Comments on Market Skeptics: Euro Is Not Going To Crash

An excellent post!If the monetary authority choose...

2009-03-21T10:52:00.000-07:00

An excellent post!

If the monetary authority chooses to monetize a country’s national debt, its banks’ bad loans, or the savings of depositors at failed banks, then that country will experience hyperinflation

My only question here is:

Does this happen for sure? Does it not assume that stimulus leads to demand and therefore hyperinflation?

I have my reservations because I feel when there are job losses, depletion of wealth and wounded buyer psyche, it is unlikely to create demand whatever the persuation...

The government should provide credit? Wow... I j...

2009-03-02T05:28:00.000-08:00

The government should provide credit? Wow... I just cannot understand people who think the government is good and wonderful. "Government is the essentially the negation of liberty."

Again I think the free market will work everything...

2009-03-01T22:00:00.000-08:00

Again I think the free market will work everything out.

Regaurdless who owns the mining companies, those people who own them have to eat and need/want things. The gold they mine will be given to those who provide other services and goods. Those people providing services and goods could accumulate enough gold/silver to start their own mining company and more silver/gold will be produced.

"Sure, the producers who search for the au/ag might be the ones who turn up 'getting it' - but the 'investment' has to come from someone. "

The investment will be coming from allot of people as people try to protect themselves from rising prices in the US dollar and other paper currencies riddled with debt and trade deficits.

The rise in price of silver/gold will lead to more mining of the metals.

If silver/gold became too rare that would mean standards of living would be high along with the production and overabundance of goods.

We are no where near there right now. So even though I believe the the prices of things will rise dramatically in relation to the US dollar(because of the massive debt and trade deficit), I don't think the price of things will fall dramatically in relation to the price of gold/silver. We'd have to do allot more producing of other things before we can say silver/gold is too rare. But the prices of things will indeed be falling in relation to gold/silver because of the rush to gold/silver to store wealth but it won't be as dramatic as leading people to say/feel gold/silver is too rare because allot of nations are experiencing trade deficits and poor manufacturing not to mention the droughts. If the price of things ever becomes to cheap in relation to gold/silver that would mean we'd have an abundance of those things. Especially since we use such small amounts of silver for industrial use even though we use it more than gold. Silver has very important properties but it doesn't take much to produce allot. And if we have an abundance of things, people wouldn't have to work so hard, we could take it easy, consume a little more, give more and let the free market work it out and bring back equillibrium. But right now in relation to things in the world, I don't think silver/gold is too rare. It's allot more rare than the paper money out there and this is incentive to get silver/gold. So people will be doing what they can to get it. That means producing more goods and services.

I don't think it will be possible to say silver/gold is too rare while economies are suffering like they are now with poor manufacturing. The gold/silver will be valued against other things and if those other things are almost as rare, then gold/silver won't be as rare as you think, although it will be a heck of allot better than any paper currency. Gold and Silver will only be too rare when economies have over produced other things because gold/silver will be priced in relation to those other things.

And besides there are other metals like Copper which are more abundant.

Anyway I'm not looking for a standard, like I said the money should be in a free market. I'm just thinking of the now. And right now if you want to protect your wealth silver and gold is the way to go. Maybe in the next century it will be platinum and palladium, who knows. All I know is you should be holding something that stores value and can be used as currency. Gold/silver still look good to me.

Numonic,Again, I just don't think that notion can ...

2009-03-01T18:52:00.000-08:00

Numonic,

Again, I just don't think that notion can hold water.

Sure, the producers who search for the au/ag might be the ones who turn up 'getting it' - but the 'investment' has to come from someone.

Considering who owns most of the gold mining companies to begin with...

America was the exception, and she was abundant in silver but not in gold (not at the start) - silver could easily be a sound monetary unit of measurement, but again it too can become exceedingly rare if over consumed - it does have many many many more applications then gold in industrial uses as well as civilian and etc.

Again, I am of the Carey / Lincoln believers in that government should be the issuer of credit and not some foreign entity who uses interest to clobber us with impossible to pay loans..

(techincally by civil law, all impossible contracts are null and void.)

Another funny thing. I always knew from months of...

2009-03-01T12:53:00.000-08:00

Another funny thing. I always knew from months of research that silver was more rare than gold, until Jason Hommel (the ultimate silver bug) gave a reason for silver being better used as money than gold because of gold being too rare. I don't know, all i know is that silver and gold will be more valuable and if you want to protect your wealth grab some silver/gold.

Great comments, however, there is less silver abov...

2009-03-01T07:23:00.000-08:00

Great comments, however, there is less silver above ground than gold; something to think about.

It's funny because I just had an email conversatio...

2009-02-28T23:28:00.000-08:00

It's funny because I just had an email conversation with Jason Hommel of silverstockreport.com and he basically speaks of the deflationary effect of gold and why gold isn't/will not be as good as silver as money because gold is/will be too rare.

I don't know of these banksters you speak of as I'm assuming Fractional Reserve Banking or lending in general will no longer be going on. That means no more banks holding people's money. People will be holding their money themselves in their own safe boxes.

A return to gold/silver as money will be the end for bankers, so the banksters you speak of won't have anymore access to the gold/silver as the next man and that will be by working for it. Unless you're speaking of the Central Banks who still have gold in their vaults which is practically none. The gold/silver albeit a very small supply is in the hands of people, or at least will be as the gold/silver rush picks up because of hyperinflationary rising prices on everything.

Or you were probably assuming I meant going back to a gold/silver certificate style gold/silver standard. I was not. I am talking about cold hard metal being circulated and nothing more/No paper or even paper redeemable for the physical gold/silver. That means no more lending. If you give your gold/silver to someone to hold consider it theirs.

As far as producing gold and silver check out the video I posted of what they are doing in Zimbabwe because that's how the silver/gold will be produced. The people will produce it. Those who own the tools to produce/dig for gold/silver the best will be the ones who own the gold and they will give it to people for goods and services. These people will get the gold/silver for their goods and services and they can accumulate enough gold to buy machinary/tools needed for digging/producing gold themselves. Plus when prices of gold and silver rise there will be more incentive to find more and produce more goods and work more to get this gold/silver. Economies will be booming. But most of all gold/silver will be in a free market so if the value of gold is too high or gold is too rare for circulation, people will move to the lesser rare precious metal(silver) and if the same happens to that metal, people will move back to gold or to platinum/palladium or copper. The fact is the free market is always working even when we think it isn't.

Numonic,I hate to butt heads here, but the notion ...

2009-02-28T15:18:00.000-08:00

Numonic,

I hate to butt heads here, but the notion that we should move back to a gold and silver standard is a bad idea.

As Ben Franklin pointed out, 'money' can be 'anything' as long as the production keeps pace with the demand / consumption.

For one, the banksters who use interest (that always compounds and always out paces the initial principle) will acquire all of the au/ag after several years of tribute payments.

Tally this in with huge shortages on au/ag not just for industrial purposes, but for domestic use as a currency is even worse in my opinion, as the cost to produce and to supply the 'commodity' will continue to apply downward (deflation) preasure on everything else purchased with it (au/ag) as au/ag become increasingly rare as money shifts out of circulation and into private bankster accounts.

I just can't see the benefits of going back to a au/ag standard, although it denies inflating the currency via minipulation, it still doesn't correct the deflationary effects attributed to using the 'sound' money to begin with.

People seem to forget that the clause in the US Constitution that states the Government can only 'Coin or Borrow and regulate the value thereof' left the door open for the banksters to establish the modern day babylon banking / commerce system...

And as you see, this is where it has lead us.

Will the Canadian dollar follow the greenback

2009-02-28T09:34:00.000-08:00

Will the Canadian dollar follow the greenback

Logical Hyperinflationist Rebuttal

2009-02-22T21:17:00.000-08:00

Logical Hyperinflationist Rebuttal

There is no way the US is going to default on its ...

2009-02-22T07:00:00.000-08:00

There is no way the US is going to default on its debt. No way whatsover. They will monetize their way to oblivion, or start another war(s) for any number of reasons.
With more and more countries turning to Protectionism, The US will have no choice but to take what is "rightfully" theirs.

With all this "watering down of our whiskey", I wonder how long before we have food prices reaching unbelievable heights....6 months? 18 months? Who knows? Have you seen the price of bread recently?

As far as when we will start seeing rediculously h...

2009-02-21T14:50:00.000-08:00

As far as when we will start seeing rediculously high prices, i can't say exactly but i can say for sure that before this year ends we will see those rediculously high prices. I don't think we can go another 365 days without the credit market totally freezing up and passing on rediculously high borrowing costs to consumers. The game is over, the paper money has been stretched too thin and can't stretch anymore and thus is contracting causing borrowing costs to rise and companies who can't afford the borrowing costs to pass on the borrowing costs to consumers or fold. Lately allot are choosing the latter as they have no choice with competition still out there but with every company that folds, it only leaves less competiton for the rest and more room and reason to raise prices. I believe there will be very little competiton(extremely high unemployement) before this year ends and those remaining will have those extremely high prices.

EricExcellent work! I look forward to reading mor...

2009-02-20T07:28:00.000-08:00

Eric

Excellent work! I look forward to reading more of your work. Keep going!

I would rather bet Europe follow most debtor countries to face deflation, followed by hyperinflation (your article of "How Deflation Creates Inflation"). EUR/USD becomes tricky but I will bet on USD strengthening as the credit bubble is USD based (the same old story of strong USD during deleveraging). Two key points:

(i) Protectionism

I bet EU would also deflate as I bet protectionism and social unrest (driven by unemployment crisis globally) would totally damage investors' confidence. With social unrest EU would have no choice but to print more money, just to find investors keep hoarding cash (i.e. your description in "How Deflation Creates Hyperinflation"). The end game would be EU joining the world for hyperinflation - when gold price getting out of control rising.

(ii) Money printing

I understand that EU countries could actually issue more bonds, sell it to local banks, and local banks repo those government bonds back to the gov't. The local banks could therefore borrow money (repo) from the gov't/central bank to buy the bonds, and governments printing money relatively free from treaty.

Unless politics stop money printing (highly unlikely), we are going to see deflation with cash hoarding, followed by hyperinflation. One addition - gold and precious metals would rise throughout deflation to hyperinflation. Gold would drive inflation - see my work "hyper gold inflation". The end game to stop hyperinflation would be "hyper gold standard".

link:

hyper gold inflation
http://vicktorcapitalist.com/blog/2008/12/17/who-would-turn-the-world-from-deflation-to-inflation-gold/

hyper gold standard
http://vicktorcapitalist.com/blog/2009/01/21/peg-gold-at-us10000-per-ounce-the-ultimate-solution-to-this-crisis/

Check out this video.Zimbabwe - gold for breadMDC ...

2009-02-19T18:22:00.000-08:00

Check out this video.

Zimbabwe - gold for bread

MDC activist Sam Chakaipa returns to his village in rural Zimbabwe to find his friends and neighbours starving to death, reduced to panning gold powder from the rivers to exchange for food at an exorbitant rate

http://www.guardian.co.uk/world/video/2009/feb/11/zimbabwe-gold-panning-starvation-food

Is it even safe to be in assets denominated in dol...

2009-02-19T08:00:00.000-08:00

Is it even safe to be in assets denominated in dollars like CEF or GTU?

Someone asked, "Eric, do you have a timeframe for ...

2009-02-19T07:58:00.000-08:00

Someone asked, "Eric, do you have a timeframe for the hyperinflation?"

What kind of a question is that? It's like someone on the deck of the Titanic asking someone else how long they think the ship is going to take to sink.

Do you like living life on the edge? Hoping to squeeze out a bit more profit before you duck and cover? The collapse could be at any time, any day. If you're not out of the dollar, any possible gains you hope to gain by staying in the dollar are dwarfed by the losses you risk.

Use your head, man! You're smart enough to be reading Eric's blog, you ought to be smart enough to be preparing RIGHT NOW. Then you won't care about timing the hyperinflation. You'll sleep soundly. The timing won't matter.

HI Eric, I really like your blog, and I hope the E...

2009-02-19T03:39:00.000-08:00

HI Eric,

I really like your blog, and I hope the EU isn't heading towards hyperinflation like you outlined.

However, what do yo make of the bailout of Irish banks and the Irish Governments guarantee of all bank deposits? There is also a lot of talk of bailouts for the eastern european countries and the PIGS. Is the EU heading more towards the tactics the US is employing now? There is also talk of a 'Zimbabwe-isation' of the global economy, with gold hitting in highs against the Euro: see following link:

http://www.telegraph.co.uk/finance/4682554/Gold-hits-record-against-euro-on-fear-of-Zimbabwean-style-response-to-bank-crisis.html

Is the ECB really going to devalue the euro to get out of this crisis? I hope not but it is looking more like this. I would be interested to hear what you think, and hopefully explain to me how this is not going to happen!

best
Denis

We all know about stimulus packeges, and it needs ...

2009-02-19T00:00:00.000-08:00

We all know about stimulus packeges, and it needs to financed, so in my opinion FED is buying USD so they can get financing from abroad. And when they get the money USD will fall against other currencies. But real question is when will Government stop with issuing new treasury bills(for stimulus) when they do I expect real fall of dollar and Hyperinflation.

Eric... Keep hammering at the deflationists. I esp...

2009-02-18T21:46:00.000-08:00

Eric... Keep hammering at the deflationists. I especially enjoy you taking on Mish. Honestly, he is getting tiresome.

One thing that no one thinks about when it comes to US vs China equations. If we default, we will be locked out of borrowing, and we MUST borrow to keep the Ponzi scheme going. Borrowing is a must.

If we default, the Chinese loose $2 trillion in RESERVES!! What factories disappear? What assets on people's balance sheets disappear? What effect does this have on China? Answer.... NONE. The lose some money, they turn around and make some more.

Get real, folks... The U.S. is a million times more hurt by a default than China. The U.S. will not default. We will inflate. We gotta. We at least have a half a chance of coming out okay if we inflate.

I gotta say, I doubt we will see true Weimar hyperinflation. We will just see something nasty. More of a Latin America kind of thing. My guess is 100-200% over the next 3-5 years. Then it settles down. That alone will eliminate lots of housing problems. Really.

Keep up the good work

Eric,You do a great job with your blog. I look fo...

2009-02-18T20:13:00.000-08:00

Eric,

You do a great job with your blog. I look forward to reading it every day. Do you have a timeframe when we will enter the hyperinflation phase? Beginning of 2010?

Thanks!

When the US defaults on its T-Bonds, though the im...

2009-02-18T19:08:00.000-08:00

When the US defaults on its T-Bonds, though the impact will be across the board (all bearers, domestic and international, it is still a loss to China.

I means, in terms of a balance sheet, US debt is listed as an asset to China... their assets go down. No doubt, a US default will hit domestically much harder than internationally, its is still a hit for China.

"3) China’s treasury holdings are a much bigger problem for China than they are for the US.

I love this one. While it is true that China is having problems dealing with their massive dollar reserves, to then say that those reserves are a bigger problem for China then the US is hilarious.

Simply put, if you had to choose, which problem would you rather have?

A) China’s problem of having “too much cash”
B) The US’s problem of having “too much debt” "

"As EU bank failures wipes out deposits and gold p...

2009-02-18T17:45:00.000-08:00

"As EU bank failures wipes out deposits and gold prices continue to rise (gold price rose during the great depression’s deflation), eventually the value of the EU’s outstanding currency will equal the value of its gold reserves. At that point, the EU will have the option of converting the euro into a hard currency, redeemable in gold."

In order for them to maintain the purchasing power, this action would have to be followed by producing as much as the money supply is being expanded(as much as there is lending) and one thing I learned from history is that production never keeps up with the expansion of money(especially when the money is paper). With physical gold and silver, the lending game ends quickly because those things are rare and can not be easily produced to lend out. Point is lending is bad and ruins currencies and economies. Production never keeps up with lending(especially if the money is paper). I keep hearing this problem we are having was brought on by bad debt. There is no such thing as good debt, all debt is bad because production can never keep up with lending(especially if the money is paper). So they should be saying this problem was brought on by debt. So in order for the EU to avoid higher prices(or getting in to the same mess they're in now) after the action you proposed happens companies will need to adopt the attitude of working for the money(gold/silver) they need to start/maintain a business instead of borrowing it otherwise the rising borrowing costs will be passed on to the consumer(rising prices=decreasing purchasing power). In order for them to maintain this, paper would have to be removed as a substitute for money and the only money would have to be physical gold/silver. That means no gold/silver certificates of any form. I'm not sure if what I quoted you saying was suggesting this move or suggesting turning the Euro in to a form of gold/silver certificates redeemable for gold/silver. What they need to have after there is a balance with their gold reserves and their outstanding currency is a removal of using any paper as money(even if it is redeemable for gold/silver). Doing this would make it hard and almost impossible to over expand the money supply because you can only lend as much gold/silver as exists. Basically the solution is to go back to a gold/silver coin currency with no paper substitute.

The rebuttal #6 seems flawed to me. It contrasts U...

2009-02-18T17:10:00.000-08:00

The rebuttal #6 seems flawed to me. It contrasts US to China fundamentals. However most sane people already know the US fundamentals are bleak. Yet the flight to "save haven" results in US$ appreciation. So the whole point is that as of now markets act irrationally in complete disregard to fundamentals.

Sooner or later the market has to turn and restore the balance, capital will find the real safe haven. But this is not happening yet.

Every country in EU has some sort of FDIC deposit ...

2009-02-18T14:55:00.000-08:00

Every country in EU has some sort of FDIC deposit insurance, from the minimum REQUIRED of 20000 EUR to total coverage in germany and a few other places.

This article has it exactly right, but few else se...

2009-02-18T12:37:00.000-08:00

This article has it exactly right, but few else seem to see it. Gold and food will be the places to be in 2010-2015.