Quite right C2, dilution is a metaphysical certitude when the holders and owners of the currency are different people. But it's important to know that there is no mechanism built in determining that there must be dilution due to interest rates.
Over 100 years, there has been sufficient dilution so that even with 6 billion people increasingly using US$ as a means of store of value and exchange and with the fantastically huge productivity bonus of cyberspace and millions of scientific and technological developments, deflation remains theoretical and Big Ben is determined that it shall not be.
It's a good bet that the process will continue and Big Ben has promised to do so in a big way if needed to head off deflation. We should take him at his word.
One would think that the vast dilution would mean the price of things would zoom in response, but keep in mind that there is a huge deleveraging process under way so there are fewer dollars chasing more goods, which means deflation, not inflation, even though pixelation processes of bonus issue money continues by the $trillion.
Just as fractional reserve banking during the puff ball phase means a LOT more apparent dollars chasing the available things, during rewinding of the fractional reserve system, there are far fewer dollars chasing the available goods, even while Big Ben produces a LOT more of them for politicians to throw around.
As you have seen, gold is down, oil down, houses down, a lot more down. It's a no-brainer that dilution leads to inflation, but when deleveraging deflation is the main story, the inflationary promise is on hold. No-brain investing is hazardous to health.
Note that Mq the Marvelous was right that oil would get back to $40 a barrel and TJ's thoughts on $200 a barrel were wrong.
Mqurice |
