05/12/10 Paris, France – People don’t realize it, but these macro economic issues have real, personal consequences, said our French MoneyWeek editor. Simone calculated that keeping the debt under control, at 2009 levels, would cost the average Greek nearly $2,500 per year. That’s just the cost, per capita, of keeping up with the interest, while holding other expenses even with government revenues.
Not many Greeks want to pay that amount. Not many will be able to. And more than a few will think they’re being treated like chumps. They’ll imagine that it’s all a conspiracy of the elites…or some kind of fraud on the part of the governing classes.
And they’ll be right!
The ruling classes want to keep everything under control. Like governing elites everywhere, they want to prevent change – at all costs. So, they prop up the old industries…reward the bad banks…and protect failed companies and bad speculators. Why? They’re on the top of the heap…and they want to stay there.
They own the present. The future be damned!
So, what’s their strategy? It’s to squeeze the working classes and the middle classes…and everybody else. Anything and everything to preserve the old order.
Scrape the barnacles from the hull? Not a chance. They are the barnacles!
But the big news yesterday was the price of gold. It appears to us that gold may now be getting ready to prepare to commence the beginning of its final stage. You will notice that there is more fudging in that last sentence than in a birthday cake.
Why? Because even if we are right about the general flow of events, it is almost impossible to get the timing right.
Still, you gotta guess. And our guess is that gold is beginning to move up – on good news AND bad news. Inflationary? Deflation? It doesn’t seem to matter. Gold is beginning to act more and more like real money, not just like a speculation.
When inflation increases what do you want? Well, real money…something that maintains your purchasing power even as the paper currency goes down. Traditionally, that’s gold. Because they can’t make more of it easily.
Gold is not perfect money. But it’s the best thing we’ve got. And when consumer prices start to move up people look for ways to protect themselves. In the past, they could move to euros or to the dollar. Now, both the euro custodians and the dollar custodians have decided to sacrifice the integrity of their currencies in order to bailout bondholders. That leaves gold as the best choice for inflation protection.
What about deflation? In deflation, prices go down. But that means that the value of real money goes up. You can buy more with less money when you are in a deflationary cycle. Trouble is, in deflation, the backers of asset prices tend to go broke. You have a piece of paper. It says you own a share in a department store. Come a deflation and people stop buying – they’ll wait to see how low prices go before spending their money. So, the poor department store goes bust and you lose all your money.
Or, take a bond from a sovereign country, such as Greece or the USA. In deflation tax revenues go down too. This leaves the country unable to pay the interest on its bonds. It misses payments. The value of the bonds collapses.
What can you buy that has no one on the other side who might go broke? Gold! The yellow metal went up in the last great depression. It will go up in the next one too…
Regards,
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Oh yeah, yeah? Well I’m Harry and I say you’re wrong.
Oh wait, I’m not Harry, and you’re right.
the problem with both inflation and deflation is that it revalues the currency without the consent of the marketplace which in turn disturbs price signals for arbitrary reasons – it is flying in bermuda triangle….
elias norbert (?) wrote a masterful analysis on the scleroticism of the ruling elite. they aren’t budging without a guillotine….
Foreget the word ‘deflation’. The word should be deleted from Oxford economic dictionary. Due to human behavioral change, human beings are getting more and more aggressive, assertive, confident and bolder. Time and again, rigid gold standard has proven it would no longer serve mankind. In fact, it should be dumped into a coffin, nailed and buried 6 feet under ground, accompanied with a tombstone’s inscription “In Memory Of The Great Gold Standard Era”. So that we no longer spend time in the subject in vain.
Neither, could the free printing press serves us eternally. Those big morons, ruling class are having good times up there. When an object belongs to an individual, it would be pampered. if it is collectively owned, for sure it would be abused and eventually destroyed.
Time has come for the curtain to be drawn.
Folks, shall we order a few guillotines from France to serve those Louis, before they run out of stock?
Dear Bill,
You mentioned in your 5/12 article that in a Deflationary cycle that prices of asset go down. Isn’t Gold an asset? If prices go down and you can buy more with your paper money, would that mean that the value of that paper money would go up?
Inflation – Deflation at the same time in the same living place. Food and scarce resources up (inflation) and consumer articles as tv´s, computers, car´s, etc. down (deflation). Where did I read it? In the Bible, check out revelations 6:5-6. Impresive, is talking about inflation and deflation in the same scenario. I understood this since 2008, but many laughed at me. I dont care, because I know that I know.
Regards,
Bernardo
An acute diagnosis of how political selfishness cripples economies.
The leaders of Euroland met up last weekend not to benefit their electorates, but to try and save their own political careers, which are inextricably invested into the Euro.
Political failure of this magnitude always leads to high levels of inflation and riots on the streets in the end.
Can anyone recommend a nice rifle?
A great advice indeed, it was been predicted by Peter Schiff that in the end of 2010 it will be $1500-2000
Google cannot see any articles after 4/12 in your RSS Feed. I thought Bill was out of the office until I clicked to go to the website and see a month of articles I had yet to read.
I have been looking at Apple and Goldman Sachs principally. The recent Goldman fall helped me make a lot money with my puts but I retained Apple for the longer term, I think it has longer term potential. Congratz for your revealing posts and please wirte more.