Australian Money Forum

[Miller]

I think it's the most crucial question today. Those who guess right will go through all this OK. Those who not might lose everything. I came from the country that had come through a severe inflation (2500%). Millions of people lost all their savings almost overnight... So to me personally inflation seems a more probable option - I didn't try deflation so I am not sure if it exists

In the current situation the facts and events look controversial to me: Central Banks dump Billions and Billions and more Billions into economies. I always thought if a CB prints money it causes inflation.

At the same time, all news channel talk about recession and even possible depression... Central Banks low the rates. Companies lay off hundreds of thousand of people. Commodities prices tumble. So do stock markets. Even gold - always a safe haven - went down 30%. So everything is pointing to deflation.

But how can it be accompanied by Trillions of fresh printed money??? I am not too good at theoretical economic questions so would greatly appreciate if someone could shed some light on this riddle please.

If you came across an article or a blog post on the subject please share the link here.

[wulfgar]

Please Miller. Wulfie that mountain of infinite wisdom, laid down the score on this almost two years ago!

Deflation, deflation, deflation!

The world market is now like a dry sponge. They can print dollars like pouring water into a sponge. Yet the sponge soaks it all up and doesn't expand.

They could triple the currency in circulation and still have no effect. It's like winding a clock with a broken spring.

This is the market, where every dollar you get. Simply place in a shoe box under your bed. Because you and it, ain't going anywhere!

[Stucke]

Miller, I am just curious, what country are you from? 2500% inflation?! That sounds like an apocalypsis.

[Miller]

Stucke,

2500% was in Russia. In 1990s.

It's not that bad actualy. In Zimbabwe it's 2,200,000% nowadays...

Wulfgar,

If you think there will be a deflation why do you evangelize gold? Doesn't gold depreciate greatly during depression/deflation?

[spikegomez]

I think it's the most crucial question today. Those who guess right will go through all this OK. Those who not might lose everything. I came from the country that had come through a severe inflation (2500%). Millions of people lost all their savings almost overnight... So to me personally inflation seems a more probable option - I didn't try deflation so I am not sure if it exists

In the current situation the facts and events look controversial to me: Central Banks dump Billions and Billions and more Billions into economies. I always thought if a CB prints money it causes inflation.

At the same time, all news channel talk about recession and even possible depression... Central Banks low the rates. Companies lay off hundreds of thousand of people. Commodities prices tumble. So do stock markets. Even gold - always a safe haven - went down 30%. So everything is pointing to deflation.

But how can it be accompanied by Trillions of fresh printed money??? I am not too good at theoretical economic questions so would greatly appreciate if someone could shed some light on this riddle please.

If you came across an article or a blog post on the subject please share the link here.

This is a great post interesting topic eh...

[wulfgar]

f you think there will be a deflation why do you evangelize gold? Doesn't gold depreciate greatly during depression/deflation?

Deflation is the mass liquidation of debt arrangements. Junk Bonds, CDO's, commercial paper and such forth. Against all this, gold maintains its liquidity.

Gold won't rise in the extreme dollar terms of the 70's. But it will still get the purchase power.

We say money gains value during a deflation. Not quite true. Because the debt instruments used in place of currencies. That acted as money, have dived.

It becomes the question, of the real currency step forward and everything else dives against it. This can happen even to popular currencies like the Greenback.
What does happen, is real capital becomes more expensive. But currency is used to represent real capital, it is not the thing itself!

[wulfgar]

It is regarded as a bit of mystery. We can easily see why commodities rise with monetary inflation. More dollars chasing a set amount of resources. Gold being a commodity does like wise.
The mystery is why gold rises also in deflation. This doesn't happen to most other precious metals. The rest have fallen through the floor. Platinum, palladium, Rhodium and so on.
Gold has a monetary status. Possibly silver is semi monetary.

There is some complex market mechanism that causes investors to pour into gold during a deflation. Jewelery demand which is commodity based, can fall along with deflation of the money supply. But as we are now seeing, this doesn't stop investors. They want more gold the worse the deflation gets. Not less!

This seems linked to interest rates and the yield on bonds. As interest rates dive, investor demand for gold increases.

Volcker killed the 1980 gold bull, by introducing draconian prime interest rates. The like of which hadn't been seen in modern western history with a world reserve currency.

Gold will simply keep rising in price as interest rates fall. And general deflation of the monetary supply cannot stop it. This goes on for long enough and gold will displace fiat currency.