Should we expect massive global inflation in the coming years?

[Narmer]

I've been reading Rogoff and Reinhart's "This Time is Different" and on page 76 is an eye-opening figure. It graphs sovereign defaults and inflation. There is a strong correlation. You can find the graph here:
http://www.voxeu.org/index.php?q=node/1067

The inflation-default cycles
Figure 4 on inflation and external default (1900 to 2006) illustrates the striking correlation between the share of countries in default on debt at one point and the number of countries experiencing high inflation (which we define to be inflation over 20 percent per annum). Thus, there is a tight correlation between the expropriation of residents and foreigners.
As noted, investment banks and official bodies, such as the International Monetary Fund, alike have argued that even though total public debt remains quite high today in many emerging markets, the risk of default on external debt has dropped dramatically because the share of external debt has fallen.
Figure 4.

This conclusion seems to be built on the faulty premise that countries will treat domestic debt as junior, bullying domestics into accepting lower repayments or simply defaulting via inflation. The historical record, however, suggests that a high ratio of domestic to external debt in overall public debt is cold comfort to external debt holders. Default probabilities depend much more on the overall level of debt.

It's easy to make fun of the people who are buying up gold but the data does not lie. For those who say we should not expect future inflation, is this time really different?

 

[DominionSeraph]

It's easy to make fun of the people who are buying up gold

Yes it is.

Pyramid schemes lol.

 

[GaiaHunter]

Yes it is.

Pyramid schemes lol.

Exactly why is it a pyramid scheme?

Stop thinking of gold as a commodity. It is a currency.

Not only that its price is lower than it was in 1980s if you adjust for inflation.

Or you can keep making fun of people that been buying gold in the last 10 years @$300 when now it is $1330.

 

[sandorski]

Exactly why is it a pyramid scheme?

Stop thinking of gold as a commodity. It is a currency.

Not only that its price is lower than it was in 1980s if you adjust for inflation.

Or you can keep making fun of people that been buying gold in the last 10 years @$300 when now it is $1330.

When the price of Gold falls, it will be quick. Most likely <$200 by 2020, probably many years sooner.

 

[DominionSeraph]

Exactly why is it a pyramid scheme?

Because they're conning more and more Fox News viewers to buy and rebuy the same stick.

Stop thinking of gold as a commodity. It is a currency.

It's a commodity as a currency. But it has drawbacks as such, which is why we use paper.

Try to keep up.

Not only that its price is lower than it was in 1980s if you adjust for inflation.

It's not particularly useful when you have paper.

Or you can keep making fun of people that been buying gold in the last 10 years @$300 when now it is $1330.

What, the Jews? Where's the fun in even considering them? They knew what they were doing manipulating the market so the stupid gentiles would bite.
The fun is watching the stupid gentiles fall over themselves thinking they're all going to make a profit in a zero sum game.

That market segment completely irrelevant, but I do so love watching a fool and his money part ways.

 

[JSt0rm]

Exactly why is it a pyramid scheme?

Stop thinking of gold as a commodity. It is a currency.

Not only that its price is lower than it was in 1980s if you adjust for inflation.

Or you can keep making fun of people that been buying gold in the last 10 years @$300 when now it is $1330.

If they bought at $300 and sold at $1330 then GG.

If they are still holding waiting for the apocalypse and the angel Gabriel to come smite down the sodomites then they fail.

 

[Craig234]

I don't know. But we are taking incredibly large debt, which is paid off far more easily with inflation higher.

 

[Narmer]

I don't know. But we are taking incredibly large debt, which is paid off far more easily with inflation higher.

Right. The book, by two authoratative economics figure, say that domestic default is highly prevalent throughout history, although not as prevalent as sovereign default. The trillions we owe to ourselves will be lowered.

 

[bamacre]

Interview with Jim Rogers...
http://www.youtube.com/watch?v=XqDMNpLPKiw
http://www.youtube.com/watch?v=Dm--4_aSaHg
http://www.youtube.com/watch?v=RbWmGb3xwjo
http://www.youtube.com/watch?v=vdgU7huA9uw

 

[Trianon]

When the price of Gold falls, it will be quick. Most likely <$200 by 2020, probably many years sooner.

Hahaha, and the reason it will fall? Because the paper/electronic data issued and backed by full faith of the US Govt(that everyone says they don't trust to) is so much more valuable?

 

[Narmer]

Interview with Jim Rogers...
http://www.youtube.com/watch?v=XqDMNpLPKiw
http://www.youtube.com/watch?v=Dm--4_aSaHg
http://www.youtube.com/watch?v=RbWmGb3xwjo
http://www.youtube.com/watch?v=vdgU7huA9uw

As always, thanks again.

EDIT: The book talks about how difficult it is to get gov't data on debt. THey're always hiding something.

 

[GaiaHunter]

It's a commodity as a currency. But it has drawbacks as such, which is why we use paper.

Try to keep up.

1st) Opposed to paper you can't print gold. You can mine more but it requires a gold mine and effort. Printing paper money requires much less effort and printing a $10 bill requires exactly the same effort as $10000 bill.

2nd) Do you carry paper at all these days?

I carry my credit/debit card - much easier.

It's not particularly useful when you have paper.

Lemme give you food for thought - what if you have your gold on a bank, like you have paper money and then use an electronic card to do your transactions?

"The dinner will be $100 or 2.5g of gold, please."
"I'll pay with my gold card." ---> 2.5g of gold deducted form Mr.GaiaHunter gold account and transferred to Restaurant GoodMeals account.

It was never an easier time to use gold as currency if we choose to.

 

[Schadenfroh]

I think there will be isolated cases of it in various countries. The gold bubble will pop one day and I am not sure what that is going to do to currencies.

I imagine that Germany will start kicking countries out of their Union to protect their currency if things get too bad, so I am not too concerned about The Euro.

The Dollar will only fall if we let it (print, print, print).

Yen will probably be fine. The ren (Yuan) will rise in value.

The rest of the world's currencies will be in flux, just like they are now.

My 2 cents, but I am no economist.

 

[Thump553]

I think the smart money is that deflation is much more likely than any sort of hyper-inflation, and neither is all that probable. There is a huge amount of surplus production capacity in the world now. What really matters in the short term is whether China ever will allow it's currency to float, and whether a global drive by most countries to drive the price of their currency down relative to all others (thus increase exports) will cause the equivalent of trade/tariff wars.

BTW one unnoticed thing (because Obama can't be criticized for it) is that the US dollar is very cheap, thus stimulating demand for our export goods.

As far as "two authoritative economics figures", I think it was Winston Churchill that said it best (my paraphrasing) -if you put two economists in a room you'll get three opinions.

 

[BeauJangles]

It's easy to make fun of the people who are buying up gold but the data does not lie. For those who say we should not expect future inflation, is this time really different?

They're easy to make fun of because gold is a bad long-term investment.

 

[GaiaHunter]

When the price of Gold falls, it will be quick. Most likely <$200 by 2020, probably many years sooner.

Because?

Again Gold is a currency.

Sure, there will be some speculation and people that try to use gold in that way might get burned (specially if they need liquidity for daily use). And beware of ETFs. Prefer physical gold when buying.

Since gold is a currency its value in dollars will depend of how good or bad the US economy will be doing and depend on the amount of dollars in circulation.

In the last month gold won 6% vs USD but lost 2% vs Euro, so it isn't because of speculation that gold prices are rising - it is because of USD weakness and that is related to the FED quantitative easing measures.

As Craig said in this thread, inflation makes the US government deficit and the US trade deficit easier to pay. What he forgot to say is that KILLS people savings/earnings purchasing power.

So if you have savings in USD get out of it because your dollars are losing value and most other currencies are doing the same.

Additionally there is a reason Central banks stopped selling gold and started buying it to bolster their reserves.

 

[GaiaHunter]

I think the smart money is that deflation is much more likely than any sort of hyper-inflation, and neither is all that probable.

I think you are wrong. You aren't going to see deflation while printing more and more money.

Remember about the Great Depression - you had deflation because there was huge unemployment (partly because Hoover, that most people like to think was all free market, ordered WAGES TO GO UP and increased TAXATION!) but you also had BIG MANUFACTURING CAPABILITIES and SAVINGS that you don't have today.

It isn't the same situation.

There is a huge amount of surplus production capacity in the world now.

That is if China and other emerging countries continue to keep their citizens poor. If their citizens start to consume more, there will be less for developed countries to consume.

If China keeps their citizens poor you can't compete vs their products in a price basis.

And if China does let the Yuan to appreciate, that means the Chinese will have more purchasing power and so consume more.

What really matters in the short term is whether China ever will allow it's currency to float, and whether a global drive by most countries to drive the price of their currency down relative to all others (thus increase exports) will cause the equivalent of trade/tariff wars.

Like I said before.

If China appreciates the Yuan, the developed world that consumes chinese products lose because chinese will be able to afford more stuff. China doesn't appreciate the Yuan developed countries will have a hard time competing vs China products.

BTW one unnoticed thing (because Obama can't be criticized for it) is that the US dollar is very cheap, thus stimulating demand for our export goods.

The problem is US doesn't have that much to export (US has been losing manufacturing industries which will require time and money, that US doesn't have since US savings are at their lowest level, to rebuild) and the currency is only one aspect of exports. Regulation, taxation, labor price all contribute.

 

[MooseNSquirrel]

Try getting through airport security with gold bars smartypants!

Man those luggage fees will kill you, those suckers are heavy.

 

[Schadenfroh]

Try getting through airport security with gold bars smartypants!

Man those luggage fees will kill you, those suckers are heavy.

This guy tried, have to appreciate dictators that know when to cash out (something Saddam failed to understand):
http://en.wikipedia.org/wiki/Ferdinand_Marcos#Downfall

when Marcos fled, U.S. Customs agents discovered 24 suitcases of gold bricks and diamond jewelry hidden in diaper bags and in addition, certificates for gold bullion valued in the billions of dollars were allegedly among the personal properties

 

[Thump553]

Again Gold is a currency.

You keep saying this but I'm not aware of ANY major country that has a gold backed currency. The US was one of the last major countries to abandon the gold standard, and it did so in 1931.

Gold is a commodity. It USED to be a currency and becasue of that it has a special cache among a sizeable minoirty of the world population. Personally I think gold is grossly overvalued now and a pop in that bubble is inevitable. But I won't bet my funds against it-there are a lot of gold adherants, and as the cliche goes, the market can remain irrational longer than I have funds to invest.

 

[mumedina]

I never understood the fascination with gold, other than for ostentatious purposes. How exactly is gold different from money? We give it value for its rarity, but it's only a yellow rock, another medium of exchange like money. If the economy completely collapses gold will not feed you if you are hungry, it will not protect you from danger. Gold is only valuable because we give it to it - imaginary value that is. As a tool for basic survival it is worthless.

 

[bamacre]

You keep saying this but I'm not aware of ANY major country that has a gold backed currency.

You two are both correct, in a way. Gold is, to some, money. It's the peoples' money, and has been for a very long time. To understand that, you must first understand what money actually is.

 

[bamacre]

I never understood the fascination with gold, other than for ostentatious purposes. How exactly is gold different from money? We give it value for its rarity, but it's only a yellow rock, another medium of exchange like money. If the economy completely collapses gold will not feed you if you are hungry, it will not protect you from danger. Gold is only valuable because we give it to it - imaginary value that is. As a tool for basic survival it is worthless.

It may be irrational or illogical, but it just is. It's reality, and it's been that way for thousands of years.

No, gold will not feed you, any more than fiat money will (although it may be easier to chew ). But it's not meant to be eaten, it's meant to be traded for food when you have nothing else of value to trade, and this is usually the case when your fiat money isn't worth the paper it's printed on. It may not happen here anytime soon, but it's happened elsewhere, and it'll happen again.

 

[yllus]

I'm reading a lot of speculation about currency wars lately - countries depreciating their "dollar" in order for their exports to have improved value. That seems more likely with the aforementioned excess capacity out there today.

 

[soccerballtux]

It may be irrational or illogical, but it just is. It's reality, and it's been that way for thousands of years.

No, gold will not feed you, any more than fiat money will (although it may be easier to chew ). But it's not meant to be eaten, it's meant to be traded for food when you have nothing else of value to trade, and this is usually the case when your fiat money isn't worth the paper it's printed on. It may not happen here anytime soon, but it's happened elsewhere, and it'll happen again.

doesn't make sense why it should be valuable in western cultures, it was valuable historically because it flatters middle-eastern skin tones.

Silver or a non-tarnishing similar metal (palladium? titanium? etc) might be more valuable if white people were the rulers of society for 4000 years pre-AD.