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Gold/Mining/Energy : Precious and Base Metal Investing -- Ignore unavailable to you. Want to Upgrade?

To: marynell who wrote (385)	10/30/2001 9:53:32 AM
From: Claude Cormier	Read Replies (1) \| Respond to of 39344

A depression, you think ? Could it be only a major recession like in 73-74? Even if we end into a depression, I don't think that low commodities prices can be sustained for a decade long with the kind of money growth we are having right now. Governements don't want to see deflation as it is bad for political business.

To: marynell who wrote (385)	10/30/2001 2:49:35 PM
From: Kaena™	Read Replies (3) \| Respond to of 39344

Inflation / Deflation Debate - Steven Saville explains it this way: We were prompted to discuss this topic by an e-mail we received in response to one of our recent articles. The reader argued that the world was headed for a deflationary collapse that would take the gold price to $100 and the oil price to $6. Our response was that we would be quite willing to embrace the idea that the world had entered a period of accelerating deflation if the evidence pointed in that direction. Right now, however, the evidence points overwhelmingly to continued inflation. Furthermore, when someone talks about gold going to $100 and oil going to $6 they are effectively saying that the US$ is going to become 3 times more valuable than it currently is. Since the US$ is managed by an institution that has the power to monetise every private and public sector debt in the country if it chooses to do so, and since this institution is clearly following a policy of inflation, a tripling in the value of the dollar relative to hard money and essential resources is unlikely in the extreme. The Fed, of course, won't monetise every debt in the land - it won't have to - but the experience of the past 3 years has told us that it will go as far in that direction as it needs to go to avoid deflation. The Japanese took a totally different path, perhaps because they had trillions of dollars of savings to protect. American voters do not have savings, they have assets and debts. By the way, an increase in the money supply does not cause inflation. An increase in the money supply IS inflation. Inflation causes some prices to rise, although it does so with enough of a lag to convince many people that this time is different (they start to think that, for the first time in history, this year's high money supply growth rate is not necessarily going to result in higher prices somewhere down the track). Statistics such as the CPI are attempts to measure the effects of inflation. It is, however, impossible to accurately measure the effects of inflation because there is no way of knowing how the excess money was used. We can make assumptions, for example if the trade deficit surged during a period of high money supply growth while consumer prices remained stable we could assume that a large proportion of the excess money was used to purchase imported goods. Similarly, if stock prices moved well above levels that would normally be considered reasonable (reasonable, that is, based on the earnings of the underlying businesses) then we could assume that a significant portion of the inflation was channeled towards the stock market. However, there is no way of accurately measuring what proportion of any price rise is a result of inflation, particularly since the cause (inflation - the money supply increase) and the effect (rising prices) are usually separated in time by more than one year. This is, of course, the inherent problem with inflation - it confuses price signals and thus leads to poor investment decisions. Thinking of inflation as being represented by a change in the Consumer Price Index, or any price index for that matter, is not only wrong it is dangerous. Doing so leads to the conclusion that today's break-neck money supply growth rate is not a problem simply because prices have not yet responded. Such 'logic', when practiced by those responsible for framing monetary policy, will inevitably lead to an even greater inflation problem.