Social Security benefits. Don't forget to add Municipal, City, State and Federal government pension obligations either in this spiraling cost structure...

        That is why I think the fiscal cliff is an empty threat, Nearly every metric calls for increased spending in opposition to the austerity and immediate economic pain that we would fall in to. But I've been wrong many times before and this could be one of them... I thought that Greece should have defaulted and dropped out of the EU.

        They did not, instead, Greece became the prime example of what not to do. They took a $40 billion dollar default situation, bailed out the banks and "imposed austerity". Now the problem is a $250 billion default problem and unemployment is at 27% with a nearly total collapse in tax revenues to support the spiraling debt. The Greek economy is coming to a near standstill and without an exit from the Euro they have no apparent method of escaping the depression caused by their inability to compete with their northern neighbors/creditors.

        I think that if austerity comes to the US, a depression comes with it...

        Since they can kick the can for a while, they will...

        And that is good for gold and the miners!

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