Anyone paying attention has heard/read/studied considerable speculation about whether we are experiencing deflation or (hyper)inflation. We wonder what will become of our savings/investments/income. The author of this blog post does more to clarify this issue than anything else I've read. While the "experts" dither and hedge, this guy cuts to the chase. My instincts and understanding, both political and economic, tell me he is absolutely right.
I read his post in a single setting yesterday morning, without reading any of the ancillary attachments (I'll review those later). But the gist of his (long-winded) treatise is this:
The "battle" is not between the bourgeois ("capitalists", or "haves") and the proletariat ("workers", or "have-nots"). That would be a Marxist over-simplification.
Rather it is between "debtors" (the "easy-money" crowd, who profit from "easy" credit, low interest rates, inflation, and debt leveraging -- in other words, modern Americans) and "savers" (the "hard money" crowd, our grandparents, those who hate inflation and low interest rates because they eat away at savings and "real" returns). It is also a battle between the well-connected economic and political "elite" (who wish to preserve their wealth and lifestyle) and the rest of us (upon whom they depend to keep government and civilization running).
The anti-inflationists claim that the "elites" would never allow inflation to get out of hand, "dumping loads of money on our front lawns," as it were, because debtors would then be able to gather hundreds of thousands of dollars in a matter of days to pay off their 30-year mortgages. The "banksters" wouldn't allow that, they say.
But this blogger explains why this is precisely what the banks will do...because the alternative would be so much worse.
While the housing market makes up (if I remember correctly) $9T of the nation's present wealth, this represents but a fraction of the $163T(?) tied up in dollar-denominated assets. In a deflationary economy, with money tight, those assets would drive toward zero value, leaving their owners holding empty bags.
It is far preferable, in their mind, to allow the housing market to inflate (and even get paid off, if possible) in an inflationary economy, than to ruin the world in a deflationary one.
Besides, when the fit hits the shan (indeed, it has already begun) and the people finally acknowledge the tsunami of higher prices and devalued currency washing over their shores, money to pay off mortgages will be shunted to buy bread and pay utilities, rather than mortgages. That $200k mortgage will remain just as hopelessly out of reach to those making $7k a week when they're spending $1k a day on food.
Eventually, prices will stabilize -- even if production ceases for six months or more. This massive "reset" will be a "game changer". Many will come out ahead and many will fall farther behind. Some may even perish. A few will have paid off their debts and will have retained their assets. Others will have lost everything.
The "trick" is understanding how to get to the "other side" of that "reset" intact.
This blogger makes the case that gold is the vehicle that can get you to the other side. A gold coin today buys the same "stuff" it bought a hundred years ago. And it will do so 100 years from now. The value of the fiat dollar moves inversely to gold. You will need more and more dollars -- and less and less gold -- to make purchases from here on out. Even at $1500 an ounce, gold is a steal compared to where it will be after the dollar is inflated to infinity, the economy has imploded, the world has "reset" to another global (gold-denominated) reserve currency. And life goes on (as it will).
This "plan" has been in the works for decades (since at least the 1970's). Sophisticated observers will recognize that (hyper)inflation is the historic and inevitable result of all fiat currencies. As this blogger points out, under these conditions, the "profits" to be made by a homeowner leveraging even a 95% LTV ratio will not equate with that of gold, which will multiply as much as 40X.
The "banksters" know what they have to do. They have quietly been moving to gold for decades. The dollar has been falling inexorably and will continue to fall until all hell breaks loose and the dollar's value -- no longer as a world reserve currency -- will reset. We'll continue to use the dollar, but it will have a lot more zeros, like the peso, tacked onto it. And all our lives will be different.
This is his case (from what I remember reading).
So, what to do?
For reasons explained, the politically connected will bend to the will of the masses and devalue our currency (inflating the economy) to relieve the pressure of all-consuming debt. Those who are highly-levered in real estate will prosper if people can be found to pay the rent. (A BIG if! Housing is now grossly overbuilt and wages will NOT keep up with inflation, making cash to pay rent hard to come by.) Even then, houses and land can be expropriated politically (through taxation and regulation), so even paid-off homes are not entirely "safe" assets.
Gold will shine. It has perdurable value with an infinite upside and little means of effectively being regulated. (No matter how high prices go -- or low the dollar falls in value -- gold will purchase what it's "worth", which remains fairly constant over time.) As they say, "cash is king" when times are tough. And gold is the only "real money" out there.
If you have assets in paper, your paper will become increasingly worthless. Your pension will become increasingly worthless. Your annuity will become increasingly worthless. Only your hard assets (property which you own...and gold) will "sail through" to the other side, leaving you with your wealth intact to begin again under the new regime.
That being said, MAKE SURE YOU HAVE A YEAR OR MORE OF FOOD AND "STUFF" ON HAND. After all, you can't eat gold and you'll be trading it at a pretty price if you wait to buy food when it is scarce (and, thus, precious). What would you pay not to starve?
Have what you need in "stuff" to sustain you for a long time. Also have a means to protect yourself, your loved ones, your neighbors, and your possessions. (Before you buy gold, buy lead! The kind that flies out of the end of a gun!)
And if you have wealth locked up in paper, convert it to gold or other hard assets.
That's what I got out of my reading.
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