Massive Deflation Is Obviously Bad For The Precious Metals Sector. Big HL insider selling in January, see
Part of the problem is that you will always have trouble in a cyclical downturn with real estate lending, which is long term. We haven't yet found a way around that. In the 1930's for example, banks were nearly wiped out, and runs on banks were common. Bankers tried to escape that risk, and were happy to let Savings and Loans take over real estate lending. Then, the next cycle, in the 70's, they Savings and Loans were wiped out. That led to another creative attempt to solve the problem, Freddie Mac/Fannie Mae, the idea of bundling and reselling the mortgages. That freed up the originator from risk, but it was a fundamentally bad idea because separating the risk of default from the person in the best position to determine the liklihood of default was a recipe for disaster, one which we just experienced. In this case it was the securities houses that took the losses.
We have yet to find a solution for real estate lending that really works. The current one clearly isn't it. I think that the best approach is probably the local one, forcing the originator to hold the loans. He alone can look you in the eye and decide if you have the character to continue to make payments when times are tough.
Sure, there were some corrupt people out there that pushed loans on people. Sure there were people that made out bogus applications that falsified data. But the system encouraged that. The problem wasn't the guys on Wall Street who got stuck buying the loans, the problem was the bad loans that were being originated, and they were being originated because there was no risk on the part of the originator.
That health care bill was not a solution, it was just a continuation and a masking of the problem. All it was was an attempt to continue the status quo, but debate over who is going to pay for it.
I can tell you really simply what the problem is with health care - the problem is easy enough. Long ago when health care was an insignificant expense, we decided that health care was a priority, and that we should all be entitled to the best possible health care, regardless of the cost. That was a noble idea, and has worked well, in some respects. Look at the amazing medical advances of the last 50 years.
So, anyway, we set up a system where the consumer gets no choice - he always gets the best. The doctor has no power to give anything but the best or he gets sued for malpractice. The health insurance system can't decline to pay. Health researchers were empowered to spend infinite amounts on research, knowing that if they found anything that improved on current technology, they could sell it regardless of price. It created a massive spiral of costs and quality, both.
Next, rising health care premiums were hidden in payroll deductions so that employees never saw the extent of the creeping problem. Health insurance companies can't offer policies with limited care - it has to be all or nothing. HMO's can't be limited, they have to offer full care.
All these things fed the cycle - improving technology, but costs growing in excess of inflation, and all the time, there is no one that can say no. Not the consumer. Not the doctor. Not the hospital. Not the insurance company. Not government. No one in this system has the power to answer the question of "How much health care is a person entitled to?" with any answer other than "Infinite". Well, infinitely good care means infinitely high costs, and that is where we are heading.
The only way to stop it is to empower someone to answer that question. The Canadian system works because some bureaucrat somewhere gets to decide how much health care you can have. At least someone gets to decide. My solution would be different, but at least that's one. Now look at what Congress was trying to do. Did the bill solve the problem I described above? Nope. All it did was spread the costs, allowing health care costs to continue to rise. But what do you expect? With 1/4 of our economy now devoted the healthcare that's a pretty substantial voting block that is going to oppose anything that limits future healthcare growth.
I partially disagree respectfully. Banks are and have been part of the problem. In this "great balance sheet recession", th bankers have played a major part in expanding credit beyond any norms of accountability. Granted, any banker worth his salt abides by the old addage of "fractional reserve banking". However, to lose sight of accountability measures in search for greater ROI's has bee the crux of the problem today. True risk management is a lost art among bankers, as evidenced by their deep involvement in the derivatives market. And let's not forget the fed - the same regulatory body over these same bankers, who promotes "too big to fail" policies...so long as they have the power to tax...aka, pass the buck along to its citizens!
"People confuse asset deflation with monetary deflation."
Actually, I'd argue that more people fail to see the relationship between them. Why has the Fed been able to massively expand the money supply, and the government been able spend so much without igniting massive inflation? Simple - because so much wealth simply vanished. Wealth is not in M1, or even M3, but it is very much like money in that such assets as stock can be quickly converted to money.
"While the banks caused the problem, they are still refusing to allow it to be fixed, for obvious reasons."
That's just silly. The banks didn't cause the problem, and they can't solve the problem. The banks simply reflect the demographic cycle. When baby boomers were in the 30's and 40's they boomers were borrowing, and that meant credit expansion. Now with booers in their 50's they are trying to get out of debt, meaning credit contraction. Credit contraction will continue because banks can't loan to people that don't want to borrow, or as the old adage is, "you can't push on a string".
The simple fact is that there is no "solution", except waiting for the baby boom that peaked in 1991 to get old enough to drive the next boom cycle. I see that cycle starting in perhaps 2016 or so when they hit 25.
"Gold is reacting to the REAL CPI inflation."
Gold is doing what it always does, reacting to perceptions of future inflation, and reflecting potential future economic turbulence. Back in 1980 gold peaked about two years before the peak in inflation, and then fell hard. Once we get within a few years of the current economic situation getting sorted out, gold will crash hard this time, too. How will we know that we are there? I have no idea, but I do expect that when the time comes, silver will fall harder than gold.
"50 million people will be going to emergency rooms for treatment. That cost will be put on those that have health and employers who are trying to give their employees some benefits."
But my bet is the bulk of it will go on the tax payers who pay for the emergency room service (at least here in CA) and the stupid games played like a $5,000 bill for a $250 worth of stitches and a body with the knowledge to do them.
The other thing to keep an eye on is the cost of oil. China predicts $80 by the end of the year and I think they are 20% too low. All that storage being held offshore in tankers is being drawn down and will be gone by May.
I also think China knows that its window to flood the world with cheap exports is closing as the cost of transporting their stuff gets more expensive. So they have to turn towards themselves more and more.
Stockpiling commodities and using their dullar surplus to pay for it is just plain smart as they turn to trying to please their ever-hungry (not just for food) for-a-better-life-people. They have truly opened Pandora's box when they went capitalistic as they have about 100 million people expecting to join the middle incomers as they graduate from collage each year. Imagine three times the state of California joining the economy every year expecting a better life. Nightmare! Lets hope they are not all libs! LOL
Good analysis Bodium. Heres where the next inflation comes from. Because there won't be a health care bill, it means 50 million people will be going to emergency rooms for treatment. That cost will be put on those that have health and employers who are trying to give their employees some benefits. Employers won't be able to eat all the cost and more and more will be paid out of the employees income. Projections on healthcare cost are anywhere from 10-20% a year. More money taken away from the employee is less disposable income to ignite the economy. If unemployment gets worse than the problem will get worse for the amount of people without healthcare. I think that if the figure gets above 60 million people without insurance, it will become impossible to have employers pay any meaningful amount of their employees heathcare because of the rising costs
U forget about our world of FIAT CURRENCIES! yes we should be overwhelmed by deflation from all this bubbly/excess. We should experience a massive hangover! We will not because the gov'ts of the world CANNOT have deflation!
They will print, print and print again...near term that's the plan. simple plan...
You are alluding to something that is NOT reality, Goldbug! Quite the contrary, the real issue is asset class inflation for PM's, as it will wind up sopping up some of the excess liquidity generated and continues to be generated by the Fed and its printing press. Another interesting watch is another commodity - oil. Oil futures are showing a level of mid-$75/barrel floor, which would mean the sopping-up mechanisms are set at a level of anticipated and continued excess liquidity in the global market. Afterall, the majority of daily business transactions around the globe are energy related...whose transactions are priced in dollars on the NYMEX and IPX. Rule of the empire: No one on earth transacts on a barrel of oil without using dollars! Alas, a continued demand for the greenback floats!
"Rule of the empire: No one on earth transacts on a barrel of oil without using dollars! Alas, a continued demand for the greenback floats! "
That paradigm is cracking apart...unilateral deals have been made in the past year to use alternate means of payment.
See China and Brazil, see middle east.
More of this will likely be happening as the dollar gets weaker over the next year or two.