so, how long do you think that's gonna last? we are betting not long given the insolvent banks and the politicians desire not deflate their populace and incur their wrath.
Doesn't that beg the question why gold might be in a bubble?
It might have made logical sense for gold to have increased in value as we saw the monetary growth/asset bubble in real estate, as well as the price increases in other commodities. But it seems evident now that we're still in the midst of a deflationary trend that even dramatic liquidity injections and Fed Reserve repos haven't quashed. Commodity prices and Dry Bulk shipments have crashed up along with credit demand follows diminishing consumer demand. We're seeing economic declines in production that the world hasn't experienced since WWII.
Furthermore, we're seeing the rate of monetary destruction continue, if not accelerate. Sub-prime mortgages are history and now we're seeing degradation of Alt-A and even prime mortgages. People are worrying about commercial MBS now, and we're facing BK for GM and Chrysler, 2 of the major consumers of raw steel and other commodities.
And it's not like banks don't have money to loan. There is about $4 Trillion in money market savings just sitting on the sidelines waiting for a bottom in prices. Many of the smaller regional banks, who maintained loans on their books and didn't get involved in the sub-prime business received TARP money. But they can't find qualified borrowers.
So I guess, when comparing this to the previous period during the '80's when gold surged, I just don't see the equivalency. Then we were worried about out of control inflation and gold surged. Now we're worried about uncontrolled deflation and gold surges.
Gold might go up, but I think it's just due to the same kind of manipulations that governed the oil and NG markets. Nothing else is working, so why not take that sidelined cash and create another senseless bubble in some commodity that feeds on fear of all fiat money becoming worthless.
We ARE going to see a period of inflation kicking in at some point. In fact, it's what we need to counter the deflation. But I don't see any reason to expect unbridled enthusiasm for borrowing and spending, even if the financial system balances out. We're going to need to see that deflationary pressures have subsided and monetary velocity is restored, necessitating rapid draining of the liquidity the Fed has added. But I'm not seeing that tipping point quite yet. And there's going to be a long period of people paying down debt, or going BK because their assets have devalued.
Too many people are looking at the liquidity the Fed has injected without looking at the lack of velocity that's seizing the financial system. You can print all the money in the world, but if you can't convince people to borrow and spend it, it just sits there on the bank's books.
Hawk |
