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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Zardoz who wrote (35311)	6/14/1999 12:14:00 AM
From: Enigma	Read Replies (2) \| Respond to of 116753

'My problem was with 'always'. In multiple choice exams one is told to avoid questions with the words 'never' and 'always' d

To: Zardoz who wrote (35311)	6/14/1999 3:45:00 AM
From: ahhaha	Respond to of 116753

Statisticians prove everything they'd like to prove. The next week a new group of statisticians proves the previous ones wrong. What came out of the '70s inflation from the academic and investment communities was a misunderstanding of what caused it. What did develop was ever greater extremes of absurd explanation until what was false was interpreted as true. Back then Albert Szent-Gyeorgi wrote that the world had turned upside down and was in the revisionist habit of calling the truth a lie. We still have this going: On the other hand, deflation occurs after too much money has been created by excess lending and borrowers cannot pay back their loans. Deflation is a falling of M2 money supply relative to output. Inflation is an increase of M2 money supply in excess of output. This has little to do with borrowing to realize returns in excess of debt service. If there is any connection it is that borrowing increases when real M2 is falling but prices are rising due to the inflation psychology of beating higher expected prices. The public thinks they can do this and the central banks provides enough raw money to keep interest rates down so that the psychology is supported. If the central bank did not interfere, economy would slow and the reality of falling M2 would take hold, but this never occurs in a demand management economy because it isn't allowed to occur. The FED will always err on the side of ease more than they will err on the side of tightness. During extended periods of erring on the side of tightness which is actually a tacit admission that the market is fearful to lend, there is a slowing of M2 relative to the propensity or ability to output. The decade of the '80s saw this and it came to be called "disinflation". Consumer prices continued to rise , but at a slower pace, while commodity prices on-balance fell. M2 growth was commensurate to CPI around 2%/yr. This period is the closest that the US has ever come to deflation in the modern era. The problem is that we don't let excesses deflate. We keep everything a little pumped up. The resulting defaults are, therefore, deflationary because the money that the bank created through its loans was not paid back, Assuming that this is true (it isn't because the FED can easily create more money) The following conclusion does not follow: and money circulating in the monetary base is destroyed. Ascani thinks the monetary base is composed of currency in circulation and gold. These are minor components. The big component is federal reserve credit. Ascani thinks that is an abstract form of money which does not store value. Consider, it has A-bombs backing it and thus whatever else presumably stores value is hostage to whomever has the A-bombs. End of discussion. It's also referred to as full faith and credit. Guys go to war and die to preserve the structure supporting that full faith and credit. End of discussion 2, the sequel. Thus, bank loans and inflation create money, and debt defaults and deflation destroy money. This may be true in a board game or as a quaint explanation of 19th century appearances of inflation/deflation, but they are specious and an insult to a knowledge of elementary banking and finance. The modern inflations have nothing to do with this mechanism. In fact, they operate in an inverse way to it. With the advent of the FED in 1913 the possibility of these kinds of inflation/deflation cycles disappeared once the FED governors and academicians discovered the power of demand management and employed it in an unceasing manner. Since when does borrowing create more money? It creates a liability and an asset. The only thing borrowing can create is the possibility of generating more economic activity which may or may not add value to the society. Borrowing is always self-regulating regardless of what is happening on the money supply front. Borrowing is controlled by its cost, interest rates. If the central bank didn't interfere with interest rates in order to pursue questionable goals of demand management, the psychology of borrowing to buy to beat inflation would never arise. It is easy for monetary authority to control the growth of money directly rather than through the interest rate mechanism. When money is destroyed, it is literally taken out of circulation-the opposite result from that of loan creation." When I said, above, that the inverse mechanism is in place in the modern era, I meant exactly with respect to comments like this. When value is being destroyed by inflation real M2 is falling, because it is the real decline in output which falls when it appears to be rising due to effect of price increases. During an extended period of this kind of regime distrust in monetary authority rises so that people factor more of their wealth into hard assets like real estate and gold. They borrow heavily to hedge or speculate in hard assets even while real M2 is declining. This has the effect of leveraging the available monetary base. The central bank thinks they have to continue to supply a little more of the money drug to keep the patient alive, but you can't push on a string. At the end of the regime when gold skyrockets and the FED throws in the towel and stops interfering, rates rise and cause the economy to fall with gold and commodities. This is what happened in 1980 and in 1982 the FED came back in and starting pumping, but in a chastised manner. Not enough money drug was made available to get the inflation game going, and so gold has been in a 20 year bear market. Gold has continually fallen during this period of intrinsic deflation. End of discussion 3, the final chapter. The only conclusion left for you, Ascani, and Jastram is the statistical conclusion that gold falls during inflation and deflation. Wonder what we'll be hearing next week?