Crack up boom for the $....?

[Mega]

$ last rally?
A sudden & rapid rise, then Crash & Burn Baby?
Mike

[Starving Steve]

Re: Crack up boom for the $....?

Being the slow learner here and the official moron (with papers and test scores to prove it), I need to know why the U.S. dollar would crash and burn? None of the other currencies are any good, so why would the U.S. $ crash and the others do fine?
And then, the U.S. is the largest or second largest market in the world..... Where do you think Silicon Valley is? Where is the NYSE? Where are all the new ideas, and where is the innovation? Where are people from Latin America still moving to, by the tens of millions? Which nation produces the most high-value, finished products and enjoys their exports? Where are the largest companies in the world, the largest market, the largest and the most educated labour force in the world? Where are the Cal. Techs, the Stanfords, the Harvards, the Berkeleys, the M.I.T.s?

And where is Barack Obama president, and the nation united now like more than ever before?

Where is the standard of living still the highest in the world? Where do the people still eat like pigs and drive new cars? Where do people, common ordinary working people, still live in affordable large new homes on large lots with plenty of front-footage? Affordable? --- oh, not in California, but affordable, large and lovely throughout the cowboy-West, the Mid-west, the South, and much of the East Coast.

Where do people drive 65 or 70 miles per hour on Interstate freeways, even 75 mph all day and all night if they wish to, unbothered by anyone? Care to move to British Columbia and drive 50 kph ( 31 mph ) on two-lane roads--- federal highways, no less--- for ten hours to go from the Yellowhead Pass on the BC/Alberta border to Vancouver, BC--- and they are serious about such a ridiculous speed limit; it's enforced to the last kph because the Province needs your fine-revenue.

Which country went to the Moon, just to do it and to prove it could be done? Which country stands-up to the hoodlums and religious zealots in the Middle East? Which country still has people, that by their very nature, are willing to tell the environmentalists to go-to-hell?

Mega, I don't think the U.S. $ is going to crash and burn, at least not in terms of the other worthless fiat currencies worldwide, and even now not in terms of the very over-priced gold in the gold market. Fifteen or sixteen hundred dollars buys much more now than thirty-five dollars ever used to buy in 1971. While gold has demonstrated that it has been a great investment over the decades, the potential if not the likelihood, for a major adjustment downward in the gold market is obvious.

[goodrich4bk]

Re: Crack up boom for the $....?

I think the truth, if we can handle it, lies somewhere in between. Today's gold price reflects more than just the reality of past monetary inflation. Rather, it reflects fear of a world currency crisis (i.e., a devaluation race to the bottom). More importantly, it reflects the uncertain legal, political and regulatory changes that authorities might employ in response to such a crisis.

To estimate the extent to which today's price reflects just historical monetary inflation, I compared prices and volumes of four items: gasoline, gold, M2 and median family income. I chose 1973 as the start date because it appears that it took markets about two years to establish the market value of gold in dollars after Nixon closed the foreign gold window in 1970. At that time, gold was about $100 an ounce. The validity of this start date is further corroborated by logging onto inflationcalculator.com, inserting $32 with a start date of 1932, inserting the ending date of 1973, and you get an answer --- derived entirely from the "official" inflation index --- of $106 an ounce. In other words, gold in 1973 at $100 an ounce was a "fair value" in 1973 if all you did was apply the official inflation index during the period of 1932-1973.

Now on to the other prices. In 1973, gas was .40 a gallon, M2 was a little of $800 billion and median family U.S. income was $12,000. Today gas is about $4.00 a gallon, M2 is over $9 trillion, and median family U.S. income is $31,000.

In sum, Steve is correct that gold, when the price is adjusted for official inflation, is more than fairly valued today. Gas has increased 10 times, M2 has increased about 11 times, and family income has increased only 2.5 times. Yet gold has increased 16 times. The question is, what is that 6x premium telling us? Do we have nothing to fear but fear itself?

The rest of Steve's argument is not as persuasive. Mega is questioning the value of my country's currency, not the value of our people, our achievements, our industry, our technology or our political system. Yes, all those wonderful accolades influence the willingness of other nations and investors to store their wealth in our currency or in dollar denominated debt, and that certainly accounts for why we are presently able to borrow for 30 years at less than the likely inflation rate. But Mega's question is about the future, not the past. And I tend to extrapolate from recent history that our political and monetary authorities will do just about anything to avoid any significant shrinking of the money supply.

That is what brought me to this site in the first place, Ka-Poom. I believe the dollar will do quite well in the "Ka" phase. Indeed, we may well be entering it now. It's the Poom that I am worried about --- and that is the fear that gold's price reflects.

[lektrode]

Re: Crack up boom for the $....?

mega - this ones a keeper and thank you Go4bk, gotta say thats one of the better disertations on the US sitch vs gold price eye have seen lately (we can use all the optimistic POV's that we can get)

and mr steve: altho you and i agree on some stuff - amazingly enough, quite a bit of stuff - and you were doing pretty good in the first paragraph above - with all due respect, you mustave had some kind of med-induced brain freeze on that one-liner of a pgph2

and altho i hear ya on the gold thing (the itulip thesis notwithoutstanding) - but our Chief Inebriate kinda worked you over pretty good on this topic: http://www.itulip.com/forums/showthread.php/22404-Alert-Schiff-Faber-Keiser-Rogers-Janszen-report-to-Mega-s-roon-at-once!?p=228227#post228227

but yeah, 16times 1973, (or.. 15.57 times and still droppin, as of 2031 EDT 14may) when most of the rest of it is 10times = somewhat worrisome
(esp when its been noted, mr mega - that GS seems to be 'ramping' the yellow stuff lately)

so (since i'm about to make another one of my lil 'mental bets' ) lets 'time stamp' this post right here, shall we?
at the close in NY today 14may2012, these are my notes on the day:
14may 10yrtr 1.772 1yrtr.18 dowD12695(d125) us$80.68 gold1556(d27.50) oil94.09(d2.04) xom82.12 ge18.59
cde17.53 ag28.18 seag31.24(+2.99) geag1627(+67.99) -- seag/geag are 'eagles' at gainesvillecoins.com
and mortages locally: 30-yr Fixed Rate 3.590% 2.000pts 3.78% $4.49 per $1,000* borrowed

24 Hour Silver

24 Hour USDX

oh... almost fergot - my 'mental bet' ?? 2morow = an UP day, across the board

and where IS metalman anyway?

[Starving Steve]

Re: Crack up boom for the $....?

Zero percent interest rates look pretty darn deeeeeeeee-flationary to me, and for two obvious reasons: a.) What bank or financial institution would take the risk of loaning without a significant reward in interest rates, plus rock-solid collateral? b.) Why would savers save in banks, unless govn't insures their savings 100% from default and unless consumer prices, especially home prices and apartment rents, may be beginning to fall?

Chopping-away all interest income really damages the income of everyone, especially savers. So, no-one has money. How can prices go up without a river of personal interest income to encourage personal spending and to thereby drive prices up? And with the ZIRP, no-one ( including no bank nor lending institution ) can afford to make any mistakes in lending or investing, so better to have assets/principle sit idle, un-invested and un-lent, but safe and sound..... Therefore, the velocity of money slows to zero, and prices begin to de-flate.... Money just sits.

Where is the interest/dividend income going to come from to support the current CPI, the current real estate market or the current anything? Maybe with his ZIRP experiment, Bernanke is onto something good?

[DRumsfeld2000]

Re: Crack up boom for the $....?

goodrich4bk

Thanks for an excellent anaylsis, especially the second to last paragraph. Personally, I think that debt will sink the US Dollar as you will have to have high inflation to reduce the debt burden.