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It's all relative of course. Other countries are also deep in debt. The UK is beginning to be compared to Greece.

In the near to medium term, $US assets receive flight capital. China may continue to have excellent long-term prospects, but the Yuan is not convertible.

You can buy gold and silver, but there is no current return. If short-term inteerst rates were to increase, would the gold bubble be burst?

The Euro started out at $1.19 plus Govzilla puts a 28% tax on the appreciation on gold or silver because they are considered collectables. You are most likely correct about potential debasement as it is the most cowardly way and we know what cowards our leaders are.

Simple, Fred: US pennies. Yes, yes, everyone laughs, but being one of the tiny handful of entrepreneurs who knows how to do it (http://www.tylerawatts.com/uploads/Arbitrage_and_Knowledge8.pdf), it should only take a year or two of galloping inflation for this to become really profitable.

What Jerry said. It should be kept in mind that we have seen bubbles in gold before. The most dramatic one in recent memory was in the late 1970s, when the price got above $800 an ounce. It fell hard later down to the $200-300 range that is reasonable for the industrial and jewelry uses it has, and where it stayed for about two decades. It should also be kept in mind that in contrast with our current situation, there was actual high inflation back in the 1970s. This could easily prove to be a fool's gold situation.

I tend to disagree.

As a European I think that Europe is a much worse bet for the long-run.

The bailout of Greece is a very bad sign, because it shows other countries that they can be bailed out. So, they can abuse their finances and hope that bailout will come.

Ireland, Portugal, and Italy should all be compared to Greece. Britain isn't far behind.

The situation of Japan is very hard to judge. But, I think that Japan's trade surplus doesn't defend it to the extent that many believe.

I agree that it is relative and the US may still be in a better position than most. To my knowledge gold bubbles have generally occurred in response to some inflationary policies. It is true that the current level of interest rates doesn't make the USD an attractive destination for foreign currency holders, but this situation could change if rates were to increase and the USD could strengthen (although it started losing ground even when the rates were higher).

It is still the case, however, that the Fed's balance sheet has grown tremendously in the last few years and this parallels the rise of the gold ounce. Economists have debated why there is no price inflation if more USD are chasing fewer goods. I think the response lies in the fact that inflation expectations play a huge role, and they are still low as far as the USD is concerned. Consumers in the US and others in the world do not think the US government would let its currency go. China plays an important role here. Its official position is one of perfect loyalty to the USD. Bond markets know this and price this accordingly. Yet, the Chinese government is also selling green backs to buy other currencies and assets such as gold. If the Chinese government were to change its mind regarding the use of the USD, expectations would adjust to the underlying reality and the risk of inflation would then become much much clearer. I think it is a major issue for the next decade. For now, China and India still think it is worth using the green back, we'll see how long it lasts.

Finally, I think I have seen figures on this but I can't remember the exact details. The idea is that there is still some long way to go before the current gold price reaches the same level in real terms as that of the 1970s. If that's the case, there is no reason why the gold ounce won't reach $2,000 in the next, say, 5 years.

ALL paper currencies (there may be some smaller country that does not fit
> this description) are in the death spiral of the race to the bottom. The US
> is paradoxically the 'flight to safety' currency while being one of the most
> egregious inflationist (in the proper use of the term as a 'superfluous USD
> issuer.')
>
> Fact is there are too many USDs in the global economic system today; and
> obviously trillions more are on their way. China is the perfect example of
> the mercantilist controlled economy that traded their domestically produced
> goods for US green paper. I have seen comments from respected folks who are
> seeing China make all the 'right' statements regarding their loyalty to the
> USD while selling them into the market directly and also using our green
> paper to trade for hard assets, including GOLD.
>
> 'No current return' alludes to GOLD's lack of a dividend or interest
> payment. GOLD has appreciated 400% over the past 10 years--which I will
> classify as a huge current return upon which I have not paid any tax.
>
> Bottom line for me is that the world is not in the midst of some 'tempest in
> a tea pot;' this is the real deal--survival! I cannot describe specific
> details of our future struggle; however it turns out, I want to hold the
> universal currency of the ages--GOLD.
>
> ED

What is the transmission mechanism for a monetary expansion?

For those who think monetary policy can be analogized to helicopter drop of cash, easy money translates into higher goods prices. Ergo, if the price of consumer goods isn't increasing, then monetary policy isn't easy.

The alternative view is that monetary expansion can work first through asset prices. These are excluded from conventional measures of inflation. But that doesn't mean prices are not increasing.

So where is the bubble in the face of the expanding monetary base and low interest rates? How about real estate in Asia, whose purchase is being financed through the carry trade of borrowing cheap dollars? Or the commodity boom discussed above?

How long before this translates into offical inflation? It took most of the last boom before that happened. Your guess, ah, forecast is as good as mine.

Jerry,

No helicopter money drops, no higher goods prices, and no transmission mechanism.

FED inflating the M supply into the Bates Motel banking system where the M never checks out into the economy.

Endemic leveraged debt losses suck every bit of M put into the banking system in a futile attempt to cover their present and future loan losses.

This Credit Collapse kills the economy.

Depression ensues. Ed

Something to keep in mind here also besides the absence of obvious price inflation, even if there are real estate bubbles in Asia and other places, is that ultimately gold is still a commodity and its price in dollars (and other currencies; there seem to be two issues going on here: gold against all currencies, and the dollar against other currencies) is likely to correlate with movements of other commodities, despite its occasional historical role (which was much less than most understand).

So, remember that lots of people here are big fans of the late Julian Simon and his winning his famous bet in 1980 with Paul Ehrlich about the path of commodity prices in the 1980s. Ehrlich said they would go up; Simon said they would go down, and Simon was right.

We have seen a peak in pretty much all other commodities besides gold back in 2008, think oil in particular. Now gold did decline with the others in late 2008, but it has gone back up much more than the others since after not dropping nearly as much. Oil went from $147 per barrel to $32 per barrel in about six months. It is now back up to $80 per barrel, while oil is up to nearly its highest level ever. I think what happens with oil will be more important to what happens to gold than anything else; it is the fundamental driver, and its price decline in the 1980s is why Simon won his bet.

So, will Chinese demand increase sufficiently to push the price of oil up? Or will the coming increase in output from Iraq push it back down, possibly back down into the $20-30 per barrel range that it was for many years not all that long ago? If the latter, expect the price of gold to collapse, and collapse hard.

Meant to say in line 6 of paragraph 3 that "gold is up to nearly its hiest level ever," not oil.

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No helicopter money drops, no higher goods prices, and no transmission mechanism.

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