Monetary policy, inflation, and PMs

GymB

Picking it up slowly.
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Huge topic, but what I really want input on is how the current efforts to stimulate the economy will, or will not, drive inflation in the future.

I’ve been thinking about the stimulus, the expansion of money in circulation, as almost certainly leading to significant future inflation, but now I don’t think so.

A portion of the stimulus, a highly visible portion, has been the spraying of cash out onto the great unwashed masses. Many here have benefited from these payments, Amazon and Netflix have indirectly benefited much more, and since there isn’t a way to pull this money back it is a permanent expansion and will have an inflationary effect.

However, at the same time the federal reserve has been backing trillions of dollars in corporate debt, quantitative easing, which also expands the money supply and is inflationary, but can be reversed.

My thinking is that when we start to see inflation the federal reserve will begin to sell. This quiet contraction of the money supply will trickle through the economy and reduce inflation. It’s actually an easy lever for them to pull and the effect is both well understood, they’ve done this before, and easily projected.

Do you think that runaway inflation can be stopped like this, and if so is it time to unload PMs?
 
Huge topic, but what I really want input on is how the current efforts to stimulate the economy will, or will not, drive inflation in the future.

I’ve been thinking about the stimulus, the expansion of money in circulation, as almost certainly leading to significant future inflation, but now I don’t think so.

A portion of the stimulus, a highly visible portion, has been the spraying of cash out onto the great unwashed masses. Many here have benefited from these payments, Amazon and Netflix have indirectly benefited much more, and since there isn’t a way to pull this money back it is a permanent expansion and will have an inflationary effect.

However, at the same time the federal reserve has been backing trillions of dollars in corporate debt, quantitative easing, which also expands the money supply and is inflationary, but can be reversed.

My thinking is that when we start to see inflation the federal reserve will begin to sell. This quiet contraction of the money supply will trickle through the economy and reduce inflation. It’s actually an easy lever for them to pull and the effect is both well understood, they’ve done this before, and easily projected.

Do you think that runaway inflation can be stopped like this, and if so is it time to unload PMs?
It all depends on if it fits into their game plan to control us.
 
You have to take into account the velocity of money, "the rate at which money is exchanged in an economy." Because of the covid crisis, the velocity number went down. Since the velocity of money is usually the ratio of gross national product (GNP) to a country's money supply, in order to keep the GNP from declining the money supply was expanded.

If the fed contracts the money supply as the crisis abates and the velocity increases, it should not be inflationary.
 
The Federal Reserve has propped up the economy for over 8 years. It will depend on interest rates stability and if these low rates are perceived as standards when those rates increase.

I think we are less than six months from a number of issues beginning to change the economy. Corporations renting/leasing commercial building are going to demand payments from retailers and restaurants. It pretty certain 15% of the food business will fail. Another 10% are severely at risk. That’s a lot of jobs of not just those who cook and wait on customers.

Two other industries will determine the economic climate. The automotive industry needs to Get back to full production for American plants. Also the construction industry hasn’t had much of a decline due to the many projects started this year but bids for new projects are drastically down on the commercial side. There is a glut of unrented commercial spaces as retailers continue to close stores and move from brick and mortar to internet accessibility.

China Flu has changed the nation in many ways. Rioting and looting has kept many from traveling for business and pleasure to metro areas. In summation I think free money has propped up what would have been a disaster but when that free money ends spending will come to a halt.
 
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This reminds me of a conversation I had with a business economics professor back in the 2007'ish time frame when there was this QE crap going on and allegedly no inflation. When I asked how it was possible to pump so much currency (?) into the economy (?) and not have run away inflation, she said she couldn't explain it but had a feeling that there was something very wrong because it defied the economic fundamentals.

I read something yesterday, but I forget where, about how historically "reserve currencies" hold that status for about 100 years before a change is forced or occurs and the US is currently sitting at around 80 years. I think it is only a matter of time before other countries no longer want to buy US sovereign debt and when the day comes that there is no appetite for it, we will see a financial earthquake called the big one. Several years back, this happened to Japan for a short period of time and is spooked a lot of economists then.

I think that there is real risk of hyper inflation, yet I can also see valid arguments for saying there will be hyper deflation. One way or another I think we're in for a rough stop at some point soon.
 
Huge topic, but what I really want input on is how the current efforts to stimulate the economy will, or will not, drive inflation in the future.

I’ve been thinking about the stimulus, the expansion of money in circulation, as almost certainly leading to significant future inflation, but now I don’t think so.

A portion of the stimulus, a highly visible portion, has been the spraying of cash out onto the great unwashed masses. Many here have benefited from these payments, Amazon and Netflix have indirectly benefited much more, and since there isn’t a way to pull this money back it is a permanent expansion and will have an inflationary effect.

However, at the same time the federal reserve has been backing trillions of dollars in corporate debt, quantitative easing, which also expands the money supply and is inflationary, but can be reversed.

My thinking is that when we start to see inflation the federal reserve will begin to sell. This quiet contraction of the money supply will trickle through the economy and reduce inflation. It’s actually an easy lever for them to pull and the effect is both well understood, they’ve done this before, and easily projected.

Do you think that runaway inflation can be stopped like this, and if so is it time to unload PMs?

The assumption this is based on seems to be the Jim Cramer mentality that the dollar is the unit of valuation which is the stable factor and wealth should be valued against this. When people challenge this, the response is uniformly "this is the way it has always been... we don't measure wealth in anything else.... the dollar is KING and this is a reliable pattern." I can't mention this without pointing out that this whole fable is based on a second (more foundational) false assumption, which is that of the proper role of the state in money generation. The two are of one cloth, though this may not be obvious to all on initial observation. Uou and everyone on this board know I have utter contempt for keynesian monetary theory, on which the whole idea of federal intervention in the monetary supply is based. Almost all the entire systemic assumptions above are based on the idea that the "normal" job of the federal government is to manage the ratio of currency to economic activity, and that this is a job which can be done, or at least hopefully can be done, if we have smart and ethical people in positions of decision making.

Anyway, this provides the basis for the "law" that when things tend to revert to the norm, they will go back to the dollar unit of valuation being the norm. Again this is illustrated by Warren Buffet (... excuse me... not the NEW Warren Buffet with the purchase of gold stocks, but the old one who assumed the financial basis of our monetary system.... banking....., was the keeper. One should keep in mind that a normalcy bias for the dollar because "It has been stable my entire life" is like betting your entire wad on a dead cat bounce in Enron... because it has such a great track record till now. It is based on a pattern which is in fact less than 100 years old, which is a momentary blip in monetary history. The fact is that the dollar has an extremely checkered past and has always been subject to manipulation and inflation. The ONLY periods of dollar stability were after we killed the national bank (Jackson) and after WW2 wrecked the rest of the world's economy..... and even then, for most of those periods the dollar was tied to something tangible. The post Nixon (1971) dollar which is untethered to anything other than the restraint (HA HA HA HA HA HA) of the Federal Reserve is an EXTREMELY limited historical example of a currency's stability. Again, this is like betting the farm on a two dollar uptick in Countrywide in 2007. I am all for normalcy bias and a return to the regression curve and all, but the key question there is how big is the curve? If you are using a limited data set that is a recipe for disaster (ask me how I know! :) ). Making decisions based on wrong data sets will lose money in a disastrous fashion. I believe this is the monstrous lie which is going to absolutely destroy most of the wealth in America... that value is and should be measured against the dollar. One of the fundamental requirements for stable money is that it must be RARE. It is why we don't use dirt for money, for example.

Maybe you buy into all that, and you are just asking a scalping question. If so, that is certainly fine (not that you need my approval to do whatever you like. I get that as well!). I have snatched a few quarters off train tracks in front of a coming locomotive, and if you are good at it, it can be lucrative. My advice though is DO NOT ASSUME you can dump a PM position and then just nonchalantly buy back in by logging in to APMEX and giving your VISA. We have not even seen a true monetary crisis, and I have seen times where you simply COULD NOT BUY... ANYWHERE..... any gold OR silver. Crap, we saw one of those just recently in March. No supply anywhere at any price. I have chased a few trains out of the station (usually to cover shorts), and you just don't want to sprint all the way to Orlando to catch it. You will die of exhaustion first. You might have a potful of worthless paper slips with Andrew Jackson on it but that will be a sorry consolation prize.

My advice is to familiarize yourself with The Sound Money School monetary policy. I wound up going there as a result of Ron Paul. The only coherent school of thought on the matter imo is SIMPLE at its core. Mises.org has a literal SLEW of educational tools which has been very helpful to me in "opening my eyes" to the lies about the dollar, the fed, and Keynes. Once someone buys into THAT, the questions about "when to sell the precious metals" literally goes away.

Here are a few introductory articles:

Good luck

https://mises.org/wire/debt-inflation-spiral-driving-demand-gold
https://mises.org/library/worst-all-monetary-policies
https://mises.org/library/monetary-and-fiscal-policy
https://mises.org/library/monetary-policy-free-america
https://mises.org/wire/monetary-policys-unsustainable-conceit
https://mises.org/wire/monetary-policy-and-depressions
https://mises.org/wire/mainstream-wisdom-monetary-policy-and-asset-bubbles
 
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Final post on this issue. perhaps the silliest fiction gullibly believed by the public is the lie that the rate of economic activity is a factor of "inflation." That is, the turning over of money moving around in a flurry of economic activity is a critical factor in inflation. This nonsense is repeated ad nauseum by the talking heads on "financial news" sites, and is probably the most laughable nonsense I have ever heard. None of these people were evidently even BORN in 1976, since there was a FOUR YEAR period of what shocked and mystified everyone but the Austrian school. It was called "Stagflation" which consisted of complete and utter economic stagnation, with unemployment stubbornly approaching double digits at times, but always above 6%, and price rises at the same time. This mystified the school which proclaimed that money velocity was a lynchpin of "inflation." It reminded me of BF Skinner in his lab screaming at the rats "BEHAVE! DAMN YOU!"

It is a wonderful theory. If only one could find a reality that matched it.

No, "inflation is in fact defined not by increasing PRICES, but by the increasing SUPPLY OF MONEY. Prices are merely the response of the folks with the increasing supply of money, who find they have more of it, and so bid up the stuff it will buy.

It is true that the fed has so rigged the game that the boodle has gone mostly to the big finance guys to "save the economy" and so we have a blistering rise of "inflation" in the area where they park (the stock market), but have you not heard? Donald J and the new republican "conservatives" are advocating flushing more helicopter money PAST the banksters directly to the pockets of the plebes. How anyone can see this and wonder if "inflation" is not about to blow wide open really is a wonderment to me.

Oh well. It is a theory of mine that whole sectors of people built their financial futures on conventional wisdom, and that many of those people will be utterly wiped out in this thing.

I say what I can say.... probably way too many times.

Out for now.
 
China Flu has changed the nation in many ways.
The local businesses that are closing is alarming to me. I think this is the greatest danger to our local economy.

In my lifetime I have seen "money" change it's value many times. A $1 Delmonico stake from the Red&White would not fit on a dinner plate. I made $55 a week. Today that steak costs $20. I make a little more money.
In the grand scheme of things, in this simpleton's brain, It has been my observation that "money" is worth exactly what we Decide. $1 for a steak or $20 for the same steak...or 20 for a loaf of bread..or $20 for a car....really..whatever we decide it's worth.
The PM problem is and always has been for me...Why would somebody that has PM be so eager to trade it to me for my worthless $100s? They pay big money on TV and radio and mail outs, all to take my worthless $100s for Their Precious Metal. I love that name too..Precious...at my stage of life I'll just stick with a pile of $100s. As one of my Ole Pards pointed out [same age as me 72] we're in the fourth quarter, they can't get us Now!!! $100s have worked good for me and mine thus far...I think I'll just stick it on out.
 
@tanstaafl72555 I was looking forward to your response.
When I was a kid I used to walk past a bad dog behind a fence. I used to "rake" a stick along the balusters, knowing he would come out snarling and yapping and slobbering and all.

Who would have guessed I would grow up to BE that dog? lol
 
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