Date: Fri Oct 14 2005 14:07
trotsky (Bleuler) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
" What this all means I dunno."
no problem. i do. attempts to reclassify asset price inflation as 'savings' should be resisted - savings ultimately can only be production that has not been consumed, but instead saved. therefore commerce's method of calculating the difference between incomes and outlays ( which has the additional advantage of historical consistency ) is likely the best method available.
the 'balance sheet wealth' resulting from asset price inflation is really phantom wealth. had not credit been created to such an extent that total US credit market debt now towers at an all time record of roughly 340% of GDP , the price inflation would not have occurred. it should be obvious that 'price' does not equal 'value'. since a house is actually a depreciating consumer item, it is doubly ridiculous to regard house price inflation as something that increases wealth. it shouldn't be seen as anything but an anomaly that is likely to be corrected. however, the debt mountain that has been built up in conjunction with this price inflation will remain firmly in place. sure, it will also correct eventually - via defaults and 'loan work-outs'.
certainly house price inflation has only spurred consumption on credit, the oh-so-'flexible' US economy is really a house of cards built on the biggest credit bubble in human history and a succession of associated asset price bubbles ( first stocks, then houses ) . this phantom wealth will eventually disappear right back into the place where it came from: thin air.
Date: Fri Oct 14 2005 13:46
trotsky (@gold contract) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
the Refco mess seems to have come at a good moment for the gold shorts. very big trading volume at today's intraday lows...iow, a great deal of short covering.
Date: Fri Oct 14 2005 13:00
trotsky (@Ted Butler) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
T. Butler's most recent essay, where he interprets the Silver User Association's recent attempt to stop a silver ETF from coming into being was well worth the read. certainly one of his better efforts.
also, one can not but agree that the SUA's intervention attempt is extremely bullish for silver. maybe not short term, but certainly long term. T.B. is right , this probably confirms that the big silver inventories that have held the price in check for so long have finally been worked off to a degree that got those alarm bells ringing at Silver Bear Inc.
Date: Fri Oct 14 2005 12:49
trotsky (@truly funny...) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
"US President George W. Bush is confident that the US Federal Reserve ( Fed ) can handle any inflation worries, White House press secretary Scott McClellan said on Friday."
translation:
"we trust that the bureaucrats at the Fed will continue to be able to manage inflation EXPECTATIONS via smooth talking that creates the illusion that this engine of inflation actually FIGHTS inflation ( we thank the Lord that the sheeple are generally too dense to realize how ridiculous this very proposition is ) , and thus their ability to continue to inflate at will won't be compromised too much. please ignore gold"
Date: Fri Oct 14 2005 12:31
trotsky (Stx@what is the pool of real funding?) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
imagine an economy WITHOUT money for a moment. what form would savings take? they could only take the form of real production, that is NOT consumed right away. if e.g. you were an apple grower, all the apples you do NOT eat would represent your savings.
this basic principle is not changed by the introduction of money. money only facilitates a more complex economy, as goods the consumption of which is subject to different time horizons can all be represented by money, which greatly facilitates economic exchange - this furthers the division of labor and the lengthening of the production structure.
when a central bank prints more money 'out of thin air', no excess production has been saved which this money might represent. therefore the introduction of such money out of thin air can not possibly increase wealth - it merely sets into motion exchanges of nothing ( the new money ) for something ( real goods and services ) . this is why monetary pumping actually diminishes the pool of real funding, and damages the economy structurally.
Date: Fri Oct 14 2005 12:15
trotsky (Hambone) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
"I must disagree, to a point. If that asset sale is made by creating credit, the net money available at the time of sale increases, since cash is received for the full amount, and credit is created as a substitute for that cash to be paid over time. However, that cash certainly is available for any purpose, including productive purposes, at the time of sale, whether or not the credit created is eventually paid off or not. In fact, that's what's created the current "credit boom" in the economy, though I'll admit that the cash created seems to have gone more for consumption than useful investment."
first of all, let us assume that the credit would be extended in a truly free market WITHOUT a central bank/fractional reserve 'money creation' facility. in that case, the bank could ONLY extend credit in the form of SOMEONE ELSE'S savings. again, the amount of money in circulation would not change.
now, let us look at the reality in which we find ourselves, which is that the extension of credit most likely leads to new 'money out of thin air'. now this act obviously increases the amount of 'money' in circulation, but it would NOT increase the pool of real funding. in an ideal world, money would only act as a placeholder for the pool of real funding. in our world, the pool of real funding simply gets divided by more monetary units if money in circulation is increased via new credit.
thus the economy's ability to fund new wealth creating activities is likewise NOT enhanced if asset inflation is 'monetized' in this manner.
the end result remains the same, namely, asset price inflation does NOT lead to the creation of new wealth.
furthermore you are of course correct that in addition to this, the monetization of this phantom wealth is primarily used for consumption. since it is consumption without preceding production, we know for a fact that the pool of real funding is actually put under pressure because of these activities. this is also known as the 'eating of the seed corn'. the economy's ability as regards new capital formation becomes ever weaker.
|
