patrick.net

"If that was the case, a quart of milk would have been beyond reach for the common man years ago."

Totally unsubstantiated. But yes, a gallon of milk will continue to get more expensive

"A median income earner can afford rent, food, a car, clothing, and luxury items. Wages and prices can never be decoupled. Eventually they must equilibrate."

Zimbabwe and every other inflationary collapse proved this statement to be entirely false. They only equilibration after the currency that was debased becomes no more and new one is introduced.

theoakman says

Zimbabwe and every other inflationary collapse proved this statement to be entirely false.

Comparing the #1 economy with Zimbabwe or Weimar Germany is NOT constructive towards understanding the dynamics at play here.

I don't have all the answer and I don't even know what questions to ask.

BUT, I do know that Japan 1990-now is a better model of what's going on here than Zimbabwe.

This nation is both immensely wealthy and immensely poor. The next decade is going to be most interesting and I don't think ANYONE on the planet has a single clue as to how it's going to turn out.

US Constituition Article 1 Section 10

Section 10. No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.

The "US Dollars" are actually Federal Reserve (a private entity) notes.

patientrenter- THANK YOU for all this info, it's very eye opening!

Section 10 further states -

No state shall, without the consent of Congress, lay any duty of tonnage, keep troops, or ships of war in time of peace, enter into any agreement or compact with another state, or with a foreign power, or engage in war, unless actually invaded, or in such imminent danger as will not admit of delay

US Constituition Article 1 Section 10

Section 10. No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.

OK, do you see the word "state" here? This doesn't proscribe the Federal government from making anything but gold and silver coin a tender in payment of debts.

So, our Federal Reserve system isn't unconstitutional. Only states are prohibited from creating an alternate form of currency. So, try again...

Section 10 further states -

No state shall, without the consent of Congress, lay any duty of tonnage, keep troops, or ships of war in time of peace, enter into any agreement or compact with another state, or with a foreign power, or engage in war, unless actually invaded, or in such imminent danger as will not admit of delay

Again, the word here is "state." California cannot do any of these things. The power to do these things rests only with the Federal Government. Article 1 Section 10 is needed to keep these states united in purpose, cause, and action. It gives the Federal Government central planning power because it takes away functions normally reserved for nations away from the states, which aren't individual nations under our Federal Government.

So, what's your point?

simchaland,

you wanna cite the Constitution, how about looking up its definition for treason.

"Leaders" finance, including those who don't have any of their own kids serving in Iraq nor Afghanistan, have done a lot to damage our economy, arguably more damage to the economy than Al-Queda has done.

elvis says

I disagree for the stated reason above: Government can print unlimited amounts of money (having nothing to do with goods and services)…but can’t “print” unlimited amounts of gold.

Gold absolutely can and has been created in a lab, and (like most precious metals) is a byproduct of nuclear reactions. Gold can also be produced from various gold containing materials (say, colloidal gold) which are not included in usual figures for the world supply of "gold".

Aside from that -- gold deposits are found routinely and can give arbitrary wealth to countries that produce nothing but the gold itself.

Now, all natural resources do have inherent value -- gold included -- but giving gold an artificial value that grossly overstates its inherent benefits to society is illogical.

"Gold absolutely can and has been created in a lab, and (like most precious metals) is a byproduct of nuclear reactions. Gold can also be produced from various gold containing materials (say, colloidal gold) which are not included in usual figures for the world supply of “gold”."

Ok, well the amount of money that you have to put in to create a gold atom is in the tens of billions of dollars. From that, you get a few gold atoms. 1 problem...the starting atoms were platinum. You are already operating at a loss. You aren't making a case for the devaluation of gold.

Actually, the euro should be going through some of these tests within the next few years. We should see how it's going to play out in countries like Italy. They can no longer devalue their money because the Euro. The Euro in that sense is the same as gold. They can't print more, so they need to dig themselves out. We'll see how they do it! And see if it's a better path than the one we're on!

s&p is made up of market leaders, who should represent what the s&p stands for. Over time, it would be expect if you were buying into A, and it went down, that you would be shifting your wealth into a better company. Simply look at warren buffet. He's done exceptionally well. Stocks work, they can go to zero unlike gold.

Holding gold for 40 years, even though 20 of those are good isn't great. Sure we lost a decade in housing, but over the last 40 years, it's probably been a fantastic investment. 40 years of stocks, again pretty good. 40 years is a long time. I'm guessing gold would have been the worst. of these.

"Holding gold for 40 years, even though 20 of those are good isn’t great. Sure we lost a decade in housing, but over the last 40 years, it’s probably been a fantastic investment. 40 years of stocks, again pretty good. 40 years is a long time. I’m guessing gold would have been the worst. of these."

You sure about that one? Gold was $35 an oz 40 years ago. It's gained 3200% since then. The Dow was 667 at around the same time.

thunderlips11 says

Nomo - CNBC, Money Magazine, Fidelity Investments, the Wall Street Journal, etc. etc. etc. are mostly interested in selling you stocks, the occasional bond, and other paper investments… NAR always pumps up Housing

I think that's the point. You obviously aren't going to go buy a house because the NAR says "it's a great time to buy", just as you shouldn't believe what a website says that's devoted to selling you gold...
thunderlips11 says

The Stock Market is like a teacher who throws out all your failing grades and only counts the passing ones

Not really--you are describing survivorship bias which is really more applicable to mutual funds. The S&P 500 does alter it's portfolio based on market cap, but it doesn't throw away the results of the delisted stocks. If Montgomery Ward was in the S&P 500 in 1970, the results for 1970 reflect the gain or loss of it. So, it doesn't throw out any failing grades.... Anyone can match the S&P 500 results simply by buying those stocks and adjusting their portfolio whenever the index does.

One point seems clear to me anyway.

Gold is a much better investment today than housing. The government is in hyperdrive manipulating the housing market higher. The government cannot continue like this and housing must fall in relation to gold.

thunderlips11 says

In the past 40 years, it’s about 2 good decades for gold, and 2 for stocks. 50%/50%. That’s a lot different than the dominant financial media’s take on stocks v. gold.

Its not an investment. Its speculation on price. Stocks can pay dividends which provide income stream during retirement which is why its wiser to hold stock. Whats the annual cash dividend from holding gold ?

thomas.wong87 says

thunderlips11 says

In the past 40 years, it’s about 2 good decades for gold, and 2 for stocks. 50%/50%. That’s a lot different than the dominant financial media’s take on stocks v. gold.

Its not an investment. Its speculation on price. Stocks can pay dividends which provide income stream during retirement which is why its wiser to hold stock. Whats the annual cash dividend from holding gold ?

At present all investments are so starved for yield that the dividend does not really matter. Gold will hold value with interests rates this low. It is the value of the dollar that is at risk. When interest rates get towards 20%, that is the time to sell gold and silver. And if the government keeps acting this recklessly I suspect we will get there.

thunderlips11 says

So If I brought the S&P 500, one of each stock, commission free, in 1970, and sold it in 2000, Montgomery Ward and NY Penn Central would have been part of it - and worth $0. They wouldn’t have been replaced by anything since you brought the 1970 index and held it for 30 years with no adjustment. No rotation - when a company fails, it’s $0 and replaced with nothing. Media reporting doesn’t take that into account.

They don't take it into account because it wasn't part of the index after it was sold. They are reporting the index. But, you can look at the Wilshire 5000 or other total stock market indexes if you want a more representative result of the entire market. Those numbers are readily available....

No problem-but after 1970 you no longer have the index then. You have a bunch of stocks that were in the index in 1970....

thunderlips11 says

Okay, so if I drop the Detroit Tigers from MLB every year their standings fall below .400, replace them with the best Minor League team, and then give the average performance of all teams in MLB, isn’t that a misleading statistic?

No. Because you don't use any minor league stats. You only use the stats of the new team once it enters the major league. So the stats of Detroit stay in the calculations for every year it was in the majors. Regardless of what the team names or city affiliations are, anything that takes place in the major leagues gets reported as major league stats.

Just like the S&P 500. It is billed as the top 500 companies--so as companies grow or shrink it is only natural that the index will adjust. It doesn't mean it will be the top 500 performing stocks--it never is. Just that it represents large cap stocks...

OK--not sure I understand how it relates to a failing grade, but you're right about not including fees. Although nowadays with $12.95 commissions, I'm not sure it will make a whole lot of difference in the returns. Taxes, however, now that's a different story.

Picking gold prices when they're at their lows, is like picking stock prices when they're at their lows and comparing with them at their highs. Pick gold in the late 1970's and compare it with gold prices in 2000. Then compare stocks for that time period.

Picking microsoft when it was in the 1980's price range would be great, better if you picked it at it's very lowest low. Using the gains on that stock to compare with it's current trading, would show great results too. Way better than gold.

Gold is great if you pick it up at the lows. Today it's not at the lows, it's at all time highs. Saying now is a great time to buy, is like saying look at gold in late 70's when it was $800 oz! When it was $35oz it was good. By $800oz? A gain of 50% from 1980-2010 is horrible investment!

With any investment, you should watch it. Even if it's gold. If you're watching a stock tank, you shouldn't be involved in it. You should change your investments at that point. Granted holding gold is much easier, as there aren't any options with it. It can't go to 0. There is only "gold", not 9000 stocks to pick from. You have no options other than to buy or sell it. Once you do that, you're "out" of that game, and need to invest somewhere else. Sell a stock and you can jump right back in with another stock.

One reason I say buying a house is good for most people as a retirement investment, is that it won't go to 0. Like gold. It's done pretty well over the past few thousand years, like gold. It doesn't require major money management skills to keep it from going to 0, like gold.

Bonuses for owning land? It pays "dividends" after 30 years -- no rent, gold doesn't. Once you sell all of your gold, you're done, you're rent payment still needs to go out every month though. It can't be liquidated easily, gold can be. Why is that good? Well the sheer number of cons and get rich schemes are shut down when you can't get to that money easily. (That barrier has been brought down a bit with all the re-financing available, but it's still a small wall to climb over for most people.)

"Picking gold prices when they’re at their lows, is like picking stock prices when they’re at their lows and comparing with them at their highs."

You're the one who said 40 years ago. You picked the low.

"Saying now is a great time to buy, is like saying look at gold in late 70’s when it was $800 oz! "

Adjusted for inflation, gold would have to be over $2000 for you to compare it to it's price at $800.

"By $800oz? A gain of 50% from 1980-2010 is horrible investment! "

You had about a 12 minute window to buy gold at it's high in 1980. Funny how you scream about picking the lows when you are fixated on a 1980's price that required interest rates at 20% to stop the price increases. The Fed isn't in a position to do that again. You are just rehashing the same arguments that were debunked tirelessly on the old patrick.net boards when gold was hovering around $700. The fundamentals haven't changed. Some of us cleaned up with Gold and Silver. Others constantly said it's too early to buy gold. Others continually mocked us. What I know is this. Anyone who took a large position in gold well before this economic collapse never lost a dime and is still up a few 100%.

I find it laughable that Gold can hit $1220 a year after the worst deleveraging we've seen in our lifetimes and people still refuse to believe it's a good asset to own. Tell me...what's performed better?

Granted, picking the highs and lows is impossible. But if you retire at a low, and you own gold or stocks, you could be screwed. With a property, you're still int he same position, either paying for a mortgage, or done with it. If you needed to pull a bunch of gold/stocks out for 5-10 years at a "low", you could really diminish your savings.

I'm not fixated on any specific time, but it should be figured in.

Anyone who took a position in cash and then bought back in when the stock market hit bottom, made a real killing.

Gold could keep going up, but since it's not really tied to a currency it's really about supply and demand. If people become "comfortable" with the economy, they'll dump gold. If they stay worried, they'll continue pushing prices further.

I'm not planning on holding gold for 40 years. I'm waiting until I hear no more of this "Gold can't eat it, can't use it" talk. Then I'll sell. I would imagine it is going to take a price well north of $2000 for that to happen.

There's nothing in the economy for people to be comfortable with. The US government is already hitting the crossroad in which their tax revenues are collapsing. What's their response? Increase the size of government by 100%. It's on a few years at best before they 100% rely on the printing press to cover their debts and pay for their spending. There will be no phony recovery. The American consumer is fully exhausted.

Btw...I didn't just buy gold. I bought Silver & Mining stocks last November as well. I also bought into petroleum heavily in December near the bottom. I'm sure at least one person from the old board would vouch for me.

Pkennedy,
I think your post is right on the marko ( pun intended ) In my opinion, I think Gold is in for a serious dip in the short term. So many ads and salespitches while it is spiking is going to intrigue alot of sheep to come and buy. Then the big holders dump for profits and the sheep are left holding a bag which they dump too late. I own some gold but I am not buying any right now. All the ads talking about $2000.00 an ounce are a bit far-fetched in the short run. In the long run - probably at $2000.00 some day.

"Full of crap" qualifies as impolite.

Don't make me delete stuff. I don't like to, but I will if that's what it takes to keep things civil.

elvis says

I disagree for the stated reason above: Government can print unlimited amounts of money (having nothing to do with goods and services)…but can’t “print” unlimited amounts of gold.

No, but the government can BORROW money which would then allow it to spend more than it has. At some point that money has to be paid back which would require that the govt then raise taxes. So at the end of the day, its citizen's purchasing power has been reduced, same as with inflation. I agree that this way makes it more "real" to the citizens and they might be more watchful of government spending but you're naive if you think a gold standard will stop the govt from deficit spending.

"I agree that this way makes it more “real” to the citizens and they might be more watchful of government spending but you’re naive if you think a gold standard will stop the govt from deficit spending."

Gold standards effectively did squash deficit spending because governments weren't able to politically justify their tax increases without getting ousted from office. Through inflation and an unofficial abandonment of the gold standard (printing money), they were able to run deficits without increasing taxes. The only problem is, whenever they attempted this, they kept the price of gold fixed to the currency (basically price fixing) and the public (or marketplace) makes a huge run on gold because you can buy it with devalued currency. It already happened twice last century. In 1971, the US stopped playing the price fixing game and simply ended the convertibility between the dollar and its gold reserves.

By and large, the gold standard is history's greatest and most effective example of a restriction on government spending. On the other side of the coin, fiat money has always been histories greatest and most disastrous example of putting no limit on government spending. No civilization has discovered a better way to keep governments in check than gold and silver. Our experiment with Ben Bernanke is going to end very very badly.

In 1944 at Bretton Woods, the U.S. Dollar was declared to be the world's reserve currency for the rest of the civilized world. Unlike the other currencies, the U.S. Dollar was backed by GOLD, which in effect also kept the world's currencies on the gold standard. Any foreign country that held gold was able to exchange (at any Federal Reserve branch, or, at the U.S. Treasury) the stated amount of gold for U.S. Dollars. Nixon closed the gold window in 1971 which basically took the world's currencies, and of course the U.S. Dollar off of what remained of the gold standard. We now have purely a fiat paper money currency backed by a promise to pay a promise based on a promise. Sound confusing? It's meant to be. Without the gold standard, governments are allowed to inflate (print) the currency in order to provide for what appears to be free services to the people and hence increase their popularity and power with the people. Unfortunately, indiscriminate printng of money always leads to the same end; the destruction of the currency. This is exactly what Adolph Hitler did when he practiced inflationary economics, i.e., spending money he didn't have, to create jobs via massive public works programs such as the building of the Autobahn. Study this period of German history and you'll see this is exactly what our government has been doing since FDR. If that doesn't frighten you, nothing will.

RayAmerica says

If that doesn’t frighten you, nothing will.

It doesn't frighten me. Because you don't understand how the world markets work.

tatupu I guess I need to "understand" that printing an endless supply of paper money is the road to lasting prosperity. Now I understand how the world markets work. LOL

RayAmerica says

tatupu I guess I need to “understand” that printing an endless supply of paper money is the road to lasting prosperity. Now I understand how the world markets work. LOL

Huh, I don't remember saying that "printing an endless supply of paper money is the road to lasting prosperity". Because it's obviously not. Adding liquidity to an economy undergoing a credit crunch, however, does seem to be prudent.

Please save the scare tactics for somewhere else...

tatupu "Adding liquidity to an economy undergoing a credit crunch, however, does seem to be prudent.

Please save the scare tactics for somewhere else…"

What you don't realize is that we are in the mess we're in because of EXCESS credit (easy money policies) which undermined the entire economic system. Adding credit into a credit bubble is not the answer. By the way, I'm not using "scare tactics" as you claim, but simply stating my opinions seasoned with facts. Save your accusations of scare tactics for someone else.

RayAmerica says

What you don’t realize is that we are in the mess we’re in because of EXCESS credit (easy money policies) which undermined the entire economic system. Adding credit into a credit bubble is not the answer. By the way, I’m not using “scare tactics” as you claim, but simply stating my opinions seasoned with facts. Save your accusations of scare tactics for someone else.

Actually, I do realize it (although I think the cause was more due to poor understanding of risk/reduced lending standards rather than excess credit). But, regardless of why we got into the situation we were/are in, the fact remains that it was/is a credit crunch. In order to combat it, more liquidity was needed. Businesses couldn't get working capital to meet payroll, for gods sake... You would rather they go under and more people lose their jobs?
You don't consider this line to be a scare tactic? "If that doesn’t frighten you, nothing will."

tatupu Excess easy credit created the housing bubble. Adding more air to the bubble accomplishes exactly what ?? Please be specific to the housing bubble segment of the economy when answering. The first time homebuyer tax credit is nothing other than an artificial pump into the bubble. What happens when that air, i.e. tax credit disappears??

Ray--

I thought I was pretty clear in my previous post. Liquidity allows companies to make payroll, have capital budgets, hire new people. Corporate America depends on the availability of short term credit for their operations.

Who cares about the first time homebuyer credit? That's a drop in the ocean. I have no idea what will happen when it expires--maybe home prices will drop, maybe the economy will have picked up and enough demand will have returned to keep prices steady. Hard to say. But, your previous post that I responded to had nothing to do with the housing credit--where did that come from?

tatupu70 says

maybe the economy will have picked up and enough demand will have returned to keep prices steady.

are you serious? do you actually believe that home prices will stay steady when all this stimulus goes away. where are the jobs? home prices will be steady when unemployment is not over or near 10%... and we're looking at years down the road. printing money out of thin air will not solve our problems, it'll just eventually make our dollar useless.

@crash--

Wow, nice editing job there. If you would have included the first half of my statement it included this line

tatupu70 says

I have no idea what will happen when it expires–maybe home prices will drop,

Does that help?

With all the advertising and mainstream gold coverage I've seen lately, it seems like a pretty safe bet to run like hell and and wait for the correction.