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

To: Ahda who wrote (61674)	12/4/2000 12:35:27 PM
From: Rarebird	Read Replies (2) \| Respond to of 116764

Monetary inflation is brought about in order to avoid real deflation, which ultimately results in a vicious stagflation before it turns into a depression. The question is not whether the current economic imbalances will resolve themselves, but how. Will the sporadic micro (isolated) inflations broaden into an inflationary crisis, or will the burden of global debt and excess technological capacity bury demand for the foreseeable future? I think we will likely first see a broad inflation before a broad deflation, at least here in North America. "It's the dollar stupid?" Actually, that is exactly what it is. Perceived this way, one could deduce the difference between deflation and stagflation, to be the dollar, and the difference between inflation and stagflation, to be demand. That is how we could have both, inflation and deflation. Conceivably that is why the term stagflation was invented in the first place: to explain the coexistence of both, falling demand and rising prices, the rare phenomenon that occurred in the seventies. Do you know what else first occurred in the seventies, by accident? One of history's most courageous attempts at global free-floating exchange rate systems, linked to nothing but government fiat. It is this system, and the inconspicuous moral hazards that accompany the active government "management" of any system, which is at the root of most monetary crises today. Deflation, at least the way I perceive it, is an inescapable, if unintended, corrective force for excess malinvestment. Naturally policymakers attempt to avoid it, yet all they do is postpone and deepen the final day of reckoning. Floating a fiat system was an effective way to postpone the consequences of the abuse of the dollar. "Managing," or inflating, the fiat monetary system to produce asset inflation, turned out to be an effective way to postpone the consequences of that abuse of the dollar over the last decade. Personally, I think the best way to avoid deflation is to prevent the preceding economic excess that breeds malinvestment in the first place. The longer this process of misallocating national resources goes on, the more painful will be the inevitable correction. It is as simple as that. If global demand collapses, the only flow of money will be to pay debts, to make large divestitures, and to repatriate badly needed profits. Unfortunately, the beneficiaries of these kinds of flows today, would not be to the United States Equity market. Advantage Gold. The US has the "right" to devalue the reserve currency in favor of growth should it so desire. Is the United States legally bound to a stable money policy? How long will foreigners prefer US denominated assets? Policy makers will always act IMO to avoid the deflation that they perceive on the horizon. Capital flows, not trade, determine trends in currency markets today.