Inflation, deflation, gold and currencies

[vincecate]

Watch out, Vince. The yen has been falling, but that doesn't mean that it
will continue falling, and some analysts think it won't.

It's something about "catching a falling knife."

I thought catching a falling knife was buying while something was falling fast. I am sort of shorting while it is falling fast.

I am not just going with the trend though. I am not a technical trader at all. I am buying the puts for January based on my understanding of hyperinflation, which says that it will fall far further by then. It is a hyperinflation bet where I might make 100 times my money if I am right and I think the odds are far better than 1 in 100 that I am right.

[vincecate]

"Never in the course of history has a country's economy failed because its currency was too strong. It's a pathology that simply does not exist. On the other hand, the list of those ruined by weak currencies is extensive." - Peter Schiff

http://www.321gold.com/editorials/schif ... 52413.html

[vincecate]

From May 10 to May 20 the Bank of Japan increased the base money supply by 2.3%. From Apr 10 to May 20 they have increased by about 9%. My guess is that it is at a faster rate since then as the have been fighting hard to "reduce the volatility". Even without any help from increased velocity of money or reducing GNP this is fast enough to get hyperinflation in the Yen. But these other things will help too. Also, this is headed for a panic/avalanche/death-spiral, so you should expect it to speed up, not slow down.

http://www.bloomberg.com/quote/BJACTOTL:IND

Update: I ended up making a blog post from this post. http://howfiatdies.blogspot.com/2013/05 ... ng-at.html

[vincecate]

"It's a challenge to place contemporary monetary analysis into historical context. After all, we're talking about extraordinary financial and economic innovation; unmatched integration of global economic and financial systems; unprecedented global financial excess and imbalances; experimental central bank doctrine and unprecedented monetary stimulus. It's uncharted waters virtually across the board, which naturally evokes quite divergent views and analytical perspectives. Surging asset markets have largely squelched one side of the debate, while providing a fancy megaphone to the other." - Doug Noland

http://www.safehaven.com/article/29931/kurodas-gambit

[vincecate]

In 10 days from May 20 to May 30th the Japanese central bank increased the money supply by 4.1%.

I think they have started the hyperinflation feedback loops in Japan.

Searching google a bit I can not find anyone else who thinks this is interesting enough to write about. Amazing.

http://www.bloomberg.com/quote/BJACTOTL:IND

The previous 10 days they increased the money supply by 2.3%.

If the next 10 days has more than 4.1% people might start to recognize a trend.

[vincecate]

I must say I am shocked that the Japanese central bank can increase the money supply by 4.1% in 10 days and it seems nobody is even blogging about this but me. I bet the central bankers there are saying, "see 4% did not even cause anyone to bat an eyelash, lets try 6%". It will not end well.

[John]

> I must say I am shocked that the Japanese central bank can
> increase the money supply by 4.1% in 10 days and it seems nobody
> is even blogging about this but me. I bet the central bankers
> there are saying, "see 4% did not even cause anyone to bat an
> eyelash, lets try 6%". It will not end well.

One possible explanation is that the velocity of money in Japan is
even lower than in the U.S. Japan's economic crisis began with the
Nikkei crash in 1990, so they're ten plus years ahead of us on the
crash timeline. The velocity of money in the U.S. has been plummeting
steadily since 2006. I haven't seen the velocity of money figures for
Japan, but one possibility is that in the extra ten plus years they've
had, the velocity of money has fallen much farther. In that case, any
money the BOJ puts out will simply stay in banks or move into stocks,
worsening the existing stock market bubble, and won't affect consumer
price levels.

[vincecate]

> I must say I am shocked that the Japanese central bank can
> increase the money supply by 4.1% in 10 days and it seems nobody
> is even blogging about this but me.

I haven't seen the velocity of money figures for
Japan, but one possibility is that in the extra ten plus years they've
had, the velocity of money has fallen much farther. In that case, any
money the BOJ puts out will simply stay in banks or move into stocks,
worsening the existing stock market bubble, and won't affect consumer
price levels.

Just having a low velocity of money does not do it, the velocity of money has to get lower with each injection of money for prices to stay the same. If they increase the money supply by 4% in 10 days we can assume that the GNP has not changed during this short time, so for prices to stay the same the velocity of money must slow down by another 4%. This would be amazing to me if it happened once. But I think we are in for many weeks of this type of thing. I can't even imagine prices staying steady if this goes on another month or two. Usually when there is such a flood of money the velocity of money goes up, not down. I think Japan has walked off the edge of the cliff but just not looked down yet.

http://en.wikipedia.org/wiki/Equation_of_exchange

[John]

> Just having a low velocity of money does not do it, the velocity
> of money has to get lower with each injection of money for prices
> to stay the same. If they increase the money supply by 4% in 10
> days we can assume that the GNP has not changed during this short
> time, so for prices to stay the same the velocity of money must
> slow down by another 4%.
> http://en.wikipedia.org/wiki/Equation_of_exchange

Right, but that's exactly what I'm saying is happening. In America,
velocity of money has plummeted further and further since 2007, as
we've gone from $60B per year fiscal stimulus to $85B per month
quantitative easing. The velocity of money has more than kept up with
the increases in the money supply, and that's not an accident. This
is generational attitudes and behavior in action.

You can almost smell it in the air -- people are increasingly anxious
and cautious, and that leads directly to a fall in the velocity of
money.

I'm guessing that the same thing has happened in Japan -- that the
velocity of money has fallen precipitously, and is continuing to fall.
In fact, it may be even more pronounced in Japan because of the aging
of the population -- the median age is an incredibly high 45.8 years.
That means that most of the population lived through the 40% Nikkei
crash in the early 1990s. These people are going to have a real
bunker mentality. They're not going to be spending money or pushing
up the cpi.



In your wikipedia page, M is increasing, but V is decreasing
faster.

[gerald]

A breakdown in the precious metals market? - something up?

"Warning for thoses of you storing metals from a 20 year treader in the metals business"

http://www.stevequayle.com/index.php?s=33&d=406

Hello Steve,

Please share this with your fans.

I have been a broker for 20 years. Recently the major broker dealer I work
for asked me and my clients to leave due to too high of a concentration in
physical metals. After 4 months of trying to find a new home for my
business, and being denied by every major broker dealer in the US, I had
not choice but to become and RIA.

After three months of complete BS getting my RIA approved I am now in the
process of moving my clients and metals to the new custodian. Here is
where things get interesting. Every transfer is being rejected multiple
times for the any reason the old major broker dealer can come up with.

More interesting is all of the metals which have variable weights like
1,000 Silver, 100 oz gold and 50oz platinum, when the old broker dealer
finally does transfer the metals to the new custodian, NONE of the bars are
the same in weight or serial number as my clients statements. The old
broker dealer is having to come to me and my clients with bars of different
serial numbers and weight than the one listed on the statements or from
old trade confirms.

This mis-match on transfers proves to me that the old broker deal NEVER had
the metals and are now having to go acquire them to make good on client
transfers. Coincidentally, I was also a broker at Morgan Stanley in 2006
when MS got busted for excessive storage fees and it turned out MS never
owned the metals that were printed on client statements either.

Moral to the story, if you own metals at a major broker dealer, just
because they are printed on your statement, does not mean they exist. I
highly recommend shipping them home, even if they are in a qualified
account. If there too much to take out of a qualified account, transfer
them to a new custodian, for the new custodian will not accept the transfer
without video taping and verifying the move of metals from the storage
depository to the new storage depository.

Last thing, I am 100% for sure that the most of the metals have been
removed from the United States, and when the stock market and bond market
crashes this fall, all metals in private accounts will either not be there,
or confiscated.

Heed this warning people, then end is HERE.