Inflation vs Deflation

[Mark from South Africa]

Seeing the dollars fast decline since 2000, i think what is happening now is planned. It doesn't take a economic genius to realize that if you drop interest rates to 1% or 2% , that people and banks will borrow money like its free. The debt and vast sums of Dollars added to the system has led to the Dollar decline and inflation increasing.

James Kelly was just on your show and was talking about a deflationary outlook for America and i heard a similar view on CNBC from Nouriel Roubini. I can understand deflation in the housing market since it was blown up so much by cheap mortgages. But i don't see deflation in commodities like gold,silver and oil since the dollar has no choice but to keep declining in value in the long term with all the printing and bailouts. Credit contraction in the market was caused by people not being able to pay there debts and these bailouts don't solve the problem. In fact these bailouts just throw more money on the fire, it was exactly this that created the problem. Credit contraction also does not hide the fact that America is so far in debt that it has no other option but to keep printing money and devalue its dollar. There is no way the FED can increase interest rates when the American people are already suffering to pay there debts at these low interest rate levels.

Last week we saw gold shoot up for the first time seriously as people wanted a safe haven, that i believe is just a taste of things to come. Short term we might see deflation if people decide to rather keep cash and try wait out uncertainty, but for me it looks like hyper-inflation due to the FED policies. Would love someone to please explain to me a deflationary position , as i cant see it possible for the dollar to not stop falling? I see us moving back to a gold backed currency in the near future and i don't think what is happening now is by chance.

[Michael Yorba]

Hi Mark:
Thanks for posting your opinion. I agree with you. Take a look at my blog or forum posting titled "Commodities are King" and you will see what I feel is the next bombshell to hit.
Please keep those great questions coming in the shout box.
Michael

[Mark from South Africa]

Hi Michael

Will you be having a segment or 2 in the near future where we can ask you some questions and thoughts on this matter. I think your knowledge, having interviewed so many different analysts and great guests has given you a lot of insight, into what is coming.

Also if you can ask your guests some general questions, about what there outlook is on the future of America, i would love to hear there personal feelings. I find it surprising, that more people are not worried about what is happening to there country. FED and the goverment are taking more and more control over Americans.

Being from South Africa i look at where my best investments will be and doing my homework and learning about the commodity cycles and just looking at the dollar chart, i see a lot of your guests also being bullish on commodities. This being the case if gold does go far over 1000 in the near future , do they not realize the implications that has for there country.

[Michael Yorba]

Hi Mark:
Please feel free to ask for my opinion any time during the broadcast.
I would like to see you ask all the guest what there outlook is on the future of America.

[Mark from South Africa]

Will do and thank you for a great show

Cheers
Mark

[Bob from Buffalo]

Mark,
I've noticed most deflationist have something in common. They are believers in the Kondratieff wave. Some of Michael Yorbas' past guest such as; Robert Prechter, Tony Cherniawski, and Tim Wood believe in the K-Wave. Other notables I've heard from include Michael Shedlock, Ian Gordon and Bob Hoye. My belief is that Alan Greenspan and Ben Bernanke are aware of this cycle. All that said, I also have a bias torwards the K-Wave.

The Kondratieff Wave is a multi-decade cycle of interest rates. The theory is that interest rates always bottom during a depression. Interest rates last bottomed in the 1930's-40's. A New Cycle began after "The Great Depression" and rates peaked in 1981. Since then Interest rates have been falling and the K-Wave theorist are expecting a depression.

One of the reasons why a depression occurs when it does is because when interest rates are low and borrowing is easy during the "good times". People borrow and this in turn pushes prices prices up with money that was non-existing beforehand. Investors are encouraged to speculate in stocks, commodities, junk bonds, and real-estate. In their mind, earning low yields of t-bills are not an option. In a sense, they are forced to speculate.

Sorry for the ramble if you are already aware of this cycle.

Myself, I'm positioning for deflation but am hedging with gold. I'm suprised the equity market has held up as well as it has. Historically speaking commodities at current price levels are a far better value compared to equities. This doesn't mean both aren't overvalued. I don't see how the US Government can stop this contraction. They can print physical greenbacks but this would cause the bond market to crash causing deflation.

Thank You
Bob from Buffalo

[Bob from Buffalo]

Disregard that last sentence. I must have had one too many last night.

What I meant was that the money supply is primarily credit based and up until now the FED has been filling in some holes of the destroyed credit. This is far different from the hyper-inflationary policies of Weimar Germany and the like. In order for the FED to achieve hyper-inflation. (If you can call that an achievement) They have to do more than fill in some of the gaps of the credit that has been destroyed. They have two choices; print physical currency or accelerate credit growth. Accelerating credit growth with banks tightening lending standards should prove to be an almost impossible task.

Happy Trading
Bob From Buffalo

[Quant]

You don't see it because you don't understand what you are talking about. Watch and learn. Oil to $25 or less. I called everything that is happening years in advance for my clients.

[Bob from Buffalo]

Quant your post was very informative. I'm guessing your looking for near term deflation as am I. Do you follow the Kondratieff cycle?