A Question For The Economic Doomseekers

I've been taken to task of being an apologist (yeah right!) for the "powers that be", because i, after years of mathematical modeling and causative studies, don't see the doom in the economy. (Note that i have seriously and assiduously complained about its robustness and the policies that led us to that.)

Well, i've been reading here about gold being an investment, about the dollar collapsing, the economy in total freefall.

And yet, the price of gold plummeted this week, meaning the dollar wasn't really that weak, now was it? If you invested in gold to get away from the weak dollar three months ago, you just lost your ass! The only people who made money were the futures' speculators that fished the chicken littles in.

The only possible way that gold's value can fall, is if it were overvalued vs. the true worth of the cash. Seeing gold goes up, doesn't mean the dollar is getting weaker, necessarily. But, to read the doom and gloom here, one would think it's the only possible cause. In fact, it's a pricing, not value proposition, and that's what i tried to tell everyone. But, of course, i was told i was looking through rose colored glasses. All that time studying and working, and i can't even be objective because i believe in the policies that i don't agree with. Go figure!

I know i'm just whining and pouting, and gloating a bit, all at the same time. But, i just wanted it to be clear that i do take some offense when folks here don't trust me, despite the fact that i'm only trying to help.`

So, if anybody can explain to me, in purely technical terms, how the value of gold just changes when it's the only hedge against currency collapse, i will not only read it. I will submit to JUSE for publication.
The Professor

But I do see inflation and continued stagnation. I also see less inflation in European and Asian countries.

Basically, I think Spain v England - the Iraq war is our Spanish Armada. Sure Spain was a power afterwards, but they were never the power (economically or militarily) that they once were.

I'm thinking OIL is near assuming a similar status.

Any commodity could fit that description, i guess. But, precious metals and land are always considered currency hedges, because not only would they retain some intrinsic value even in the event of a currency failure, but in fact, they would provide even MORE buying power than their disaster inflated value would suggest.

Bloom did a paper back in the 80's on this subject. (I'm not his biggest fan, but i could find no fault with this.) He showed that if gold were the hedge in the face of a Depression like failure, the value of gold would match, dollar for dollar, any hyperinflationary value. But, since it would be a hard asset, the buying power would increase in the near term by as much as 4 fold. So, a million dollars in gold, if bought at a dollar value at 10x inflation, would be worth $10 million, but could have buying power as high as $40 million. So, it's highly considered to be that sort of hedge.

However, if one is hedging against a collapse that never comes, one could lose one's ass. Because speculating on metals is not strictly a function of economic condition, but one of probabilities and guesses. Guess wrong, and things could get ugly.
The Professor

if you're just worried about investments, however it looks like a pretty stinky toilet to those of us who spend our entire paycheck every pay period (mostly giving money back to YOU at usurious interest rates).

for people who invest. The last thing I invested in was fixing a broken tooth, which I had to do by dipping into a shrinking savings account. Folks I know invest in having enough gas to be able to get to work next week, and many are behind in other payments. The town where I work has more thrift stores than new clothing shops, and the churches just had a big fundraiser because their food banks were getting dangerously close to empty.

Gold plummeted because the dollar will not collapse. The dollar won't collapse because the Fed will raise interest rates higher throughout the year, definitely pushing it over 6% before they consider further hikes or taking a break.

The economy is robust because we're still living in the blowback of four years of the lowest interest rates in history which set off a huge borrowing and spending boom. Interest rates are out of synch with the amount of borrowed money that's out. Too much borrowed money leads to inflation, which is what we're experiencing.

The Fed under Greenspan lowered interest rates to ensure Republican control of congress and Bush's re-election, and since then, our currency has been hurt because the amount of borrowing has skyrocketed and the rest of the world grew concerned about our ability or willingness to pay it all back. Hence, there's been these series of "dances" between currency valuations and interest rates.


I cannot prove any of this mathematically, and I am sure that you and others will dismiss my theory as hogwash, but it works for me. I knew interest rates would climb over 6% after the 2004 election which is why I planned and executed paying off all of my debts by 2005. I have done so, and now I am avoiding major rate hikes on my debt. By the end of the year, I will take advantage of the higher rates by putting that money I save into a savings account.

Are still not bad. do you remember Reagans 20% rates?

Because of stagflation.

is that when I was in high school <56-60> Anything over 10% was a crime called usury.

For a couple, it's around 25%. For others, it's some federal rate plus a percentage.

Read this gentleman for a week.

http://jsmineset.com/

Is anyone here really seeking doom? I must have missed those posts.

I do see doom of a sort on the horizon, but not short term. That doom is based on debt and unfunded liabilities. No nation can continue to amass debt like we have forever. Someday the piper must be paid. It won't be pretty.

the west to abroad, just my opinion and I have no background in economics so take it with a grain of salt. I also do see gold going higher just as it did beginning in the 70's through the early 80's. I agree the piper must be paid at some point and when that happens I feel for those who have not tried to reduce their own personal debt.

You can't eat gold. If you're worried about the future and sure that everything is going to go to hell, then you'de be better off stocking up on food stuffs and things you like, because they may not be available if things do go to hell.
Gold is pretty, it's shiny, and can be made into some useful stuff, but, it won't stop the hunger pangs. so, while all of you goldbugs are looking at your shiny yellow stuff I'll be eating.

Howdy Professor :hi:

back in the late seventies or early eighties when it was ridiculously expensive -- $800 an oz or something?? -- then it dropped down to nothing, for DECADES.

When everyone jumps on a bandwagon, it has a tendency to collapse.

...but it's not the only hedge on the block. It's not even considered the best hedge on the block like it was a few years back.

Gold's inherent value negatively correlates to other investments like stocks or bonds.

The problem with gold, as you've indirectly discovered, is that the situations that cause gold to rise in pricer and sustain those rises are either rare occurences or not based in reality. This can make gold extremely volatile, like most other precious metals.

Look at a long term chart of gold prices versus one of the Dow or S&P....it's all there.

I agree with you as to no crash and as to gold having no intrinsic value, only a psychological value. Indeed that value is not about to go through the roof as the US sells off our assets to other countries to pay for the disaster of the Bush years (how dis you like the sales of revenue from the Indiana toll road for 75 years to those overseas folks?). I however do see a disaster for the lower middle class and those earning less.

I do like your offer to submit to JUSE any paper offered up on Gold as a natural hedge against currency collapse!

:toast:

:-)

consider, an alarming rate (From today http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x21236), while, and because the cabal continues to spend it like they have it to spend. The USD has fallen over 40% since the coup. Consumer debt, corporate debt, millions of housing loans with no chance of being repaid, etc. A trade policy based on the old "we want this to be, so it is because we say so" theory. Orders for durables down combined with inflation that even the fraudulent government numbers can't hide.

The price of gold has fallen in the last month or so, but is still up ~20% this year and is up 140% over the last 5 years (I don't know about you, but this far exceeds the performance of any of my other investments and I'm not a "futures' speculator"), so the only people that "lost their ass(es)" were those that jumped in when it was at or on its way to the $730 mark, a tiny number, and they will be alright when it comes back, later this year. The factors driving the price up are the weakening USD, the Central Banks loaning thousands of tons (some claim it to be ~half of their reserves) to suppress the price for years and now are slowing this practice, the increase in the price of commodities in general, and diminished production (the result of the afore mentioned Central Banks deliberately suppressing the price) and increased demand.

I also don't understand how you can say, in light of the last 5 - 6 years, how a cynical and very temporary bump in the USD, due to Bernanke "hint" about interest rates, that the USD is strong. The Fed (at the direction of the cabal) has pursued a policy of weakening the USD since this idiot was appointed.

In light of the mis-steps, mistakes, lies, and blatant manipulation, is it any wonder people are worried about their futures?

... pulled right out of my own ass says you cannot print 3 trillion dollars in 5 years and get away with it.

Gold and silver (which I prefer, has more industrial uses) are going to be volatile, just like the stock market has been for the last few months.

In the long term, we cannot repay our Federal debt without inflation.

then,
American Union
then,
Agenda 21

Hang on to your money,food,and your arse as we are in for the ride of our lives!

8 out of 10 people I know are far worse off now financially than they were five, or even ten years ago.

deep debt

decimated savings

lower standard of living

less income in terms of purchasing power, and for about half of them, in dollars

most people underemployed in multiple jobs (as compared to overworked in one)

all households (except single-parent families) have more than one wage earner

the trouble with economists measuring the "economy" is that to them one trillionaire pretty much equals 250,000,000 4-dollar-aires. There is a built-in bias in favor of capitalism that will persist in making the economy look rosy until the next-to-last person on earth starves to death, whereupon the issue will become moot, since the last person left alive will not be an economist.

The 30's Great Depression did not hurt the rich.

Since you can't seem to get the adjusted (propaganda) values released
by various sources to give you a clear view of the existence of the
common American.

1. Take $769.00 ($40,000/52week).
2. Randomly pick a location in the U.S. from a map. (No closer than 100 miles
from your usual residence)
3. Go there and live for a week on roughly $100 a day.

I propose that this will take some of the wind from your rosy sails.

The amount is generous as it doesn't include the usual dependents, insurance
and interest charges carried by the typical wage earner.

It would be difficult at best, but, if it's not hard enough for you
the terms could always be extended to the breaking point. To simulate
the arbitrary "fees" charged by various non-governmental agencies.

No, I am not a Doom *seeker*... I have *concern* for those who have less.

I see them in dangerous trouble and I've always been taught the best way
to help myself is to help others.

A better investment to survive economic hard times is not to invest in
gold, but, to invest in people.

For the third time now, i didn't say the economy was in good shape. I said it was not on the verge of collapse. In fact, it's so far from that as to be a ridiculous position for anyone to take.

The history and the statistics simply do not support that it is that bad a condition.

Like you, i do have strong concerns about wage erosion. In the late 90's the concern was wage stagnation. Now, it is truly wage erosion. That's a pretty big problem, i agree. And as wages erode, those at the bottom suffer most. I'm as strong a proponent of increasing the minimum wage to a liveable scale as anyone. In fact, i would argue with any other economist that wage floors do any harm to the economy. That's an old fashioned view and is easily debunked by the history in this country and in Europe.

And, i've been saying right here at DU for 5 years, that NOTHING is as critical to long term economic health than a strong and very large middle class. Wage erosion pushes that segment into a smaller, less powerful position, which is bad for the economy.

Perhaps one would have needed to be part of the other threads to fully understand the nature of the "doom and gloomer's" statements. Most here are trying to suggest that something needs to be done to stop the current stupidity. I don't disagree with that in any way! Not at all! But, there is a difference between promoting a new course to undo the stupidity of the last 5 years and suggesting that we are bound for disaster. The latter is not in the cards, and all i asked for was for someone to demonstrate proof. I guess i'm still waiting.

The Professor

I'd really like to know who you are, but I suspect that you wouldn't say.

I'm resurrecting this a bit late.

First, where i teach is irrelevant. If you don't want to trust my background and past work and research in this matter, that's fine by me.

But, for those of you who replied, civilly, thanks.

Now, let me correct those that clearly still misunderstand. I am NOT saying the economy is in good shape. I made that abundantly clear the first time.

However, i'm strictly talking about those that see the current situation, as badly managed as it's been, as on the precipice.

I see things in this thread about printing $5 trillion dollars. Well, that hasn't happened. That is simply a made-up factoid. The money is borrowed, but that doesn't required new money. It just requires an increase in monetary velocity. If we actually printed that much new money, we'd already be in hyperinflation. On a per person basis, this factoid would represent 3 times the per person money printed by the Brazilians in the early 90's which triggered the worst hyperinflation in modern times. Inflation is a problem right now, but it's light-years from being hyperinflation. Hyperinflation is measured on daily, or at best weekly, basis. The compound rate of inflation annualized is near or greater than 100%. As stupidly as this economy has been managed, we're nowhere close to that.

So, for those who wish to accept that economy is ragged and stagnant, but not in dire straits, you have my opinion. Those who wish to reject it, fine. We will see, what we will see. And yet, nobody was able to provide any technical basis for the opinion that we're on the verge of collapse. If that doesn't describe your POV, then i don't mean you.
The Professor

i sort of see where you are coming from, but i think their will be a crash in housing prices, and i fear this could have broad implications. i hope i am wrong. i see a recession for sure, i just cant figure how deep

Using a statistical model to describe the condition of the economy, shows that 13 or the last 14 quarters are underperforming the 25 year average by at least one standard deviation. That means that 92.5% of the remaining 86 quarters were better! That's a recession to all but the narrowest of conventionalist views.

And, i think we are seeing indications of it's depth. Housing demand is down, interest rates are up, new car sales are off, retail sales at cash are down, etc. etc. etc.

We HAVE to stop borrowing money to run the gov't. Marginal tax rate increases will have a far weaker effect on economic growth than advertised (again looking at historical data) and excessive gov't borrowing has a far greater negative impact than advertised.

The Professor

"Using a statistical model to describe the condition of the economy, shows that 13 or the last 14 quarters are underperforming the 25 year average by at least one standard deviation. That means that 92.5% of the remaining 86 quarters were better! That's a recession to all but the narrowest of conventionalist views."

statistical model means nothing to me, i see every day where people lie with numbers and massage data. im not at all saying you are doing this, i am saying the phrase "statistical model" is an empty phrase without backing it up

I can't publish mathematical models on this forum.

For one thing, they're my personal work and i don't reveal my methodology except to review committees, and then in formal publication. Secondly, i don't know HTML well enough to show equations & graphics, anyway, so even if i wasn't keeping these ideas close to the vest, i couldn't do it.

I'm telling you the results of some of the type of econometric modeling i've been doing for almost 25 years. If that's not good enough, you are free to decide as you please. I can live with that.
The Professor

i have access to every econ journal (i am a 5th year grad student in econ). are you using stata or eviews? you can just copy the variable list into notebook and i think you can cut/paste that into you message

if you dont what to do that, just cite some of your biblio. im not looking to stealk your work, im an experimental type anyway (not macro)

gold always goes up in times of war and economic stress and the trend since the turn of the century is up, especially since the neoCONs.

anyways, if you believe the economy is predicated on the abundant availability of cheap energy, i.e. oil, than the future looks grim for the economy.

barring some new energy discovery that can be implemented on a large scale within a decade the economy is certainly in big trouble and i predict gold will continue it's long term (5years) trend of rising.

:hi:

"The only people who made money were the futures' speculators that fished the chicken littles in."

and if you invest in the stock market etc...