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To: Tim Cruise who wrote (4842)	12/28/1997 11:47:00 AM
From: skelly	Read Replies (2) \| Respond to of 116753

Tim: My MBA friend explained to me that in a deflationary period gold goes up in value because the major banking systems willall be in major difficulty as banks will loan out 8 to 10 times more than is invested in the bank. the loans are secured by assets (ie real estate cars company ious etc ) which fall in value thereby causing defaults which magnify the bank's loses. I think this is what is happening in Japan today. as a result real assets such as gold become more valuable. A word of caution : My friend was also a great believer in BRE-X. skelly

To: Tim Cruise who wrote (4842)	12/28/1997 3:19:00 PM
From: PaulM	Read Replies (4) \| Respond to of 116753

T. Houston. Here's my take. For many yeras, the major industrialized nations have all seen unsustainable levels of debt, public and private (including bank debt). Nobody thought much about this, or cared because there hasn't been occasion to call in the chips on significant scale. But in Asia today, we have a trigger. As I see it, bankruptices and defaults in Asia will continue and accelerate. This in turn will have a dramatic impact on the asset side of the balance sheets of those owed money from the defaulters and the bankrupts, which in turn will affect those owed money from them, and so on. Because of the interdependance of our global economy, "so on" will include govts and institutions in every major industrialized country. Lots of assets will disappear. Mostly because the "assets" depended on someone else's promise, which is no longer good. To put it another away, the gap between what people, govts, institutions think they have, and what they in reality do have, will shut. In the face of the painful reallocation of resources this financial crisis will cause, cries will rise up for the world's govts to "do something": namely to create capital where none existed in the first place. This govt cannot do. What it can do is make lots of money (inflation). Gold is a big winner in that scenario for obvious reasons. The alternative is to continue to allow more defaults and bankrupticies, and liquidation of consumer, private bank, municipal and even (its own) federal debt (what I meant by deflalation). Because huge amounts of money disappear in this scenario the price, of real things tends to decline (at least in nominal terms). Real estate should do especially poorly because few people can buy it without credit. And in a world where credit is tight or non existant the price of real estate must collapse to what (some) people can afford without credit. Nevertheless, I believe gold remains a winner, because what capital there is still has to flow somehwere. You might think in cash, but think about what a dollar is. It's a piece of paper whose value beyond instrinsic depends on the full faith and credit of the the govt with jurisdiction in the area. If Moody's is downgrading a govts credit worthiness or the govts allowing default on its bonds (again, we assume no money making in this scenario) people tend to lose confidence in that credit worthiness. Unlike stocks, bonds and cash, gold is an asset that does not depend on anyone else's promises. It therefore becomes attractive in (deflationary) times when lots of promises are broken. Again capital has to flow soemwhere. Unlike real etsate, gold is liquid, and can be divided into parts small enough to trade for every day needs. Unlike food stuffs, it doesn't spoil. Unlike consumer goods, it doesn't lose value the moment you buy it. In short, I'm betting gold wins in a serious deflation because it will NOT be perceived as "any commodity," but as MONEY, which increases value in a deflation. This has nothing to with how people view gold today, but follows from its peculiar characteristics, which will be rediscovered out of necessity. I'm also encouraged by the fact that gold has already suffered huge deflation, more so than any other commodity. What we have is a classic boom euphoria (fearlessness), on the precipice of bust (panic). Gold and fear are closely correlated. I think the argument for gold shares is even better, because whether we see inflation ro deflation in the coming years, we're likely to see lots of volatility. Which suggests gold will rise relative to other real things, and implies the miners' costs will at least decrease relative to their revenues. Good Investing

To: Tim Cruise who wrote (4842)	12/28/1997 3:19:00 PM
From: Mark Bartlett	Respond to of 116753

Timothy, <<In a period of serious deflation, I would not expect gold, or any commodity, to do well. In fact, I would expect quite the opposite and suspect that gold will be down and out for the next 10-15 years.>> In fact it is _just the opposite .... historically gold has performed best in periods of _deflation. Look at Homestake after the depression ... clearly that was the place to have your $$. MB

To: Tim Cruise who wrote (4842)	1/13/1998 12:41:00 AM
From: Ronald P. Margraf Sr.	Read Replies (1) \| Respond to of 116753

Hi Tim, If I might say something here. JMHO. IMHO, deflation, depression, recession as far as I am concerned are all the same thing. With deflation you lay off folks. Depression is that there aren't enough folks out there making money to buy goods. Recession means that no business is being conducted on previous levels. Now doesn't that sound like depression. The only difference between the 20s and now is we call it a different name. When this takes place the US dollar will fall. Tax revenues will fall. Govenment can't back up its $. WELA!!!!! What do we have? To many dollars out there and nothing to back it up. What is the answer??????? What has value when nothing else does? I let you give me the answer. I have been through the Ford/Carter administrations. I am now going through a Clinton administration. Better hope that Rubin doesn't quite.;-))))))) Ron