Time to buy some more gold and silver?

[chinook]

The old saying today is just as reasonable as it was the last real scare we had, late 70's early 80's. Where we(US) go so does the rest of the world. Does anyone here know where you can sell 800 billion in US paper, I Dont. and thats just one country. What does concerns me is we have sold out, moved out ,or shut down 90% of our manufacturing capability. Just one man's opinion.

 

 

The US manufactres more stuff in dollar terms than any other country. But I understand your point. You have only the unions to blame for demanding riduculously high wages and benefits that have caused manufacturing costs to rise to the point where the average US consumer could not afford to buy anything made in the USA.

 

I sense an extreme amount of bearishness towards the dollar. Opportunity?

[World Colonial]

I sense an extreme amount of bearishness towards the dollar. Opportunity?

 

In my opinion, yes. Currency trends can persist (in both directions) for a long time, but ultimately, I expect the majority to be wrong on this expectation as they are on practically every other one. The bearish majority will be right eventually, but only after most of them have capitulated.

[$ilverHawk]

China, Japan, Russia and other countries that are holders of US debts will not, in the short term, willingly devalue their holdings. But make no mistake about it, in the longer term, 3-5 years, there will be a move to unseat the USD as the worlds reserve currency.

 

Would you invest in a company that is borrowing up to the limits of its annual output? Well run companies--Nations have positive cash flow. Unfortunately our leaders for the past decade have economically mismanaged the good ole USA from the worlds greatest creditor into the worlds greatest debtor.

 

Goldman Sachs, J. P. Morgan et al are the powers behind it all. Never forget the Watergate Theorem--"Follow the Money, Who Benefits?"

 

Get out of USD as gracefully as you can.

[RareSov]

Gold creeping up again

 

www.usdebtclock.org

At least the derivatives is coming down.. slowly

 

The numbers are scary.

 

[World Colonial]

China, Japan, Russia and other countries that are holders of US debts will not, in the short term, willingly devalue their holdings. But make no mistake about it, in the longer term, 3-5 years, there will be a move to unseat the USD as the worlds reserve currency.

 

Would you invest in a company that is borrowing up to the limits of its annual output? Well run companies--Nations have positive cash flow. Unfortunately our leaders for the past decade have economically mismanaged the good ole USA from the worlds greatest creditor into the worlds greatest debtor.

 

Goldman Sachs, J. P. Morgan et al are the powers behind it all. Never forget the Watergate Theorem--"Follow the Money, Who Benefits?"

 

Get out of USD as gracefully as you can.

 

The description you provide is correct, but it does not even remotely apply just to the United States which is something almost every USD bear ignores. There are many other countries that are in even worse shape though they do not have the distinction of (mis) managing the world's reserve currency.

 

Though Japan has had the stongest currency recently, their national debt to GDP ratio is I believe 180%. This is not a a direct comparison to the US because it excludes unfunded liabilities on both sides but it is an indication of the supply of trading debt. In any event, this is only getting worse and is completely unsustainable.

 

The United Kingdom is in worse shape than the US. Their financial services industry is much bigger proportionately than the US and they have the same types of issues with government spending, unfunded liabilities and debt levels generally.

 

Many countries in the EU are about to go broke and are handcuffed from implementing "traditional" economic measures. Another repeat to last year would likely require either a national bailout of countries like Ireland and Spain or some countries being forced to leave the Euro.

 

So yes, there will be a time to get out of the USD. Those who think like me expect a major USD rally in the upcoming deflation. But whether this occurs or not, many who exit the USD whether now or later are going to leap out of the proverbial frying pan and into the fire. They will avoid some or most of the USD decline but lose money elsewhere anyway.

[chinook]

World colonial,

 

It is almost beyond scary how much we think alike. Are you a long lost twin I dont know about.

 

I dont know if you participate across the street---PCGS message boards--but I welcome you to explore the precious metals board there, and especially the "GOLD AND SILVER, ECONOMIC NEWS, COINS, 2009 forward" thread.

[World Colonial]

Long lost twin? Maybe.

 

I do not post on the PCGS Messages Boards though I might check it out eventually.

 

Most likely, my opinion there would be as small of a minority one as it is here.

 

I am not permanently bearish on metal prices though it may seem that way. I just expect most people to be wrong on their opinions about the immediateness and inevitability of inflation just like I think that most people are wrong about everything in the financial markets. Though I might be wrong also, its a "law" of finance that most people will always be wrong which is why they lose money most of the time.

 

I have not read it here, but I also believe that at least some gold and silver "bugs" are also cheering for both higher inflation and metal prices (the fact that the two are not directly related is a minor detail I will ignore for the moment).

 

What I believe many of these people fail to realize is that there is still a high likelihood that they would still end up as absolute financial losers, just less than those who do not own the metals or in smaller proportional amounts.

 

And the reason for this is that the typical American has a limited financial capacity to navigate their economic destiny, whether the economic disaster is inflationary or deflationary. Under the deflationary scenario that I see, many people will be forced to sell their holdings into a falling market along with most other assets out of financial necessity because of economic and personal circumstances. But even under higher or much higher inflation, this may not change because the standard of living of the typical American is going to decline regardless of the specific outcome. I do not believe that most people have considered this adequately if at all.

 

But I will agree that between those who my position and the consensus opinion, one of us is likely to be spectacularly wrong. Most of those who are expecting inflation are almost certainly not prepared for a deflationary implosion. I admit I am not prepared for the inflationary scenario, but believe I can adjust my personal circumstances somewhat and quickly because I think I can recognize it relatively early.

[chinook]

Again I have to agree with you.

 

What I usually see are predictions made by people without think out the ramifications of those predictions. When the ramifications are extreme, one probably needs to go back and review their hypothesis. I believe the Fed and Bernanke are very afraid of deflation and are doing everything in their power to create some inflation. They may succeed, but for how long? How long can prices remain high if the economy is operating at 70% of capacity and 1 of 8 people are un or underemployed?

 

The gold bugs call for a return to the gold standard, yet no one alive today remembers the pain that involved. During the 1800 we had several severe bouts of both inflation and deflation. Imaging seeing your wealth increase due to inflation only to see it destroyed by deflation a few years later. Now do this 3 or 4 times over your lifetime. How depressing. Since we have gone off the gold standard in 1933 we have only enjoyed inflation. 75 years of continual wealth building. Is that sustainable?

 

Take a look at global real estate prices. From England to Poland to New Zealand, real estate is unaffordable for the average US citizen. If an American, who income and wealth is greater than anyone, cannot afford property, how is the local citizen going to afford it?

 

Prices need to collapse.

 

[World Colonial]

Yes, yes, yes and again yes. But let me eloborate on your points individually.

 

Though I expect the inflationsists to be right eventually, there are several fallacies in their logic that I believe are going to cost them big time.

 

The first is that the government actually wants to create inflation, even assuming they could do so at will. Its true that they can in theory print an unlimited amount of currency at any time, but that has been true since 1933 and yet no country with a major currency has done so except in time of war.

 

There is an article where this think tank writes about the prospects for an outright at least limited default on the national debt. I will send the link if anyone is interested in it. It is not a bullet proof argument but he is correct that it might be better to default on the debt than have both the debt and the currency become worthless.

 

I believe there is a high probability that a defacto default will occur by at least extending maturities at below market interest rates. If this happens, the bondholder will still get paid, but the market value of their holdings will be much less than otherwise.

 

But even in less extreme instances, I agree with blogger Charles Hugh Smith. He asks the obvious question which few to no one else asks. Who benefits and how? Well, given that a miniscule fraction of elitists control the vast majority of financial assets (as the populist demagogues complain), the chances of the establishment committing hari kari through intentional inflation are almost certainly lower than the inflationists believe and they are the ones who have the greates power to make it happen under the conventional hypothesis. This does not mean that it will not happen eventually, but its a reasonable assumption to conclude that these people will do whatever they can get away with to preserve their waelth and pwer, even if it means shafting everyone else. That article I reference uses a different point to arrive at the same conclusion, the minimal seignorage from such an outcome.

 

The same also applies to other segments of society. Its true that fixed rate debts would be significantly devalued but so would the assets of the influential parts of the middle class including pensions and insurance policies.

 

The combination of these factors is a reasonable explanation as to why we have had the bailouts. Its a bailing wire and chewing gum solution to systemic insolvency in order to try to maintain the staus quo.

 

Another fallacy is that the government will always be able to act in time to prevent deflation. The government is ALWAYS behind the curve so expecting this is an extremely weak assumption upon which to base anyone's financial future. If the minority outcome I share occurs, I expect the government to be taken completely by surprise (yes, again) except that this time, the whole system will essentially collapse. It nearly did last fall so it is hardly an impossible outcome.

 

Under this outcome, deflation would occur though much higher inflation would be a big risk later. However, those who are not prepared for it would be impacted badly just as those who are not prepared for inflation would also be but probably even worse.

 

On your second point, I'm not in favor of the gold standard but I still think it is infinitely better than the fiat money regime we have now. But there are two reason why most do not think so.

 

The first is the false sense of confidence that the majority has in the government's ability to create prosperity. The fiat money monopoly and currency debasement have nothing to do with that, regardless of what minimal capacity the government has to create prosperity in actuality. Its just that under the gold standard, the economic problems occurred more frequently (though the government still distorted the economy in the past, just much much less). But people just mistake the existing distortions with a magical ability to guarantee prosperity. The truth of the matter is that government distortions create infrequent yet far more disastrous "fat tails" and the one created by this recently ended mania is going to be a whopper.

 

The second reason for preferring fiat money is to redistribute wealth and income. Its based upon pure envy filled populist demagoguery.

 

But to provide the rhetorical answer to your question, of course it is not sustainable which is why this whole house of cards is going to collapse.

 

On the subject of real estate prices, they are still in many cases ridiculously overpriced. Its a subject I've commented on here several times. Today, many "homeowners" are defacto DEBT SLAVES. So in actuality, these artificially distoted housing prices are a symptom of economic poverty and not prosperity. No society ever got richer simply by trading houses and incurring more and more debt.

 

On the subject of prices, yes, they do need to collapse. But the deflationary outcome I favor has its own set of risks. This post is long enough now so I will not elaborate on them at this time.

[BucOne-migration]

I did not hear the speech that you are referring to but I do not need to because I am familiar with the interpretation you seem to be alluding to, though I do not know if this one is yours or not.

 

Many or most people who hear a speech like that and believe that Obma (or others) has that view believe in some form of one world government movement. Though there are some or many influential people who are or appear to be in favor of that, I'm not particularly worried about it because I expect the upcoming global depression to shatter the international co-operation which appears to exist now. I expect this issue to become a problem later.

 

(David Rockefeller, one of the leaders of this movement, has apparently "come clean" according to a web article I read recently after denying his support for decades. I guess now that he is old or dead it does not matter that everyone knows.)

 

safety deposit box would be fine.

[World Colonial]

A safety deposit box is fine for what? And under what circumstances?

[BucOne-migration]

A safety deposit box is fine for what? And under what circumstances?

 

it's fine to store your gold bullion coins or bars.

 

 

[World Colonial]

It depends what economic circumstances are assumed. In normal times, yes.

 

Under adverse economic circumstances, maybe or maybe not.

 

If a large number of banks in the United States or elsewhere ever close down in a financial panic, there is no guarantee that anyone would be given access to their safety deposit box when they want it. And this could occur for even the banks that are solvent or supposedly are solvent. The contents of a safety deposit box are not subject to other claims, but that distinction will make little difference to the person who needs their gold but does not have access to it.

[michael]

buy silver american eagles and 90% halves and keep the other half in usd

[Mogulman-migration]

I'd be hard to find another currency that could be used for international trade/banking instead of the US dollar. The Euro is unitized over only a select few countries, Malaysia and Australia don't have the size. The Chinese rmb is already pegged to the dollar.

 

The US dollar is a rotten, lousy, corrupt currency until you look at the other alternatives. Not saying it's not going to continue down for awhile.

 

Caveat: Everybody and their brother is aware of the falling dollar. Seems that everyone is short dollar/long gold. It's only a matter of time until that carry trade will unwind. No prediction, however, of when or how much recovery a dollar rally will provide.

[tylerdurden-migration]

I'm LONG Canned Goods

 

Got my peas, my corn, spam, tuna and canned ham

 

Im a ready

[World Colonial]

Before the first part of the financial crisis last year, I thought the USD would rally to at least 90 on the USD index. It fell just short of that at 89 and change. (I will also add that I did not expect the USD to fall almost uninterrupted for the six years it did.)

 

On the next rally, I still think it will surpass 90 and possibly reach 100. The last rally was a sharp one but I am ambivalent toward how fast the next one will be and how long it will last. The deflationary scenario I see implies another sharp one but the most likely alternative is one over several years. That would be most probable if the US follows in the footsteps of Japan which I see as the second most likely scenario.

 

It is only after this next rally that I expect the USD to fall like most people expect it to now.

 

From the standpoint of the economy, a brief but deep depression would be the optimal scenario to eliminate the historical distortions as quickly as possible.

 

But for most individuals, the Japan scenario would be better. It would allow more time for adjustment to both preserve your purchasing power and accumulate metals (and possibly other assets) at lower prices. In the sharp and quick deflationary depression, many more people would end up bankrupt and have no money to buy at the fire sale prices that would exist.

 

I do not believe in the third alternative. That would imply that the Fed and the government miraculously manage to reinflate the bubble. If that does happen, it would still only be temporary though "temporary" could be another five years as the main part of the housing bubble lasted that long. But even under this scenario, unemployment will still remain higher than it was before and the standard of living of the typical American will either go nowhere or decline.

 

The most likely cause behind that outcome would also be the Japanese style scenario with a leveraging of the US government's balance sheet combined with additional private debt. Purportedly, the publicly held debt at the start of the crisis in 2007 was 42% of GDP which leaves a lot of room for maneuvering, though at 10% of GDP per year or so, it still will not last long. Japan has increased their debt from 51% of GDP in 1989 to at least 180% today.

 

There is no fourth alternative where long term prosperity is restored to most Americans (or elsewhere) without the removal of the existing economic distortions. That only exists in the minds of conventional thinking economists who believe in either a free lunch at someone else's expense or a free lunch at no one's expense.

 

 

[RareSov]

I am hoping for that rally ! when it comes, lots of US stuff for sale here !