|
The Dollar, Inflation, and Deflation
By Gold Economist: Jay Taylor
Goldinvestor.com
Wednesday, March 10, 2010
The policies of the politicians have been to inflate, inflate, and inflate some more. And they have been quite successful in doing that. Since the Federal Reserve was created in 1913, the dollar has lost something like 97% of is purchasing power. So the boys controlling the printing presses have done quite well in their creation of deflation, except for a period of time in the 1930s when the purchasing power rose considerably.
The question in my mind is not whether the Fed and other policymakers will try to inflate. Indeed I think they will. Bernanke has even talked about printing-press money. The bigger question is whether they will be successful in creating endless amounts of money out of thin air.
I am absolutely certain that at some point in time—and I think it won't be long now—policymakers will no longer be successful in creating endless amounts of inflation of the dollar. But I'm not sure how that will end. It could end in a hyperinflation, such as John Williams, James Turk, Marc Faber, and others on my radio show have suggested. At some point the currency would be inflated out of existence and what would essentially be a new currency would be created. Hopefully we would learn that to stabilize money, it needs to be asset backed and not liability backed, as our current fiat money system is.
But I am not absolutely sure the dollar can continue to be inflated away. First of all, as Ian Gordon and the late John Exter point out, debt is growing exponentially, while income is growing in a linear fashion. What is especially problematic in the effort to inflate is the fact that every stimulus measure results in more debt to income than before the stimulus. The picture of debt outpacing income at an accelerating rate of speed can be seen in the chart above. With each stimulus, the force of deflation increases, such that the deflationary pressures continue to get larger and larger.
Jay Taylor
Mr. Taylor is editor of J Taylor's Gold, Energy & Techn Stocks newsletter. A native of Ohio, he has resided in New York since 1973 when he began working there for Barlcay's Bank International. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares.
In 1981 he began publishing North American Gold Mining Stocks, which preceded his current newsletter. His continuing interest in gold mining prompted him to study geology at Hunter College in New York City, supplementing his MBA in Finance & Investments. Throughout his career Mr. Taylor worked as a commercial, then as an investment banker. Most recently, he worked in the mining and metals group of ING Barings in New York. Prior to that he was involved in the first gold loan made in modern times in the U.S. to Amax Minerals, a 250,000 oz. loan facility led by Citicorp.
In 1997 he resigned from ING Barings to devote himself full time to researching mining & technology stocks, writing his newsletter and assisting companies in raising venture capital.
Published at the www.InvestorIdeas.com Investing, Research and Industry Articles News Feed - Investorideas.com Financial Article Feed
Investors: Sign up for free newsletter, stock and sector news alerts at Investorideas.com - Or publish your own stock picks and share your investing and trading ideas with other investors. Publish your investor ideas today!
Investorideas.com goal for 2010: 'One Million Members Stronger', empowering one million investors to invest in innovation and technology for a better world. Join us today!
Disclaimer: The views and opinions expressed in the research published are those of the individual companies and writers and not necessarily those of Investorideas.com®, or any of the industry sector portals . At the time of publication, writers may hold positions in the stocks or companies mentioned.
Investorideas.com® or any of the industry sector portals cannot assure accuracy of the research presented. Investors are encouraged to research and verify facts and under no circumstances is Investorideas.com® endorsing the content as a recommendation to buy or sell stock.
|
