Still Waiting On Hyperinflation...
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
Well the uber doom-and-gloomers have been decidedly reticent of late. This changed recently in the blog arena. Changes in purchasing patterns of bonds later this year seem to have everyone in a tizzy now.
I renew my stance that all of this HYPERinflation rhetoric is utter nonsense. These positions are generally coupled with someone trying to sell something (commodities, coaching, advice, etc.) so please be skeptical when you see them posted.
Following is a great, level-headed article on the subject for those that are interested:
Why the Pessimists Are Wrong About Inflation
and here are the real inflation rates:
I renew my request for anyone to provide TANGIBLE evidence that we are headed for hyperinflation.
Hyperinflation is different than inflation. If you take the original defination of inflation, (and as currently used by Austrian School Economists) you track inflation as an increase in the money supply, and price increases (commonly referred to as inflation today) are the effect of the money printing. So first defining which inflation, monetary inflation, or price inflation you are talking about is required.
There is no doubt that money supply has been inflated recently. The fed publishes figures and you can see what is going on. Somewhat more difficult to see is price inflation. The CPI is the most common but is skewed to make the govt look good. Looking at prices of common goods one can see price inflation; see gasoline, health care, college tuition, food, silver, oil, etc. The basic commodities are shooting up, which means that all derivative products are also getting more expensive. One way that producers are trying to mask this is by making packages smaller; a "green" package, "effeciency" packages, etc. The net result is maybe only a 10% increase in price, but when you couple that with the 15-20 decrease in product per package, you get 30-40% inflation. And this is happening more and more in the last year or two.
So that was inflation (the two types). Hyperinflation, on the other hand, is a loss in confidence in the currency being printed. It is not like in monopoly, when the more money you get, the more prices go up (remember, at first you dont have much money, so deals are cheap, but as the game progresses and everyone has tons of cash, the bids get higher and higher, hmm, sounds like the housing bubble), but rather that people realise that there is inflation, and that the currency is not a store of value, and they go out to spend (get rid of it, ie exchange it for something of value) it before it is worth less. So hyperinflation is when people do not trust their money anymore and want to buy stuff before the price goes up (ie the value of the paper money declines further).
So hyperinflation is a rare event, but not as rare, nor as impossible as people would like to believe. Argentina is now experiencing inflation in the area of 30% per year, this is very soon going to be hyperinflation if history has any rhyme to it.
The main complication today IMO with the hyperinflation/deflation/inflation debates is that there was such a huge increase in debt (learn how money is issued from banks, they can loan (create, print) 10x the money they have on deposit) money in the last couple bubbles that when the bubbles collapse the debt money disappears, this is monetary deflation (not price deflation) but means that there is less "wealth" on paper, and real losses for many. And debt is spending today what we need to tomorrow pay for, and if the earnings and savings are not there to pay, then money is tight. So the money printing, which is going to the banks to make up for that 10x debt money they created which is evaporating, and not going to the unemployed, underwater, etc, is not having such a big effect on prices yet... But money chases yield. Not going to housing yet, still such debt, and bankers not gonna buy their own shadow inventory, so it goes to stock markets and commodities. That is why the stock market has held up so well, and why commodities are so highly priced. And that is why food, clothes, etc are showing price inflation as well.
I do not see hyperinflation (remember, this a loss in confidence in the currency) happening yet; the US is still the largest producer of food in the world, still dominant in most areas, still no clear alternative (other than gold, etc) so most will cling to the hope that the US will be a safe haven. And remember, most people would rather believe the easy lie than face the hard truth, so they will cling to what has been, rather than look at the facts and accept what is coming.
I think that the situation is unsustainable, but for hyperinflation to come, people need to realize that, accept that, and react accordingly. I do not see the realization on a large scale yet; most would rather believe the easy lie perpetuated by politicians and media and bankers and real estate pros (NAR statistics, sorry for offending any straight shooting real estate people, but so many are clueless and lie) who push housing as the best investment, retirement/'investment managers, etc. They do not yet want to think that something is wrong and take the next step to figure out what and why, which would lead to what to do. When that happens (assuming that the economy and spending continue in this same direction, major deficits, high rate of unemployment, debt overhangs, etc) then you can worry about "hyperinflation", but for now it will be inflation, or stagflation, re the 70's. And look what happened then; gold, oil, etc shot up. Interest rates shot up. Inflation shot up. And then the economy took off, after a long period. Will that happen again this time? who knows, history does not repeat, but is rhymes. Some things are different this time; high debt, low savings, cannot really lower taxes more due to already insane deficit, wars, high oil, lots of jobs have been offshored and not coming back, it is a global economy now, not a US economy, so competion is worldwide for jobs, so many may not come back soon, at least as they were.
My outlook? Things which you "need", ie oil, clothes, food, healthcare, etc, will continue to get more expensive in the near term. Things which were financed/bought with debt will continue to get cheaper in the near term, ie housing, cars, boats, vacation cabins, toys, etc. People have to get rid of the debt items (cant pay for them) and pay for the things they need. And with higher unemployment, and tighter credit (banks not giving money to customers, putting it to "pay off bad debt", investing it in stocks, commodities,etc, remember money chases yield and the bankers have been burnt on housing and consumers, wonder why your HELOC which was unused was cancelled even tho you have 800 credit?), financing is not as big an option as it was.
So what about real estate? No crystal ball, I threw it away a long time ago... but I think that having a part of net worth in real estate or income producing assets is worthwhile. betting on appreciation will be a losing game for a while IMO, but if you can cashflow a decent amount and hang on to what you have even if prices drop another 30% (it can happen...) then you will be positioned well if/when prices increase in the future (10-15 years from now). remember, bottoms take time, recoveries are not instantaneous and even with the money pumping by the fed, this will take a while. but being in place, not too high leverage, and cashflowing allows you to build equity, gain experience, and when the prices start to rise, pull the equity out of your houses and start to buy. Not your own money at that point because renters have paid it.
Those are my thoughts, lol, just lookint that this was "quick reply"
Tony.
Silver is in hyperinflation as I type this. In Jan of this year it was 27. Tonight it's 45. Real estate experienced hyperinflation from 2003 to 2006. Gas has doubled, or more, in a two year period. Food is up. Gas and good are not hyper, but unpleasant. The hyperinflation (or not) argument is old. However, there is one thing that there is no question about: We are in uncharted/uncertain territory. That and the doom and gloomers are going mainstream
It is what it is, and there are valid points on all sides, including the "We're in recovery" side.
Stagflation makes more sense to me actually.
Laid off auto workers and ex walmart employess are not going to alluva sudden become Google programmers. Standard of living will not be great for many for a while. Employees will work for less dollars. Those dollars will not be able to purchase as much as they used to for a while. The job market is not a fun place to be in at the moment. Regardless of what CNBC says.
Absolutely getting started, yes. Now I am sure someone will post here the textbook definition of hyperinflation. However, things have changed since that definition was written. These days the U.S government gets to pick and choose (exclude) what items to track inflation on.
Therefore, I propose it's just as valid to include items that are inflating that the government excludes. Some (silver for example) are hyper-inflating. That will affect the price of a lot of goods soon enough.
College tuition... I wonder if that metric is tracked.
At some point though i think real inflation will be more noticeable. it pretty much is already. People feel it at the pumps and grocery store now.
Brian, at what point will we get austerity measures like other countries Have? Makes me wonder how people will react here. Will there be some riots and such.?
Im just saying, the lower and middle class can only take so much bro
Hyperinflation is different than inflation. If you take the original defination of inflation, (and as currently used by Austrian School Economists) you track inflation as an increase in the money supply, and price increases (commonly referred to as inflation today) are the effect of the money printing. So first defining which inflation, monetary inflation, or price inflation you are talking about is required.
There is no doubt that money supply has been inflated recently. The fed publishes figures and you can see what is going on. Somewhat more difficult to see is price inflation. The CPI is the most common but is skewed to make the govt look good. Looking at prices of common goods one can see price inflation; see gasoline, health care, college tuition, food, silver, oil, etc. The basic commodities are shooting up, which means that all derivative products are also getting more expensive. One way that producers are trying to mask this is by making packages smaller; a "green" package, "effeciency" packages, etc. The net result is maybe only a 10% increase in price, but when you couple that with the 15-20 decrease in product per package, you get 30-40% inflation. And this is happening more and more in the last year or two.
So that was inflation (the two types). Hyperinflation, on the other hand, is a loss in confidence in the currency being printed. It is not like in monopoly, when the more money you get, the more prices go up (remember, at first you dont have much money, so deals are cheap, but as the game progresses and everyone has tons of cash, the bids get higher and higher, hmm, sounds like the housing bubble), but rather that people realise that there is inflation, and that the currency is not a store of value, and they go out to spend (get rid of it, ie exchange it for something of value) it before it is worth less. So hyperinflation is when people do not trust their money anymore and want to buy stuff before the price goes up (ie the value of the paper money declines further).
So hyperinflation is a rare event, but not as rare, nor as impossible as people would like to believe. Argentina is now experiencing inflation in the area of 30% per year, this is very soon going to be hyperinflation if history has any rhyme to it.
The main complication today IMO with the hyperinflation/deflation/inflation debates is that there was such a huge increase in debt (learn how money is issued from banks, they can loan (create, print) 10x the money they have on deposit) money in the last couple bubbles that when the bubbles collapse the debt money disappears, this is monetary deflation (not price deflation) but means that there is less "wealth" on paper, and real losses for many. And debt is spending today what we need to tomorrow pay for, and if the earnings and savings are not there to pay, then money is tight. So the money printing, which is going to the banks to make up for that 10x debt money they created which is evaporating, and not going to the unemployed, underwater, etc, is not having such a big effect on prices yet... But money chases yield. Not going to housing yet, still such debt, and bankers not gonna buy their own shadow inventory, so it goes to stock markets and commodities. That is why the stock market has held up so well, and why commodities are so highly priced. And that is why food, clothes, etc are showing price inflation as well.
I do not see hyperinflation (remember, this a loss in confidence in the currency) happening yet; the US is still the largest producer of food in the world, still dominant in most areas, still no clear alternative (other than gold, etc) so most will cling to the hope that the US will be a safe haven. And remember, most people would rather believe the easy lie than face the hard truth, so they will cling to what has been, rather than look at the facts and accept what is coming.
I think that the situation is unsustainable, but for hyperinflation to come, people need to realize that, accept that, and react accordingly. I do not see the realization on a large scale yet; most would rather believe the easy lie perpetuated by politicians and media and bankers and real estate pros (NAR statistics, sorry for offending any straight shooting real estate people, but so many are clueless and lie) who push housing as the best investment, retirement/'investment managers, etc. They do not yet want to think that something is wrong and take the next step to figure out what and why, which would lead to what to do. When that happens (assuming that the economy and spending continue in this same direction, major deficits, high rate of unemployment, debt overhangs, etc) then you can worry about "hyperinflation", but for now it will be inflation, or stagflation, re the 70's. And look what happened then; gold, oil, etc shot up. Interest rates shot up. Inflation shot up. And then the economy took off, after a long period. Will that happen again this time? who knows, history does not repeat, but is rhymes. Some things are different this time; high debt, low savings, cannot really lower taxes more due to already insane deficit, wars, high oil, lots of jobs have been offshored and not coming back, it is a global economy now, not a US economy, so competion is worldwide for jobs, so many may not come back soon, at least as they were.
My outlook? Things which you "need", ie oil, clothes, food, healthcare, etc, will continue to get more expensive in the near term. Things which were financed/bought with debt will continue to get cheaper in the near term, ie housing, cars, boats, vacation cabins, toys, etc. People have to get rid of the debt items (cant pay for them) and pay for the things they need. And with higher unemployment, and tighter credit (banks not giving money to customers, putting it to "pay off bad debt", investing it in stocks, commodities,etc, remember money chases yield and the bankers have been burnt on housing and consumers, wonder why your HELOC which was unused was cancelled even tho you have 800 credit?), financing is not as big an option as it was.
So what about real estate? No crystal ball, I threw it away a long time ago... but I think that having a part of net worth in real estate or income producing assets is worthwhile. betting on appreciation will be a losing game for a while IMO, but if you can cashflow a decent amount and hang on to what you have even if prices drop another 30% (it can happen...) then you will be positioned well if/when prices increase in the future (10-15 years from now). remember, bottoms take time, recoveries are not instantaneous and even with the money pumping by the fed, this will take a while. but being in place, not too high leverage, and cashflowing allows you to build equity, gain experience, and when the prices start to rise, pull the equity out of your houses and start to buy. Not your own money at that point because renters have paid it.
Those are my thoughts, lol, just lookint that this was "quick reply"
Tony.
@Jim, austerity is already here. Look at the prices, that is inflation. That is sometimes called the hidden tax, or stealth tax. They print money, prices go up, you pay. Watch the following interview:
http://www.zerohedge.com/article/marc-faber-everything-going-only-federal-reserve-there-no-inflation
There is a pretty good discussion (at least Marc discusses some pretty good ideas) and in there Marc Faber discusses his theory for what is going on. He is a very smart guy, so smart he is usally too early (called tech bubble in 97-98, called housing in 2002-2003), and I respect his ideas/advice.
Austerity is here, do you have more or less cash than you used to? That is what inflation does to the average person; takes their money without them realizing it.
Couple good educational articles:
http://www.takelifeback.com/hegawid/
and
http://www.takelifeback.com/moltz/
Though comics, that makes the topic understandable for the average person, and they do a good job of explaining the economy, innovation and job growth, inflation,etc.
A further step if you really want to actually understand:
http://www.hacer.org/pdf/Hazlitt00.pdf
After reading those three I think you can see what is going on and also see what is going to happen. The stories are the same, you just have to figure out what page we are on...
Tony.
Quick math quiz (with answer): If inflation is ONLY 3% per year, after ten years what will be the purchasing power of $10,000?
Answer: $7,374.24. So you lost $2,625.76 through inflation. That is why inflation is called the stealth tax, or hidden tax, and is why you do not feel so wealthy even though you may earn more.
Price go up (price inflation) which steals (stealth tax) your money. That is inflation at work. And you can see what a modest 3% per year does. At 4%, you are left with $6648, at just 5% inflation per year for ten years your 10,000 is down to only $5,987.
If we start to hit the 10% rates, you are left with $3,486.79... I think that that was what happened in the 70's. So if you have cash, you will pay.
Check the math please.
Tony
Bryan, read the article you reference: Why the Pessimists Are Wrong About Inflation.
Food prices, gasoline, health insurance costs and college tuition are already rising much faster than the official inflation rate. But consider too that appliances, cell phones, computers, consumer electronics, cars, furniture and (ahem) home prices are coming decidedly down.
This fits my theory that things which we need will get more expensive, things financed on debt or not necessary will get cheaper. I think this is due to a tightness of money, people do not have as much money left over to spend on those discretionary items, and the debt items cannot be paid (debt is paying tomorrow for today's item, thus robbing tomorrow's savings and earnings and thus investment) so the demand for those is going down, thus the price goes down.
When money is easy, demand is high, when money is tight, demand decreases.
Tony.
I did read the article Tony...I'm not saying there won't be inflation, stealth taxes, and masking of items by the government. What I take issue with are people that run around like chickens with their head cut off loosely tossing around the word HYPER to go with inflation. I have a lot of debt on my balance sheet precisely so that I am positioned to gain from the gov-mint deflating the currency to make debt easier to pay back....no argument there.
Here is a great video to support what is happening in the macro economy wrt inflation:
If someone can point out compelling reasoning for HYPERinflation I would love to see it. As someone pointed out above this would involve a complete loss of confidence in the dollar. Where is the evidence to support this?
Bryan, the more printing, the more inflation, and the more debt which is not payable... the more people/investors will realize that the dollar/euro are not stores of wealth, and when that happens, people will sell them for whatever they perceive as needing. It has happened before many times, and it will happen again. I am not saying it is going to happen, but that is how it happens. When the debt and inflation become too large, confidence suffers and then you get hyperinflation. It does not need to go the way of zimbabwe or Weimer Germany, but I guess 20-30% per year is close enough to hyperinflation for me and I would be getting out of cash as fast as it was earned as would many others I suspect. Even at 5-10% inflation, I am not planning to have much of my wealth in cash, taxes reduce that enough that I do not need inflation taking a bite as well...
And it does not need to be a complete loss in confidence, just loosing enough confidence that you exchange it for something else. It can still serve as a medium of exchange, just a rapidly depreciating one. See Paul Krugman's babysitter analogy for a popular idea of how to make people spend their money by depreciating the value of it... funny thing is that they do not need to print the depreciation or expiration on the dollar when there is high inflation, most people will spend it anyways, thus increasing the velocity of money...
Wise, income producing debt without too much leverage is my personal way to be prepared for this... and as stated above, when the high inflation comes, pull equity out of the property and buy. One caveat is that cash is king, so you need to have some cash for the deals if a situation develops that banks are not lending but deals abound.
Just my thoughts.
Tony.
The perception that it will occur! And how inflation affects you has alot to do with what you really consume, my ice cream has gone up and the carton is smaller, now that drastic!
Good posts Tony!
I got a line of credit at prime rate (3.25%) in 2008. I have continually thought was going to go up. It hasn't. I've been paying 3.25% for 3 years. If you had asked me 2 years ago what I thought my rate would be now, I might have guessed 6-8%. I was wrong. So what will it be in 2 years from now?
Bryan we all hope you're right. It's a tall order going by probabilities. Correct me if I am wrong, but there has never been one fiat currency that lasted longer than 40 years.
The dynamics of our current dollar - the dynamics that have rendered it a fiat currency - have been in place since 1971.
Since it has never worked before. Probabilities suggest it will not work this time. And we're at the 40 year mark. It will certainly be interesting to see how this plays out.
Evidence supporting the loss of confidence in the dollar are the countless articles that suggest the dollar will lose its status as the reserve currency. And countless articles about China forming many new direct trade partnerships that do not involve using dollars.
That and you have a University taking delivery of a billion dollars in the form of gold bars. That speaks volumes. It is evidence of 'loss of confidence in the dollar'.
If you watch the video I posted above it will speak to the conflagration in currency being coupled with our currency when it was ON THE GOLD STANDARD. I realize that actual data on the subject may be of little concern to people that are convinced the world is ending, but that may be something worth looking at for the casual observers.
I do see countless articles concerned about the dollar maintaining purchasing power and its mark as the reserve currency. What I do not see from ANY quasi-credible authors that are not carrying an agenda is evidence of HYPERinflation. Please point me to them if they exist.
Hedging bets, immunizing risk, etc. is a world different than preparing for hyperinflation. There are really very few techniques that work well in hyperinflationary environments. Hoarding cash as some blog posts have recommended is about as close to the worst thing that one can do in a hyperinflationary environment.
I do agree with previous posts that even modest inflation is a severe disincentive to invest in cash. My personal portfolio puts my money where my words are on this point. Owning cheap, fixed-rate debt with positive operating leverage product is about the best heightened inflation hedge there is and that is a huge part of why I love real estate right now. It is also a huge part of why I think this 50% rule worshiping gibberish ignores one of the primary value centers in owning real estate. That is another topic for another day though.
Yes the 50% rule is another topic. On the topic of authors with agendas - The common theme I notice with posters bashing the 50 percent rule is that many of them are selling something investment related. A system, fund, etc...Where as the people whom are simply landlording seem to support the 50 percent rule and post their numbers. Of course this topic, like the hyperinflation or not topic, is beat to death.
As for credible authors on hyperinflation I tend to like Peter Schiff and Jim Rogers. Of course - like you - they are going to put their money where their mouth is. Thereby elucidating and agenda.
In the end. Let's hope you're correct and that there is no hyperinflation, and that we all get deals that beat the 50% rule.
Bryan, not sure where the gold standard came into this conversation, maybe I missed something?
I did watch the video you reference, and agreed with much of what the author states.
But I did some fact checking, and here is what I found:
"The gold standard was a commitment by participating countries to fix the prices of their domestic currencies in terms of a specified amount of gold. National money and other forms of money (bank deposits and notes) were freely converted into gold at the fixed price...
The period from 1880 to 1914 is known as the classical gold standard. During that time, the majority of countries adhered (in varying degrees) to gold. It was also a period of unprecedented economic growth with relatively free trade in goods, labor, and capital...
Widespread dissatisfaction with high inflation in the late 1970s and early 1980s brought renewed interest in the gold standard. Although that interest is not strong today, it seems to strengthen every time inflation moves much above 5 percent. This makes sense: whatever other problems there were with the gold standard, persistent inflation was not one of them. Between 1880 and 1914, the period when the United States was on the “classical gold standard,†inflation averaged only 0.1 percent per year."
[url]http://www.econlib.org/library
/Enc/GoldStandard.html[/url]
(in 1914 the fed was started, and was the start of getting off the gold standard so they could print money to benefit themselves. "Let me issue and control a nation's money and I care not who writes the laws." was attributed to one of the Rothschild bankers, and we see it followed today by the wall street bankers...)
I would venture to say that his representing those inflationary periods of the 20s - 30s as occurring during the gold standard as somewhat disingenuous.
But one thing that I do not totally agree with, or I guess I have a different explanation. He points at the graph of savings going down since 84, and says that until savings stops or fed printing makes up for the balance, there will be only deflation, not inflation. While I agree that after a bubble caused by money printing there should be a debt deflation, I have some thoughts about his explanation. I think that the easy credit and money printing (see Greenspan Put et al) caused people to spend like there was no tomorrow where payment was due. I have heard numerous instances where politicians and economists have stated that it is a consumer economy and consumers need to go spend. But they now need to pay all the debt from the last 20-30 years of spending. Remember, debt is a promise/requirement to pay tomorrow for todays spending, and this hurts/robs savings and investment. The rise in capacity during that time was a result of that spending demand fueled by debt and easy money. Now debt is tight, maxed out, so where will the spending come from? He proposes the fed will spend, the government will spend... but that spending does not do anything productive. When is the last time any government anywhere actually produced something of value that sold for a profit? That is why items are getting cheaper (houses, so many built when money was easy, debt was cheap, now it is time to pay the bills, prices slump due to demand deflation) while others are getting more expensive (food, gas, etc. but I think those are all a function of oils price...) I guess in short I think that now the bill for the last 30 odd years needs to be paid, and that is why there is not enough money, we overspent. And this is true at the govt levels as well, look at all the social programs, we over spent, now we have to pay, and pay more and more...
Another thing, he says to not buy gold until some metric is met, forgot which, but that means he is holding cash (eroding in purchasing power) and missing out in the 20%? annualized gains gold has enjoyed over the last decade. I like the sayings that don't fight the trend, and the trend is your friend. My savings are gold (and silver) backed, how about you?
I do not know what the solution is nor what will happen, but that is my clearest murky explanation of what is happening/happened.
Tony
Hmm sounds like hyperinflation is a myth like unicorns,leprechauns and Rosie O'Donnell.
It came from those pounding the fiat currency drum above. This is generally the origin of what turns into a nonsensical discussion. Fortunately this thread is much more reasoned than any of its predecessors...at least the ones I have been engaged in. Let's hope the shelf life of reasoned discourse lasts.
I would also submit that the excess dollars can be taken out of circulation via The Mandrake Mechanism and other monetary policy can be tuned to provide the proper amount of currency stability. This is a point that is generally lost on the gold bugs and other alarmists. In their fear-stricken world once easy money is always easy money and the genie can't be put back in the bottle.
The point I want to underscore is that the idea that hoarding dollars and "keeping your powder dry" was the reason this thread was started. This is horrific advice if you are betting on hyperinflation. Surely this is something we can agree on.
You know I was thinking that its too late to mess with gold. Since now I see the gold buyers on every street corner where I live.
But silver? Everyone is starting to talk about silver now. I remember that the Chinese were encouraging their citizens to buy silver about 6 months ago. I guess it would have been a smart idea then. Perhaps its too late now?
As you can tell, I only know how to flip houses. And I get my news from occassionally walking by a tv that was left on.
Silver is the poor man's gold. It should do very well for a while. However, having confidence in buying gold and silver is about having a solid grasp (or desire to grasp) macro economics: Specifically in relation to the history of currency, an understanding of The Fed, the history of central banking and fractional reserve banking. If those topics do not excite you I would not purchase gold or silver. Unless someone you completely trust is advising you.
A great book or video series found on Google is "The Creature from Jekyll Island." If that resonates with you then maybe you will justify why precious metals make sense to you. If you think that is crazy talk then precious metals will not make sense to you.
Ultimately no one can answer if it's "too late" for you to buy. I am not buying. But I am not selling yet. You can jump into the gold and silver communities and read their views. You can jump into Keynesian economics and read those opposing views.
You'll read a lot of pessimism in gold communities. You'll have to weed through people who just want the system completely changed and are hoping for a currency crash due to the perceived injustices of central banking - The "gold bugs." Many are intelligent and have valid points. However, you will also find a lot of intelligent posters with real knowledge that will blow your mind, who are simply interested in economics and wealth preservation.
One possible scenario. Unless the power structure changes there will be a time - just like in the 80s - where gold and silver crash again for a long period. It will be during a large parabolic spike and many people will get burned because they bought during the manic phase of the bubble. Historically every time that happened with gold the price for one ounce is almost equal to the dow jones industrial average.
Proceed with caution and understand the fundamentals.
Couple points: first, hyperinflation is not a myth. It has happened (germany in 1920s, zimbabwe couple a years ago, argentina now and 90s?...) and will happen again. The root causes are printing too much money, easy credit (which leads to a bubble), and then a deflationary collapse (return to sanity) which the printers try to alleviate by printing more. This is like putting a bandaid on cancer, it hides it but it just keeps spreading and manifests itself elsewhere.
The way a gold standard, or any kind of peg where the govt has to exchange a commodity of a finite amount which they cannot reproduce (hmm, wonder what would happen if we had an oil standard), is that it limits the printing that can be done. That is why the US govt took all the gold from US citizens and made it a crime to own gold; it could not redeem the demands. If people came with $20 and said give me the gold, I do not trust that you are not printing and devaluing the dollar, the govt would run out of gold too fast. So in 1933 Roosevelt took away the gold and made the money purely fiat (for US citizens). In the 1970s the same thing happened again. Foreigners were demanding gold because inflation (paper being printed) was eating away at their purchasing power, the US was loosing gold like crazy (to make up for the dollars being printed) so Nixon said no more, you have paper and you are not getting our gold. The amazing thing is that people accepted that, and still continue to take paper that has been printed more and more. When you study money creation, how it is created, it is really amazing. I am not judging whether right or wrong, or what should be better, but it makes my head hurt when I look at it and think I understand it because it does not make sense... But anyways, a gold standard, where paper can be exchanged for gold, puts a limit on printing, or inflation. If the value of the dollar starts to go down to quickly, people will exchange them for gold to preserve their savings / wealth. The govt will start running out of gold, and have to start changing their monetary policy. We do not have any such brakes in today's climate, printing is feasible and is happening.
I have gold and silver, as stated previously. I bought most of it several years ago, when I was convinced of where we are heading. I will still buy gold and silver as I get more wealth to protect. I see it as a hedge against the printing, if printing increases, money goes down, but gold goes up. And if there is hyperinflation someday, then I am ready to buy some cheap real estate (in gold term; in dollar terms it will be crazy expensive). So a hedge, and insurance.
Bubbles are interesting items. I remember the run up to the tech bubble; people were saying buy, buy anything, it is crazy but they are all going up. I looked, no earnings, no business, no business plan even for some, looked too crazy, I did not even know how to buy a stock back then, too busy doing other stuff, I stayed out.
Then the real estate bubble, same thing. People were buying like crazy, easy to get loans, people quiting their jobs to "get rich", same thing, a bubble was not possible until it was already half way down, even then many (see choice speeches from Bernanke, Geitner, Greenspan, etc) denied it. Remember that it is easier for most to believe the easy lie than to face the hard truth...
So bubbles and money and history, they are kind of a hobby of mine. Not so interested in memorizing dates, etc, but interested in why things happen, why people do the same things again and again, why money systems inevitably lead to inflation (no control over printing) in the end, etc. So understanding human nature, and what has always happened, I feel confident that similar things will happen again and prepare accordingly.
I agree with Matty that there is a ton of pessimism in goldbug communities, but it is worth reading the counter to the koolaid given in the media just to stretch your mind and make you think.
And yes, Bryan, I totally agree that saving your wealth in dollars is not good in todays environment, govt inflationary policies are going to steal it. They want you to spend, to keep the economy limping along, inflation is a means of making you do that (we should buy before prices go up, if we save we just loose anyways, etc...).
And I also agree if you do not know anything about this stuff, if you do not understand yourself why you should buy gold or silver than you should not buy based on someone's recommendation. But I highly recommend learning. Some good references above, get both sides of the argument. Maybe you will arrive at the point I am; not sure which will come first, but wanting to be prepared for whatever comes...
Tony
Holy smokes Anthony do you have cliffnotes for that post lol.
Many take it as a given that gold is a good hedge against inflation. Unfortunately the data does not support this (hopefully the formatting will cooperate below):
Year Price That Year 2010 Dollars
1968 39 243
1969 42 248
1970 36 201
1971 41 219
1972 59 306
1973 98 478
1974 160 703
1975 161 649
1976 125 476
1977 148 529
1978 194 645
1979 308 920
1980 613 1612
1981 460 1097
1982 376 845
1983 424 923
1984 361 753
1985 318 641
1986 368 728
1987 448 855
1988 438 802
1989 383 669
1990 385 638
1991 363 578
1992 345 533
1993 361 542
1994 385 563
1995 386 549
1996 389 537
1997 332 448
1998 295 392
1999 280 364
2000 280 352
2001 272 333
2002 311 375
2003 365 430
2004 411 472
2005 446 495
2006 610 656
2007 703 735
2008 800 805
2009 880 889
So how is gold a good hedge against inflation? Why not buy tin, copper, or any other commodity when gold is what gets confiscated by the government during periods of turmoil historically?