<Who is this clever man? and why do folks not listen to him?>
Because he's wrong.
<In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. >
Yes there is. Buy productive assets and especially techstocks. I say especially techstocks because despite the dot.bomb, none of the new technologies are going away any time soon [though they will become obsolescent at varying rates - ISDN for example, and 286 computers]. Judgement about which will be the profitable technology companies is tricky, to say the least! But the rewards are huge for those who get it right because there are 5 billion people and they all want to communicate, learn, think, shop etc and that's what the new technologies enable, not to mention fixing cancer, DNA defects and a lot more besides. Those 5 billion will all buy a CDMA phone, a DNA makeover, a cancer cure [a third of them], a Tablet internet gadget.
Jay, here is why you are going to be ripped off holding cash. There seems to be a limitless path of productivity enhancing technology. This means that to achieve something, we have to mess around for a certain number of hours but a lot fewer than we used to have to. To get from A to B, we no longer take a horse and gig, steamship or walk. We hop in a Toyota or 747. We achieve a lot with a little effort.
The effort to make a Toyota is less than that to make a horse and gig. A 747 takes far fewer hours to build than a Titanic. We could mention safety as a value too.
Progress was constant over recent centuries but the pace has picked up every decade. Now it's really quick. Prices of new technologies drop because the cost of producing them is going down. To send a message to hordes of people used to be a major printing effort. Now we click on a keyboard for near-zero cost.
This means, to keep prices constant, Alan Green$pan can print a whole lot more of his greenbacks without causing inflation. He likes that as would any kid with a money-tree. However, every time he prints a dollar, he dilutes the existing dollar holders. That's you Jay! You don't notice because you have no inflation or only 2% or so. But there are still only so many goods and services to go around so instead of the prices dropping, which they should do with constant dollars [or gold], they stay constant [or increase by only 2% or 3%, which is the Fed's aim - they print enough to keep prices increasing slightly].
But as the number of dollars expands, the value of assets such as land, buildings, gold, intellectual property, production lines goes up [because there are only so many of them at any one time]. But consumer prices don't go up because each unit of land, building, intellectual property and production line can produce a LOT more goods and services than previously. Notice that gold doesn't produce anything extra, so it only goes up according to the dilution rate. But it actually falls in value because the cost of digging it, moving it and all that jazz is going down faster than Alan's printing is going up, thanks to those increasingly efficient productive assets.
So the net result is that shares go up a lot. Gold goes up a little [or down]. Goods and services prices go up at 3% [because that's how much money Alan prints].
Now, as we all know, shares don't just go straight up. There are glitches, dramas, panics and outright terrors on the way. The dot.bomb was loaded and had to happen and it was going to take the other markets with them when it went. That's because when Amazon or Globalstar go to zero, the suckers holding those stocks [me in the case of Globalstar] have to sell something to lighten the margin load, [so I chose QUALCOMM - easy choice with GSTRF near zero]. That means all markets go down because there are links across portfolios to a wide range of assets.
Those who have to sell are those who borrowed Alan's cheap money because they know that he will print a lot to meet the 3% inflation goal, but shares will go up faster, thanks to new technologies. Those who are forced to sell are those who got greedy and didn't allow enough clearance for the inevitable down markets. Globalstar was NOT supposed to go bust! Fortunately, I had been super conservative so didn't really have to sell, but thought it prudent given the pressures on markets which could take a major dive even if it's just because of a sudden surge of mass emotion around the world. People do have mutually reinforcing emotional states [causing booms and busts].
So, I think you are going to sit on your cash and watch the bottom of the markets come in. Productivity will continue to increase. Shares will start to go up again as profits start increasing again as people realize the end of the world is, once again, not nigh and they go shopping for some more retail therapy.
Shares will go up quickly! Gold will not. Cash will not. Money is for buying and selling. Gold is for Aztecs. It's a really dumb form of money. We can't send it through cyberspace for a start. They have to dig it up [which is hard work], then they bury it again in vaults. Duh! Talk about digging holes and filling them up again. Sure, that's considered economic activity, but it's useless. Shares are the new store of value. Cyberdough will be the new currency.
Fort Knox with pallets of gold bars and Uncle Scrooge with his money bin are anachronisms. QUALCOMM and other such companies are the new store of value, which just happen to also make a profit.
That's my theory anyway. Feel free to barbecue as necessary because if I'm wrong, I'd like to know about it so I too can head for the hills.
The central issue now is to guess the bottom. There has not been a rapid domino-type credit collapse [which I have worried about and pondered for 5 years - yes, I have been trying to figure out what would happen with the inevitable crunch-up to teach people a lesson on borrowing for that long; much longer than the Johny-come-latelies in this thread who only noticed the issue after the Nasdaq had started falling from 5000]. There was no Y2K mess. There seems little to worry about other than the steadying needed after a multitrillion market cap contraction and collapsing wealth effect. The steadying process is well under way.
Once that lesson [excess borrowing] is learned, the chastened markets will rise, sure as the sun, with ever-diluting money printing driving them gently ever higher. I think we'll see fairly early interest rate rises to avoid a repeat of the irrational exuberance we saw for a couple of years where companies without profits or prospects of them achieved $100 billion market capitalisations and anything called a techstock was bought like there was no tomorrow. Which there is!
Mqurice
PS: I just read your previous post and I think we agree. So, you might as well ignore this post...oops, too late...
:-] |
