[threadbare]

Zarlenga gives gold bugs something to chew on in this interview. What do the stoolies think? Is the Austrian school stubbornly limited in its approach to economics?

From Interview:

GNL: Do your views lead to different investment recommendations?

ZAR: Yes. Take the belief gold is a depression/deflation hedge. That overlooks gold did well in the Great Depression because it was officially money -- and its official value was raised from $20.67 to $35 an ounce by law in 1933; while other commodity prices collapsed.
-- and producer hedging -- if gold starts showing real strength over $350.

ZAR: Great example. Silver prices, unprotected by law, fell 68% from $1.38 an ounce in 1919 to 44 cents in 1932. Then, Roosevelt legally raised the price to 65 cents in December 1933, and up to a flexible $1.29 maximum, in June 1934. See the point? Without official support both metals would have been poor hedges, at best.

GNL: So what do you think will happen to gold in the next major recession or depression?

ZAR: Unless the official price is raised, it’ll probably act like a commodity rather than money, and fall. The U.S. price is $44.22. Perhaps more important, the world’s largest depository of gold, the Bank for International Settlements in Switzerland, uses $208 per ounce in its accounting which, I think, may prove to be important downside support. It will be the same basic story for silver.



AND....
"ZAR: Not really. Presently, the gold market looks steady to higher for basic technical reasons, and there's certain to be more big moves in these metals which are, after all strategic for reasons other than monetary (i.e. as a political football). But my point is investors have seriously over emphasized the monetary factor in their supply/demand and price forecasts and you can expect more central bank selling -- and producer hedging -- if gold starts showing real strength over $350.


http://www.monetary....dnewsletter.htm

[Yoshaviah]

What an idiot - many mines are mothballed because it is not profitable to mine even at $350! As the Feed keeps pumping and the dollar loses its value the price of gold will rise. The price of gold is rising because demand exceeds supply by almost 2:1. The banks are leasing, but the price keeps rising anyway because they don't have enough to compensate for the inflation. The bullion banks can no longer make money on the carry trade with the price rising. Look what happened to the Newmont/Yandell operation - they had more gold hedged then there is in the ground!

If gold is worthless then they should set up recycling centers so that it can be properly disposed of.

[Pee Brain]

threadbare, on Jul 5 2003, 09:27 PM, said:

Zarlenga gives gold bugs something to chew on in this interview. What do the stoolies think?  Is the Austrian school stubbornly limited in its approach to economics?

From Interview:


ZAR:   Great example.  Silver prices, unprotected by law, fell 68% from $1.38 an ounce in 1919 to 44 cents in 1932.  Then, Roosevelt legally raised the price to 65 cents in December 1933, and up to a flexible $1.29 maximum, in June 1934.  See the point?  Without official support both metals would have been poor hedges, at best.


http://www.monetary....dnewsletter.htm

switzerland uses $200+/- on their books, so that is support. what if they used $1.50?

gold did well because its was "official money." so, now that its not "official" it will have no value - hey it is a medium of exchange whether it has a $20 stamped on it or not. god, what an asswipe.

without official support.... gee, what about official sabotage and short selling via lease agreements?

look, i read maudlin's article today and it was crap. recently he went to great lengths to argue that the PPT did not exist. now its support for Wimpy inflating, becuase we dont have experience with deflation. and "show us the way Daddy," just tell us the future.

are these guys experts? their arguements make little sense, but then, neither does Wimpy.

[Jorma]

I'm no expert on the Austrian school but as a philosophical matter I hold than no economic 'school' or ideology has a monopoly on truth. No 'system' will save us in the end.

Ideology is a mental straitjacket and the enemy of freedom.

[threadbare]

I just posted this article to see your reaction.

Jorma, Most people can't stand real intellectual freedom, and the ensuuing confusion. Like birds given their freedom after years of captivity, they'll gladly fly back to the security of their cages.

I'm not referring to the response to this article, btw. It's just a general observation.

[Goldmember]

Vesselin, well put. The difference today seems to be that our version of "wait and see" is in a time frame respective of past reactions. Today's "instant gratification" mantra doesn't seem to fit the "patience" required for the moves to play out. Most want to see 90's tech stock "reaction time", and now Californication unReal Estate, preferably waterfront.

....Time, is different now, though "Time" as gold knows it is still perfectly on track. Most investors will miss it completely because it seems they would rather chase "gratify me now" speculations they have become conditioned and accustomed to, like tech stocks.

....gold lurks in the background, waiting, patiently, for the inevitable....


Caveat emptor: gold, or at least gold stocks, do not look good for the immediate near term. Gold miners will be sold with most other stocks, unfortunately. However, profits from short-selling tech crap can certainly be re-allocated to buy gold stocks when they are cheap again. Just my take on things.

[threadbare]

Thanks guys. I think from reading what you all have to say about gold, inflation and deflation over the last year, that gold should go up. --Can't see how it could be any other way. Gold has never been viewed as just another commodity, so it seems in times of economic crisis, if there is hyper-inflation, or even just extreme inflation, people want to hold something. I think raw, cheap land will appreciate too, even as the real estate asset bubble loses air, as people struggle to grab onto tangibles.

Apparently in fuedal times, the lords and ladies swapped land back and forth as well as gold, and I think we are returning to those times, in some ways.

[mjkst27]

Just finished Richard Duncan's book The Dollar Crisis, which does a fantastic job of explaining how the world's economic troubles at this time boil down to the huge US trade imbalance. The US c/a deficit has flooded the world with reserve dollars which has touched off boom growth everywhere and now we face the bust on a global scale. In his "Cures" segment of the book, he talks about how rebalancing world central bank reserves might be done. Long story short, he doesn't see gold as part of that process. Basically, if nations want to get trade back in balance, he seems to think they'll just agree to some rules of some sort, but not return to an actual gold standard. I can only imagine gold would suffer greatly in price if such an agreement came to pass. Gold would be considered dead and buried at that point, in the eyes of the monetary rulemakers. Full Disclosure, I own gold, as I don't think things will go that smoothly.

[Yoshaviah]

Let me get my two cents in here.

Deflationary periods are the natural order because as population increases the demand for money increases and prices fall. Thus, the purchasing power of money increases to restore equilibrium between more people and more products. But this is only true if the money supply is held constant, which it is not. The function of the Fed is to increase the money supply. It is the job of the Fed is to fight deflation by increasing the money supply. This is against the natural order. As population increases and the purchasing power of money decreases (on account of the Fed increasing the money supply) everyone losses purchasing power, which is seen in price inflation. But the Fed wants to control the inflation, it does not want to increase it too much at one time or else money will lose value too fast. In free markets the price of gold cannot fall so long as the Fed increases the money supply at a rate sufficient to compensate for the increase in the supply of gold, which arises due to an increase in the demand for gold from a growing population. In the absence of inflation the only way the price of gold can fall is through an increase in the supply of gold or a decrease in its demand.

In free markets as interest rates rise the price of gold falls as a consequence of reduced demand. A decrease in interest rates causes the price of gold to rise due to increased demand. Hence, the axiom, "gold moves inversely to interest rates." And this is why the Fed, in a manipulated market, has to add to the supply of gold through leasing when it cuts rates or when it bails out a big hedge fund like LTCM or a country like Mexico. Any sizable increase in the money supply causes an increase in the price of gold. Thus, rate cuts make money cheaper and require the Fed to add gold to the market to hide the inflation from bond dealers. If bond dealers see the price of gold rising they will demand higher interest rates. The Fed knows this too, which is why it eliminated the 30-year bond and has begun to buy up bonds at the long end to control interest rates and reduce the spread between the long and the short end. But rates at the short end continue to fall as nature continues to assert its influence.

The Fed must always present some paper-based asset as an alternative to gold by keeping the price of that asset higher than the price of gold. On the international scene the Euro and US bonds have been offered as alternatives to gold. At the domestic level asset-backed paper in real estate is promoted. Stock markets are also propped up in an effort to hide the debasement of the currency. But fiat money is debt and a tax on future earnings. So when the present population can no longer carry its debt-based burden the economy will implode into a black hole of deflation if the Fed fails to inflate, and if it does continue to inflate the economy will explode into a hyper-inflationary spiral.

Thus gold is the barometer of inflation. It measures increases in the money supply. It reports all hidden taxation through inflation in the money supply, which is why bankers hate it. It exposes them for the thieves they are. Gold knows no fear of government. It is natural money, God given, and not subject to debasement through over issuance. It has intrinsic value and does not promote its usage through force by decree.

At the present time central banks continue to fight the natural order through gold dishoarding and derivative schemes in an effort to keep growing populations confined within their paper-walled prison of debt. Central banks also finance wars to reduce the demand for gold simply by reducing population growth rates. Those countries that have gold or that can demand gold in exchange for oil are attacked economically or labeled as terrorist regimes and attacked militarily. For some strange reason there is also a disproportionate outbreak in plaques and diseases in such countries as well. Note also that the arms trade is never eliminated, but rather controlled, so that inferior countries are always armed with outdated weapons, making them no match for the superior fiat powers when the time is right for a war.

[mksloth]

Yoshaviah, on Jul 6 2003, 12:47 PM, said:

Deflationary periods are the natural order because as population increases the demand for money increases and prices fall. Thus, the purchasing power of money increases to restore equilibrium between more people and more products. But this is only true if the money supply is held constant, which it is not.

Yosh,

I'm confused by your first assertion of prices falling because of an increase in demand for money. It's clear that population growth does induce an increase in demand for money. This is not deflationary in and of itself. Doesn't it also induce an increase in demand for goods and services?

To my mind, it is deflationary only if money supply grows faster than the demand for money and/or the value of goods and services grows at a smaller rate than the difference between money growth and population/demand growth. Somehow, this theory doesn't seem to apply to my plumber though. He manages to increase his rates signficantly beyond inflation for essentially the same service. Or maybe it does

[Yoshaviah]

mksloth, on Jul 6 2003, 07:05 PM, said:

Yosh,

I'm confused by your first assertion of prices falling because of an increase in demand for money. It's clear that population growth does induce an increase in demand for money.  This is not deflationary in and of itself. Doesn't it also induce an increase in demand for goods and services?

To my mind, it is deflationary only if money supply grows faster than the demand for money and/or the value of goods and services grows at a smaller rate than the difference between money growth and population/demand growth. Somehow, this theory doesn't seem to apply to my plumber though.  He manages to increase his rates signficantly beyond inflation for essentially the same service. Or maybe it does  

mksloth,

If the money supply is constant and the population increases and with that increase there is an increase in the supply and demand for goods and services then prices will fall as the purchasing power of money increases. So to my way of thinking (which isn't always right) an increase in the population without any increase in the money supply forces price deflation. I fail to see where such a situation is undesirable unless one is a banker.

I assume we are taking about price deflation and not monetary deflation. It is possible for asset prices to fall (like housing) if they are supported by credit money, while the price of services and commodities rise as the money supply is increased beyond the demand. The Feed can pump money, but it can't always control where it goes.

Bont, you have a point there. Maybe I should be a little more objective in my subjectivity, or maybe I should be a little more subjective in my objectivity

[mksloth]

Yoshaviah, on Jul 6 2003, 04:46 PM, said:

mksloth,

If the money supply is constant and the population increases and with that increase there is an increase in the supply and demand for goods and services then prices will fall as the purchasing power of money increases. So to my way of thinking (which isn't always right) an increase in the population without any increase in the money supply forces price deflation. I fail to see where such a situation is undesirable unless one is a banker.

I assume we are taking about price deflation and not monetary deflation. It is possible for asset prices to fall (like housing) if they are supported by credit money, while the price of services and commodities rise as the money supply is increased beyond the demand. The Feed can pump money, but it can't always control where it goes.

Bont, you have a point there. Maybe I should be a little more objective in my subjectivity, or maybe I should be a little more subjective in my objectivity

Yosh, I almost see your point, but am not quite there. Maybe I'm confused by assuming that your use of "deflation" means that the household or other spending entity somehow manages to keep more money after having spent on the same amount of goods/services per unit time. But your example of a constant money supply and increasing population does not, to my mind, support a deflationary effect on those goods/services. Granted, the purchasing power of an individual's money will increase, but, by the same token, that (or the average) individual is also going to getting a smaller income. While there might be a local imbalance between income not having caught up with deflated prices, it wouldn't be a long standing thing. So, it would appear that the net effect would be a sort of status quo that existed prior to the hockey stick increase in population etc. Sort of like going to Italy and having everybody lop off the last 0 in their accounts/price lists.... I'm assuming that money in this context is just a medium of exchange.

In any case, if the above seems muddled, then it's an accurate reflection of the contents of my head...

I agree with your point about the Fed being unable to direct its pumped money to its preferred targets. In the intermediate term, assuming that the barriers to providing those inflated services are not that high (ie, not regulated etc), their supply would rise to meet demand. So, yes, I can look forward to competing plumbers - just hasn't happened yet

[Howl]

bontchev, on Jul 6 2003, 09:42 AM, said:

For more information, see this paper.

The words "Sun Valley Gold Company" at the top of all the pages, make me cautious as to the neutrality of the source. It's a bit like an in-depth economic analysis of the possiblities of the internet from a company with a bull in its logo.