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Why I hold Gold: Why I am a Long Term Optimist and consider holding gold and Optimistic Endeavor, and Why I think the Stagflationary Scenario is more likely Macroeconomically in the Intermediate term (next several years)

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June 05, 2010 – Comments (27)

Wow, long title :) Here it is again -- Why I hold Gold: Why I am a Long Term Optimist and consider holding gold and Optimistic Endeavor, and Why I think the Stagflationary Scenario is more likely Macroeconomically in the Intermediate term (next several years). I have made these points before scattered in several different posts and I will consolidate them here.

The argument against holding Gold only as a hedge against "inflation":

We must first disabuse anybody of the incorrect assumption that gold is an "Inflation" hedge... period. I have said this many times in the past, that gold is not only a hedge against inflation, but (and more importantly) it is a hedge against financial shenanigans and economic instability (loss of confidence).

There is absolutely nothing in economics that has only one cause and one effect. There are primary causes and secondary causes (and always multiple ones), and the primary cause at one time might become a secondary cause at a later time!!

"Gold is only a hedge against inflation". First this is an incomplete statement because it does not distinguish between monetary inflation and price inflation (most people are not even aware of the difference). And gold is a hedge against inflation (first and foremost it is a hedge against monetary inflation and is one of the few asset classes to respond to it early and directly. Moreover, all monetary measures are *NOT* created equal and you must use the proper, and in fact clearer/simpler form of money measurement, to understand monetary inflation, which is the True Money Supply / TMS - see: Steve Saville: Thoughts on Monetary Inflation. M2 and M3 have *non-monetary* components and are invalid for understanding the true scope of monetary inflation/deflation) and it is also, perhaps more importantly, a hedge against financial instability / loss of confidence.

It the 1980s, we had massive inflation. However gold dropped. So there is a contradiction right there. Why? Because Volcker's policies returned confidence back to the financial markets. And the future outlook, even though it was inflationary at the time, was deemed to be bright enough that people poured back into equities and left the safety of gold. (An example of a primary cause and a secondary cause switching importance).

The case for the stagflationary scenario in the intermediate term:

I have been hammering on the topic because it is the critical issue to understand how all of the advanced economies government's action will not only fail to produce the desired effects, but will more importantly make matters worse. The main issue is  Debt Saturation - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=357428. It is critical to understand that an increasing debt load has decreasing marginal utility and there comes a point due to servicing requirements that all new debt has a negative economic impact. This is why we were NEVER going to be able to borrow and spend our way out of a crisis that was caused by too much debt to begin with.

This sets up an extreme deflationary environment (this debt load is unsustainable) within which the Federal Reserve will monetize unprecedented amounts of debt at unprecedented rates. Which will result in a simultaneous deflationary and inflationary outcome: stagflation. There is NEVER anything in economics and especially macroeconomics that has only one cause and one effect. There are always multiple effects with varying degrees of influence (both in absolute value and transience). There will be deflationary impulses and there will be extreme monetary inflation, the Fed will see to that. Which means that I think the most likely outcome will be a combination of the two: stagflation. Economically correlated assets go down in value (like your home and equities as a general asset class) and things you need to buy/consume (such as real assets / commodities) cost more. Really the worst of all possible outcomes.

I do think that most inflationists discount the amount of debt that is collapsing (even though most deflationists use measures like M2 and M3, which have a lot of non-monetary components to prove their point) while at the same time most deflationists discount the amount of monetary inflation the Fed can generate (they argue that the Fed creating base money is like pushing on a string because the banks don't have to lend, even though I am many others have pointed out that the Fed has gone around the banking system and has started monetizing private sector debt directly, which is a trend that is likely to increase not decrease). Most people on either side of the debate is not considering strong evidence that both forces are significant.


The case for holding gold as an optimistic endeavor:

I am bullish on the very long term prospects for the economy of the US and the world.

.... Now that might seem odd, because aren't all the people who invest in gold assuming the world will end? The answer is no, at least for this gold investor. I invest in gold not because the world might end, but I invest because I firmly believe it WILL NOT!!. If I was uber-bearish for the very long term, I would build a bunker underground, stocked with years of food and buy guns. Gold? For the end of the world? It makes no sense. Why would a useless shiny metal rock be something to collect if civilization ends?

It is the same thing with fiat currency (such as the US dollar). If you really thought the world would end, why collect little pieces of green paper with faces on it? How is that possibly useful? If there is no government to give you goods in exchange for it, then there are better items for a bunker mentality.

So I invest in gold because I am an optimist.

I am not bullish on the US government. I think they will inflate the dollar into worthlessness (or devalue it highly at least). But ultimately economies WILL recover, and I want to trade my gold in for something useful. Shares in a profitable alternative energy company, or a company the produces / distributes water from seawater to sustain drought countries, or any number of productive future endeavors.

Gold is simply a way to maintain purchasing power as the worlds economy goes through this large and needed contraction. So as an optimist, you should invest in gold :) Just my $0.02 (silver coins of course, not actual pennies ... :) )

Why I am long term optimistic and certainly no permabear:

The problem is that there are no straight lines. Not in nature and not in the systems that humans create. We as humans want to see linear realtionships, but they are a myth by and large. The world is inherently nonlinear. But more importantly, the world is cyclical. The are all kinds of very long cycles in nature: the fast 11 year solar cycle, 13 year cicadas, 26000 year precession cycle of the North Pole, etc.

There are also economic cycles that last a very long time, such as the 33 year Long Valuation wave cycle, or the 40 year Kondratiev Wave cycle.

But humans are *very* bad at picking out cycles that last more than 1 year. And we always want to extroplate linearly.

So I agree, the next several years will be marked by economic contraction. We were on a broad upswing for many decades and now we will contract for a long time as well. It does not make sense that we will just grow indefinitely with only brief pauses (1975, 1982, 2000, 2008).

But this is PRECISELY the reason why I am *NOT* a PERMABEAR

Because the world is cyclical. Nothing goes up forever, and nothing goes down forever.

Uptrends need to be corrected down. And once those corrections are complete, in both size and duration, the human race goes back to making progress.

The human race will always make net progress in all of it endeavors.

This is why the stock market will *never* go to "zero".

Every advancement, whether it is with the market or economy or any other endeavor, there is a hiatus and an appropriate retracemnet, but then the next wave will advance.

It is the reason why I am very optimistic for the future. Because after the current correction plays out (and I have layed out my case for why it is not over many times. Others don't agree with me and that is fine) the next bull run will be truly awesome.

Because it has to do with this idea of net advancement.

We do have a finite world with finite resources. But we have *unlimited* potential in how efficiently we use them. The advacements we have made in the last 100 years in all areas of science, but most importantly materials science, is nothing short of astounding.

As long as humans have the creative will to continue to learn and grow, we will never become extinct. We will face our challenges and come up with solutions. Our fate is very literally in our own hands. And I have no doubt whatsoever of the outcome.

Which makes very very long term bullish on the prospects of humanity. It also makes me very long term bullish on the prospects of human endeavors. And yes, that includes the stock market. I am not bullish for the intermediate term. Like I said above, we are in a long cycle, and that cycle is not over. But it will not go down forever.

27 Comments – Post Your Own

#1) On June 05, 2010 at 4:29 PM, 100ozRound (29.43) wrote:

Outstanding Binve!!

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#2) On June 05, 2010 at 4:33 PM, binve (< 20) wrote:

100ozRound ,

Thanks man!!..

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#3) On June 05, 2010 at 5:03 PM, 1315623493 wrote:

As much as I disagree, you've provided a rational moderate argument for gold, and deserve a rec. 

We must first disabuse anybody of the incorrect assumption that gold is an "Inflation" hedge... period. I have said this many times in the past, that gold is not only a hedge against inflation, but (and more importantly) it is a hedge against financial shenanigans and economic instability (loss of confidence). 

Wouldn't bonds be a better hedge against "financial shenanigans and economic instability"? Gold can decline big so why risk that when you can just buy bonds, be protected from economic instability, and not have to worry about loss of principle. Gold doesn't provide income but does provide the risk of losses. 

I'm long BND (Vanguard Total Bond Market Fund) and long puts on GLD (Gold ETF). 

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#4) On June 05, 2010 at 5:21 PM, RonChapmanJr (56.66) wrote:

Good post. 

"Because the world is cyclical. Nothing goes up forever, and nothing goes down forever."

Sort of.  While things do not go up forever, things that come down can stay down if they disappear while at the bottom.  I bought some Atari stock a couple of years back and experienced that.  :(   Long term, America is toast.  Our best days are behind us and I think we only go down until we are no more. 

Here's a question I've asked others and put to myself recently - at what price point do you stop buying gold/silver?  Gold at $1000 an ounce is an easy buy, but do you keep buying at $2000, 3000?

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#5) On June 05, 2010 at 5:29 PM, MoneyWorksforMe (< 20) wrote:

+1 rec. 

Excellent job. 

I agree with just about all of this--it is indeed extremely rare that I say this...

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#6) On June 05, 2010 at 5:34 PM, binve (< 20) wrote:

BetapegLLC ,

>>As much as I disagree, you've provided a rational moderate argument for gold, and deserve a rec.

Thanks. I don't mind at all that you disagree with me. We can all look at an issue and come to different conclusions and can discuss and at the end of the day if we don't see eye to eye, it is okay. I am just simply not interested into getting into an argument / heated debate over anything. I have been involved in far too many in Caps awhile ago, which almost never come to any good resolution, that I just stay away from them now.

>>Wouldn't bonds be a better hedge against "financial shenanigans and economic instability"?

In a general bull market that just needs correcting, I would agree with you. And in a liquidity / deleveraging crisis (like 2008) again I would agree with you. But I think the primary cause of this next crisis is a sovereign debt crisis. And I am very bearish on long term government debt (especially US long bonds). Short term T-bills and cash equivalents will do fine because people will not know what to do, but I think the Fed will unveil QE-II in the middle of the next crisis, destroying the value of the dollar and long term government debt (see the reasoning here:  Debt Saturation - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=357428.)

>>Gold doesn't provide income but does provide the risk of losses.

That is very true. And I expect it to be supremely volatile. But I think what continues to drive the gold bull currently will continue for the next several years, a supreme loss of faith in fiat currency. To be very clear, I am not arguing for a return to the gold standard (I honestly don't think it will happen). But I think its role as a monetary asset (as a store of value) will improve during the next crisis and economically correlated assets (such as equities) will be in trouble. Commodities are mixed bag. Many will take a large hit, but I expect them to do better than equities because they are real assets. But the fact that they provide no cash flow in a declining economy makes them less attractive.

Here is how I would rate asset performance of assets during the next crisis (understanding that I think the next crisis will be largely a sovereign debt crisis that will culminate in a currency crisis in the US Dollar which I am *very* bearish on).

Gold --- (most bullish)
Silver
Gold/Silver Miners
Agricultural commodities
Industrial Metals
Oil
Other commodities
Oil Producers
Oil Services --- (less bullish)
---- (neutral) -----
Consumer Staples --- (less bearish)
Select Large Caps
General Large Caps
US Dollar
Short Term US Treasury Debt
Long Term US Treasury Debt
Homebuilders
Commercial Real Estate
Small Caps
Consumer Discretionary
Financials --- (most bearish)

That is just my take and I understand if you don't agree. I understand why you are bearish on gold, and I simply see things differently.

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#7) On June 05, 2010 at 5:44 PM, binve (< 20) wrote:

RonChapmanJr,

Thanks!

>>Sort of.  While things do not go up forever, things that come down can stay down if they disappear while at the bottom.  I bought some Atari stock a couple of years back and experienced that.  :( 

Fair point :) But I am referring to the stock market in aggregate. Much like in 1929-1934 the Dow lost >80%, it never went to zero and eventually came back. The trajectory of the NIKKEI now is like the Dow in terms of its depth, but it is duration is so much worse because the governement keep screwing with monetary policy. Just like ours. I think a hybrid of the NIKKEI from 1990-2020(ish) and the Dow from 1929-1934 is what we should expect for US markets. At that point *everybody* will hate stocks and think the economy will never recover. Then I will be the biggest bull you have ever seen.

>>Here's a question I've asked others and put to myself recently - at what price point do you stop buying gold/silver?  Gold at $1000 an ounce is an easy buy, but do you keep buying at $2000, 3000?

That is a good question. I have already loaded up on gold so I now have the option of picking large pullbacks. It is very tough to say when gold is "overvalued". Here are a few posts that try to put some sort of metric on it:

--- Update on the Dow/Gold Ratio and a few more Gold Ratios

---- ContraryInvestor: The Many Faces Of Gold - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=400090..

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#8) On June 05, 2010 at 5:45 PM, binve (< 20) wrote:

MoneyWorksforMe ,

Thanks man!..

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#9) On June 05, 2010 at 6:44 PM, 1315623493 wrote:

binve, if no one disagreed, who would take the other side of the trade!? ;-)

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#10) On June 05, 2010 at 6:50 PM, ozzfan1317 (76.94) wrote:

Just my opinion but last bull market in gold ended with it around 2000 inflation adjusted. (800 real money) I can see it eventually hitting that price again before being overvalued and a reason to sell.

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#11) On June 05, 2010 at 7:39 PM, binve (< 20) wrote:

BetapegLLC,

I have no problem with disagreement, that's what makes a market :)

ozzfan1317,

Fair enough..

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#12) On June 05, 2010 at 8:11 PM, HarryCaraysGhost (99.69) wrote:

binve, nice post.

If I may chime in with my limited two cents on the overall situation.

I believe we are in a very, very slow recovery. There will be corrections like the one we are experincing now, but I would consider those buying opportunitys. I see things in real life getting better at a snails pace.

I also believe that all the spending will lead to massive inflation, but that won't happen for 2-3 decades from now. So my response to that is to vote for any candidate who shows any sense of fiscal resposibility. (Neither the dems or reps have shown me the ability to do this)

Of course there is the threat of Black Swans, and possibly wwIII, which would bring me to one of my favourite quotes-

"I do not know what the next world war will be caused by, but I do know that the one after that will be fought with sticks"

~Albert Einstein  

So I shall continue to invest, DCA and DIVS are your freind, if I happen to be wrong, well were all screwed anyhow.

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#13) On June 05, 2010 at 8:44 PM, binve (< 20) wrote:

msftgev,

>>I believe we are in a very, very slow recovery. There will be corrections like the one we are experincing now, but I would consider those buying opportunitys. I see things in real life getting better at a snails pace.

I honestly hope you are right and I am wrong. And if I thought there was real evidence of that, I would dump my gold and buy strong dividend yielders. But I really don't, so I am saving my gold to buy good dividend yielders at a much cheaper level: Is the Market Fairly Valued? Did the Market Achieve Any Meaningful Bottom Back in March? - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=320237

>>I also believe that all the spending will lead to massive inflation, but that won't happen for 2-3 decades from now

I agree, but not according to the general inflationist argument. We will see, I could be very wrong on this :)

>>So my response to that is to vote for any candidate who shows any sense of fiscal resposibility. (Neither the dems or reps have shown me the ability to do this)

I totally agree.

>>Of course there is the threat of Black Swans, and possibly wwIII, which would bring me to one of my favourite quotes- "I do not know what the next world war will be caused by, but I do know that the one after that will be fought with sticks" ~Albert Einstein 

This is also one of my favorite quotes. But to be very clear, I do not think that we need to go through another World War. Like I said above in the "why I consider investing in gold to be an optimistic endeavor" section, I do not have a bunker mentality and if I did, gold would be one of the stupidest items to hold in that scenario. I do think we need to have a soceital collapse, I don't think we will fall into martial law, and I don't think we have to start from ground zero. I think the economy needs to go through a necessary (and temporary but most likely painful) adjustment process. Our debt is crushing and eventually it will need to be restructured and/or monetized. Probably a combination of both. Hence my extreme bearishness on the dollar. But just because the dollar will be weaker, it does not float all ships like I show here: http://caps.fool.com/Blogs/ViewPost.aspx?bpid=330962#comment331037.

>>So I shall continue to invest, DCA and DIVS are your freind,

Fair enough, and someday I will be DCAing and DIVing right alongside you. I just don't think that time is today

>> if I happen to be wrong, well were all screwed anyhow.

I really don't believe that for a second.

Thanks for the comment!..

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#14) On June 05, 2010 at 8:47 PM, binve (< 20) wrote:

Oops :)

>> I do think we need to have a soceital collapse

I do not think we need to have a soceital collapse

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#15) On June 06, 2010 at 12:02 AM, MGDG (35.40) wrote:

Binve, thanks for taking the time to lay out your thoughts. Plenty if fat to chew on here.

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#16) On June 06, 2010 at 1:46 AM, SnapDave (64.20) wrote:

binve

 And in a liquidity / deleveraging crisis (like 2008) again I would agree with you. But I think the primary cause of this next crisis is a sovereign debt crisis.

Just wondering if you could expand on why the next one will be different from 2008.  I don't see it.  I'm guessing QE-2 won't initially be that big - what's a couple trillion between friends?  At some point, call it QE-3, it will be huge.  That could be at least 2012.  

Did you really mean to agree with msftgev that inflation is 2-3 decades away in #13?

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#17) On June 06, 2010 at 12:15 PM, binve (< 20) wrote:

MGDG ,

Thanks! No problem!

SnapDave,

>>Just wondering if you could expand on why the next one will be different from 2008.

Sure. Last time it was a liquidity crisis. The financial system and hedge funds were leveraged to literally unprecendented levels in 2007. Money was tied up in lots of carry trades. And so when the fincancial crisis came down, there were severe margin calls particularly among hedge funds. This resulted in an acute liquidity crisis. I expanded on this line of thought here: Moving Some Macroeconomic Deck Chairs: The Dollar, Dollar Swaps, Bonds and LIBOR - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=369098

The difference now? The Fed has already re-opened the dollar swap lines. I talk about that in this post: Bigger Fish to Fry, and update to Moving Some Macroeconomic Deck Chairs: The Dollar, Dollar Swaps, Bonds and LIBOR - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=392515. The system is being pre-pumped with liquidity. So the failure mechanism is guaranteed to be different. But the fact that all of this monetary manipulation can be made is part of the failure of the fiat currency system, and its culmination will be a loss of faith in sovereign debt and in some cases the currencies themselves.

>>I'm guessing QE-2 won't initially be that big - what's a couple trillion between friends?  At some point, call it QE-3, it will be huge.  That could be at least 2012. 

I am not so sure. I talk about QE-II here: Debt Saturation - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=357428.

>>Did you really mean to agree with msftgev that inflation is 2-3 decades away in #13?

Good catch!!!! No, I must have read that too fast or read what I wanted to read. No, I think inflation will be a problem in 2-3 years (maybe as little as 1). But I think it will be in the context of stagflation and not hyper-inflation, like I lay out above.

Thanks for the comment and questions!..

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#18) On June 06, 2010 at 12:56 PM, mhy729 (30.80) wrote:

binve

Excellent as always!  Thorough and well-reasoned...I often find myself in a modest state of awe from the knowledge and analytical ability demonstrated by some choice members here, and that definitely includes you.  Thanks.

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#19) On June 06, 2010 at 1:25 PM, binve (< 20) wrote:

mhy729 ,

Thanks man! I appreciate that!!..

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#20) On June 06, 2010 at 1:38 PM, wolfman225 (64.92) wrote:

"As long as humans have the creative will to continue to learn and grow, we will never become extinct. We will face our challenges and come up with solutions. Our fate is very literally in our own hands. And I have no doubt whatsoever of the outcome."

I'm not any kind of expert, but I have to question this (in a way).  While I agree that we humans have the inherent ability to advance, it can be, and often is, hindered by the political/ruling systems of the day.  Having the creative will to learn to grow and advance means little if government(s) are stifling the enterprenurial spirit with redistributionist ideals and punitive tax policies.  Keep in mind that most of the advances of the last 100 years have largely been driven by the individual freedoms provided under the U.S. capitalist model of rewarding initiative and risk-taking in developing new and better businesses/products.  That seems to be changing in the current political environment both here in the U.S. and globally.

I am trying to hold on to my optimism but........

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#21) On June 06, 2010 at 1:52 PM, binve (< 20) wrote:

wolfman225 ,

Fair enough. But I think our soceities develop governments that we are collectively ready to accept.

>>Keep in mind that most of the advances of the last 100 years have largely been driven by the individual freedoms provided under the U.S. capitalist model of rewarding initiative and risk-taking in developing new and better businesses/products.  That seems to be changing in the current political environment both here in the U.S. and globally.

I agree with your train of thought. We as a soceity shape the government (mostly unconciously) the reflects the trajectory we are pursing. The last bull wave from 1934-2000 was reflected in a government that that allowed this run to take place. The correction from 2000-2020(ish) (as a guess) needs correct this massive bull run, and the government that we shape during this time will reflect what needs to occurs from a soceital perspective. I talk about that a little bit here: The Long View - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=314202.

The current trend of piling debt on top of debt is unsustainable: Debt Saturation - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=357428. And neo-economists and politicians have to get their collective heads out of their collective assess and not allow a vampire industry (financials) hijack the real economy. But since that won't happen willingly, then the market will force a crisis that will fundamentally change how we view politics and the economy. Crony capitalism will go away. Good laws like Glass-Steagall will become reinstated. Too big to fail will be abolished. Grass roots companies will grow like a new forest. The Mittelstand companies of Germany (small/medium firms, mostly family owned) is exactly the economic model that most of the western world should be following, and I believe will in the future.

And so for the last 15 years, we as a soceity have been creating a government has suffocates us and takes away freedoms and opportunities. That relies on central planning, etc. When this crisis nears a bottom and we as a society are ready to advance once again, then we will create a new government that reflects that willingness. One the supports hard work, productivity, innovation and contribution.

I don't want to support the current economy (consumption based which is driven by failed Keynesian economic theory), I am waiting to support a real and sustainable economy. And I believe I will get my chance. I am a patient guy.

Thanks for the comment!..

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#22) On June 06, 2010 at 5:21 PM, uclayoda87 (29.32) wrote:

Binve:

In the absence of significant government interference with human progress, what you have written I can agree with but in the real world we still have to deal with deleterious government misadventures.

Most governments are like the BMS (Best Medical Students) from the House of God (Law number 11), the best ones only triple your work.  With tax rates, regulations and quantitative easing we are quickly approaching the point where we are compensated for only 25% of our work.  At what point will the incentive to be productive be taxed into extinction?

The answer may be found in the Stephen Moore’s article:  'Atlas Shrugged': From Fiction to Fact in 52 Years. 

Only when there is nothing left to steal will the robbers go away.  And if you are a robber, living off the work of others, you're unlikely to want to change the system.  So like the fall of the Soviet Union we may have a long wait before we are free enough to grow a real recovery.

The Road to Serfdom is another work which has regained relevance in our interesting times. 

 

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#23) On June 06, 2010 at 5:39 PM, binve (< 20) wrote:

uclayoda87,

These are great comments man, and I agree with them, but only in the transient relevance not in absolute terms. My reasoning is summed up in comment #21 above, my reply to wolfman. I think everything you describe is a product of the government that we have built over the last 15-20 years. When American soceity is ready to have savings actually mean something again and not have it taxed away through massive inflation and negative real interest rates, and to have policies that supports hard work, productivity, innovation and contribution, we will. I have no doubt that in the furture the tide will turn that way. But right now American soceity is still very consumer driven and ready for the government to step in and 'solve problems' from an econonomic standpoint. As so we have the government we have now. I am optimistic that things will change in the future and I am saving my gold for that time. Thanks for the comment!..

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#24) On June 06, 2010 at 8:24 PM, HarryCaraysGhost (99.69) wrote:

 Did you really mean to agree with msftgev that inflation is 2-3 decades away in #13?

SnapDave

I said massive inflation, not your run of the mill inflation,and not Hyper-Inflation

there is a difference in my mind.

binve thank you for replying.

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#25) On June 06, 2010 at 8:27 PM, binve (< 20) wrote:

msftgev ,

>>I said massive inflation, not your run of the mill inflation,and not Hyper-Inflation

I understand your clarification. But like I said in comment #17 above, I think inflation will be very detectable in the price of real assets in the 2-3 year timeframe, in the context of stagflation (not hyper-inflation).

Not a problem! Thanks for your comments!..

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#26) On June 08, 2010 at 5:16 PM, SnapDave (64.20) wrote:

binve

 Thanks for the quality links.  I can't really argue with 2-3 years.  But in the meantime...  I like the idea of what you call 'deflation impulses'.  I alluded to this in one of my blogs.  
It's hard for me to believe banks deleveraged nearly enough since 08.  Things like TruPS make me bullish (hate to use that word) on the dollar:  
http://preview.bloomberg.com/news/2010-06-07/banks-in-downward-spiral-buying-capital-in-cdos-distrusted-by-regulators.html

http://www.zerohedge.com/article/how-cross-selling-cdos-between-banks-created-big-ponzi-scheme

 msftgev

I understand.  I was just being lazy in my writing.  

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#27) On June 09, 2010 at 1:27 PM, binve (< 20) wrote:

SnapDave ,

No problem man! And that zerohedge article and many like it are what caused me to write this section in my not-too-infrequent rant against financials:

"I have written many times that financials are the cancer of the economy.

Financials are not, at their core, bad businesses (at least financials of 30-40 years ago). They do perform a very vital role of facilitating the dispersion of resources. It it not productive, so there is a loss of efficiency, but there is an overall economic good that comes out of it.

But today, financials (investement / shadow banks in particular) comprise a disproportionate size of the economy to the amount of economic usefulness they perform. This non-productive garbage has to be cleaned out, just like cancer. This is precisely why I call financials the cancer of the economy. They are a huge drain that transfers the economy's money (the wealth of the productive part of society), largely between each other, collecting fees for their "work".

On top of that, throw in the corruption and blatant fraud that is associated with most of these debt instruments, they should be illegal, and really are when you consider the spirit of the law. The letter of the law, of course, gets bent all the time to suit."

Thanks!..

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