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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: The Vet who wrote (87937)	9/3/2007 1:14:40 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 306849

I agree that is all seems rather crazy, but I really think that the whole mechanism of a fiat currency which can be created at will by debt, combined with fractional reserve lending is rather weird if you start the examine it. Gold is no different. The Monetary base of the US exploded after the 1847 gold rush, causing rampant inflation (remember reading about $1 eggs being sold by merchants in the gold camps?). The same thing happened to Spain after they conquered the Aztecs and Incas... Decades of rampant inflation throughout Europe as their monetary base multiplied as a result of their exploitation of the precious metals from the Americas. en.wikipedia.org The Spanish Conquest of Mexico and Peru The Spanish conquests in the New World were, like the Crusades, partly motivated by missionary zeal but also by greed. The Europe of the Middle Ages had often experienced shortages of bullion but with the conquest of the Aztecs in Mexico and the Incas in Peru, and the opening of the silver mines in Potosi (now in Bolivia) the dearth gave way to abundance leading to problems of inflation in Europe. The repercussions of the Spanish conquests were felt as far away as China. Initially imports of silver from the New World gave a boost to the Chinese economy but eventually the country became dangerously dependent on that source for its basic monetary supplies. The stage was reached when the total annual output of China's own silver mines was less than that carried in a single Spanish galleon sailing from Acapulco. As a result, when bullion imports started to dry up after 1640 the Chinese economy, the world's largest, was plunged into a terrible recession which undermined the stability of the Ming Empire (1368-1644). ex.ac.uk Gold is no sanctuary of financial safety if someone suddenly strikes a tremendously large new vein of it. Furthermore, any shortage of the metal to back up currency will create deflationary spiral as economic potential is constrained by lack of specie to provide the financing. But there certainly is a problem when credit is extended beyond the means of the borrower to pay it back. And it's compounded when when that borrower is using that credit to purchase assets that are already overpriced beyond any sense of sustainable demand. Hawk