Magpie

Well maybe, but the dollar or other foreign currencies are far more prevalent in the black market there, from what I've heard.

I agree there's an issue about aging populations, and lower birth rates. We probably have to raise retirement ages, ration healthcare for life-prolonging treatments, raise taxes etc. Also we have to understand that immigration of younger potential earners from poorer countries may be only a temporary solution to this imbalance. That's all different to an 'unfunded liabilitiy' issue though. That's what I think is a bogus argument, because it doesn't address the reality of how welfare works - welfare is basically a decision about rationing in the here and now, not about using the wealth of past generations to sustain current welfare. There are hard decisions to make and they will get harder if economies start to contract, horrifically difficult if economies collapse. But for me the unfunded liability argument is at the least a questionable bit of reasoning.

I can't make my mind up about this "unfunded liabilities" argument. To be honest I think it is a bit of a bogeyman, put about by people who hate the government doing anything to redistribute resources. Basically any welfare system has a bit of double-think built into it. The claim is that we put money aside for the future, to be spent when we get sick or old. The reality is that today's taxes and government spending cover today's spending on the old and infirm. Effectively the tax system redistributes money to those who need it. In the future the same will happen even if the balance needs to be revised as we go along. The fact that spending in 10 or 20 year's time is "unfunded" is therefore something of a red herring of an argument. On the other hand the US has got a slightly different problem, which is that raising tax is so politically difficult, and they have been able to spend on deficit to an unusual degree. So they have brought i some elements of welfare without ever really honestly addressing the fact that this requires redistribution of current income. So to some degree tomorrow's money is being spent today. However I still think it is something of a bogus argument. Similar arguments could have been made in any country who set up a more comprehensive welfare system, and yet they manage to cope up to a point. There is no perfect solution as ever, but I think the 'unfunded liabilities' argument needs to be taken with at least a small pinch of salt.

So the dollar has risen by 25% against all other goods and commodities since the turn of the year? No wonder prices have fallen so far. And the dollar plunged by several hundred per cent in 1980 before surging back 65%? I don't think so. Of course there is short term variation in currency values and that's one of the factors in gold's fall vs the dollar. and of course currency loses value long term. But gold is turbulent in its own right, way above and beyond the effects of currency variation. To pretend otherwise is just silly.

Sensible answer. It's a rollercoaster and one that you hope will work out in the end.

You're really not prepared to listen on this are you. If a corporation selling gas had a large holding of oil, and the oil price fell, then their wealth would be eroded. They might well raise gas prices as a result - to protect their margins and wealth. Prices falling can cause price rises, just as prices rising can. You have to try to understand the difference between the effects of wealth erosion and inflation. Otherwise you're not equipped to understand the possible outcomes of this situation. Everyone is getting poorer as wealth is destroyed. As a result some of those who are able to will raise their prices. This will manifest itself as price inflation. That is very different to an inflation being driven by huge money and credit expansion. It's a chaotic situation, virtually unprecedented, and it could tip into major inflation, but I wouldn't assume it's the only possible outcome.

See, I'd put that down as an absurd piece of denial. Fiat has not just surged 20% against gold. Gold has fallen 20% against fiat. Just as gold more than doubled against fiat before that. Gold is a turbulent market, and to deny that just seems fatuous to me.

Very droll. But the problem is that it is perfectly possible for us to have inflation in living costs at the same time as deflation in the value of commodities - in fact the latter deflation feeds into inflation. Corporations and financials are faced with a reduction in their wealth base, so they try to claw back what they can from increasing their margins. Their actions feed back into further cost inflation for other companies and so on. Meanwhile the wealth destruction and deflaion continues at a larger scale. Biflation is maybe a better word for it. Don't let rising prices fool you into thinking inflation is the only word for it. I thought everyone here went with the view that rising prices are a symptom, not inflation in themselves. In this case they may be a misleading symptom - they are reflecting the past surge in money supply, not the current freeze and collapse of wealth.

I agree with this - the downswing in gold is actually rather alarming as it may indicate the degree to which deflation is biting, and that could feed through into some shocking results in stocks and financials. There will certainly be more bad news through the autumn. I have to say that while cgnao was bang on about the problems, I still don't believe in his hyperinflationary outcome - for sure the CBs are trying to keep money flowing, and there will be inflation in living costs as that money shifts around. But so much wealth is getting destroyed by the deflationary effects of the credit crunh, I find it hard to see how hyperinflation could get a foothold. I may be wrong - cgnao has got far more right than wrong, so maybe he has the endgame right too, who knows.

This is going to be interesting to watch. If this really is the end of the bull, this thread could be a study in cognitive dissonance as denial as people downgrade their previous lowest expectations and keep predicting an upswing. However as a relatively dispassionate observer, my observation would be this. What we are seeing is a reminder of how shockingly turbulent gold can be (maybe because of interventions, but more likely because of the size of the market and the degree to which sentiment swings it). I've seen a graph here where an upswing in gold through the autumn is extremely common. And I believe there is going to be plenty more scary financial and international news this autumn. So an upswing still feels more likely to me than not. My worry would be the degree to which deflationary forces are starting to drag money available for all investment down. Gold may turn out to be some kind of insurance simply because its value doesn't collapse to quite the same degree as other popular options such as shares and property. People are going to lose a lot of money from bad property investments and companies are going to collapse*. Gold might just bumble along in this region, not doing quite what you'd hoped but still protecting your wealth better than some alternatives. Good luck to those of you holding anyhow. Must be a slightly unnerving period, but hopefully you like rollercoasters, and the next uphill stretch might be close. * FWIW - I don't have huge amounts of money and most of mine is in my property - right now that isn't working out so great either as I haven't been able to remortgage and that is making life a little tough, so I hope I won't be showing any schadenfraude if gold has its own problems.

It still gets written down in the interim. And in the current state of a market with a hangover from securitisation, the effect is to reduce the value of all that mortgage paper that was floating around supporting the banks balance sheets. The final write-off may be years ahead, when they can afford to admit to the last bits of their losses, but they need to find ways to stretch this process out while they drag in some more profits to stay 'solvent'. Edit: Bear in mind also that in the US loans can in some states be written off completely when you give the keys back, thus the severity of the immediate write downs over there, and for any fool around the world who is holding their sub-prime paper.

you're forgetting that in many cases the +100,000 is given to someone else who pays off a different loan with it. If they are in a chain, it is only the person at the end who comes out with money, and that is only any money they have in equity. So the result of this equation is far less inflationary in monetary terms than this simple example suggests. Whereas the write down in the bank's balance sheet prevents them from loaning out a whole lot more money - it might do this immediately or belatedly, but either way the effect is multiplied because of fractional reserve effects. So the overall effect is far more deflationary than inflationary. People are right to point out we have a combination of deflationary and inflationary pressures right now, but some of you inflationists are in denial about any suggestion of deflation - debts being written off is a destruction of money over all - the lent money may still be 'out there' (though often it is merely been used to settle other debts) but the real deflation comes from the effect on the bank's ability to lend. The CBs are indeed trying to combat this, but not through unlimited money printing. As yet we really don't have the ingredients for hyperinflation or even very high inflation, though it is far from impossible.

Yeah, but the point is that the money is only destroyed belatedly when they write off the debt. In the meantime it sits on their books. A lot of people end up paying back only a fraction of the lost money, but the bank can write it off once things have settled down a bit a few years later, or come back and chase for it if they so choose.

Only if they write off any outstanding debt, which they don't do for years. Instead they hold it against the mortgage holder and often return to pursue it years later. Meanwhile it sits on their books as an asset, albeit a rather distressed one.

Anyway, I should get on with some work. The cartel were in the office overnight making a right mess of my desk.

I was responding more to cgnao and those who seem to think the market has been manipulated consistently over many years. My original point, which was disputed, was that $35 gold in the late 1970s was a fairly extreme suppression of the price, by formal means, because the price was held at that level for the best part of 40 years, openly. No wonder it shot up through the 1970s once they allowed a more free market, but also that was what led to the hysteria of the 1980 peak. What you say above seems far more plausible to me - I can credit them targeting gold as well as inflation figures to try to suppress the reality of how much our money is being devalued. Inflation figures are of course more of a long term issue as they probably consistently underplay the extent of real inflation, if only by a modest amount each year, but it all adds up.

No, because I believe it is a paranoid theory. And that the conspiracy it alleges is far too elaborate and unnecessary for the cartel to have undertaken it.

I believe in the bogey man up to a point, and don't dismiss all of GATA's arguments. But I think the interventions are more likely to be occasional and focussed and that any cartel with any sense would avoiding trying to hold gold at 50% of its natural market value for a period of decades. The alternative theory, that the gold price is completely manipulated and has been throughout the last two and half decades, I find implausible. Markets are pretty hard to buck indefinitely.

Simply too paranoid for me. It's hard to manipulate a market in short bursts but of course it can be done. But over long periods it would require constant action, almost impossible to achieve. Also you need to think about the options of the manipulators. Whatever they were trying to achieve could almost certainly also have been achieved by allowing gold to grow steadily over time, but keeping a lid on it, so why keep it hugely below its natural rate at a level that would require constant intervention? They would be idiots if they had chosen that option, yet we are asked to believe they are evil geniuses. I'd suggest the free market set the rate for most of that period.

Not convinced, sorry. In 1971 the price had been held at 35 bucks for forty years because of the monetary system. The price exploded after that cap was removed. Now there is probably some market manipulation, but I refuse to believe that the price has been held artificially low for 28 years by market manipulation. No-one has that much power. So at various points over the last two and a half decades Ockhams Razor would suggest the market has set the price, not the evil cartel, and it has set it at levels between $300 and the recent $1000+ peak. I still think it will go higher again, I'm only arguing with some of the wilder predictions of the top.

Hmm, maybe and that graph does make it look like there is plenty of room on the upside. But like many graphs it is riddled with problems. Someone has chosen how to map M3 against POG and their assumptions are fairly clear*. Also, it's very hard to compare the 1971 period to today given the parabolic curve - it still looks like a bigger gap in 1971 even on that graph to me, but I'd need to see the raw figures to see how else they could be presented. * For instance why set the base at 1960 rather than earlier, which would have shown the 1970 price as being further below par. Also if you shift the whole POG curve up a bit, you'd get the result that the 1980 peak was further over the mean, and we would now look closer to par. You can draw these graphs a lot of different ways.

Sounds about right. I think global money supply is a slightly more complicated issue than a single economy's money supply. There is a reason for money supply to increase when an ecnomy grows significantly, and that may be part of the reason for the higher global money supply growth. I think as a rule of thumb, you'd expect the relation between money supply and inflation within an economy to revert to mean, though you might need to make some allowance for genuine economic growth and population growth, both of which can allow money supply to increase by more than inflation.

Though it had been artificially held at $35 for decades, the 1970s saw massive general inflation, and $850 was a brief spike. Some of those may apply now, though I don't think the current price is as artificial as £35 was in 1971.

Agreed, and that sounds more realistic to me. I just get uncomfortable when people are too wild-eyed in their analysis...

Hmm, maybe my memory was a bit off... I remember beer going through £1 a pint, but I guess that was later in the 1980s. You get the basic idea though. No real reason to expect gold price to rise by the level of the money supply growth rather than the level of general price inflation.