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To: Terry Whitman who wrote (150256)	2/8/2002 3:01:18 PM
From: pater tenebrarum	Read Replies (2) \| Respond to of 436258

Terry, don't forget: in the early 30's, money supply was inflated vigorously as well. it didn't help because of changing liquidity preferences. it is NOT the central banks that determine whether we get deflation or inflation: it is the social mood that is the decisive factor. it is very important that one keep this in mind: a private sector debt overhang CAN'T be inflated away just like that. it's easier with government debt. in theory of course, the Fed can monetize whatever it wants, even bad loans belonging to the private sector. but doing so would be equally destructive, as destroying the value of money doesn't create wealth. also, the liquidation of the malinvestments that have accumulated during the false boom must be allowed to proceed. otherwise worthy enterprises will be in danger of failing along with their less worthy peers, and it will be all the more difficult for recovery to take hold. regarding gold, you may be right: it's possible that it actually signals reflation expectations. but otoh, it may well be rising due to something entirely different:namely loss of confidence in the system. gold generally does well in deflationary eras because of this. i have frequently mentioned in the past that studies show that gold has historically been a better deflation than inflation hedge. aside from that, there is the special circumstance of forward selling supply having dried up completely, giving way to covering of hedges instead. this removes several 100 tons of supply per annum, quite significant considering the size of the market.

To: Terry Whitman who wrote (150256)	2/8/2002 3:25:40 PM
From: reaper	Read Replies (2) \| Respond to of 436258

TW -- no inflation coming. Money going to money heaven faster than Al.com can print it; what do you think the D tranche on that last Americredit securitization is going to get? <g> Gold is a deflation hedge (it holds its value while everything around it -- US $, structured calls on deadbeat car loans and credit card debt that we call "money" -- deflates). Maybe "store of value" would be a better way to put it. 10-year yields going sub 4% this year, and inflation will be non-existant. We're in the deflationary death march now. Long cash (CASH, not "money"), govies and companies with real cash flow; short leverage. Cheers