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SPDR Gold Shares Message Board

  • bvbcv62 bvbcv62 Dec 3, 2008 10:06 AM Flag

    The beast (the fed) has all the power - the USD is surging

    I can't believe what we are witnessing - the fundamental economic principle of supply and demand no longer exists...ever is down...natural gas, oil, corn, wheat, soybeans, silver, gold,steel, coal, ....all across the board .....except the federal reserve notes that are being printed by the trillions....the whole world has gone mad...how much longer???

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    • “The commodity price collapse since the summer of 2008 does not indicate inflation is out of the question - it indicates global economies are contracting deeply. As global equity markets collapse, investors are liquidating and de-leveraging, fleeing to the traditional safe haven currency, the U.S. Dollar.

      This is a temporary response, and is behind the strong selling pressure in gold and partly behind the commodity decline. Recessions of this nature almost always lead to a period of deflation, as aggregate demand diminishes and banks are reluctant to lend any capital they have.

      However, this crisis will not remain a deflationary recession forever. When the United States debt bubble finally collapses, the U.S. will be forced to default on its debt and devalue its Dollar, as the Fed pumps more and more liquidity into the system. The CDS price for 10 year US Treasury bonds has already increased by 2500% over the past year, and with more deficit spending ahead, the U.S. Dollar's perceived stability will diminish, as will its demand. Increased supply and decreased demand - characterizing rampant inflation. This will send our recession into a depression, and usher in America's first inflationary depression.

      There are two ways to fund external debt - decrease government spending or increase taxes. With TARP passing, government programs further socializing, and Ben Bernanke stating he will increase money supply as long as he has to prevent a 1990s Japan deflationary scenario, government spending is going to increase significantly, rather than decrease. Taxes are all that is left in the arsenal of the U.S. government, and with the diminishing purchasing power of it citizenry, higher taxes will not be met with popularity. Tax revolts, food shortages, and riots are not out of the question when this inflationary depression occurs.

      What is left to do? Liquidate all mutual and pension funds into gold and/or Swiss Francs. Precious metals are the only commodities that aren't significantly susceptible to global economic conditions. A recession decreases the demand for oil, for example, because households and businesses will cut costs. However, the demand for gold and other precious metals doesn't lie in its utility in production, but rather in its store of value.

      This makes gold a great inflationary investment, as it preserves purchasing power. Gold under $900 is a bargain, and I see it above $2000 by 2010 and above $3500 by 2011. The Swiss Franc is 20% backed by gold and boasts a 0.6% inflation rate, and its demand is only going to rise, as the United State's dominance in foreign currency reserves will diminish and foreign nations and wealthy investors will seek a safe haven currency.

      My pessimism for the American economy can best be represented by the fact that I see the Dow Jones bottoming all the way down to around 3,300. However, the United States has leverage aside from its currency reserve status and economic dominance. It is the sole nation in the world that can be self-sustainable if need be, having substantial energy, food, and industrial commodity supplies.

      In addition, it has the ultimate leverage of all - the largest and most powerful defense system in the world. At the end of all of this, whether or not after war, demagogy, or whatever doomsday scenarios can be conceived of, I believe the United States will come out as the reigning superpower in the world and through forced domestic investment and industrial development (particularly in alternative energy), will develop even further into the strongest economic powerhouse in the world.

      Before any of this optimistic speculation influences your opinion, however, I insist you come to terms with the economic collapse that will precede any such positive event.”



      http://seekingalpha.com/article/108965-the-american-crisis-and-the-case-for-an-inflationary-depression?source=yahoo

 
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