The Face of Inflation: Does the U.S. Have a "Peso Problem" revisited

[c1ue]

Re: The Face of Inflation: Does the U.S. Have a "Peso Problem" revisited

Could someone explain to me what happens to savings when a currency is devalued?

Raja,

Mikew has the explanation already there - I'll just add this: devaluation of a currency is precisely an inflation by fiat.

However, there are some exceptions: Those things that are producely internally based on the internal currency are not changed.

However, everything dependent on outside currencies is immediately inflated by the inverse of the devaluation.

Given that the US makes very little these days - especially for daily consumption - it is pretty much guaranteed that a devaluation would pass straight through into your wallet.

Thus if you were 100% self sufficient in necessities - a devaluation would just make external products more expensive.

If you are only 50% self sufficient, then you'll be paying more for that 50% and thus your accumulated cash will have that proportion less of purchasing power.

The other thing to keep in mind is that when inflation ramps up - interest rates never can keep up.

Thus in the leading edge of an inflationary curve - savings are eroded disproportionately.

As I've talked about many times - in this situation you don't have many choices to protect your savings:

1) Move money out of the currency in question. Check - I'm doing that

Note you likely need to move the money out of the country as well - historically devaluations and currency controls go hand in hand. Bank failures and nationalization are also present. Thus having a US account with yen in it is still dangerous for several reasons.

2) Buy into businesses low in the hierarchy of needs: Food, water, shelter (maybe not this one this time ;))

These will be the businesses most able to pass on inflation to customers. High end hair salons? Restaurants? Concerts? Sporting events? Car dealers? I think not.

3) Buy into inflation hedge commodities like gold

This can work, but gold is problematic because it produces zero income. You are basically thus becoming a gold trader - and not everyone can be successful trading.

I shouldn't say this because I DO trade, and trading is a zero sum game.

However, here is the good news:

If you can preserve your savings better than most people, even if not ideally, you will be far better off both in the immediate and more distant future.

The best investors survive the catastrophes and invest again. The average get killed and don't.

[dbarberic]

Re: Reviews of Gold Owning Methods please!

Casting an eye over BullionVault the only problem might be liquidity - finding enough people within the BV clientele to buy your gold.

There are 84,000 "users" (don't know how many buyers) but I would imagine that the self-selecting population of BullionVault might be of a type (gold bugs) and hence prone to herd behaviour.

I'm not sure how BullionVault works, but in GoldMoney you can swap between holding gold and cashing out to currency when ever you like. If you have your bank account linked to GoldMoney, you can sell and the cash will be deposited to your bank account within a day or so. There is no need to find another buyer of the metal that is another member of GoldMoney. GoldMoney is not a "market maker" within the GoldMoney system, it just a bullon bank holding your physical for you with a minor monthly storage fee.

[dbarberic]

Re: Gold rises vs. all major currencies as confidence flees central banks

Fred i like GoldMoney a little better, if anyone want's to know why i will give them my thoughts

I've held a GoldMoney account for about 3 years now and participate in their monthly gold accumulation program, where you dollar cost average into gold each month. So far I like GoldMoney and they have very low fees, but there is a little part inside of me that is concerned not being able to access the account and turn the gold back into cash when I need it. Every reference I have seen made about James Turk indicates that his a reputuable and honorable person, but I'm still a little nervous. I think part of my plan is to use GoldMoney to accumlate gold and once I hit certain break points in ounces, purchase physical and convert the GoldMoney into cash to pay for the physical.

Rick, I would like to get your thoughts on your opinion of GoldMoney.

[qwerty]

Reviews of Gold Owning Methods please!

Yes, I too would like to here Rick Bishop's comparison of BullionVault and GoldMoney.

I guess what they have going for them over GBS and GLD is the greater faith one may have that the gold you own is actually there - the ETF are just IOUs for gold right?

Casting an eye over BullionVault the only problem might be liquidity - finding enough people within the BV clientele to buy your gold.

There are 84,000 "users" (don't know how many buyers) but I would imagine that the self-selecting population of BullionVault might be of a type (gold bugs) and hence prone to herd behaviour.

Theoretically you can take delivery, but I assume only of 400oz bars.

An other disadvantage, of course, is that you can't short gold in BullionVault like you can with an ETF But, er, moving on swiftly ...

What about GoldMoney?

[mikew]

Re: The Face of Inflation: Does the U.S. Have a "Peso Problem" revisited

Could someone explain to me what happens to savings when a currency is devalued?

For example . . . let's say I am retired (which I am) and I want to live off my savings that I have stashed away in Treasury securities. If there were a devaluation of the dollar, would I wake up some morning to find that I had lost 20% of what I was counting on for retirement, and will I then experience a 20% decline in lifestyle? Or, does everything become cheaper, so I will not really feel a difference?

I realize that this answer depends on what happens in other countries, since imported products from countries whose currencies remain strong must go up in price relative to the dollar. But what about U.S. products and services?

you lose 20% of your wealth simply because everything else becomes 20% more expensive, not cheaper. this is inflation. the price rise is an effect from the excess supply of currency which is the cause.

so, as i understand it, savers basically get screwed.

in one sense, it might make sense to go take out a mortgage or some other type of loan. in which you pay back in future with less valuable dollars. but use the loan for what? surely not a house. and if you use the loan and buy gold, then youre doubling your bet on inflation, which exposes you to greater risk..

in other words i have no clue what to do

anyone else have any insight?

[GRG55]

Re: The Face of Inflation: Does the U.S. Have a "Peso Problem" revisited

except that the AUS$ is soaring against the US$ even though debt levels down here are even HIGHER than in the US. by your logic, Australia has more of a "Peso Problem" than the US, but events do not bear your logic out...

...the decline in the US$ is A BUBBLE no different than the topping bubble in commodities, most obviously gold, both of which will soon fall alongside housing and world stocks. there will be no place to hide when the monster comes looking to do what it was created to do

Ahhh, but look at the interest rate the RBA has to impose in order to keep attracting enough of Bernanke's "global savings glut" to balance the national accounts each month...events may eventually catch up with the RBA too.

If indeed there becomes "no place to hide" does that not mean there is simply a national, or international (?), resetting of the entire price level? In which case aren't we all more or less in the same relative wealth position as we were before (e.g. If everyone's real estate doubles in value, or gets cut in half, is anyone really better or worse off)?

Perhaps some of this is already happening as we see the price of things we need (food, energy, education, health care) rise relative to things we want (iPhones). In other words what is the future retained value of the baubles the wealthy have been accumulating compared to, say, a farm? (will we see used yachts and executive jets also go "no bid"?).

[GRG55]

Re: Gold rises vs. all major currencies as confidence flees central banks

Fred i like GoldMoney a little better, if anyone want's to know why i will give them my thoughts

Rick: I am quite interested in your views on this, and think others may be also. I use GBS (the London equivalent of the GLD ETF) as I have not figured out how one can due diligence assess BullionVault or RealMoney. One wants to avoid purchasing the precious metal equivalent of...say...an illiquid CDO. Thanks.
GR.

[raja]

Re: The Face of Inflation: Does the U.S. Have a "Peso Problem" revisited

This disequilibrium, along with the virtual disappearance of the U.S. international reserves--by the end of 2010 they were insufficient to cover three weeks' imports--forced the government to devalue the dollar three times during 2012.

Could someone explain to me what happens to savings when a currency is devalued?

For example . . . let's say I am retired (which I am) and I want to live off my savings that I have stashed away in Treasury securities. If there were a devaluation of the dollar, would I wake up some morning to find that I had lost 20% of what I was counting on for retirement, and will I then experience a 20% decline in lifestyle? Or, does everything become cheaper, so I will not really feel a difference?

I realize that this answer depends on what happens in other countries, since imported products from countries whose currencies remain strong must go up in price relative to the dollar. But what about U.S. products and services?

[cpick]

Re: The Face of Inflation: Does the U.S. Have a "Peso Problem" revisited

think the fed will continue to lower intrest rates and allow the credit cycle to continue to expand because there is no other option in their minds.

cost of living expenses will increase (food especially IMO) as well as other goods and "toys"

social security reform may get people to put large amount's of their social security pensions into the stock market to drive up a bit of a boom and then when the social security pensions are transferred to the market the market will then finally crash and the credit cycle will end (along with civilized, orderly society) but the gov't will have wiped social security benefits off it's list of debts, as the balance of power shifts (from retiring baby boomers) and an aging "unproductive" population.

gold is a great store of wealth, but how long will you allow your wealth to be stored there. say in a year gold peaks at 900 or so, then starts trending down, as the stock market bubble's higher , creating a better rate of return, while the cost of living goes up, and bond's are not outpacing inflation. will you let greed take hold of you, (thinking you will get out before the crash (and what a magnificent crash it will be)

i am an amateur but i think my questions are valid

[Ishmael]

Re: The Face of Inflation: Does the U.S. Have a "Peso Problem" revisited

Metalman:

That is basically my point. The US is very similar to Mexico while on the other hand Australia does have some points to differentiate it from the US. Not just high natural resources but high natural resources per capita.

The US has gone from 200 million to 300 million people in about 40 years. No one seemed to notice at the same time natural resources were being depleted.

This is why China and India will have such problems. Low resources per capita.

[itpfan]

Re: The Face of Inflation: Does the U.S. Have a "Peso Problem" revisited

Eric:

Bernacke and Paulson will be known as the people who made the dollar not worth a continental.

It took what 6 years for the dollar index to go from 120 to 80 (33%) but 2 weeks to go from 80 to 78.5 (1.5%). This is a trend line that is decreasing at a decreasing rate. Always dangerous!

The last thing we need is more cheap money fromt the Fed and destructive economy of financial manipulaton!

The Fed's rate cut on 9/18 has further pressured the exchange rate of the dollar to a new all-time low, pushing up gold prices to a 27 year high at $746.30 an ounce and oil topped $83 a barrel. The weakening dollar combined with faster growing economies in emerging markets make U.S. and companies that have dollar revenue an unattractive investment to foreign investors, and further weaken the U.S. domestic market, induces inflationary pressures, for sure!

[FRED]

Re: Gold rises vs. all major currencies as confidence flees central banks

Fred i like GoldMoney a little better, if anyone want's to know why i will give them my thoughts

Feel free to ignore the ad at the end. Posted so we can post the article, which I thought was well written and of interest to readers.

Especially:

But whereas people jumped in to gold last May, they're now jumping out of everything else. Private individuals from Britain, the United States and Europe are all making a strong allocation of their savings and wealth to Buy Gold – and they're looking to park it there for as long as their confidence in central bankers and official currencies remains dented.

[rabot10]

Re: Gold rises vs. all major currencies as confidence flees central banks

Gold rises vs. all major currencies as confidence flees central banks


Spot Gold Prices leapt higher in London on Thursday, touching new 27-year highs at $738 per ounce and also breaking against the other four major world currencies.

Because even as the Dollar sank on the broader markets – down to a new low versus the Euro and crude oil – Thursday's move in the Spot Gold Price didn't simply mark fresh weakness in the US currency.

Gold on Thursday hit a 16-month high against the Euro, finally moving above €523 per ounce after lagging the gains in Sterling- and Dollar-gold prices since the start of September.

In London – and with all confidence in Mervyn King at the Bank of England shot by a series of policy U-turns and an "unconvincing performance" before a parliamentary committee today – gold jumped to £366.85 per ounce, taking its gains for the month above 10% for British investors.

Japanese investors wanting to Buy Gold Now will now find it above ¥84,050 per ounce, very nearly the highest price since Nov. 1984. Gold has very nearly tripled against the Yen since the Bank of Japan slashed its lending rate below 0.5% in 2001 in a failed attempt to end the debt-deflation caused by the Tokyo banking sector's reckless lending during Japan's late 1980s property bubble.

The Canadian and Aussie Dollars both helding around six-month lows against bullion today. But while these commodity currencies continue to lag the wider bull market in gold, this global re-allocation to gold bullion is very different from the short-term spike seen in May 2006.

Back then, gold moved higher together with stocks and long-dated bonds. Now those paper assets are slipping back while gold attracts a genuine safe-haven bid from private investors and – more crucially – from savers.

So it's no surprise to learn that "Standard Bank eyes more physical gold trade in Japan," as Reuters reports today, adding that "Barclays is to offer more commodities ETFs" in Japan, too. "Lehman Brothers launches commodity fund," says Investment Week.

Gold's new 27-year against the Dollar is likely to make headlines in Friday's press, too. A rash of new price targets broke out today, with TheStreet.com confessing that "chart watchers say it's difficult to predict where technical resistance may kick in next and stall the current surge."

But whereas people jumped in to gold last May, they're now jumping out of everything else. Private individuals from Britain, the United States and Europe are all making a strong allocation of their savings and wealth to Buy Gold – and they're looking to park it there for as long as their confidence in central bankers and official currencies remains dented.

What's the cheapest, simplest, safest and most direct route to Buying Gold Today? To claim a free gram of gold – today valued at US$23.57 vaulted on your behalf in Zurich, Switzerland – click through and learn more about BullionVault now...

Fred i like GoldMoney a little better, if anyone want's to know why i will give them my thoughts

[metalman]

Re: The Face of Inflation: Does the U.S. Have a "Peso Problem" revisited

stumann:

There are several components of the value of a currency. One of the things I look at is level of natural resources per capita and also government. Oz as well as Canada and Norway have high per natural resources per capita. In addition, all three have western democratic governments even though in most cases on more of a socialist democrate style (I have lived and worked in all three -- that is not meant as a negative). A third factor is a highly educated population.

I believe this is one thing that differentiates these currencies from Mexico which had a low resources per capita, basically a one party political system and a low educated population.

know you weren't talking to me but comparing usa to mexico:

- low resources per capita - check
- basically a one party political system - check
- low educated population - check

uh, oh.

[Ishmael]

Re: The Face of Inflation: Does the U.S. Have a "Peso Problem" revisited

stumann:

There are several components of the value of a currency. One of the things I look at is level of natural resources per capita and also government. Oz as well as Canada and Norway have high per natural resources per capita. In addition, all three have western democratic governments even though in most cases on more of a socialist democrate style (I have lived and worked in all three -- that is not meant as a negative). A third factor is a highly educated population.

I believe this is one thing that differentiates these currencies from Mexico which had a low resources per capita, basically a one party political system and a low educated population.