Skip to content

Gold plunge signals emerging DEFLATION! Why?

June 21, 2013

Where is the hyper-inflation that so many pundits have been predicting for years? Central banks (U.S., China, England, Japan, Europe, etc.) have increased their balance sheets by over $10 trillion since 2008, yet NO hyper-inflation or even 5% inflation. In fact there is no meaningful inflation in the USA, Canada, or Europe as of 2013 (some 5 years after the financial crisis of 2008). China’s real estate sector is now peaking; Canada’s real estate sector is mostly peaking or starting their decline; most of Europe has peaked and is declining. Even my second home country of Sweden (where both my parents originated from) has now peaked with ‘values’ (real estate) starting to decline. So what is happening? Why NO meaningful INFLATION going forward?

With some 48 million people on food stamps and some 22 million unemployed or under-employed, demand is not growing enough to cause meaningful inflation. 

First of all, all the QE and Counterfeiting operations by the World’s Central Banks have not really gotten to the Consumers (those who do most of the spending). Some 70% of spending results from Consumers. Today, Consumer incomes are mostly flat and/or stagnant. This means that Consumers are NOT bidding up prices as prior to 2008. They simply can’t bid up prices as their wages are NOT growing! Also, where is the velocity of money today? In the USA there are some $2 trillion of excess reserves (held at the FEd) which could multiply credit some 10 X  if borrowing was active, but this is NOT happening. In reality, there is a downward trend in the velocity of money and this means that credit is not expanding sufficiently to cause any meaningful INFLATION.

When I shop at the stores in the Tucson area, all the shelves are full with STUFF. Price bargains are everywhere. Wal-Mart and the shopping malls have as many price declines as price increases. Durable goods are being offered with a zero percent interest rate and no payments for 6 to 12 months. Does this sound like we have excess supply or what? Goods and material objects continue to flood our markets and consumers are buying via credit cards and food stamp cards, yet there is NO meaningful inflation anywhere. Isn’t NOW the sign of reality? We all live in the NOW and purchase our goods in the NOW. If there is no meaningful inflation NOW, then when?

What the inflation pundits are ignoring is the reality of NOW. Many inflation pundits assume that inflation is emerging, and developing, and growing…yet the NOW environment (real-time events) says differently! What appears to be emerging is an economy which desires to deleverage and deflate. We see this clearly in countries like Greece, Spain, Portugal, and Italy. We are seeing a mostly stagnant level of prices in countries like Great Britain, France, Germany, Canada, and the USA. The Central Banks have been Counterfeiting our currencies at record levels for years (also called QE), yet the price levels have NOT increased materially or meaningfully. Why?

Our stores are full of stuff (products) and prices are changing but there is no meaningful inflation (NOW)! We live our lives as ‘successive moments of now’! The Future never arrives and the Past is a now memory!

There are many reasons which transcend mere money and credit issues. First of all the demographics within most of the Western countries are changing significantly. The Baby Boom generation is reaching retirement age and wanting to downsize and simplify. Their demands for goods and things is declining as they enter the retirement arena. The demand for credit, borrowing, and more debt is diminishing within this group. So the new demographics within our Western societies is affecting the DEMAND for goods and services. All these factors  play into the TREND of a growing DEFLATIONARY environment for our future.

The plunge in the price of GOLD and SILVER may well be a result of a perception in the markets that inflation is essentially over and hyper-inflation is mostly a fantasy within the imagination of many pundits mind’s (who desire to live within an imaginary Future and/or Past). In reality, we live our lives as ‘successive moments of NOW’. This means that what is happening in the markets NOW is more relevant than some imaginary scenario about an evolving Future of Hyper-inflation. Personally, I see no hyper-inflation coming nor do I witness any evidence that the QE operations and/or Counterfeiting of digital currencies will lead to this RESULT.

The price of gold (now under $1300) could be signalling emerging deflation for the global markets. The dollar index temporarily is getting stronger as the markets deflate. Since all currency levels are relative (they trade via a comparison to one another) with a stronger dollar at the moment, this hurts the price of gold (now). All this could change rapidly, however, AFTER the stock market bubble has fully burst. Gold could then enter its bubble phase!

What many pundits seem to miss, is that we now live in a paperless monetary world. Our markets are now mostly digital and virtual. Computers drive our prices and these prices are mostly derived via the actions of traders who have programmed their computers with math-based algorithms. Machines now drive prices UP and DOWN in real-time and these prices are mostly a result of high-speed trading via algorithms or similar math-based formulae. Some 70% of stock market volumes and some 90% of currency trading is now the result of our electronic markets. Digital markets have replaced our prior PAPER markets! Virtual reality has replaced Observational reality! Our thinking needs to change to reflect these realities!

HFT computers, Hedge Funds, and large Institutional Traders can now manipulate prices via their trading machines. We witness this result within the precious metals sector clearly (gold has mostly declined for some 18 months). Farm commodities, stocks, etf’s, and all virtual financial instruments (derivatives), are also manipulated via computer trading and machine driven software. Prices are now derived from our VIRTUAL computer markets and machine driven technologies. Digitization has created this new reality for our markets. Money has become mostly VIRTUAL and within the computer screen. We live within an interconnected virtual world of images and numbers! New thinking is required to internalize these factors!

Trading is now mostly electronic and at near the speed of light. All prices and values are affected by our real-time global trading markets. Human input and math-based algorithms create trading volumes and our price levels. We live in a virtual environment where digital money and the computer screen reveals the results for us to observe.

Our real-time markets, computer driven, with algorithms at the core…now create prices within our computer screen. I see this process clearly when I go to Wal-Mart and watch how the managers manipulate and change prices (of existing and incoming goods) from one day to the next. All is done  within a VIRTUAL environment (the computer screen). What a change from the old days of physical money units (paper notes and coins). Today, only some 4% of monetary transactions are accomplished via paper transactions. The remainder, or 96%,  is via credit cards, mobile devices, on-line checking accounts, and other virtual processes.

In conclusion, DEFLATION is emerging as our DEBT laden world is over-extended and collapsing. DEBT has driven our economies for some 50 plus years and has now reached a THRESHOLD level. Deflation is necessary going forward and all the gimmicks of our Central Banks can not change this reality of the markets. Delaying the day of judgment is all these Central Authorities can do. They can not alter ECONOMIC cycles (law) which are market driven. The gold plunge is a signal that deflation is emerging rapidly. Later when the stock market bubble has burst, I do expect that gold and silver will become the NEW bubble for the markets. Watch the markets for clues! I am:

No comments yet

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: