Q. Inflation is the result of a larger than proportionate growth in money supply. What we see now is that M3 (total money supply) is coming down as banks keep sitting on cash because they are reluctant to grant credit. As Money supply is coming down, hasn’t the danger for inflation not become a danger for deflation?

A. Only the RATE of Growth in Money supply is coming down;  M3 keeps on GROWING at a slower pace (10% instead of 18%) and therefore we keep on having monetary inflation and not deflation. M1 is growing at a faster rate (more people are keeping their savings under their mattress) and the rate of growth of M2 has also increased to almost 8%.

At this time we also see the velocity of Money coming down. This is a normal and expected faze of the inflation/hyperinflation cycle we are living: people are spending less because they erroneously think prices will come down. The day they understand Inflation is here to stay, people will start to buy whatever they can to get rid of paper money. Velocity will pick up again and we will at that point have entered Hyperinflation.

GDP (gross domestic product) is decreasing by almost 4%!

Posted November 17, 2008

Will be for sure a strategy designed to ease the burden of ALL debts — by simultaneously devaluing ALL currencies ... and re-inflating ALL asset prices.

Economists call such a strategy inflation and hyperinflation. This is done by printing Fiat Paper money.

Will be a new financial order including new monetary units that helps to wipe clean the world's debt ledgers.

This has already been introduced in the EU. They called it the EURO. Since, prices have at least doubled and in some countries (Spain), some prices have quadrupled.  Local propaganda has window dressed the operation.

To end the Great Depression in 1933 Franklin Roosevelt devalued the dollar by 40% via Executive Order #6102, confiscating gold and raising its price 69.3%, effectively kick starting asset reflation.

Yes, he did. However not a history book says this policy just failed. As a matter of fact, it made the situation even worse. Later on, taxes had to be raised to 92% and food stamps were introduced.

Only this time, it won't be just the U.S. that devalues its currency. The world is too interconnected. In other words, too many countries are sitting with Dollars.  Instead, the world's leading countries could propose a simultaneous and universal currency devaluation.  

Such a thing doesn’t need to be proposed. It will happen automatically as all Fiat Paper Currencies start to fail in sequence. It already happened in Zimbabwe and is happening in  Iceland.

They cease all gold sales and instead, raise the current official central bank price of gold from its booked value of $42.22 an ounce — to a price that monetizes a large enough portion of the world's outstanding debts. 

Such an action is as impossible as a simultaneous and universal currency devaluation. The forces of the markets will bring the price of Gold to whichever level it judges fair. We and other analysts see a price objective which equals the Dow Jones level: a Dow of 9,000 would result in a Gold price of $ 9,000.

 Following figures based on the American debt alone: 

• To monetize 100% of the outstanding public and private sector debt in the U.S., the official government price of gold would have to be raised to about $53,000 per ounce.
• To monetize 50%, the price of gold would have to be raised to around $26,500 an ounce.
• To monetize 20% would require a gold price a hair over $10,600 an ounce.
• To monetize just 10%, gold would have to be priced just over $5,300 an ounce.

Posted November 3, 2008

Frequently not asked questions about Inflation:

• Q. Assume the GNP grows by 0.4 % and the published inflation rate is 5 %. What is the real GNP?

• A. Impossible to answer the question since we don't know the real inflation rate.

• Q. Assume the GNP grows by 0,4 % and the real inflation rate is 15 %. What is the real GNP?

• A. – 14,6 %

• Q. Assume the real inflation rate is 15 %. How much interest does your investment has to yield to stay ahead?

• A. At least 15 %

• Q. Assuming a growth in total money supply (M3) of 20 %, how high is the real inflation rate?

• A. 20 %

•  Q. Assuming you buy a Treasury bill or Treasury bond yielding 5 % and the growth in money supply (M3) is 20 %, how much does your investment really yield per year?

•  A. You loose 15 % per year.

•  Q. What is the difference between taxation and inflation?

•  A. Both actions are the same. Taxation is an official factor, however inflation has the same effect in an sneaky way.

Posted October 17, 2008

 Q. Just one more thought, everyone seems to be predicting that the dollar will collapse but no-one seems to ask himself the question in whose interest this is. Let's look at the Chinese , they have tremendous reserves of dollars , so for sure if the dollar collapse , they loose everything as well. The same thing can be said of the rich Oil producing countries (especially Saudis, Emirates).

So the US might get support from those countries as well because it's in their own interest. So I'm wondering if the dollar could not perform better than one might think just because the big and very rich countries keep each other in balance because of mutual interests.

So what about the Chinese and the Arabs ?
 

A. The Financial System of the Western world is based on Fractional Reserve banking and Fiat paper money. Because of the Credit Crunch which is the result of the banking system and paper money, we have a recession and will probably also see a depression (2009/10)..

In a recession and depression Government income falls (less tax income) and expenditures rise ( i.e. more unemployment). Especially now Social Security,  Pensions and similar expenditures will soar because of the retiring baby boomers.

As we enter a recession and depression, the Authorities will start to print more money to keep the economy and financial system going.  This action inflates the value of the Fiat paper money (monetary inflation); the holders of the currency  don't even need to sell it to loose in purchasing power. Monetary inflation generates price inflation and the purchasing power of ALL holders (incl. Chinese and Saudis) of the currency falls. Whether somebody wants it or not, the collapse cannot be avoided.

ALL realize Inflation is a deliberate policy and here to stay. Nobody wants to hold the paper money any more and it is exchanged against Real Assets at any price. The currency (Dollar) crashes and we have Hyperinflation.

In order to postpone the Hyperinflation cycle, authorities bring up the “threat of deflation” . These deflationary references are merely cleverly crafted misdirections though, designed to distract investors from the real inflationary threat. 

Posted August 27, 2008

Q.  When you write "as of July 1, 2008, two U.S. banks were short 6,199 &. as of August 5, 2008, two U.S. banks were short 33,805 contracts of COMEX silver " -  what does this mean ? Do they speculate on a falling silver price or just the opposite ? or both ? When both, the article has only an informational value , i.e. "here it is, do with it what you think it is worth, we have no opinion".
I am a bit confused weather shorting means "speculate on short term on rising prices" or "speculate on short term on falling prices" . Unlike a Speeder or Turbo where the name defines the underlying meaning "long"=go for rising or "short"=go for falling prices.
I am no trader, just a concerned citizen who wants to keep what he has and loose as little as possible. Should I keep the Kruger's I bought about 10 days ago (in euro) ? And maybe buy some more ? For the moment I'm about 85% in cash, (sold approx. "all" in 5-2007 and bought nothing since = more luck than knowing). What to do with the $ that are now on a cash-account. My bank says the $ will be worth 0.8 € in max. 6 months is  0.675 now. But I see that the $ is hovering around 1.47 the last 10 days after a steep climb.
One more thing I observed the last 2 weeks: why does intraday gold rise before noon and declines after? And why the $ declines before noon and rises after noon C.E.T ?
 

A. To "SHORT" means SELLING something one does NOT HAVE. By selling/shorting a downward price pressure is exercised.

NAKED SHORTING means one is selling something without having access to the underlying security or commodity. It is a PAPER operation. Under the SEC legislation, such an action is illegal. However, for some reasons the naked shorting of Gold and Silver didn't and doesn't seem to bother the SEC. Only when people started to short FINANCIALS, the SEC moved in with a list of Banks/Financials where naked shorting is prohibited!? Subsequently the price of financials bounced back.

By increasing their short positions from 6,199 to 33,805 contracts, a huge quantity of PAPER SILVER was sold and the Silver price came down. The REAL SILVER could not be shorted as there was and still exists a supply shortage of Silver and Gold.

This action was orchestrated during the summer doldrums we have each year on the Silver and Gold markets. This period has a much lower activity than usual and hence it is a lot easier to push a price down. These banks did not speculate on falling Gold and Silver prices, they just kept on selling contracts and hereby pushed down the price of Paper Silver and Paper Gold. Doing this, many stop loss orders became market orders and in turn started to push down prices. Technical support levels were sliced through like they were soft butter generating more sales.

Each short position has either to be closed by a 'Buy' or rolled over before the expiry date of the contract, or the sold silver/gold must be delivered to the buyer. The Banks which sold the Silver and Gold contracts will either have to cover their short positions in the market by buying a similar quantity, either they will have to close the contract and suffer the incurred loss. As the Fed is in a position to increase the money supply as it wishes (There are no restraints - it even doesn't need to print money - all is done electronically), it probably will cover the potential issuing losses.

Gold saw a similar action. As a matter of fact, the selling pressure on Gold (11 fold increase) was even stronger than it was on silver (5 fold increase). Ironically, meantime the US mint stopped delivering Gold coins because it could not keep up with the demand.

Gold and Silver were on the brink of starting a parabolic price rise. This would have attracted huge media attention and could have initiated a SELLING panic on the US Dollar. Something the actual authorities and Central banks - already in a precarious situation because of the credit squeeze - want to avoid by all means.

I have no idea how the story will unfold over the coming weeks and months. One thing is sure: physical demand for Gold and Silver stays high and is increasing. Supply is falling. The question is what the financial balance of this operation (shorting Gold and Silver and going long Dollars) looks like. Only the involved banks, central banks and the FED know.

The fundamentals of Gold, Silver, the Dollar and fiat paper money continue to move in favor of Gold and Silver. The impact of the American banks which shorted the metals can only last so long. The Dollar is loosing its position as a world reserve currency and the markets for Gold, Silver and Forex are GLOBAL. Having said this, the odds are that those banks could be in a position to cover their shorts with no or with a limited amount of losses. But I doubt it.

 A lot of technical damage has been made and the result could be that the parabolic rise for Gold and Silver and the sell off of the Dollar could be delayed until after the American Presidential elections. This is probably what the American authorities are hoping for. A crashing Dollar and American Stock exchange would mean an ex-ante defeat for the Republicans.

The Dollar has fallen through a HUGE LONG TERM support zone which has now become a HUGE RESISTANCE zone. The level is .80 on the Dollar Index and 1.35 to 1.40 for the $/€ . Because of the fundamentals and technicals, I really don't see the possibility for much higher levels for the Dollar. Whatever Banks advice, they are mostly wrong. Certainly now as they have painted themselves in a corner and they are the very ones sitting in the eye of the financial storm. Candidly, the friendly man or woman working for a bank institution mostly doesn't has a clue about the real functioning of a financial institution. Ever asked them if they knew where the money comes from?  

Over the past weeks, the price of Gold has been extremely volatile - even intra day - . Our vision is that this indicating that a trend reversal is imminent. But again, the total capitalization of the Gold and Silver markets (incl. gold and silver shares) is extremely small: it is about the same size of the total capitalization of Coca-Cola. With all available financial instruments (derivatives), it is always possible to see the devil act again. Similar actions were often seen before the Great Depression (Gold pool). Interventions happen mostly when the market is least active. Fridays afternoons are particularly loved. Late afternoons (Greenwich time and Eastern Time) and early morning (Eastern Time) too.

You have the option to sell whatever Real Money (Gold and Silver) you have and stay with FIAT PAPER MONEY (Dollars but also Euros, Sterling, Yen, Pesos, Rubble, etc..) that isn't even money but DEBT or to take advantage of the actual situation and increase your position in Real Money (Gold and Silver). Having said this, it is always wise to spread purchases over a period of time.

A good advice, if you decide to increase your position of real money (I would), make sure you take physical delivery of it! The day will come the authorities will make the possession of Gold illegal (for you own safety). They did so in the past and they will do so again.

B and A Air Co. , Florida, USA