“If ever there was a time for the ‘Safe-Haven’ lure of precious metals to surface — now, yesterday, even seven months ago when the Bear Stearns’ bailout launched the historic reshaping of Wall Street — would have been it. With deflation, debt gets more expensive over time, taking a bigger and bigger bite out of your real income. Copyright © 2020 by Sunshine Profits “ The Debt-Deflation Theory of Great Depressions ” (Fisher 1933, p. 344) Fisher’s Paradox was ignored by mainstream economics, because they subscribe to the fantasy model of banking known as “Loanable Funds”, in which banks are simply intermediaries between savers and borrowers. Since that time, gold has been used as an investment. Deflation and Gold There is a common view that deflation is bad for gold. Deflation Hedge: Gold & silver's profitable performance under so many past deflations strongly argues that they will perform well in future deflations. We don’t mean the sinking of Titanic but the sinking economy of the 1970s. At that time,  Jason Hommel of Silver Stock Report stated: explicitly consider, leaving open the possibility that debt deflation was impor-tant. Today’s debt bubble, as a percentage of GDP, is far greater than the bubble whose deflation coincided with the Great Depression. We encourage you to learn more about the gold market – not only to investigate its performance during deflationary periods, but also to check out other gold investment ideas. This was precisely the price deflation which occurred when the gold standard was in place. Dr. Marc Faber one of the most respected and best followed in the industry has stated his opinion on the deflation debate as follows–“Therefore, under both scenarios — stagflation or deflationary recession — gold, gold equities, and other precious metals should continue to perform better than financial assets.” See article here. See article here. The former looks at the wage component as an inflationary driver, while Debt, Deflation, The Dollar & Gold. There is a common view in financial markets that credit deflation is bad for gold prices, because gold nowadays is … Are Gold & the S&P 500 Behaving Logically or Irrationally? And we saw that developing, we saw the way the currencies were acting, that gold had broken away from the dollar, gold was rallying with the dollar. Specifically, “I’ll cut right to the chase: Unless you’re about 80 years old, the United States economy is undergoing the worst downturn in living memory. When deflation is accompanied by significant economic worries and a loss of confidence in the U.S. dollar, gold should shine. But it occurred anyway. As rapid growth in the supply of goods outpaced the gradual growth in the money supply, there was a mild deflationary trend in the 19th century. There is a common view that deflation is bad for gold. [ii] It would require a deflation of paper notes relative to gold to get the old standard to stick. In 2007, for instance, world debt was $142 trillion. David Morgan. So the less debt you have going into a … Fiat money is a currency that a government has declared to be legal tender, but is not backed by a physical commodity. So much has happened since Bear Sterns and Lehman Brothers that it might take volumes to go into it all, let’s simply request that you ask yourself if the financial conditions has gotten better or worse since then? As one can see in the chart below, the stock market declined from October 2007 to March 2008, while the price of gold continued to rally. The increase in the prices of goods caused by the increases in the money supply. Gold had served as money for thousands of years until 1971 when the gold standard was abandoned for a fiat currency system. Unlike national currencies, the yellow metal is not tied to any particular country. The monetary base roughly matches the size of the Federal Reserve balance sheet, which indicates the level of new money creation required to prevent debt deflation. An inflation hedge is an investment that maintains or increases its value over time. Again going back into the distant past we might glean something … It was believed that it could not happen. As far as I know, there are only about a dozen of them who write newsletters or run websites. Let’s analyze the Great Recession, i.e. Hence, a safe-haven asset is expected to retain its value or even increase in value during times of market turbulence when most asset prices decline. It may be considered negative inflation, i.e. Central banks want anything but that. Contrary to commodity money, which is money that is at the same time a commercial commodity, fiat money is a legal claim, which derives all its properties from the law. Hence, an inflation hedge should provide protection against the depreciation of the currency. It drives down the cost of imported goods in the United States. Copyright © 2019 The Morgan Report. Such deflation is obviously positive for the economy. A typical effect of deflation is an increase in the purchasing power of cash. It is true that when Lehman Brothers went bankrupt, the price of gold declined together with equities, since cash was king at that time. As inflation is mainly caused by the increase in the money supply, deflation is primarily a result of the decrease in the money supply. This writer bought commercial bars and later sent those bars to a mint to have the bulk silver converted into silver rounds. According to the National Bureau of Economic Research, which officially declares the peaks and troughs, the recession in the U.S. began in December 2007 and ended in June 2009, but in other countries the scale and timing of the recession varied. $ 9.00 for a fiat currency system the opposite of inflation, so it is as. 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