~ ~ ~ Yeah, but how about in times of negative interest rates where rates are falling making real rates more negative?
Negative interest rates are derived by subtracting the the true rate of inflation from the 3 month treasury rate of a given currency. Shadowstats.com calculates inflation rates as they were done in the 1980’s prior to the government getting creative and changing things. As rates fall, the rates become more negative, which in part represent the seeds from which inflation will later be sewn.
“ During deflation, everything is liquidated, which drives in turn drives the price of gold lower. “
~ ~ ~ Are you sure that is true? Can you give an example with a chart of Gold in such a period?
Gold and silver are political metals and have been fixed in price for most of the past 500 years. In 1929-1932, that was the period of deflation and after that prices remained low. The government “fixed” the price of gold before revaluing it, so this creates a “foggy” patch of history. Given the huge losses created by the frational reserve banking system we have created, everyone could wake up tomorrow and have absolutely nothing…the financial landscape would cease to exist and bartering would become the economic model for the next while. Who would have claim to land etc. would become questionable and all civil order would degrade. No government is going to allow this to happen, so at best, rather than hyperinflation the US gov/FED simply plugs the dike and adds money as fast as it disappears. Do not forget the transfer of USD for oil and other countries with a PEG to the dollar….both represent inflation by expansion of USD through other mechanisms. If the US were to be allowed to enter a period of deflation, there would be nothing left and the above would come to fruition. No government will go for that so they will print their way out of it. In the end, those with gold and silver will have the best chances in the next currency regime because it will be directly transferable for a set amount. If we had deflation in the true sense, there would be a constant source of gold and silver popping up on the market excluding sources from Central Banks, so the price would spike lower….
~ ~ ~ I certainly agree with most of what you have said, but…………I am a bit unclear in what you have said, here. “Credt?” I think M3 is M2, plus some credit issues that might function as money………if memory serves. Is it possible that this also includes the expanding derivatives, themselves? Is the creation of derivatives inflationary?\
Expanding derivatives is indeed inflationary because it keeps on adding layers to the onion that is only going to result in a lot more crying later on. The core is bad and it will eventually hit the outer layers, no matter how fast they are added. As the layers expand, it takes more and more to cover each prior layer…this delays the onset of deflation and creates a short-term inflationary period which requires another layer to be added in the not too distant future. Not only this, we still have to go through the psychological phases to indicate that this bull market in gold and silver is over… In the end, the derivative problem will be deflationary, but for now it provides a cushion to the inflationary environment.
SB
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