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Basically I agree there are risks on both sides. But I think it's possible to be too blase about the wealth destruction and too certain that CBs will be able to create enough money to counter it.

I'll put it like this. I think the amount of money that has to be created to avert a 1930s kind of slump is so high that it at least will propel gold much higher (because it's an inflation outlet that won't hurt the general population so much). Some essentials will do particularly well too (oil, food), other stuff will do less well (cars, art, antiques, nail studios). Some stuff will be hopeless (houses for instance).

 

This, however, is a 1970s best outcome scenario, in which a hyperinflation can just be be averted, but many, many will basically be wiped out by generally high retail price inflation.

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Well for what its worth, I am taking action according to my earlier post [and I'm quite nuts], but I just didn't like the suggestion from catflap that (s)he might be taking it into acont in making his/her decisions :)

 

I'm planning to buy into oil, hold my stance generally away from stocks and Sterling, and remain heavy in PMs. Then, if my 'prophecy' is fulfilled, I may start easing into some non-western stock markets (via ETFs) when dow goes sub 10000. ...and will buy UK property mid/late next year. Expect to exit gold/silver no earlier than 12-24 months from now, and hopefully double my money.

 

Does that make you feel a little better again?

 

Out of curiousity (and I know this is the wrong thread), how are you planning to buy into oil? EFTs?

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Tomorrow is decision day for me as funds land in BV a/c tomorrow. I realise I am lucky that I was too lazy a few months ago to pursue the idea of buying gold, given that pog has fallen. But now that I can its difficult to buy into a sliding market - trying to decide should I buy in one go tomorrow or just take a dollar cost averaging approach?

 

What would you do?

 

 

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Think of it this way - my house has been half knocked down by a hurricane and is about to fall over. The gubbermint gives me enough bricks to shore up the lower levels so it won't collapse. Hey, now I have loads of inflationary bricks I can sell or lend to other people who suffered storm damage, right?

 

Wrong.

 

How about phrasing it this way, the bold is mine

 

Think of it this way - The speculative value of my house has been half knocked down by a financial hurricane as the credit derivatives that flooded the market allowing people to bid up the price of houses unwind yet further and is about to fall over. The gubbermint gives the banks who caused the whole mess lots of free money in the hope that they may pass it to me so that i can buy enough bricks to shore up the lower levels so it won't collapse thus keeping the value of my house up in la la land. Hey, now I have loads of inflationary bricks I can sell or lend to other people who suffered storm damage, right? or better still I can now continue to Mew and borrow even more money to spend on goods that we import propping up our our service economy and sending even more money abroad so that foreign investors can reinvest it back into my country to borrow to other consumers!

 

 

 

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I think your argument is flawed, I believe the counter argument is the bricks that were removed from your house by the hurricane have been found by someone else and are still in existance to be sold on.

 

Think of it this way - my house has been half knocked down by a hurricane and is about to fall over. The gubbermint gives me enough bricks to shore up the lower levels so it won't collapse. Hey, now I have loads of inflationary bricks I can sell or lend to other people who suffered storm damage, right?

 

Wrong.

 

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I persuaded my brother to buy in a few weeks ago, I wish I hadn't. Long term I don't think it matters, but I think we are going to retest new lows. IMO you should wait a few weeks and see where we are. I personally don't think anything systemic will happen in that time frame. When you do decide to opt in certainly average in, it has saved me a couple of times on my PL sheet.

 

Good luck!

 

Tomorrow is decision day for me as funds land in BV a/c tomorrow. I realise I am lucky that I was too lazy a few months ago to pursue the idea of buying gold, given that pog has fallen. But now that I can its difficult to buy into a sliding market - trying to decide should I buy in one go tomorrow or just take a dollar cost averaging approach?

 

What would you do?

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Out of curiousity (and I know this is the wrong thread), how are you planning to buy into oil? EFTs?

yes - a GBP priced ETF

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How about phrasing it this way, the bold is mine

 

Think of it this way - The speculative value of my house has been half knocked down by a financial hurricane as the credit derivatives that flooded the market allowing people to bid up the price of houses unwind yet further and is about to fall over. The gubbermint gives the banks who caused the whole mess lots of free money in the hope that they may pass it to me so that i can buy enough bricks to shore up the lower levels so it won't collapse thus keeping the value of my house up in la la land. Hey, now I have loads of inflationary bricks I can sell or lend to other people who suffered storm damage, right? or better still I can now continue to Mew and borrow even more money to spend on goods that we import propping up our our service economy and sending even more money abroad so that foreign investors can reinvest it back into my country to borrow to other consumers!

Or...

 

...the house has not been half knocked down in any way, but people 'judge' it has (most of those MBS mortgages will be paid!). Yet, to buy some confidence, the government is generating lots of new bricks (issuing lots of new bonds to Johnny foreigner, and therey bringing his new money into our UK system) that it then hands over to the bank. Certainly, the bank does not hand them on to you (and so they're minimally inflationary) - for now. But they will be handing them on to others soon, whereas they couldn't do this if the government hadn't provided the bricks. Plus, there's all the bricks from the past excess brick production that are sitting in Johnny foreigner land and winging their way back to our country (in the form of higher commodity prices).

 

So, we have a short term impression that there is a brick shortage, against an actual excess and still growing rate of brick production.

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I'll also stick my neck out with a prediction for this month...

 

- next few days DOW and FTSE start to fall precipitously, such that they reach 10000 and 4500 by month end

 

- emergency base rate cuts happen or are signalled (BoE missed its chance today)

 

- commercial bank baleouts extended / increased

 

- Sterling will fall further, reaching 1.65 vs USD, with the fall only minimised by the fact the USDX will peak out and start to slide

 

- oil does not fall below 90 (and possibly not even or much below 100), and the fact that its refusing to go lower will become a palpable concern to economists/media

 

- inflation stats rise significantly

 

- all the above will cause a ramp up in fear, and gold will start to rally (6-8% up in USD, 10-15% in GBP, by months end)

 

[EDIT: and my bones even sense a black swan approaching ...Russia? major bank collapse? terrorist attack? high-profile Western assasination?] - bundle of fun aren't I :)

 

Very good. Thinking the same. - you've been reading my mail?! I have done well on my similar predictions but poor on timing (e.g. thought they would happen sooner). Not good with the time decay but then some of the swings have been so large I've covered (e.g. GBP:USD put warrant up 500%). Maybe a double bottom for gold. It's a time what with all this volatilty (e.g. in gold and GBP and inflation) to be clear about what is used to measure the value of things (I'm sticking with gold as my unit of measure).

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Er, speaking of anti-goldbug, here I am...

 

Doesn't that graph make gold look like a pretty awful investment or inflation hedge over the period. From 1985 to the present day, any investment or savings account paying 3% interest would have beaten it. Not terribly impressive. Admittedly it would have beaten a pile of cash in a shoebox under the bed, but that's about it.

 

Yep, would agree with that. From an investor's [and I use this word loosely] perspective, the terms bull and bear are so much more sensible to use in so far as they refer to existing markets and real circumstances.

 

Of course, gold bugs may have there own reasons for never parting with precious.

 

I am a gold bull... but who knows may turn into a gold bug one day. :)

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Tomorrow is decision day for me as funds land in BV a/c tomorrow. I realise I am lucky that I was too lazy a few months ago to pursue the idea of buying gold, given that pog has fallen. But now that I can its difficult to buy into a sliding market - trying to decide should I buy in one go tomorrow or just take a dollar cost averaging approach?

 

What would you do?

 

If you believe gold is in a secular bull market then you would want to buy on the dips and not "chase" gold up. I suspect only the seasoned veterans are capable of this as it is hard not to get caught up in the enthusiasm. Now that there is a lack of enthusiasm maybe points to a good time for buying.

 

Also you could average in as no-one can really predict the short term price of gold. Many were keen to buy a couple of months back and in hindsight were maybe chasing gold up [or else averaging in]. We are in a good dip at the moment... it could dip further... so why not average in.

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wrongmove,

I'm afraid I have no time to continue our entertaining conversation.

I'll be lucky to catch up on things today. I'm so far behind.

 

If I spot what I consider "leakage expressions" in your posts I'll try and highlight them for you.

Then maybe you'll see what expressions stand out for me.

 

I hope you enjoy your further conversations.

 

I'll just leave you with this:

 

US_EUR_JPY_NZ_GOLD_v_GBP_080905.gif

 

Steve :D

 

Edited to add: I mean no offence. All I have to go on is what I see typed. If I see what appear to me to be inconsistencies or what I call "leakage", then that is all I have to go on.

When those "leakage" terms are the same as those used by others I've come across on other forums, I am drawn to certain conclusions, which I admit may be incorrect.

 

Gold to $10,000 :lol: :lol: :lol:

 

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wrongmove,

I'm afraid I have no time to continue our entertaining conversation.

I'll be lucky to catch up on things today. I'm so far behind.

 

If I spot what I consider "leakage expressions" in your posts I'll try and highlight them for you.

Then maybe you'll see what expressions stand out for me.

 

I hope you enjoy your further conversations.

 

I'll just leave you with this:

 

US_EUR_JPY_NZ_GOLD_v_GBP_080905.gif

 

Steve :D

 

Edited to add: I mean no offence. All I have to go on is what I see typed. If I see what appear to me to be inconsistencies or what I call "leakage", then that is all I have to go on.

When those "leakage" terms are the same as those used by others I've come across on other forums, I am drawn to certain conclusions, which I admit may be incorrect.

 

Gold to $10,000 :lol: :lol: :lol:

 

Well, I look forward to you telling me what I really think Steve. Could you at least flesh this out a bit - PM me if you like, it is of no general interest to this board. I do not even read any other gold oriented boards, let alone post on them, btw. My info comes from either here, the general press, or from links posted on Kitco's main page.

 

Could you perhaps post a link to some of these other boards. I can't deny I am intrigued, as well as insulted, by your theories. I happen to know what I think, so it may give me an insight into how the mind of a goldbug/gold bull/whatever works.

 

I am very much not a sterling bull, btw. I just happen to live in the UK, so my ongoing commitments are priced in £ (and mainly fixed, a small portion is subject to inflation), so at 4-5% interest, they are getting cheaper to me by just simply holding cash.

 

I do not currently have the spare capacity to indulge in much speculation (I still hold a handful of shares, fun money). The way the markets are going (all markets), it seems that there are many others coming to the same conclusion about their own finances.

 

 

 

 

 

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Yes, shoring up bank balance sheets that relied on imaginary money that has now evaporated into thin air. The banks are highly constrained in lending that money back out again.

 

Hyperinflation isn't impossible but the levels of money creation we are currently seeing are primarily aimed at preventing a deflationary collapse.

Think of it this way - my house has been half knocked down by a hurricane and is about to fall over. The gubbermint gives me enough bricks to shore up the lower levels so it won't collapse. Hey, now I have loads of inflationary bricks I can sell or lend to other people who suffered storm damage, right?

 

Wrong.

You could swap them for gold bricks.

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Tomorrow is decision day for me as funds land in BV a/c tomorrow. I realise I am lucky that I was too lazy a few months ago to pursue the idea of buying gold, given that pog has fallen. But now that I can its difficult to buy into a sliding market - trying to decide should I buy in one go tomorrow or just take a dollar cost averaging approach?

 

What would you do?

 

Wait. When there is evidence that the price is defiantly moving upwards again, buy in gradually.

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I'm sure Barack Obama represents more than just his skin colour, not an intelligent comment in my book.

 

It wasn't meant to be intelligent.

 

He was reflecting the view of the average white American inadequate of voting age.

 

 

 

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The UK house prices in gold graph has appeared in a Scotsman property article (they got it from Dominic Frisby's recent MoneyWeek article.

http://thescotsman.scotsman.com/business/B...urse.4455180.jp

 

I have briefly flirted with looking and posting on other threads than The Gold One, but I see now that the best place to post (possibly whatever the topic) is right here:

 

Me mentioning this very article / hold-house chart on another thread about three hours earlier...

 

Long live The Gold One! :lol:

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How about phrasing it this way, the bold is mine

 

Think of it this way - The speculative value of my house has been half knocked down by a financial hurricane as the credit derivatives that flooded the market allowing people to bid up the price of houses unwind yet further and is about to fall over. The gubbermint gives the banks who caused the whole mess lots of free money in the hope that they may pass it to me so that i can buy enough bricks to shore up the lower levels so it won't collapse thus keeping the value of my house up in la la land. Hey, now I have loads of inflationary bricks I can sell or lend to other people who suffered storm damage, right? or better still I can now continue to Mew and borrow even more money to spend on goods that we import propping up our our service economy and sending even more money abroad so that foreign investors can reinvest it back into my country to borrow to other consumers!

 

Except the money put in by the government hasn't and won't stop the value of my house (or of many businesses etc) falling. So this doesn't work as a counter argument. People can't MEW and borrow more, in fact there is a serious lending drought for most people.

 

Banks are deleveraging because many of the assets they had on their balance sheets are now worth less, in particular mortgage securities and the like.

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I think your argument is flawed, I believe the counter argument is the bricks that were removed from your house by the hurricane have been found by someone else and are still in existance to be sold on.

 

And following up on my previous post, no the bricks haven't 'gone somewhere else. They were destroyed.

 

The banks' assets are worth less, full stop. They aren't worth less because the money has gone somewhere else. The money that was previously recorded there, in the form of mortgage assets etc, is no longer there. Thus they are being forced to deleverage. The central banks injections are allowing them to stay alive or to deleverage by slightly less, but they are still deleveraging.

 

There's also a lot that is still on their books that technically hasn't disappeared,. but that they know they would have difficulty selling at any price. So that money is only in existence at this stage on balance sheets, but they are having to act defensively on the assumption it may disappear also.

 

This is why all this CB money is far less inflationary than some make it out to be.

 

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Or...

 

...the house has not been half knocked down in any way, but people 'judge' it has (most of those MBS mortgages will be paid!). Yet, to buy some confidence, the government is generating lots of new bricks (issuing lots of new bonds to Johnny foreigner, and therey bringing his new money into our UK system) that it then hands over to the bank. Certainly, the bank does not hand them on to you (and so they're minimally inflationary) - for now. But they will be handing them on to others soon, whereas they couldn't do this if the government hadn't provided the bricks. Plus, there's all the bricks from the past excess brick production that are sitting in Johnny foreigner land and winging their way back to our country (in the form of higher commodity prices).

 

So, we have a short term impression that there is a brick shortage, against an actual excess and still growing rate of brick production.

 

So many different creative ways of denying the basic facts...

 

We have had an inflationary period. A lot of that inflation already showed up in the form of massive increases in commodities, shares, overpriced mortgage assets and businesses, and so on. Some of that inflation may still be in the pipeline, yes, but a lot of it already had its effect. And now there are massive deflationary forces in the economy.

 

Anyway shouldn't you guys move on to the stage 2 goldbug argument where you assure me that deflation is also good for the price of gold? :lol:

 

 

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I see it differently. E.g. the BAD Koreans have just decided not to buy Merrill's BAD loans. Merrill will therefore soon need to get more money from the Fed's begging bowl. Meanwhile, the Koreans put their money into something reasonable and tangible, like corn, oil or gold. Now that the Koreans have second thoughts anyway, they maybe even take money out of Merrill that they had invested earlier. But no panic, the Fed will plug the hole. Hence, by printing money to keep Merrill afloat, the Fed is indirectly fuelling inflation.

Yep. All that foreign reserve currency held by the West's creditor nations in the Middle/Far East is going to be invested somewhere, and it sure isn't going to be the West's securitised consumer debt for a while. This will hit the spending power of the Western consumer hard, partly because our easy-money supply has dried up, and partly because the central banks have issued, and will continue to have issue, trillions of high liquidity gilts in exchange for illiquid securitised-debt of dubious mark-to-model value, thus debasing the currency.

 

Find out where the sovereign wealth funds next decide to point the full bore of their petro-plastic-euro-sterling-dollar recycling firehose and that's where you'll find the next bubble. In the meantime, they appear to be doing a nice line in commodity speculation and firesale purchases of western company and property assets (the long-term profits from which will be another avenue for the long-term haemorrhaging of western wealth).

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So many different creative ways of denying the basic facts...

 

We have had an inflationary period. A lot of that inflation already showed up in the form of massive increases in commodities, shares, overpriced mortgage assets and businesses, and so on. Some of that inflation may still be in the pipeline, yes, but a lot of it already had its effect. And now there are massive deflationary forces in the economy.

 

Anyway shouldn't you guys move on to the stage 2 goldbug argument where you assure me that deflation is also good for the price of gold? :lol:

Hi Magpie ...facts?? ...I think you mean oppinions and interpretations!!

 

It's clear we've reached a different current view about inflation/deflation in the near future. So lets not start putting down each others intellegence (i.e. claiming I'm denying facts). I doubt either of us will convince the other regarding our oppinions and interpretations, so can we perhaps try to construct a list of relevant 'facts' that we're focussing on as a basis for our oppinions and interpretations

 

My focus is drawn to the following which I believe are facts

- Money supply has been unprecedentedly high globally this last 10-15 years, and in the Us for example it (M3) is still 15% today. There is an undeniablly strong correlation etween M3 and inflation over the space of years and decades. Since M3 is still high today, and the impact of M3 on inflation takes yeyars to work through, then that upward pressure on inflation cannot yet have run its course

- No-one knows what M3 will do over the next few years, but its rarely ever gone negative and all indications are that CBs are actually monetizing debt worldwide rather than letting the credit squeeze kill of banks etc. Money certainly can be destroyed, but only by paying off debt or writing of debt. This is happenning today, but now where near enough to cancel the new money creation, as proven by the act the creation minus destruction = M3 which is at 15% today!

- In the near term (months), inflation is also influenced by i) money velocity, ii) money reservoirs, iii) input price pressures, iv) wage-price spiralling, v) currency moves,

i) This may be happening and would be deflationary, but not sure how to quantify this. Most people are spending every penny they get.

ii) Money reservoirs were relevant for the last decade as all our borrowed money went to that reservoir called Johnny Foreigner (in exchange for his plastic good), and that is why inflation did not kick off for the last 10 years. But now that's stopped, and the money flow is now in the other direction, which is very inflationary

iii) input price pressure are very inflationary. Oil for example will need to go well below USD 70 and stay there to be non-inflationary over the last 12 months (the delayed time frame over which its effect is felt), i.e., to get its average down to what it was a year ago. Same for food, e.g., base food prices have risen 40% in last year in UK (in news today). So my intrepretation from this is that commodities will not be able to fall far enough to be significantly deflationary over next few years. With continued growth in Asia (e.g., China estimated to slow to a still impressive 5-8% growth rate) I actually we have a long term demand squeeze, which will actually cause commodity prices to rise

iv) this is happenning big time in Asia and Middle East, and the inflationary consequences (they're now at 15-25% inflation rates) will flow back to the West damn quickly

v) Sterling (I live in UK) has just dropped 12% vs dollar, so that alone imposes a 12% extra inflation upon all imported goods and commodities. And I don't imaging Sterling bouncing back up to USD 2 any time soon

 

I'd be genuinely glad to hear which (if any) of these 'facts' you consider to be mistaken, and also to read any additional key facts that your focussed on.

 

Then we can get into our interpretations and thereby see why we've reached different conclusions about inflation / deflation

 

 

 

 

 

 

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Hi Magpie ...facts?? ...I think you mean oppinions and interpretations!!

 

Yes, that was a tad inflammatory of me. :lol:

 

But all I meant was the fact that the money being printed by CBs is largely going to shore up balance sheets rather than flooding out into the economy, which I think is fairly clear. There are other aspects of the global situation that make the debate more complex, but I was responding to the specific argument that the Fed is printing billions of dollars a week, therefore this is inflation, which I think is a weak argument by itself.

 

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It's clear we've reached a different current view about inflation/deflation in the near future.

 

I'm not that sure of the outcome, I just tend to challenge lazy inflationist arguments. I agree with many here that the outcome will be a messy combination. A few points:

 

This is happenning today, but now where near enough to cancel the new money creation, as proven by the act the creation minus destruction = M3 which is at 15% today!

 

Bear in mind that a lot of wealth destruction is disguised, at least in the short term. Businesses and assets become unsaleable. Banks have stuff on their balance sheets that they can't sell but that still count as assets. The writedowns take years to be fully revealed.

 

Since M3 is still high today, and the impact of M3 on inflation takes yeyars to work through, then that upward pressure on inflation cannot yet have run its course

 

I don't think it's run its course, but I also see that a heck of a lot of inflation has already happened and is starting to be reversed. A wide range of assets including housing and stocks became massively overvalued. Where gold sits in that is one of the imponderables.

 

i) This may be happening and would be deflationary, but not sure how to quantify this. Most people are spending every penny they get.

 

Agreed, but a heck of a lot of it is going to banks (in interest and debt servicing), who need it to store up balance sheets, where in the past it went into the wider economy. Net result deflationary pressure.

 

ii) Money reservoirs were relevant for the last decade as all our borrowed money went to that reservoir called Johnny Foreigner (in exchange for his plastic good), and that is why inflation did not kick off for the last 10 years. But now that's stopped, and the money flow is now in the other direction, which is very inflationary

 

I agree the money reservoirs are a key issue and provide the biggest source of inflationary pressure. Although money is also being destroyed in other economies - look at the Chinese Central bank's problem with its reserves and the housing and economic crash developing there for an example.

 

iii) input price pressure are very inflationary. Oil for example will need to go well below USD 70 and stay there to be non-inflationary over the last 12 months (the delayed time frame over which its effect is felt), i.e., to get its average down to what it was a year ago.

 

Except that once you get past that moment, you may have YOY -ve oil inflation, if it doesn't take off and get past $120 again.

 

Same for food, e.g., base food prices have risen 40% in last year in UK (in news today). So my intrepretation from this is that commodities will not be able to fall far enough to be significantly deflationary over next few years. With continued growth in Asia (e.g., China estimated to slow to a still impressive 5-8% growth rate) I actually we have a long term demand squeeze, which will actually cause commodity prices to rise

iv) this is happenning big time in Asia and Middle East, and the inflationary consequences (they're now at 15-25% inflation rates) will flow back to the West damn quickly

v) Sterling (I live in UK) has just dropped 12% vs dollar, so that alone imposes a 12% extra inflation upon all imported goods and commodities. And I don't imaging Sterling bouncing back up to USD 2 any time soon

 

I agree with all of this, and expect basic costs such as food to increase by more than wages leading to falling standards of living. Though I don't see any reason why this might not combine with continued stagnation or falls in commodities that had become overpriced. However we can agree that there are inflationary pressures as well as the deflationary ones I'm flagging.

 

I'm not arguing for pure deflation remember, not suggesting prices will fall across the board or anything. I'm arguing that there is massive deflationary pressure as well as the more obvious inflationary pressures and the results are still uncertain. Stagflation, biflation very likely. Hyperinflation less so, although if there is a sufficiently awful economic collapse I wouldn't rule it out.

 

And my very specific argument was that it is wrong to assert that the way that the Fed and BOE are printing money to support the banks is hugely inflationary - because that money is being created to shore up insolvent institutions and is mostly having to stay on their balance sheets rather than get lent out.

 

 

 

 

 

 

 

 

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