http://blogs.reuters.com/great-debate/2009/01/20/us-and-uk-on-brink-of-debt-disaster/ very good analysis... question is how do we protect ourselves from having our savings wiped out gold???
Inflation has NEVER been the way out... yes, it's easy and presents a favorable [though false] short term political argument. However, it has ALWAYS lead to disaster... Our politicos are sooooo GREEDY they will ignore this obvious fact and "do it anyway"... in spite of the huge body of historical evidence to the contrary.
Inflation will only help if they were to deposit it directly into every person's bank account. But that's not how it works. The banks get it first, drive up asset prices, then eventually that money trickles down to everyone else. But the prices are already higher by the time any new money trickles in. In effect, negating any true wealth effect.
If they deposit money into every persons bank account (which is coming just like last years stimulus), all prices in the economy would raise relative to the increased money, since no new supply of goods exist to meet the new supply of money. The only situation not affected would be fixed debts which would be easier to payoff. But you are correct the evil of inflation is how those closest to the money supply benefit at everyone else's expense. Its why we have been inflationary since we went off gold, because those in charge of the money supply banks and financiers, benefit greatly from inflation. At this point, I could care less about the future, and I am more interested in zeroing down debts, the destruction is coming either way. I truly hope we get a ridiculous stimulus check from Obama, et al.
He doesn't exactly say how to achieve this higher inflation. Bernanke has been trying like hell to inflate and it hasn't been working. Inflation by decree? How about this one: Let the existing banks fail and use the TARP money to fund new banks. That would punish the ones who made bad loans and ill-advised investments, and promote better lending in the future.
Inflation made (not anymore) new homes more expensive to build, thus equilibrium with surplus existing homes is achieved faster. How to protect your savings? Good dividend paying stocks (long term). Stay away from gold, we are in a deflation.
The thing about gold is that it is a doomsday asset. It doesn't hurt to own a few gold coins in the chance all paper money at some point becomes valueless as a medium of exchange. It's dumb to own etf's or futures of gold, but some coins is a safe bet. Gold is more of an insurance than an investment.
[size=3[]What happens if the inflation path turns out to be wrong? Listening to a blog or professor or commentator with an idea does not guarantee success. During the 70s, inflation (stagflation) caused massive problems and high unemployment. Experimenting with the wrong approach is no guarantee, and it might make things worse. [/size]
Starting an inflation is the easy part. Stopping it is utterly difficult. Inflation is not the way out. Since there's not enough money in the world to save everyone, the only way out is a jubilee: "Biblical debt jubilee may be the only answer" http://www.telegraph.co.uk/finance/...ical-debt-jubilee-may-be-the-only-answer.html Put all the toxic assets in a bad bank, freeze them for 50 years, change laws, condone the debt. We need a biblical answer to a biblical problem.
I'm thinking... if the gov gives everyone a million dollar then I really need to store up bullions now. If they do that they will successfully promote high (or hyper) inflation and they would likely confiscate all gold from civilians (futures contracts, etf, paper gold, gold in deposit box). If they do it like japan (zero interest rate, quantitative easing) my guess is we would have deflation instead of inflation (just like japan did for 14 years). According to John Maynard Keynes demand-pull inflation theory if there is no demand you can't push it by simply increasing the money supply - unless you put money directly in people's pocket (helicopter ben). I'm going to closely monitor the situation. If the gov really put money directly in people's pocket (which is good for debtor but bad for savers) I'm going into bullions. That totally sucks cos I can't use bullions as trading margin... damn...