The deflationary bust

Looking around "Financial Sense"...

Professor Antal E. Fekete revisits his deflationary theory: we have passed a crucial point in debt accumulation. From now (actually, from 2006, he says) onward, the more politicians attempt to stimulate it with debt, the faster the economy will shrink. Gold, the machine's "governor" that set limits to debt, was decoupled from the system a century ago - it got in the way of war financing.

Stephen Tetreault says if there's a rise in stocks, sell: "I do not see a positive bullish catalyst in the making as we head into the earnings sector other than a potential short squeeze, relief rally that should which should be sold into." He notes that deflation means those that can, are paying down debt, but also lenders are widening the margins between the interest they pay and the interest they charge, which gives further impetus to deflation.

Tony Allison says, sooner or later energy is going to cost more. He's thinking about the right point to speculate, the rest of us should consider the effect of higher energy costs on family budgets, and therefore on how reduced disposable income will be allocated.

Captain Hook foresees a time when "the public finally gives up the ghost on stocks in general, correspondingly they will fully embrace the likelihood of deflation, which will trigger a temporary collapse in commodity prices, led by their paper representations." He thinks this will be the time when physical gold will win; I wonder whether that is so, when most of us are so dependent on an electronic system. We're not farmers, selling corn and cattle to each other; the machine cannot be allowed to stop. That's why I think there will be, for a time, a switch to currency inflation; then perhaps a rerun of the early Eighties, as someone public-spirited in public life takes unpopular action to prevent the dive into the abyss.

For E. M. Forster's extraordinarily accurate vision of the future, written in 1909, please click the last link above. Telephone, TV, a populace paralysed by lethargy and wealth in its bedrooms...

Grab your pension now, inflation-proof it?

Tony Allison looks at the threats to your prosperity in retirement. A bird in the hand?

I beg to differ

I seem to recall it was some Supreme Court decision, where one judge said he dissented from the view of his colleagues "for the reasons which they have given". Elegant.

Tony Allison, in Financial Sense yesterday, gives the above graph and reads it as an indication that we could be heading for a gold price spike like that in 1980; whereas I look at the inflation-adjusted trend since 1914 and think that, unless my timing in and out of that market is superbly prescient, I'm better off doing what I do now, which is trying to pay down debts and save cash.

Yes, when I've done the latter, I might well make precious metals and commodities part of my portfolio.