Barron's: Inflation Not a Threat... Yet (Article tries to disprove Paul)

[Knightskye]

http://online.barrons.com/article/SB122852247202284343.html?mod=9_0002_b_online_excl usives_weekend


STOW THE RED WHEELBARROW BACK IN THE SHED. DESPITE forebodings by Texas Rep. Ron Paul and other gold bugs about hyperinflation, your wallet will be sufficient to hold your spending money for the foreseeable future.

[socialize_me]

http://online.barrons.com/article/SB122852247202284343.html?mod=9_0002_b_online_excl usives_weekend

Wasn't Barron's recommending dot coms back in the day??

[socialize_me]

I don't know what Barron's is talking about here. There is a deflation in terms of commodities, but that's because these futures contracts and other derivatives were bought with leverage and investors are facing margin calls across the board. They're being forced to liquidate to fulfill these debts and that's why the prices are dropping.

However, the "deflationary spiral" only exists in Wall Street. Apparently Barron's hasn't tried to buy a gallon of milk lately or a loaf of bread. Those prices aren't dropping and in fact are going up which spits in the face of their "too few dollars chasing too many goods" theory.

[DFF]

Do you think all this deleveraging will force the price of Gold to go lower as well (it's at $755 currently)?

[socialize_me]

Do you think all this deleveraging will force the price of Gold to go lower as well (it's at $755 currently)?

Short term I think so. I've heard some reports that the COMEX may default on gold contracts in December (this month), but that's speculation. Whether or not that will happen I do not know, but if that did happen, gold could easily shoot up to $2000 as Peter Schiff is projecting for 2009.

If you're waiting to buy gold to get it at a lower price like $720 or $700, I think you're making the wrong choice. The fact is, there is no fundamental reason for gold to be at the levels it is today. Back in March upon news of Bear Sterns and the Federal Reserve cutting interest rates, gold was over $1,000/oz. Today, it's bouncing around the $730-$800 range. What's changed since the Bear Sterns deal? Well, the Federal Reserve has promised to, so far, increase the money supply by 75%, or $7.7 trillion and that's been only in the past 6 months!! Our financial markets are far from being "stabilized", so the money supply could easily double in just ONE year! To think gold can stay at these levels is very wishful thinking. Eventually the market will overpower the Central Bank's efforts to suppress the level of gold.

Why is having a low gold price beneficial to the Fed and the US Government? Well, if gold were not artificially suppressed in the paper markets, the public would see gold as being the best investment. Today, people are purchasing bonds and Treasuries because they think it's a safe investment and stocks are too volatile. If gold were to go to over $2,000 in the next few months, investors would flee from Treasuries which are doing nothing more than just parking money. The returns on Treasuries are <1% which is actually a negative return when you adjust for inflation.

If gold prices rise, the Government loses its ability to attract investment in its Treasuries meaning they cannot run deficits and are constrained solely to what they can raise via taxes. It's interesting because we're off the gold standard, yet gold has more relevance now than I believe it has ever had. The Government fears high gold prices as the bond market would collapse.

Gold is the only safe asset in times of hyperinflation or severe deflation. I would jump on these gold prices if you're interested in getting involved, or perhaps even silver. I find silver to be extremely cheap and you can buy lots of it. It's dropped over 50% from its highs earlier this year and logic says this is an illogical move. The money supply has increased significantly since silver hit its highs, so there's absolutely no reason for its decline other than the liquidation of futures contracts to satisfy the margin calls by investors. If gold rises to $2000, silver could go to $50 or more.

[DFF]

Thanks for the informative response SM. That was very insightful. :)

[Knightskye]

Wasn't Barron's recommending dot coms back in the day??

According to this article (from June, 2000), they drew up lists of dot coms that looked like they would run out of money.
http://www.guardian.co.uk/money/2000/jun/22/personalfinancenews.business

So I think they had a hand in the dot com bust.

Here's an article from Barron's in August, 2000:
http://online.barrons.com/article/SB966040011186225680.html?mod=googlebarrons

It said dot coms would fail because they weren't concentrated on making a profit.

[thrillhouse]

What I find funny is the end of the articles, the last paragraph...


This isn't to say that inflation won't become a problem down the road. Paul Wachtel, a New York University economics professor, says the Fed should be planning an exit strategy, so that it can absorb cash reserves from lenders when the economy rebounds. Absent such a plan, you may get a chance to use your wheelbarrow when buying that stick of butter, after all.

Just wait till all this 'cash' comes back in off the sidelines.

[nate895]

They are somewhat right. For the time being we will see deflation since most of our money is in credit, which is drying up. As soon as the deposits hit the bank accounts, however, and the banks start lending out money, we will see hyperinflation.

[qh4dotcom]

They are somewhat right. For the time being we will see deflation since most of our money is in credit, which is drying up. As soon as the deposits hit the bank accounts, however, and the banks start lending out money, we will see hyperinflation.

I agree...newly printed money needs to circulate for hyperinflation to occur...newly printed money from the bailouts that the banks are hoarding and are being cautious to lend out isn't affecting anyone.

[Drknows]

Hyperinflation will come when people start buying again.

Right now is like a after holiday sale because supply is still high and demand has went way down. Once production slows down and demand goes back up prices will go through the roof. Look at housing prices they reached their peak a few years ago because everyone could buy a home with free money.

It will be months if not years before we see the effects of all this free money.