Credit Deflation = More Credit Inflation =
Hyperinflation+Depression
Shelby Moore
December 3, 2008
"Magicians can steal from your pocket unnoticed, by creating an illusion."
Gold & silver will go UP in value in this deflationary credit collapse, inflationary credit reflation, because collapsing the credit of the broad population, debasing the broad population by redistributing credit to elitists of the bankers, eventually forces the broad population to stockpile food and save in precious metals.
Experts are predicting mixtures (oscillating bouts) of deflation and inflation, ending with a big deflation and world wide implosion of the fractional reserve credit system...
Marc Faber at 5:50 min point forward, and HSDent.com (who used to predict Dow 20,000) says stay in cash to buy fire sale assets in deflation and says commodities will crash after a 2009 rebound. I agree fire sale assets are coming, but not for those who hold cash.
Apparently many "experts" do not seem to realize, that when credit dies, then gold becomes more valuable. When credit money system dies then inflation and deflation are the same thing. Credit economy dies (deflation) while money (which is just credit) debasement increases to bail it out (inflation). It is just a redistribution of credit, or a hidden tax or theft on the broad population. Gold (real capital, not credit) wins as I will explain in detail.
Marc Faber seems to understand.
HSDent says to "be in cash", but cash will be debased (losing value) as the govt+Central Banks (out of thin air) have in the last 3 months have created new credit (and some claim $8.5 trillion) enough for $1000 for every living human on earth, or $50,000 per working person in USA (in just 3 months!). The broad population is being diluted by several times more than each person's annual income, meaning the dollar is worthless as soon stampede realizations ensue. Remember the mathematical implications I explained before that fiat money is just credit, never is it capital. So as this worthlessness of fiat propagates out into the financial system, then what can people do with their worthless dollar s as they all race to not be the last to dump them?? Of course, people have no choice but to buy real things they need, i.e. food and gas or to store excess in gold. Marc Faber may be correct that for industrial metals (as contrasted with food & gas & precious metals) capital spending could continue to decline, but this won't apply to silver.
As people are forced to flee the fiat due to massive debasement/dilution, then as commodities' prices and shortages become unbearable, then the production of the world economy slows down. This will force the govt+Central Banks to create even more create (out of thin air) to bailout failure, which thus forces people to flee even more the fiats, but when there are no more commodities to buy, or the price of them just doesn't make sense (e.g. $10 for gas, loaf of bread, gallon of milk), then what will people buy in order to dump their fiat?? Of course, precious metals.
Please read what I wrote before:
"...Deflation of prices is only possible when the money of circulation is, or is a bill exchangeable for, precious metal (gold and/or silver standard). Deflation of prices occurs when the money supply can not be increased faster (than the mines can produce) than the supply of goods. Deflation encourages saving, which is in the long-run is good for sustainable capital investment...
...In 1930, the government was powerless to increase the money supply, because the USA was on a gold standard. FDR's New Deal was not possible until he had removed the constriction of the gold standard (domestically) with the 1933 confiscation...
...This has enabled a massive hidden tax on the society in order to finance American dominance globally. The tax was paid as poverty in developing world, and as accumulated fiat debt in west...
...The hyperinflation will manifest as soon as the world's bond holders become aware that they are being debased at double-digit negative real interest rates... ...bond holders are currently focused on the imploding credit, not on the money supply. It is going to be whiplash in the bond markets sometime in 2009 or 2010. Then all hell will break lose.
In order to keep the developing nations in the world financial system, without moving to a 100% gold/silver standard (which is impossible due to Gresham's Law and usurious interest rates), some sort of layered financial system will have to be put in place like the 1933 Bretton Woods on a global scale, wherein domestically (or regionally) countries will be on fiats (with usurious interest rates), but international exchange rates will be set in gold. Who ever controls these exchange rates, will control where capital is incentivized to flight or haven..."
But there are other additional factors, which will drive precious metals even higher than commodities in general.
The govt+Central Banks will be forced into a difficult situation, because as the prices of commodities are going ballistic, this causes social angst, so the Central Banks will either be forced to raise interest rates and/or the government will be forced to socialist, totalitarian fascism, so they can regulate the movement of capital (so people will not be allowed to stockpile commodities). If interest rates are raised, then world financial system will implode with defaults, thus it just pours more fuel on the fire, because the Central Bank will create more money/credit (out of thin air) and more debasement. Thus I am nearly certain the government will resort to fascist capital controls, and this is incredibly bullish for gold. If the higher interest rates is chosen, then this will prime the system for even more defaults, debasement, and be even more bullish for gold (on a lag).
The developing world will see it's value rise as commodities rise, although this will only improve the wealth of the saver in the developing world, as a the person who spends a large % of income on the basic necessities of life, will be squeezed by rising commodity prices. But this can be coupled with rising job opportunities, as most commodities are produced in the developing world. This depends to what degree the developing world is free market and not fascist, socialist, and totalitarian. It seems to me that China will manage the production of the developing world to a large extent, and will thus sacrifice the maximum prosperity, for the socialist well being of all (meaning a centrally managed, non-optimal prosperity). And there is danger of social disintegration, that would require heavy handed treatment by governments in developing countries, or anarchy.
All of those implications in developing world, favor precious metals over general commodities.
Silver is both a commodity and a precious metal, which makes it exponentially more bullish than gold. Silver is up to 5x more rare than gold, in terms of above ground supply that can come to market. Silver is at near all time lows in price ratio to gold (80 versus natural production ratio of about 7; and historically about 10 - 15, when silver was circulating money). So when people flee fiat, and they see silver is 50 or 80x cheaper than gold, with gold into the $2000 - $5000 range, then they have no choice but to buy silver. Then with silver more rare than gold, the price rise will be much steeper than for gold, thus people being trend followers, will pile on silver, sending it to perhaps even parity to the gold price. Unlike in 1980 (when there was massive oversupply of 90% coin from the 1965 worldwide de-monetization of silver coin), silver won't be in a bubble and won't come rapidly back down in price, because it simply is that rare and the mines are shutting down. It will take many years to ramp up silver production. Also the 1980 bubble was caused because the Hunts went long on silver using paper future's, not entirely physical metal purchases. This time around, the lopsided future's position is short, and the longs are digging in the heels buying physical!
The silver spot price has been forced down by the alleged large USA bank's manipulation of the future's market price. But please realize that the open interest in the future's market is dying, and thus it is suspected that in 2009 that large bank will lose this manipulative power and the reality of the silver shortage will take control of the market price. You can track the demise of the Comex for gold & silver.
Disclaimer: The above are my personal opinions. I seek safe harbor. I am not a professional advisor. I am not responsible for anything anyone does after reading this. Seek your own counsel on all matters.
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