romans holiday

Yes, Churchill ummmed and arrred about it for quite some time before finally deciding to go back to pre-war parity... to the consternation of the modern economists. imo the real villain of the piece is Roosevelt, yet the way history has been written Roosevelt seems to have been elevated at the expense of Hoover. Hoover may have had his faults but at least he was a stateman with an international perspective. His memoirs are a good read.

Dollar strengthening here could see higher gold prices. Over the course of this year [since Feb], gold and dollar have been roughly positively correlated as safe havens on risk aversion.

I was thinking along the lines of - if someone were heavily indebted with say an illiquid property, and then the monetary value of that property collapsed, they would do well to have a large percentage of their liquid worth in gold... say 50% [thinking of gold as a currency here, where those ounces would be say half your liquid worth]. The reason being, the rising price of gold would be a safety net to clear the debt if needed. The danger is if they repaid most of the debt with their funds rather than put a substantial amount into gold, and then the monetary value of the house collapsed, they would be in a position of having no liquid funds and at risk of having to sell the house.... unless, as you say, there is income from the property [but who wants to rely on rental income in hard times]. Similarly, if someone was completely liquid without property it would make sense for them to have a large percentage of their worth in gold in case other currencies continue to weaken. This would enable a more fortuitous purchase of free-hold property at a later date once prices had deflated. Seems the best policy is to be as liquid as possible in the strongest currencies.... unless the reasons you have for owning assets are besides monetary ones.

Especially if held without debt.... and the monetary value of assets are not a prime concern. If on the other hand one was either in mortgaged property or completely liquid, then the percentage of your liquid worth in gold should ideally be greater imo.

Mostly due to pound weakness. Pound also looks like it wants to test its lows against the dollar again soon. Starting to look like a third-rate currency. If the pound price of gold spikes to a 1000 odd over the next few months, it could likely come back to 850 odd [the old spike being the new support looks like the pattern].... before going on to greater things of course.

Quite early on, it is based on the logic of a debt-based fiat money system. Everyone is short the currency. "Short-covering"/ debt deflation sees the currency strengthen relative to assets, and gold relative to currency. http://the-moneychanger.com/articles_files...omy/exter.phtml

Consider that a process is at work with gold whereby it is being "monetized", and thereby "decoupling" from the conventionally assumed correlations. Gold is becoming more stable as other currencies are becoming less so. The gold/ pound cross is a good example of this; where dollar price of gold was relatively stable [because the dollar was also relatively stable]... the pound price exploded parabolically to the upside only to quickly return down to the long term trend line. Here, the pound/gold price was only measuring the volatility/ instability of the pound. I expect more of this in the future where the gold price will be relatively stable against reserve currencies [slow incremental increase] while the price in other currencies will get even more wild... extrapolate the recent past into the future. Silver is an interesting one. It is not simply a leverage on gold as some assume, and does not have the same monetary recognition that gold has. That said, I think in the long run it will keep up with gold... though perhaps slightly underperform [the performance of gold in this environment "pulls silver up with it" imo]. Silver looks to remain volatile at times against the dollar, but gold would also have to be weak against the dollar for the price of silver to be really hit. This may become more unlikely as gold becomes more stabilized/ monetized. It may require deleveraging proper on a double dip to see gold dip to the extent which could see silver back to $15 odd. But even if there was the double dip deleverage, I doubt gold would go very low due to uncertainty and to its confirmed safe haven status. Gold is gold, and silver is silver. It definitely pays to have a core holding in gold. Over and above that, silver looks a reasonable hold though should be considered more speculative.

Not much argument from me with the above. Perhaps you missed the "Weimar, could it really happen here" thread. It was discussed and agreed [along the lines of the above post] that hyper-inflation and inflation are very different beasts. What is interesting though in Weimar was the "tipping point" of where high inflation [where there is high demand for the currency] quickly morphed into hyper-inflation [destruction of the currency]. The point of the thread was that if hyper-inflation was to occur it would have to follow a very different route to Weimar. http://www.greenenergyinvestors.com/index....t=0&start=0 Lots of things have been observed before, and that may either help or hinder current theory, and future predictions based on that theory. Past observances shouldn't be completely definitive of present theory because theory always develops and changes with new circumstances/ insights [if you think philosophy is nonsense, history of science is sufficient to estabilsh this... it also shows the greatest scientists were also philosophers who held the school of scepticism in the highest regard]. Speculation is at the heart of discussing macro-economics today which, by its very nature, involves theorists arguing whether the future outcome will be deflationary or hyper-inflationary. I mean, there is no direct observation of hyper-inflation today [the appearances seem to be the opposite]. If instead you want to argue that there are certain economic/ monetary laws at work that will lead to hyper-inflation [not based on observation but reason].... I don't see how this is any less theoretical. The scientific approach is inherently theoretical. My point on philosophy was simply that we should be aware of the nature of scientific theory..... that scientific method self-consciously recognizes it has no certainties, and it's working hypotheses are quite contingent until something better comes along. In short, theory can not be dogmatic. It should rather be pragmatic. I'm interested in a theory that can account for both the observations of deflation in assets prices/ credit, and inflation in money supply.....a theory that can explain/ predict such diverse phenomenon as local asset prices declining against local currencies, the Dow going down while gold goes up, or again, where the reserve currencies can strengthen against non-reserve currencies... even as gold steadily slowly strengthens against reserve currencies. I don't see either of the conventional theories of deflation or hyper-inflation being corroborated by these facts so far, which may make them dubious dated theories.

It's all about liquidity. Yen, gold and treasuries go up on safe haven demand, and assets such as Dow goes down on risk aversion. Two sides of the same coin. This makes perfect sense when thinking of gold as a currency and not an asset. It also makes sense when you consider the Dow should continue down in a deflationary environment while gold benefits as a safe haven currency.

First of, thanks for continuing with a rational debate. Truly, a breath of fresh air given some of the recent inanities. Well, most did associate the dollar with real value, and it continued to increase in value against asset prices as they crashed..... just like today. Yet, the more sophisticated [investors and nations] became concerned that Roosevelt would devalue the dollar [go off gold] just as other countries had done. This is also similiar to today, where the US is trying to devalue the dollar by other means.... though this time it is more difficult to do. My point is here that there is a similiar dynamic at work in debt deflations which makes money more valuable relative to assets... and which makes the "backing" of money irrelevant. The reality of debt is the driving factor. The causes of the Depression are a lot more complex than the usual monetarist story we hear. The Depression was not simply uni-causal [lack of money supply] or US-centric. There was an international aspect to it, preceding the Wall Street crash. The financial world never really recovered from the WW1, Britain tried to but was unable to continue with in its leadership role in global finance, and the US was unwilling to pick it up. It was primarily a collapse of international finance, and the currency system, which lead to each country protecting its own national interest... nationalism. Kindleberger's main thesis is the lack of a "stabilizer" post WW1. When Roosevelt came in, he completely ignored the problem of international trade/ order. To the horror of the poor Brits, who thought they'd bequethed the Americans leadership, Roosevelt completely broke with the idea of restoring an international system/ stabilizing currencies against a new gold standard. Instead, his approach was nationalist, and he devalued the dollar [against gold] in order to stabilize/ raise prices at home. This just lead to further chaos in the international order, and we know where that lead. *[britain made a mess of it when it tried to put the pound back on par with the pre-WW1 level [after it had already depreciated quite a bit]... this was hugely deflationary and squeezed their economy. What they should have done is stabilized the pound at current price levels to a new gold level... why didn't they do it? something to do with a gold mythology; there could only be ONE standard... the pre War one.] Yes, but in regards to the perception that dollar was backed by gold, keep in mind that both countries and investors were nervous about whether the US would actually stay on gold [which was wise given that so many countries had gone off]. The general population wouldn't have given much "fundamental" thought to the currency as they don't today. Most, if worried, ran to the bank for dollars which they stuffed under their mattress... evn though those dollars were soon to be devalued by decree/ fiat. The same forces are at work today, but consider how much more difficult it is to actually devalue a currency that floats in the market as opposed to one backed by gold. Roosevelt could simply by decree, confiscate the gold, and then devalue the dollar against gold, a huge windfall for the treasury. Today, market partipants may keep buying dollars [to pay down debt/ safe haven etc] even as the Fed wants to devalue it. This "short-covering" of the currency will only serve to strengthen it... just as has happened with the Yen. Those same market participants and others besides [the real big players], investors and central banks, will also be buying gold due to concern about rising debt, and mounting currency instability. So dollar up against weaker currencies... and higher gold prices in all currencies.

The dollar was significantly devalued by Roosevelt against gold in the depression, so it isn't really as simple as "the dollar was backed by gold in the depression". Even in the depression, it was best to swap dollars for gold... as long as you could. There is a similiar dynamic at work today, yet the fx market will do for gold by market forces what Roosevelt was able to do by decree... given the currency was pegged at a certain level to gold [mind you it was much easier for Roosevelt to devalue the dollar than it may be for the market to do so relative to other currencies etc]. The dollar didn't do great things when you consider the devaluation.... but it still managed to hold its own in prices thanks to continued deflationary pressures... against assets etc, and it most probably will do so again.... to the chagrin of the authorities. Too much is made of the different currency systems, where in the depression it was supposed to be "backed" and ours today isn't. Facts are the depression dollar wasn't so rigidly backed when you consider the price of the dollar was devalued against gold, and today's dollar isn't so unbacked when it is "backed" by debt creation. Money is money, and human behavior can completely trump the "fundamentals" of a currency once a debt deflation sets in. This is the common over-riding factor.

http://www.bloomberg.com/news/2010-08-23/g...ces-appeal.html “

How is it wrong? Where is the disagreement? My position is that the dollar can become significantly cheaper when buying with gold while at the same time the dollar can become more expensive against other currencies. It's all relative; the other currencies will become cheaper against the dollar, and very cheap against gold. I suggest you re-evaluate the hyper-inflation theory. Our positions are after all theoretical.... fallible. I'm fully prepared to jump ship if my working hypothesis ceases to work, but it's worked for me just fine so far [a theory is a good one if it is fruitful]. [also, is it too much to ask to keep the conversation civil.... navel-gazing would have sufficed. Don't you think the term "judgement day" was a bit dogmatic/ moralistic? I'd add that an awareness of philosophy encourages a healthy scepticism and tolerance towards other's views while discouraging dogmatic conclusions]

Not sure if we are really disagreeing here. In the western tradition, knowledge [a body of systemic thought] is considered justified true belief. It is the attempt to rationally demonstrate [justify] why we think our beliefs are true. What you term knowledge, I'd equate with [traditional] belief. I think the difference here is only semantic. You could equate knowledge with interpretation, but "interpretation" has the connotation that absolute knowledge is not possible. I don't think many would argue with this today. Back to gold, I don't think the monetary basis of gold can be rationalized, but rather lies in such things as belief, culture, tradition, history etc which you've alluded to. Gold is simply the strongest symbol of money.... and is money for practical reasons not ideological/ theoretical ones. This shouldn't be a surprise when you consider money performs a practical function.

Yes, the essential point is to price national currencies themselves in terms of the international currency of gold; as gold is monetized, existing currencies in turn weaken with the fx factor becoming crucial. But consider also that the "hyper-inflation hypothesis" is in danger of redundancy here; it is unnecessary as the ratios such as Dow/gold 1:1 and property/ gold 100:1 we all know so well can be reached by extrapolating the current observed trend of the past few years into the near future. This could see nominal Dow/ gold meeting at around 3000 or so [where the Dow follows the Nikkei]. The dollar doesn't need to be destroyed for gold to perform well against assets [all that's required is continued instability in the international currency system]. Indeed, the dollar could end up outperforming all currencies bar gold.... and perhaps Yen. In this scenario, nominal asset prices [stock markets and property] in all countries look likely to carry on declining. Those sitting in local savings will do quite well against local assets, but if those savings had gone into gold they would have done a lot better. Most will not swap their currency for gold because of money illusion which equates the local form of money with money per se. In a continued deflationary environment, they will just keep conventionally thinking that gold is in a bubble.

Hi Steve. But then all knowledge/ systemic thought is man-made [artificial]. I mean, it's not like we can get "outside our skins". As for the tendency to become bound up in knots in some system, I agree. Francis Bacon referred to this as the "idols of the tribe", where it becomes very difficult to think outside contemporary norms. The shape those norms take differ with the times. edit. on reading your above post, this idea of a conventional norm [which determines / influences thought] is applicable to your point that people tend to think/ value in terms of their local/ native currency.

Still earning Korean Won for only another six months before relocating back to NZ for good. I see China has been diversifying into Korean bonds these days. I'm hoping it will be more than a token amount, and it helps to support the currency, which is looking shaky.

Yep, that sound about right. You want to give cricket a go though. The tests are better than the one day circus... or even worse 20/20. It's great.... five days of gentlemanly leisure....where more often than not no-one wins. A bit like the medieval contests before the French started taking thngs so seriously.

Gold looks due a small correction here. Silver looking weak. If gold gets down to 1180 odd, this could see silver at 16, where I'd think about piling in with some dollar reserves.

I think O'Brien's error is the assumption that deflation is bad for gold. The idea is deflation will bring the price of commodities down ergo gold will come down. The error consists in not seeing that gold is now effectively monetized and acting as a currency not a commodity. This will happen again, when everything is screaming deflation, and gold will come off a bit. Because many gold holders have bought gold out of inflation expectation, they may have a moment of revelation, panic and sell.... right at the wrong moment.

The debt is real because the bulk of the population believe it is, and acts on that basis. Whether this belief is "rational" or not is besides the point. I interrogate the word because economic analysis should be as much about the actual behavior of populations as well as the perceived "rational" fundamentals. Fundamental analysis today tends to assume people will be "rational". Often, this so-called rationality is really just the projection of our own rational analysis onto the economy. An example of this is Friedman's belief that people would always have inflation expectation [would be rational] and act accordingly [central banks have been milking this for all it's worth]. Not so. People are just as irrational as they are rational.... which is which usually depends on one's own prejudices.

What I find astonishing is people still think the currency is going to blow up in hyper-inflation.

But you've just derided [by implication] non-Brights here with; "the superstitious, who bind themselves with their own imaginary creations" Anyway, I like dark... goes well with deflation. Plus too much brightness can dazzle you.

Ah, but what you're saying here, is that the hyper-inflationary tipping point of a currency only comes after a prolonged period of inflation where inflation finally becomes so bad... on a monthly basis... that the population is able to see it for what it is. They are then able to escape "money illusion", and realise the purchasing power of their currency is being destroyed, not that stuff is becoming more expensive. This happened in Weimar. A Weimar-like hyper-inflation looks unlikely today. Why use the word "reality". Most philosophically literate scientists are content to stick with hypotheses. Reality may remain "unknowable", but that doesn't make it any less real. Good bit of diversion this.... for the doldrum months.

I guess that would've made Newton an "almost" bright. He retained the idea of force in gravitation; something that somehow works at a distance. Later more modern scientists - once that'd managed to get out from beneath Newton's shadow - criticized this idea of force [somehow magically working at a distance] as the last vestige of ancient/ medieval philosophy. It had a soulish/ animist aspect to it in common with the older ideas which were derived from the common sense idea of force being that of push and pull. So we're now just left with mathematical equations and configurations. But how can they be considered knowledge of reality? Rather, they are just pure abstractions, useful nevertheless. Let me guess, brights don't believe in free will either, and think reality has vanished in a puff of logic/ mathematics. What's the opposite of a "bright"? I'd prefer the label of dark to dull.