While I agree that silver appears overbought on a technical basis longer term we are nowhere near bubble valuations. Institutional money is nowhere near the levels they are in silver as they are in other asset classes. In addition, ask older people that you meet if they have any holdings. You will be surprised how few people are in the PM game.
Conservatives like to compare the US debt to post WWI Germany, but um, there's a really big difference in paying your currency in pieces of paper that basically say, "Yeah, we have an army, and there are a lot of us, so we'll honor this." Or, in contrast, trying to dig enough metal out of the ground to cover your debts. Germany tried and failed. We, by contrast, can always just raise taxes.
What I'm saying is that I really, really, really think this metal bug thing is just a bubble, and misguided in economic principles, but I also think you're very smart. So, reasonable people disagree, I guess.
Money goes into commodities / metals when people are worried about a potential crash
When crash happens, totally different story. Look at oil in 2008. 140 to 35. Explain that one with supply and demand or peak oil.
Liz is right for another reason. US has insane levels of personal debt that did not exist in Zimbabwe and Weimar.
Using common sense and standard pessimism, there is no chance in hell the US will see hyper inflation. Do you really think Sallie Mae or Chase is going to let your debt evaporate? The house always wins.
Based on the comments its obvious that this crowd is bearish on the metals. At the same time I think its fair to say that the majority of my readers get their information and facts from "mainstream" sources.
For the record, I get most of my information from markets themselves and analysts that are not considered "mainstream" at all. For example, I am a paid subscriber to Chris Martenson's news letters. While mainstream analysts were trashing gold and silver 2 years ago I was buying with both hands while my advisers were doing the same. I believe gold has been getting trashed as a bubble even at the lowly price of $500. Silver is going berzerk right now as there is speculation of a comex default and a epic short squeeze taking place. Many are expecting a correction as this price movement cannot be explained by technical and fundamental reasons.
Liz and others, have you ever considered the possibility that fiat currency, specifically the US dollar, is in a bubble? Its a bizarre thought because we all think in terms of dollars but what if it is dollars that are overvalued against commodities and goods and services?
Prior to 1913, there was no central bank in the US. In fact, there was no central bank from 1832-1913. Did it make a difference? Not really. The central bankers / elite still controlled the majority of gold and money supply via control of railroads and production.
Real dollars are not overvalued because the overwhelming majority of the money supply has been collapsing since its based on credit. I still think we could print a trillion dollars and there would still be deflation once interest rates go up. Just my opinion
The fed has already created more than a trillion dollars as its balance sheet has quadrupled from $800 billion pre crisis to $2.6 trillion today. while excess reserves parked at the fed are at a record $1.2 trillion, it is the federal government that is introducing the money into the system. Think about all the social security checks that fly out every month and how much of that money is spent by retirees. That is inflationary. Defense spending? Inflationary. The pundits never discuss this fact.
To cover your point about broader monetary aggregates contracting, while it is true that there are deflationary pressures in big ticket items (cars and houses) there are inflationary pressures in the things we need (oil, food, healthcare, tuition). Rising interest rates in the future will only further put a dent into housing values but will have little to no effect on every day goods.
Consider that there is a finite supply of food and gas, but demand can be increased by issuing more currency units. What the government is doing with its welfare policies (SSI, Medicare, defense, other spending) is creating artificial demand thereby affecting supply of goods. It is shifting over the demand curve. Put simply, where Americans, due to their output, are entitled to a certain amount of goods, the government is artifically increasing their amount due by creating money. This is inflationary. 10 apples and 10 dollars = $1 per apple. 10 apples and $20 = $2 per apple. A simple illustration.
One more thing I would like to add. There is a big difference inflation and hyperinflation. Inflation occurs when there is too much money chasing too few goods. Hyperinflation occurs when there is a total loss of faith in the currency. With over $7 trillion held overseas, there is always the risk that foreigners will lose faith in the dollar due to our profligate spending and high levels of debt.
To the extent the Fed is artificially keeping interest rates low that clearly contributes to rising prices in markets. But the money supply has been collapsing. Look at rates of M3 over the last 3 years
Losing faith in the dollar does not equal hyperinflation. It is a rare event that is typically never predicted. You are talking about it likes its inevitable.
Of course speculators are a cause of commodity markets going higher, but not the primary cause.
And M3 is no longer collapsing. In fact, its on its way up again.
http://www.nowandfutures.com/key_stats.html
With regards to hyperinfaltion you said:
"You are talking about it likes its inevitable"
If we keep burning through deficits like the way we are now hyperinflation will be inevitable. If deficit spending and debt monetization make a country so prosperous, then why work at all? Lets just let the printing presses do the work for us.
Hyperinflation is a disorderly economic progression that leads to complete psychological rejection of the sovereign currency.
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bubble. Institutional money driving prices up. Speculation of future speculation driving prices up.
ReplyDeleteNo different than housing :)
No different than housing except you can bury the silverware until the barbarians pass through the county and rebuild the plantation.
ReplyDeleteWhile I agree that silver appears overbought on a technical basis longer term we are nowhere near bubble valuations. Institutional money is nowhere near the levels they are in silver as they are in other asset classes. In addition, ask older people that you meet if they have any holdings. You will be surprised how few people are in the PM game.
ReplyDeletehttp://www.cepr.net/index.php/blogs/cepr-blog/sap-warns-treasury-about-debt-burden-fun-with-debt-downgrades
ReplyDeleteConservatives like to compare the US debt to post WWI Germany, but um, there's a really big difference in paying your currency in pieces of paper that basically say, "Yeah, we have an army, and there are a lot of us, so we'll honor this." Or, in contrast, trying to dig enough metal out of the ground to cover your debts. Germany tried and failed. We, by contrast, can always just raise taxes.
What I'm saying is that I really, really, really think this metal bug thing is just a bubble, and misguided in economic principles, but I also think you're very smart. So, reasonable people disagree, I guess.
Money goes into commodities / metals when people are worried about a potential crash
ReplyDeleteWhen crash happens, totally different story. Look at oil in 2008. 140 to 35. Explain that one with supply and demand or peak oil.
Liz is right for another reason. US has insane levels of personal debt that did not exist in Zimbabwe and Weimar.
Using common sense and standard pessimism, there is no chance in hell the US will see hyper inflation. Do you really think Sallie Mae or Chase is going to let your debt evaporate? The house always wins.
Cash is King
Based on the comments its obvious that this crowd is bearish on the metals. At the same time I think its fair to say that the majority of my readers get their information and facts from "mainstream" sources.
ReplyDeleteFor the record, I get most of my information from markets themselves and analysts that are not considered "mainstream" at all. For example, I am a paid subscriber to Chris Martenson's news letters. While mainstream analysts were trashing gold and silver 2 years ago I was buying with both hands while my advisers were doing the same. I believe gold has been getting trashed as a bubble even at the lowly price of $500. Silver is going berzerk right now as there is speculation of a comex default and a epic short squeeze taking place. Many are expecting a correction as this price movement cannot be explained by technical and fundamental reasons.
Liz and others, have you ever considered the possibility that fiat currency, specifically the US dollar, is in a bubble? Its a bizarre thought because we all think in terms of dollars but what if it is dollars that are overvalued against commodities and goods and services?
Prior to 1913, there was no central bank in the US. In fact, there was no central bank from 1832-1913. Did it make a difference? Not really. The central bankers / elite still controlled the majority of gold and money supply via control of railroads and production.
ReplyDeleteReal dollars are not overvalued because the overwhelming majority of the money supply has been collapsing since its based on credit. I still think we could print a trillion dollars and there would still be deflation once interest rates go up. Just my opinion
Dan,
ReplyDeleteThe fed has already created more than a trillion dollars as its balance sheet has quadrupled from $800 billion pre crisis to $2.6 trillion today. while excess reserves parked at the fed are at a record $1.2 trillion, it is the federal government that is introducing the money into the system. Think about all the social security checks that fly out every month and how much of that money is spent by retirees. That is inflationary. Defense spending? Inflationary. The pundits never discuss this fact.
To cover your point about broader monetary aggregates contracting, while it is true that there are deflationary pressures in big ticket items (cars and houses) there are inflationary pressures in the things we need (oil, food, healthcare, tuition). Rising interest rates in the future will only further put a dent into housing values but will have little to no effect on every day goods.
Consider that there is a finite supply of food and gas, but demand can be increased by issuing more currency units. What the government is doing with its welfare policies (SSI, Medicare, defense, other spending) is creating artificial demand thereby affecting supply of goods. It is shifting over the demand curve. Put simply, where Americans, due to their output, are entitled to a certain amount of goods, the government is artifically increasing their amount due by creating money. This is inflationary. 10 apples and 10 dollars = $1 per apple. 10 apples and $20 = $2 per apple. A simple illustration.
One more thing I would like to add. There is a big difference inflation and hyperinflation. Inflation occurs when there is too much money chasing too few goods. Hyperinflation occurs when there is a total loss of faith in the currency. With over $7 trillion held overseas, there is always the risk that foreigners will lose faith in the dollar due to our profligate spending and high levels of debt.
I totally disagree with your simple inflation calculations.
ReplyDeleteFood and Oil are increasing because of naked speculation and NOT simple supply and demand.
http://hsgac.senate.gov/public/_files/052008Masters.pdf
To the extent the Fed is artificially keeping interest rates low that clearly contributes to rising prices in markets. But the money supply has been collapsing. Look at rates of M3 over the last 3 years
Losing faith in the dollar does not equal hyperinflation. It is a rare event that is typically never predicted. You are talking about it likes its inevitable.
Of course speculators are a cause of commodity markets going higher, but not the primary cause.
ReplyDeleteAnd M3 is no longer collapsing. In fact, its on its way up again.
http://www.nowandfutures.com/key_stats.html
With regards to hyperinfaltion you said:
"You are talking about it likes its inevitable"
If we keep burning through deficits like the way we are now hyperinflation will be inevitable. If deficit spending and debt monetization make a country so prosperous, then why work at all? Lets just let the printing presses do the work for us.
Hyperinflation is a disorderly economic progression that leads to complete psychological rejection of the sovereign currency.
Read more: http://www.businessinsider.com/the-truth-about-hyperinflation-its-more-than-just-a-monetary-phenomenon-2011-3#ixzz1KJ6pJeFo
Good point on M3. Still think if interest rates go up deflationary spiral begins
ReplyDeleteMajor points you arent considering re hyperinflation:
1) Power to tax will remain. Massive tax evasion would be needed. Highly unlikely
2) Size of our army. You think we are going to take losing our reserve currency status lying down?
3) The size of personal debt in our country is massive. Unique in modern history.
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ReplyDelete