Article tl;dr. The gist is that credit is contracting and commodity prices will fall with it. If I'm not mistaken, this thread is about gold, not oil. Oil is primarily a consumable commodity; gold is not.

Gold is reasserting a monetary role: it is being propelled to act as cash, especially in reserve capacity, and therefore will provide a basis for pricing rather than having a price attached to it; relative pricing will be determined by the base of available gold the same way we currently use the USD base money supply.

It doesn't matter if the average person doesn't use gold in daily exchange. Large businesses, cross-regional or international transactions may be conducted in grams or ounces instead of dollars and Euros. That would provide the solid golden base layer upon which fiat acts as a representative instead of the backward system today.

This is psychology in conjunction with supply & demand; non-linear. Reco'nize, son!


All equity markets have been tumbling, what's your point? We already agreed that contraction is the flavor of the month. The charts are just prices yet again (at least with volume, but that's decreasing which suggests the downtrend is slowing) and the point of contention is still gold. I consider news of insatiable demand for gold as far more relevant to the topic.

I wanted a picture of your USD notes but you didn't show any.

Sorry for the late answer, dont have too much time lately:


Yes, some areas are suffering but not all. Its the problem at looking at unemployment as a big agregate, you miss what its really happening. F.e. a construction worker is not competition for a google engineer. So when it comes to negotiate the salary for the google engineer the fact that there are a bunch of construction workers unemployed doesnt make any difference.

The way it happened is that the people closer to the money supply saw their wages up sooner. Those people are the ones working on the financial industry, whose wages are recovering and going up in the middle of a depression. Then we are seeing the high skilled workers demanding higher wages, for example engineers of Google and Microsoft: Goolge war for talent rises wages 10% (2010), Microsoft raises wages to attrack talent (2011). But the central bank money is getting to specialized workers (not necesarely high skilled workers): Truck companies see a 30% wage increase

According to keynesians that should not be happening, but it is. The problem is that the idea that because unemployment is high wages can not go up is utter bullshit. Not all workers are interchangeable, not all unemployed workers are competition for working workers. As I said, that a bunch of construction workers are unemployed is not competition for a Google engineer. Its the problem of looking at aggregates and not at reality.

For a better explanation I recomend this short article of proffesor Steve Horwitz: http://www.pbs.org/nbr/blog/2010/08/idle_resources_-_they_dont_sto.html

The sad part is that some areas, mainly of low skilled labour, are not going to see their wages rised because anyone is competition for them, while the rest are going to see their wages rised and prices are going to follow. So the less skilled workers, usually the poorest, are the ones who are going to suffer inflation most. As always, inflation works to increase the wealth inequality.


Fair enough. Let me show you why they do:


Yes, but the choice is not between deflation or hyperinflation. Some people argue that we are going to see a lost decade of near 0 inflation/deflation ala Japan lost decade, some others (like me) argue that we are going to have stagflation (high inflation and high unemployment) ala the 70's.

What the governments/banking system are trying to achieve is high inflation but controlled. Granted this is not guranteed, there could be a panic and they could loose control and go into hyperinflation. While its always a risk my opinion is that they will pull it off and we will get high inflation for many years, while the unemployment wont fully recover.

Bernanke has lost control over interest rates and raising them significantly (ala 20% Volcker beggining of 80's) would be a disaster with the governments and banks going broke. Thats why after the crash of 2008 Bernanke got permission from Congress to start paying interest on excess reserves. This had never happened in the history of the USA (or any other central bank that I know). What does Bernanke achieve paying interest on excess reserves? It controls the flow at which banks grant credit to the private sector. If Bernanke thinks too much credit is being emited and inflation is getting out of control he just have to raise the interest of the excess reserves and banks will decide to leave more funds at the Fed instead of loaning them out, because its risk-less. There are other tools Bernanke can use but thats the main tool that he will use to control the flow of credit into the economy to produce high inflation and avoid hyperinflation. The risk of hyperinflation is always present, but Im pretty convinced he will succeed and the western economies (the ECB will follow the Fed) will go through years of stagflation.

Conclussion: If deflation gains traction Bernanke can monetize government debt (like it has done until now and has avoid any kind of price deflation). If inflation starts getting out of control it has tools to control it (not avoid it).

I wouldn't read too much into gas prices.  They've been damn strange since 2008.  In my opinion, gas prices have been about 50 cents too high for the last year or so.

I keep my eyes on TWIP.  We've been above the average range on crude stockpiles for a whole year now.  Gasoline stocks have been mostly quite high, not counting the exaggerated spring dip.  Also, notice how flat the 2009-2010 retail prices were.

It is hard to say if the current decline in gas prices are the usual annual fall drop, a correction long overdue from 2008, or another sign of the strengthening dollar.