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Politics : President Barack Obama -- Ignore unavailable to you. Want to Upgrade?

To: gerard mangiardi who wrote (139621)	11/1/2013 7:48:40 AM
From: RetiredNow	1 Recommendation Recommended By R2O Read Replies (1) \| Respond to of 149317

duh, if us currency is being debased why has inflation not exploded. why has gold dropped? how come the velocity of money has stayed so low. sucks when facts dont fit the theory. First off, your facts aren't correct. If we measured inflation in the US the way it was measured prior to 1990, then inflation is running closer to 10% per annum. Inflation is pretty high in commodities, food, arable land, and oil and gas. Gold has had an incredible run over the last 10 years, but nothing moves up in a straight line. On top of that, what a lot of people don't realize is that because we are the reserve currency, our debasement of it results in a massive EXPORT of inflation. This inflation has clobbered foreign countries. That's nice for us, because it helps the US not feel the full brunt of our inflationary policies. In economics, we call this phenomenon a "beggar thy neighbor" policy enabled by our reserve currency's "exorbitant privilege". In other words, we are the only country in the world that can print this much money for this long and not have the whole financial system implode. But there is a limit. It's like a loaded spring. We keep coiling it tighter. Eventually, the consequences will hit with full force. As you can see, as the M2 money supply increases, so does CPI. It's a pretty tight correlation. Now let's talk about the velocity of money. The declining velocity of money is the clearest symptom of declining economic activity we have, which has been caused by Keynesian money printing and zero percent interest rates. You see, the QE money has gone into monetizing our debt through Treasury purchases and into buying up MBS bonds. That has driven interest rates down and those bonds have been parked at the Fed Reserve. That transmission mechanism of that newly printed money into the free market has not followed the normal course that is followed with natural capital formation. Instead, it has created massive money flows into the stock market, commodities, arable land, and real estate, as well as foreign markets, as bad money (USD) searches for anything with yield to get rid of the risk of holding money that's being debased. Those investments are being held and hoarded. And this has served to starve medium and small businesses of cash. Large businesses can get loans at low rates and they have, but small businesses can't get them and it is small businesses that create most new jobs and most economic activity that results in the rapid fire money flipping and changing of hands that causes an increase in the velocity of money. Knowing this, I invested in companies like Triangle Capital Corp. who borrow money at low rates to flip it over and lend it to small and medium sized businesses that are starved for capital due the Fed's policies. These businesses are viable, but just can't get the working capital they need, because banks have zero incentive to lend money to the free market when they can park it with the Fed and earn risk free interest or borrow at ZIRP and buy Treasuries at 2-3% interest risk free. TCAP has been one of my best investments over the last few years. See chart here: finance.yahoo.com One last thought for you, when the velocity of money turns up, that's when the risks of exploding inflation start to rise. At that point, think about how to invest to hedge against truly painful inflation. I have 5% of my portfolio invested in gold as a permanent hedge against dollar debasement and inflation. My friends in the financial industry and my former financial advisor tell me that this is wise for a long term investor like me.