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

To: gpowell who wrote (40786)	9/25/1999 1:12:00 AM
From: ahhaha	Read Replies (1) \| Respond to of 116791

Who said rising oil prices is inflationary? The press did. That's what people know about economic history. The history is written later based on the general impression of what was going on. Who says that impression is correct? It is almost always totally incorrect since it was delivered in order to sell media. No one ever cares to go back after the fact and find out the truth. You should read Don Patinkin's arguments about general price inflation. The basic idea is that when a critical commodity rises in price, all prices rise proportionately during a transition period and cease rising when prices are in equilibrium at the new level. The press sees the transition period as a period of inflation when it is only one of price adjustment. Eh bien, quelle est la difference? The difference is that general price inflation does not cease after a period of price adjustment. This is referred to as structural inflation. 21% interest rates of 1980 did not bust structural inflation. They only caged it. FED has little by little let it out and it is lurking around getting stronger. Once the little remaining slack is gone the beast will pounce. The beast doesn't have oil in its name. Though the percentage change is far greater increasing oil prices don't help oil companies as much as interest rates hurt them. Oil price increase takes income away as though the FED raised rates. Oil has an inelastic demand up to incredibly higher prices of the order of $100/bbl. The Arabs raised oil 10 times its pre-1973 price by 1979. All prices rose about 10 times. At 10 times the price the quantity demanded did not diminish, but it did take a lot of discretionary spending out of the economy. The current pseudo-deflation caused by oil price increase if not monetized can be monetized by demands for higher labor compensation to cover the increased oil cost. This is a second order effect, but surprisingly, it isn't inflationary. If the FED accommodates demands for increased compensation when oil prices have steadied, then you have inflation. Thus inflation is the expectation for rising prices without end. It is this environment which causes the price of gold to uptrend. In the past this occurs subtly just like the current inflation is developing quietly. No one can see how the inflation can be stopped. This occurs because no one knows how it started or what gives it sustenance. That's why I've given detailed arguments for several years about these points.