Thursday, 24 November 2011

Hey ho lets go! Why this is not the 1970s

The risk of devaluation (bank holiday) was mentioned by Eric Sprott a couple of days ago.
I concur: devaluation is another version of inflation / deflation both reduce purchasing ability by reducing how much 'real' money is available - purchasing value.

The most pressing risk for an individual IMHO is to get caught with money in the bank only to find it is then worth a fraction of past value relative to other currency.
In conventional economic theory you should hold on to any debt you have on a mortgage in this scenario.
However, inflation of costs will not lead to wage compensation as the increasing energy flows required are not available domestically (US, UK, EU) or for import.
Profit margins on imported oil are inadequate to compete with cheap wages and poor environmental conditions elsewhere.
Historically we could monopolise oil assets of others this is now too expensive to achieve not least due to these countries expansion of an oil fed population.

Assets to be valid must be traded world wide into areas that still have available energy surpluses or pay workers less / produce goods more efficiently like Germany or China.
Worldwide gold / silver prices overall (despite manipulation) increase in some relation to world levels of fiat currency if well below totals due to central bank interventions using computer trading and metal leasing techniques.
Shame as long term unemployed all I can do is hoard a few jars of peanut butter - its the thought that counts - LMAO.

Unlike the 1970's having a large mortgage debt will likely lead to default rather than paying off the mortgage.
High inflation rates lead to high interest rates, look at the price governments have to pay for their debt recently.
Higher rates will suppress the housing market reducing the market value.

This is what should happen given that the West is a net energy importer spending by inflating its currency to fill the gap that can never be filled due to Peak Oil.
Total real money must decline in relation to resources just not linearly due to the buffering effect of inflated fiat currency.

Unless of course TPTB declare a debt Jubilee ;¬) (default), for a variety of reasons that is not going to happen other than by a general collapse of society, well IMHO.

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