patrick.net

Conor,

My concern with going long on gold is that it is simply too scarce to be useful as a common currency and has limited industrial uses. If I was going long, I'd rather it would be something tied to energy production or agricultural produces. The value there is a lot more obvious.

I guess there's a small chance of actually going back to the gold standard, that would cause unfathomable deflation issues, but yeah, then $5000 or even $50K per oz might not be excessive. I don't see how any sane government would allow it happen though.

The traditional measure of value was in gold and agricultural land, however, both have significantly declined as a proportion of the total GDP in the 19th and 20th century. I don't see how they can return unless we go back to essentially the 18th century.

Randy H's PA,

Who's gonna be publishing Randy's dark, distopian novel? Or is it gonna be about the happy shiny plastic people now?

I think anyone who uses the phrase "fiat currency" is treated somewhat warily for good reason. The collapse of a currency is generally a Bad Thing and goes hand in hand with collapse of governments. In such cases, being Someplace Else is always better than having gold.

If my last name were St. Germain, or Root, I would consider storing a larger portion of my assets in gold. Most people do not need to preserve wealth over such time scales, and should be able to reposition in time if necessary.

Randy H's PA,

Also, is Mrs. H looking for a personal assistant? I kind of wanted your job :P

Conor,

How much is uranium? Is there anyway to get in on that?

Conor,

Thanks for the link. I'm an interested layman so I can't really evaluate it properly.

However, I did vaguely consider that possibility and that was one of the reasons why I think buying into gold at $670 is a pretty decent bet. If I hold gold, then I have a chance to either sell or hold, if the situation gets dire.

I come from a country that's survived through 200 years of just about every kind of chaotic event there is, so I don't underestimate the possibility for the worst case scenario to come about. However, I think the much more likely scenario is that the fed will be able to control the credit bubble fallout, albeit in a manner that would leave the US significantly poorer.

Back to the health thread: When I was travelling abroad -- I used to do this a few times a year -- I always felt, well, healthier afterwards. The food was better, the ambience conducive to a carefree spirit, and one did more walking just like everyone else.

I think it's all psychological. There is too much of a rat race at all levels in the US society. It even penetrates off-work social life. Since there isn't an explicit codification of class boundaries, most people (if not all) are compelled to jostle for ranks in even the minutest matter. It's so fucking disgusting. China is becoming the same.

Have more cakes. It's just hard to find well-made cakes. Life is good. I regularly, well, almost daily, drink half a bottle of red a night. Sometimes a bottle. Sometimes half a bottle of good Sake. According to that study someone just quoted, I won't die early from drinking.

The best investment one can make right now is paying down his or her debt.

I think most of us here aren't in debt which is why there's so much angst about inflation eating away our hard earned savings. Forget gold, the best investment in Cali in inflationary times is a house. You tax rate stays fixed and you pay back your ridiculous loan with cheaper and cheaper dollars.

If you feel that strongly about inflation, buy a house instead of gold. If you think the tightening cycle will run for a while and perhaps overshoot, hang tight and pray.

Wasn't all that wine drinking protecting the French from the consequences of their cigarette smoking?

FRIFY,

Even if I believe housing was the best long term investment, there will still be much opportunity ahead to pick up bargains from FBs. A little patience may pay off big dividends.

The best investment one can make right now is paying down his or her debt.

Why pay down debt with good fixed interest rate if inflation is on the rise?

possible.

I always contemplate how one can profit from high inflation. The best strategy for a working man (practically every one) is to load up as many houses as possible with a fixed-rate mortgage and pray that he won't get laid off.

The report came out this morning that the college hiring scene is becoming hot again.

Conor,

Good advice. The other part is to maintain a low overhead until the storm blows over. Living close to work and drive efficient vehicles. Live in small and energy efficient quarters. Put off long term charity commitments.

astrid,

thanks a lot for the data, definitely more than what I desire. I've gotta quit blogging over the weekend to munch on the data for a bit.

GC,

Huh? Housing is not an investment. It's a depreciating and asset consuming durable good.

The best thing to do in high inflation? Buy land, lower carrying costs. Buy long term bonds, especially if you think inflation is going to come down in the future.

Conor,

I'm much happier with the 8% inflation figures. Those are nice and understandable. The changes in commodities I don't fully understand (that is, I don't fully grok how they can be consistent with / explained by the rest of the economy). Because of this, I worry that the primary factor controlling the price is market psychology, which is notoriously unstable.

Owneroccupier,

Have fun! Let me know if there's anything else you're looking for. Sorry if I couldn't pull a neat XEU table out of OECD.

People always enjoy paying off their debts with worthless paper. If one can own a few fairly solid items with a year's salary, I'm sure everyone will jump on the opportunity.

The only problem with this scenario is that rarely in the history of mankind did the majority profit. It has always been the tiny minority who profit at the expense of the rest.

But, population-wise US is a minority in this world economy. So, it is possible that US consumers will come out WINNERS, wipe their debts clean, own their McMansions out right, and leave the worthless electronic paper to the bag holders in Asia.

requiem,

On the bright side, there are a lot more money making opportunities in a crazy chaotic world. Maybe I should look into arms dealing...

Conor,

BTW, just checked out wikipedia's take on uranium. Apparently uranium is quite plentiful:

"Owners and operators of U.S. civilian nuclear power reactors purchased from U.S. and foreign suppliers a total of 21,300 tons of uranium deliveries during 2001. The average price paid was $26.39 per kilogram of uranium, a decrease of 16 percent compared with the 1998 price. In year 2001, the U.S. produced 1,018 tons of uranium from 7 mining operations, all of which are west of the Mississippi River.

Uranium is distributed worldwide. Generally, large countries produce more uranium than smaller ones because the worldwide distribution of uranium is very roughly uniform. Canada is the world's largest producer of uranium, with the world's richest deposits in Saskatchewan. Saskatchewan, through three large mines in the Athabasca Basin region, produces over a quarter of the world's uranium. Because of this production, extra capacity, and the close government control of the industry the provincial government plays a central role in setting international uranium prices. Australia also has extensive uranium deposits making up approximately 40% of the world's known uranium reserves. The world's largest single uranium deposit is located at the Olympic Dam Mine in South Australia. [4] [5]

The ultimate supply of uranium is very large. It is estimated that for a ten times increase in price, the supply of uranium that can be economically mined is increased 300 times. See World Uranium Resources.[1]"

I always contemplate how one can profit from high inflation.

When the mass is told to profit from high inflation using gold/silver futures after a huge run-up, we will know that there is a gold bubble.

If you have economist subscription, you can look up an article called "The value of dollar " on Dec 2, 2004.

There is a graph there illustrating the fall of USD value vs two major currencies, Euro (DM as a proxy prior to 1999) and Yen. From 1960 to late 2004 when Euro was roughly at the same level it is now, in a mere 44 year period, USD has devalued around 60% against DM/Euro and 75% against Yen.

Back at the turn of 2004/2005, Economist had a whole feature seires about USD. Anyone who is interested in diversifying away from USD should consider getting that series.

Sir Bernanke will raise the rates and he will bust Au.

But, population-wise US is a minority in this world economy. So, it is possible that US consumers will come out WINNERS, wipe their debts clean, own their McMansions out right, and leave the worthless electronic paper to the bag holders in Asia.

If the IBs/Hedge Funds know this is coming through back channels from DC, the commodities run makes perfect sense. Throw dollars at every asset possible and prepare for the Fed's 3-card monty maneuver.

I'll see you at the gun store. Seriously, this would drive us all back to a barter system here in the states or to using Euro bills for groceries. I suggest it's unlikely that it will get that crazy. It's cheaper to throw the Blue State FBs to the wolves than to overturn the world economy.

I have seen a lot of Au pumping lately. It is disconcerting. Au is a very, very volatile piece of hot charcoal. I am worried that common folks will get burnt. A house is at least something one can live and have babies in.

Owneroccupier,

Thanks. I'll go to a library and make some copies. As I've mentioned, I've never quite forgiven them for their cheap oil prediction and support of BushCo.

Sure, I'll meet you OUTSIDE the gun store. I already took my NRA rifle training class. The instructors, seeing that I was natural sharpshooter, wanted to convince me to partake in their weekly matches. The same happened at my pistol training class a year ago. I said "not interested."

Pop!

Get a scooter or a diesel. Much cheaper and similar efficiency. Even a used Civic can deliver really good mileages.

GC,

Yeah. Except you don't want a wife or kids. So why bother? A house takes a lot more maintenance than storing a couple bars of gold in a bank.

Housing prices are tied up with wages. If wages stagnate while commodities soar, even current price levels will not be sustainable.

http://www.triacom.com/frame.html?http://www.triacom.com/archive/exchange.en.html&en

One always learns something of value or humor everyday. At the NRA course, the chief instrutor mumbled phrases such as

northern aggression
the People's Republic of California
Taxachusettes

Above is a table of the historical exchange rates for the discontinued European currencies including DEM, FrF, ITL etc.

Euro is mainly dominated of DEM, then FrF, other currencies are relatively insignificant in its composition. So if you look back at what happened between 1970 and 1980, that will give you a fairly good sense of how these currencies did in the last troubled period. They *appreciated* against the dollar.

It is always my belief that the last 1980 crisis was a DOLLAR CRISIS in disguise. The run-up on gold, commodities, and foreign currencies were all pointing to one root problem, the world is losing trust in USD as the ultimate store of value. It took Volcker 18.5% rate to restore than credibility. How high is Bernanke willing to go this time, while our mess is much bigger than what Volcker faced?

Owneroccupier,

Very nice! I should have just looked on the web.

FRIFY, what you said about commodity run makes sense. However, I doubt there'll be wide participation in this run. At the meantime, there has to be a solution for the housing debts. Last I checked, US still has the most formidable military in the word and its citizens the most ready to fight. So, other weakling nations will have to suffer this time (again).

But astrid, house = leverage. Au, unless you play in the future's market, is just bars that you have to pay in full for.

Some other observations.

1) The biggest beneficiaries of the USD demise were Germany and Japan last time, they were also the export powerhouses of the world. I believe Japan and Germany still retain the top spots today in terms of value, while China is definitely the volume winner.

2) CAD didn't do that well, which sort of confirmed my hypothesis that its trade reliance on the US put it in a relatively vulnerable situation as we ran into troubles ourselves. Sterling was also a dog, well, sterling is the former life of USD, they went down the decline much earlier than us.

3) Although DEM, FRF, JPY appreciated against the dollar, the upswing was relatively small compared to commodities, oil and gold. In a sense, all of these currencies went into a competitive devaluation against the real assets.

Pop!, in the long run, it is possible that we'll get into high inflation to wipe out the debts, as I have already alluded to. However, Lord Exchequer of USA Bernanke is currently intent on raising rates. We shall see.

There are other reasons why Au may get busted. But they are beyond the scope of this BB.

Actually, the equilibrium price for Au, 25 years ago, was around $400. The $860 high was reached on a wild overshoot.

GC,

The current system is full of moral hazards. Hopefully, a tightening credit market will repair some of these problems.

Also. I'd rather play the futures market and deal with the risk. Buying a big house with a $10K+ property tax and nearly $5K+ other costs is just not worth it, no matter how good the leverage is.

Fixed rate leverage is cool in a hyper-inflation scenario. Otherwise, I can afford to wait, make a little money elsewhere, and then buy a house when the time is right.

GC: At the meantime, there has to be a solution for the housing debts.

Why can't the solution be:

Loser
1) FB (defaults - loses DP, owe taxes on loan forgiveness)
2) Unhedged Banks
3) MBS Buyer (those Asians)

Winners
1) IRS has claim on FBs soul for next 10 years
2) You if you keep your cash safe for the next 2-5 years and can land a 10-20% mortgage for the remaining 50% of the house

How the Great Depression was recorded in history books should be a subject that every high schoo/college history class should teach.

At the height of depression, unemployment rate was 20%. Not much worse than what happened to Germany in the 90's. The society was quite orderly.

Some folks charged that it was FDR's diddling that caused real problems and it was FDR who led US into war, etc., etc., etc., and that Nazi Germany was not entirely responsible for the outbreak of WWII, and that Japan was forced to attack Pearl Harbour, so on and so forth.

Of course, these are just another kind of conspiracy theories and they are inferior to Michael Moore's, if we judge by the box office and Amazon sales figures.