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Author Topic:   Investing In Inflation
Buzsaw
Inactive Member


Message 1 of 85 (485191)
10-06-2008 8:35 AM


Will Rogers understood how inflation works. The only thing that really goes up by inflation is inflation. Prices of goods remain relatively the same. The only difference is the number on the paper you pay for goods with. The amount of work and the amount of silver or gold you pay for the goods remains relatively constant.

I remember when I first began paying into Social Security. Then I paid 23 to 25 cents a gallon for gasoline with money backed by valuable metal such as silver and gold. I could buy a gallon of gasoline with one silver quarter. Today a silver quarter will not buy quite a gallon but is peaking at highs which approach a gallon.

Then I worked an hour for three or four silver quarters.
The link below is Howard Ruff's commentary on what is happening today. He and others have warned for many years of what is happening monetarily today.

Will Rogers: “Invest in inflation; it’s the only thing that’s going up.”

http://www.kitco.com/ind/Ruff/ruff_oct032008.html

ABE: Perhaps this could go to the coffee shop for discussion as to whether it would be wise at this time to add gold and/or silver or gold and/or silver stocks to one's portfolio and if so how to do it.

What else would it be wise to have on hand in the event of monetary hyper inflation or panacea relative to monetary crashes in the financial sector?

Are there other better alternatives of safe investment than precious metals in light of the recent financial turmoil?

Edited by Buzsaw, : No reason given.

Edited by Buzsaw, : Complete OP

Edited by Buzsaw, : Add discussion suggestions


BUZSAW B 4 U 2 C Y BUZ SAW.
The immeasurable present eternally extends the infinite past and infinitely consumes the eternal future.
Replies to this message:
 Message 3 by Modulous, posted 10-07-2008 11:36 AM Buzsaw has responded
 Message 11 by Chiroptera, posted 10-08-2008 5:33 PM Buzsaw has responded

  
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Message 2 of 85 (485306)
10-07-2008 8:09 AM


Thread moved here from the Proposed New Topics forum.
    
Modulous
Member (Idle past 245 days)
Posts: 7789
From: Manchester, UK
Joined: 05-01-2005


Message 3 of 85 (485326)
10-07-2008 11:36 AM
Reply to: Message 1 by Buzsaw
10-06-2008 8:35 AM


Will Rogers understood how inflation works. The only thing that really goes up by inflation is inflation. Prices of goods remain relatively the same. The only difference is the number on the paper you pay for goods with. The amount of work and the amount of silver or gold you pay for the goods remains relatively constant.

In a well run economy, yes, this is true. The value of money rises (which is good, otherwise capitalism would fall over), and the cost of living increases.

It is bad for us only when the cost of living increases faster than the value of money rises.

Inflation is not a bad thing: it is necessary in a growing economy. If inflation stops, we call it stagnation and it is as bad as too much inflation.

Sometimes, inflation can form little positive feedback systems, leading to runaway inflation. This is bad because the amount of work you need to do to buy gasoline/whatever can end up increasing on a daily basis.

Except the last bit - the amount of silver and the amount of gold you pay varies quite a lot. In 1910 1Oz of Gold would buy you 690 loaves of bread. Today, 1Oz of Gold will buy you like 390 loaves of bread. And the amount of work? Compared with the average working person in 1910, I do a lot less work and get paid a heck of a lot more. Maybe things are different in the US. Over short periods of a few decades, it is basically right, though bubbles come and go on many products. Bread could be found for like 10p a loaf for a while recently, now its ten times that cost. Production costs are as much a function of supply of materials as it is tied into the costs of energy. Precious metals are only somewhat associated with those things (such as mining costs).

Are there other better alternatives of safe investment than precious metals in light of the recent financial turmoil?

I know it sounds terrible, but you are too old to invest in precious metals. Ok, it's more complicated than that, but unless you are trying to make a killing with short term investments (high risk, and you don't have the luxury of risk tolerance), you'd be better served looking for high security but lower return potential.

As it stands, demand is outstripping supply in gold so it is rather expensive, and it may continue to rise in price. However, the flip side is that at the moment people are buying lots of gold jewellery and if hard-up consumers cut down on purchasing jewellery then production might slow which will reduce demand on the markets which could lower the prices.

As the link says, had you bought gold in the 70s you would have been laughing since the prices skyrocketed. However, in every decade there is somebody recommending gold for one reason or another - so you should be careful about claims that gold is the next big investment.

Using approximate figures from wiki

A $1000 dollar investment in 1940 would get you about
29Oz of Gold.
2900oz of Silver.
Selling those commodities in 1960 will get you about
$1100 for the gold
$2600 for the silver

A $1000 dollar investment in 1960 would get you about
27Oz of Gold.
1100oz of Silver.
Selling those commodities in 1980 will get you about
$17000 for the gold
$17000 for the silver

A $1000 dollar investment in 1980 would get you about
1.6Oz of Gold.
64oz of Silver.
Selling those commodities in 2000 will get you about
$440 for the gold
$290 for the silver

So if you get on gold at the right time, you're laughing. If you get on at the wrong time you'll cry. It is in the interests of those that have got on gold to try and increase the demand for gold, to make out like it is a safe bet in uncertain times. This will probably work, people will buy into it regardless of the soundness of the reasoning, the price of Gold will go through the roof, and then the smart investors that people were relying on will sell off before advising everybody else that the time for selling gold is here (thus using that same influence to reduce confidence in gold and drop its price...the canny investors might even get another go on the wheel.

That's not to suggest, "don't buy": just to give thought to the issue first. I'm not a personal finance wizard, but I might think bonds are a good place to look right now. If there is one thing that is in demand it is corporate loans - the big guys want to loan some money from somewhere and they don't trust each other to pay them back. So yeah, maybe there are some good bond investments: They won't make you a millionaire, but I'd imagine that unless things go
very wrong they'll make your money grow.

In summary: Precious metals aren't a surefire path to weathering a bad economy. There are many investment options in the world, and gold is but one of them. Consider them all, I found this site illuminating.

Edited by Modulous, : No reason given.


This message is a reply to:
 Message 1 by Buzsaw, posted 10-06-2008 8:35 AM Buzsaw has responded

Replies to this message:
 Message 4 by Buzsaw, posted 10-07-2008 7:54 PM Modulous has responded

  
Buzsaw
Inactive Member


Message 4 of 85 (485369)
10-07-2008 7:54 PM
Reply to: Message 3 by Modulous
10-07-2008 11:36 AM


Modulous writes:

In a well run economy, yes, this is true. The value of money rises (which is good, otherwise capitalism would fall over), and the cost of living increases.

It is bad for us only when the cost of living increases faster than the value of money rises.

Inflation is not a bad thing: it is necessary in a growing economy. If inflation stops, we call it stagnation and it is as bad as too much inflation.

Sometimes, inflation can form little positive feedback systems, leading to runaway inflation. This is bad because the amount of work you need to do to buy gasoline/whatever can end up increasing on a daily basis.

Thanks for your reply, Modulous. For nearly two centuries the nation's economy grew from nothing to be the greatest on the planet with relatively insignificant inflation.

Problems began to arise primarily due to the creation of the Federal Reserve when the central banks took over creation and management of money from Congress. But things remained quite stable until 1964 when the people were conditioned by the paper money scheme to accept paper as money. This was the last year you could take your paper to the bank and bring home silver for what the paper was suppose to represent. From there we had nothing but growth of the amount of paper required to bring home a piece of silver or whatever you wanted to buy. It was then and ever since that I and a minority of conspiratist believers like Howard Ruff were warning our friends, relatives and others that some day the bubble would bust. I wrote a letter to the local editor back in the 1970s to the effect that you had to find, mine and refine the only safe and bona-fide medium of exchange, i.e. money.


BUZSAW B 4 U 2 C Y BUZ SAW.
The immeasurable present eternally extends the infinite past and infinitely consumes the eternal future.
This message is a reply to:
 Message 3 by Modulous, posted 10-07-2008 11:36 AM Modulous has responded

Replies to this message:
 Message 5 by Modulous, posted 10-08-2008 9:01 AM Buzsaw has responded

  
Modulous
Member (Idle past 245 days)
Posts: 7789
From: Manchester, UK
Joined: 05-01-2005


Message 5 of 85 (485414)
10-08-2008 9:01 AM
Reply to: Message 4 by Buzsaw
10-07-2008 7:54 PM


But things remained quite stable until 1964

I think you and I have grotesquely different concepts of 'quite stable'.

I understand the advantages of a gold standard, but you do realize the disadvantages, yes?

This was the last year you could take your paper to the bank and bring home silver for what the paper was suppose to represent

The paper is not meant to represent gold. If it does, what does the gold represent? I thought it represented a payment for goods/services? Are you suggesting that the amount of goods and services produced in the world per year is limited by the 2,500 tons of gold that can be mined?

Edited by Modulous, : No reason given.


This message is a reply to:
 Message 4 by Buzsaw, posted 10-07-2008 7:54 PM Buzsaw has responded

Replies to this message:
 Message 6 by Buzsaw, posted 10-08-2008 11:36 AM Modulous has not yet responded

  
Buzsaw
Inactive Member


Message 6 of 85 (485423)
10-08-2008 11:36 AM
Reply to: Message 5 by Modulous
10-08-2008 9:01 AM


What Gold Represents Monetarily
Modulous writes:

I understand the advantages of a gold standard, but you do realize the disadvantages, yes?

Yes I do. It's like gas released from a cylinder. You can't put it back in. For it to be reinstated it would have to be done globally for it to work because if one nation implemented it all paper unbacked currencies would immediate gobble up such currency.

Modulous writes:

The paper is not meant to represent gold.

Not now, but when it did represent gold and silver the $$ was relatively stable as to it's buying power, relative, that is, to what ensued after it became unbacked.

Modulous writes:

If it does, what does the gold represent? I thought it represented a payment for goods/services? Are you suggesting that the amount of goods and services produced in the world per year is limited by the 2,500 tons of gold that can be mined?

1. The metals backed $$ once represented payment for everything purchased , i.e. goods and services.

2. During the gold standard era it was illegal for private ownership of gold bullion. There's over a hundred thousand tonnes above ground as of 1996 and modern tech has been increasing the supply.

3. I'm not advocating a return to the gold standard as it is not going to happen nationally. However the possibility of a global monetary system as the Bible prophesied 2000 years ago backed by called in global gold bullion is not beyond possibility as aspects of national economy continue to emerge globally.


BUZSAW B 4 U 2 C Y BUZ SAW.
The immeasurable present eternally extends the infinite past and infinitely consumes the eternal future.
This message is a reply to:
 Message 5 by Modulous, posted 10-08-2008 9:01 AM Modulous has not yet responded

Replies to this message:
 Message 7 by kuresu, posted 10-08-2008 2:33 PM Buzsaw has responded

  
kuresu
Member (Idle past 654 days)
Posts: 2544
From: boulder, colorado
Joined: 03-24-2006


Message 7 of 85 (485440)
10-08-2008 2:33 PM
Reply to: Message 6 by Buzsaw
10-08-2008 11:36 AM


Re: What Gold Represents Monetarily
I'm not advocating a return to the gold standard as it is not going to happen nationally

I dare say. The individual states do not have the power to print their own monies. Banks don't have that power either.


This message is a reply to:
 Message 6 by Buzsaw, posted 10-08-2008 11:36 AM Buzsaw has responded

Replies to this message:
 Message 8 by Buzsaw, posted 10-08-2008 4:32 PM kuresu has responded

    
Buzsaw
Inactive Member


Message 8 of 85 (485464)
10-08-2008 4:32 PM
Reply to: Message 7 by kuresu
10-08-2008 2:33 PM


Re: Creation Of Money
kuresu writes:

I dare say. The individual states do not have the power to print their own monies. Banks don't have that power either.

That's irreverent to this. I never said they did. That was relegated to Congress under the Constitution. The problem with the Federal Reserve Act of 1913 is that this power was relegated from Congress to private central banks, i.e. the Federal Reserve Banks (privately owned) and now rather than Congress creating money, we, the taxpayers must pay private central banks interest to do what Congress was suppose to do for the cost of the paper. The bankers who hold our money empower and enrich themselves by this privilege. That's how I understand the system. Correct me if I'm mistaken.


BUZSAW B 4 U 2 C Y BUZ SAW.
The immeasurable present eternally extends the infinite past and infinitely consumes the eternal future.
This message is a reply to:
 Message 7 by kuresu, posted 10-08-2008 2:33 PM kuresu has responded

Replies to this message:
 Message 9 by kuresu, posted 10-08-2008 5:17 PM Buzsaw has responded
 Message 10 by Chiroptera, posted 10-08-2008 5:31 PM Buzsaw has responded
 Message 12 by Modulous, posted 10-08-2008 7:20 PM Buzsaw has responded

  
kuresu
Member (Idle past 654 days)
Posts: 2544
From: boulder, colorado
Joined: 03-24-2006


Message 9 of 85 (485472)
10-08-2008 5:17 PM
Reply to: Message 8 by Buzsaw
10-08-2008 4:32 PM


Re: Creation Of Money
way to miss the point. You said you weren't advocating a return to the gold standard because it wouldn't happen nationally.

Well, if the return to gold happens, it has no choice but to happen nationally because states can't form their own currency separate of the USD.

I was pointing out that you slipped. You probably meant to say "globally", not "nationally". That you went into a diatribe against the Fed act of 1913 just shows your inability to understand you said something wrong.


This message is a reply to:
 Message 8 by Buzsaw, posted 10-08-2008 4:32 PM Buzsaw has responded

Replies to this message:
 Message 13 by Buzsaw, posted 10-08-2008 8:46 PM kuresu has responded

    
Chiroptera
Member
Posts: 6571
From: Oklahoma
Joined: 09-28-2003
Member Rating: 5.0


Message 10 of 85 (485475)
10-08-2008 5:31 PM
Reply to: Message 8 by Buzsaw
10-08-2008 4:32 PM


Re: Creation Of Money
The problem with the Federal Reserve Act of 1913 is that this power was relegated from Congress to private central banks, i.e. the Federal Reserve Banks (privately owned) and now rather than Congress creating money, we, the taxpayers must pay private central banks interest to do what Congress was suppose to do for the cost of the paper.

But conservatives think this is good, right? I thought that conservatives think that the government can't do anything right, and that private enterprise does everything better. Like Social Security and health care. And education. And prisons. And everything else that the conservatives have been trying to privatize.


Speaking personally, I find few things more awesome than contemplating this vast and majestic process of evolution, the ebb and flow of successive biotas through geological time. Creationists and others who cannot for ideological or religious reasons accept the fact of evolution miss out a great deal, and are left with a claustrophobic little universe in which nothing happens and nothing changes.
-- M. Alan Kazlev
This message is a reply to:
 Message 8 by Buzsaw, posted 10-08-2008 4:32 PM Buzsaw has responded

Replies to this message:
 Message 14 by Buzsaw, posted 10-08-2008 9:07 PM Chiroptera has not yet responded

  
Chiroptera
Member
Posts: 6571
From: Oklahoma
Joined: 09-28-2003
Member Rating: 5.0


Message 11 of 85 (485476)
10-08-2008 5:33 PM
Reply to: Message 1 by Buzsaw
10-06-2008 8:35 AM


Are there other better alternatives of safe investment than precious metals in light of the recent financial turmoil?

Actually, I'm thinking that this is now the time to get into stocks, now that they have dropped so much. Buy low, then sell high, and all that.


Speaking personally, I find few things more awesome than contemplating this vast and majestic process of evolution, the ebb and flow of successive biotas through geological time. Creationists and others who cannot for ideological or religious reasons accept the fact of evolution miss out a great deal, and are left with a claustrophobic little universe in which nothing happens and nothing changes.
-- M. Alan Kazlev
This message is a reply to:
 Message 1 by Buzsaw, posted 10-06-2008 8:35 AM Buzsaw has responded

Replies to this message:
 Message 16 by Buzsaw, posted 10-09-2008 12:23 AM Chiroptera has not yet responded

  
Modulous
Member (Idle past 245 days)
Posts: 7789
From: Manchester, UK
Joined: 05-01-2005


Message 12 of 85 (485483)
10-08-2008 7:20 PM
Reply to: Message 8 by Buzsaw
10-08-2008 4:32 PM


Re: Creation Of Money
Without the Federal Reserve, there would be many many problems. Bank runs would happen more often as people panicked and withdrew all of their money at once. One way to achieve this is to have 'Elastic currency'

quote:
Currency that can, by the actions of the central monetary authority, expand or contract in amount warranted by economic conditions.

problem with the Federal Reserve Act of 1913 is that this power was relegated from Congress to private central banks

Not quite. There were two different schools of thought: some wanted the flexibility and greatness of the market to oversee money rather than have the government do it...others wanted the government to get involved for accountability and to keep the interest of the people involved. In the end the Federal Reserve is placed into private hands as a not for profit organisation, with heavy government regulation (unless of course, somebody becomes a massive deregulator which gives more and more power to these financial institutions). I assume you are a big fan of government regulation in this case.

For example, if a bank starts loaning out a lot of money that cannot be paid back...the Federal Reserve is obligated to step in. With deregulation it becomes less likely they can/will. As those loans fail to be paid, the economy goes sour.

The Federal Reserve is considered 'Independent within the Government'. Whether or not that is a good model is open for debate: we have the Bank of England which performs the same function but is owned by the state. I would have thought someone such as yourself, would prefer it be private rather than the socialist system we have here.


This message is a reply to:
 Message 8 by Buzsaw, posted 10-08-2008 4:32 PM Buzsaw has responded

Replies to this message:
 Message 15 by Buzsaw, posted 10-09-2008 12:12 AM Modulous has responded

  
Buzsaw
Inactive Member


Message 13 of 85 (485490)
10-08-2008 8:46 PM
Reply to: Message 9 by kuresu
10-08-2008 5:17 PM


Re: Parsing Slipping Points
kuresu writes:

buzsaw writes:

I'm not advocating a return to the gold standard as it is not going to happen nationally. However the possibility of a global monetary system as the Bible prophesied 2000 years ago backed by called in global gold bullion is not beyond possibility as aspects of national economy continue to emerge globally.

kerusu writes:


I dare say. The individual states do not have the power to print their own monies. Banks don't have that power either.

way to miss the point. You said you weren't advocating a return to the gold standard because it wouldn't happen nationally.
Well, if the return to gold happens, it has no choice but to happen nationally because states can't form their own currency separate of the USD.

I was pointing out that you slipped. You probably meant to say "globally", not "nationally". That you went into a diatribe against the Fed act of 1913 just shows your inability to understand you said something wrong.

Reread carefully and this time, thoughtfully and you will see who slipped. (embolding added to make it easy for you.} ;)


BUZSAW B 4 U 2 C Y BUZ SAW.
The immeasurable present eternally extends the infinite past and infinitely consumes the eternal future.
This message is a reply to:
 Message 9 by kuresu, posted 10-08-2008 5:17 PM kuresu has responded

Replies to this message:
 Message 17 by kuresu, posted 10-09-2008 5:44 AM Buzsaw has responded

  
Buzsaw
Inactive Member


Message 14 of 85 (485493)
10-08-2008 9:07 PM
Reply to: Message 10 by Chiroptera
10-08-2008 5:31 PM


Re: Creation Of Money
Chiroptera writes:

But conservatives think this is good, right? I thought that conservatives think that the government can't do anything right, and that private enterprise does everything better. Like Social Security and health care. And education. And prisons. And everything else that the conservatives have been trying to privatize.

Jesus put it in proper perspective. "Render to God what is God's and to Caesar that which is Caesar's." Government should be limited to what the Constitution advocated. Woodrow Wilson, liberal Democrat and Co, on Christmas eve, 1913 after most had left, ignored the Constitution and signed off what belonged to the government of the people to the few wealthy bankers to enlarge their already bulging coffers with the folk's money.


BUZSAW B 4 U 2 C Y BUZ SAW.
The immeasurable present eternally extends the infinite past and infinitely consumes the eternal future.
This message is a reply to:
 Message 10 by Chiroptera, posted 10-08-2008 5:31 PM Chiroptera has not yet responded

Replies to this message:
 Message 18 by subbie, posted 10-09-2008 7:55 AM Buzsaw has responded

  
Buzsaw
Inactive Member


Message 15 of 85 (485507)
10-09-2008 12:12 AM
Reply to: Message 12 by Modulous
10-08-2008 7:20 PM


Re: Creation Of Money
Modulous writes:

Without the Federal Reserve, there would be many many problems. Bank runs would happen more often as people panicked and withdrew all of their money at once. One way to achieve this is to have 'Elastic currency'

Why then did the nation function quite efficiently as pre-eminent leader during the Industrial Revolution for 137 years before the Federal Reserve Act was signed?

Currency that can, by the actions of the central monetary authority, expand or contract in amount warranted by economic conditions.

That's what's nice about the gold standard, in that fluctuation in the currency value was not a major problem. Foundational precious metal limited the expansion and contraction of currency so as to keep economic conditions relatively stable.
--------------------------------------------------------------------------------

Modulous writes:

Buzsaw writes:

problem with the Federal Reserve Act of 1913 is that this power was relegated from Congress to private central banks

Not quite. There were two different schools of thought: some wanted the flexibility and greatness of the market to oversee money rather than have the government do it...others wanted the government to get involved for accountability and to keep the interest of the people involved. In the end the Federal Reserve is placed into private hands as a not for profit organization, with heavy government regulation (unless of course, somebody becomes a massive deregulator which gives more and more power to these financial institutions). I assume you are a big fan of government regulation in this case.

For example, if a bank starts loaning out a lot of money that cannot be paid back...the Federal Reserve is obligated to step in. With deregulation it becomes less likely they can/will. As those loans fail to be paid, the economy goes sour.

The Federal Reserve is considered 'Independent within the Government'. Whether or not that is a good model is open for debate: we have the Bank of England which performs the same function but is owned by the state. I would have thought someone such as yourself, would prefer it be private rather than the socialist

Keep it simple. Let Congress (Caesar) do their thing, as the founders advocated and let the banks do theirs, serving the folks. Congressional oversight, in the interest of the people at large should manage the currency, relative to the amount created and it's oversight relative to major monetary problems which may arise. OTOH when private interests are placed in charge, the tendency is for private interests to enrich and empower themselves, as appears to be what happens.


BUZSAW B 4 U 2 C Y BUZ SAW.
The immeasurable present eternally extends the infinite past and infinitely consumes the eternal future.
This message is a reply to:
 Message 12 by Modulous, posted 10-08-2008 7:20 PM Modulous has responded

Replies to this message:
 Message 19 by Modulous, posted 10-09-2008 9:19 AM Buzsaw has not yet responded

  
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