Inflation vs. Deflation debate

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SwissMrs&Pitchfire
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Post by SwissMrs&Pitchfire »

It is imperative that you understand what deflation can and will look like here. Debt will be almost impossible to pay when dollars are scarce and wages depressed further as is the case during deflation. The banks hold less than 1% in reserve. That means that if there were a run on the banks, you would get zilch.

What have we been counseled? To put a few coins away every week. To have a financial reserve. To get out of debt. Sound council.

A lot of people have been lured into thinking that what we will see is HYPER INFLATION, and thus they will be able to pay off their mortgage with all the newly printed Helicopter Ben bills floating around. Be afraid, be very afraid of that error! It will not occur.

Please read and understand the above articles. When you factor in the fundamentals the only case to be made is for Deflation.

Lay aside a financial reserve now!

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SwissMrs&Pitchfire
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Post by SwissMrs&Pitchfire »

FOR THE GOLD BUGS OUT THERE!!!

Your gold will not prosper during deflation. That is why as the Bear Stearns bubbles popped (deflation) gold sank in value and the dollar finally began to rise (something we will see a LOT more of).

Gold is a hedge against a weak dollar and is overbought right now as the vast majority mistakenly fear hyperINflation.

The prophet has not advised us to store gold nor silver but as the pictures in all the recent pamphlets show, money.

Don't believe me, but think about it, research it, understand it, and then act now while you can.

As a general rule you can bet that the vast majority of the populace is wrong, this is the case with economics as well (as we see well illustrated in the bubbles DEFLATING). Don't be fooled into following them, mistakenly believing this is somehow different.

Study it, ponder it, find your peace of mind now!!!

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jbalm
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Post by jbalm »

Deflation can be a wonderful thing if you have savings and no debt. Unfortunately, I cannot claim to be in that position.

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P.E.
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Post by P.E. »

Interesting...I never considered deflation. I think you make some very important points. What is your assesment if China does what she threatend to do? (Dumping our debt back on the open market?)

I already posted a comment somewhere else touching on the topic. I like your comparison to what the Church has been pushing with respects to what may play out.

Would the Fed force deflation to prevent China from selling our debt?

http://www.telegraph.co.uk/money/main.j ... na107a.xml

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SwissMrs&Pitchfire
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Post by SwissMrs&Pitchfire »

Credit IS getting tighter as Aussie stated in another thread. Liquidity (from Greenspan's massive INflation) is drying up. Credits (in 1's and 0's are disappearing as CDO's tank). The deflation is already manifest. Ben just thumbed his nose at it yesterday. (They remind us all the time that he is helicopter Ben, the guy who drops money from the sky. It is engineered to make us believe that he will, so why didn't he even raise rates, let alone start printing? Greenspan was the helicopter guy, Ben came in for a new phase in the plan.)

I am still trying to get my mind settled about China...will get back to you.

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John Adams
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Post by John Adams »

SwissMrs&Pitchfire wrote: Your gold will not prosper during deflation. That is why as the Bear Stearns bubbles popped (deflation) gold sank in value and the dollar finally began to rise (something we will see a LOT more of).

Gold is a hedge against a weak dollar and is overbought right now as the vast majority mistakenly fear hyperINflation.

The prophet has not advised us to store gold nor silver but as the pictures in all the recent pamphlets show, money.

Don't believe me, but think about it, research it, understand it, and then act now while you can.

As a general rule you can bet that the vast majority of the populace is wrong, this is the case with economics as well (as we see well illustrated in the bubbles DEFLATING). Don't be fooled into following them, mistakenly believing this is somehow different.

Study it, ponder it, find your peace of mind now!!!
You are right that gold will go down with everything else initially in a deflationary period and that you definitely don't want debt in a deflationary period. However, at the same time when you refer to the pamphlets about saving money, ultimately gold & silver are still the purest forms of money and after the intial hit, gold & silver could actually still go up in a deflationary economy (especially if people lost faith in the "full faith and credit of the U.S. Government" federal reserve notes).

No one really knows how everything will play out (which therefore requires individual inspiration for our own situation). I would still therefore recommend getting out of debt first and then a diversified approach to your savings (food storage first priority, a few toilet paper federal reserve notes, some gold & silver, etc.)

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John Adams
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Post by John Adams »

It really all goes back to the definition of "money". Currently we're still stuck with those stinking FRN's. Who knows what the future will bring? Anyway, here's a good discussion on the pros & cons of gold in a deflationary economy.

http://www.safehaven.com/showarticle.cfm?id=2925

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SwissMrs&Pitchfire
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Post by SwissMrs&Pitchfire »

Consider this. If you have your food storage, $5000 debt, 2 ounces gold and $1400 in the bank. hyperinflation hits, you stroll to the bank and pull out your money, you can service or pay off your debt easier with all the new money floating around, and all is well. You sell your gold for $2000/ounce (if the government lets you, read confiscation etc...) and have a little money left to buy some of what you want although prices have gone up up up. You have your food storage. The world comes crashing down and you end up in Zion.

Now if hyper deflation hits under the same scenario, you run to the bank and find out that there is no money there (unless it is under your mattress). The FDIC says maybe in time you might recover a fraction of your money once the banks assets sell (into a bad real estate market with low prices and no buyers, no credit). You cannot pay your debt (unless you prepared for deflation by laying up in store). You sell your gold at $300/ounce and pay your current months bills and contemplate the inevitable. You fall farther and farther behind until you voluntarily enter a work agreement with the corporation that bought your debt. You kiss the wife goodbye and ship out for a work camp in the oil fields in Siberia. Or you declare bankruptcy with everyone else. Except that now with foreign corporate control of America, new tougher bankruptcy laws are passed and you are stuck agreeing to the work camps the government is setting up.

As you should be able to see, the Deflation scenario is much scarier, and requires more prudent planning. The gold will only ever be a luxury unless you have debt in which case it is a poor gamble! Remember that debt is denominated in dollars and not gold. We are warned against the spirit of speculation! But putting dollars in a fire-proof safe in your home will meet your needs and obligations head on in either case.

So in short, prepare for either eventuality by getting out of debt and getting food storage (without going further into debt. The brethren have been very clear about not going further into debt for food storage, makes sense under deflation!)

Then if you are able to accomplish that, pick your poison if you feel to invest and lay up in store financial reserves.

And in either case, be you in debt or free, do not trust the banks which immediately cut up your money and send it to the four winds! Do not rely on credit even if you pay it off every month (one month things might change and you might get pinched bad!)

Fractional reserve is no friend to trust!

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SwissMrs&Pitchfire
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Post by SwissMrs&Pitchfire »

The problem I have with gold is that I cannot even use it for toilet paper nor kindle a fire with it (as I can with fed notes). If faith in government is gone, gold will be worthless as the prophesied anarchy will rage immediately and no one will trust gold long in that day!

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SwissMrs&Pitchfire
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Post by SwissMrs&Pitchfire »

To quote from that article you cited:
the idea that gold, at the present time, is an effective hedge against both deflation and inflation. This idea violates the laws of logic because something can't be itself and simultaneously be something else. Or, to put it more aptly, it is not possible for something to be a hedge against one financial outcome and to simultaneously be a hedge against the opposite outcome. What this means is that if you are an investor in gold you cannot avoid taking a position on the inflation/deflation issue. It certainly makes no sense to just buy gold and assume that you are going to be fine regardless of whether we get inflation or deflation.
http://www.safehaven.com/showarticle.cfm?id=2925

If in debt the dollar will always service that debt in either eventuality, but gold is a gamble relative to debt.

As an investment see the above quote and pick your speculation.

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SwissMrs&Pitchfire
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Post by SwissMrs&Pitchfire »

If you were a gadianton conspirator, which would you choose and why? Deflation or Inflation?

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John Adams
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Post by John Adams »

SwissMrs&Pitchfire wrote: If in debt the dollar will always service that debt in either eventuality, but gold is a gamble relative to debt.
I agree. Don't use gold as speculation vs. debt. Get out of debt first, then do your own due diligence on where gold/silver fit as part as your financial reserves.

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John Adams
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Post by John Adams »

SwissMrs&Pitchfire wrote:If you were a gadianton conspirator, which would you choose and why? Deflation or Inflation?
Inflation as long as possible (as long as the masses don't understand that it's happening), and then deflation. Where are we now?

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jbalm
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Post by jbalm »

If you were a gadianton conspirator, which would you choose and why? Deflation or Inflation?
Interesting question.

The obvious answer seems to be deflation. U.S. debt, private and public, is at an all time high. Deflation seems to be the quickest way to do the most damage.

On the other hand, inflation, along with the corresponding weakening of the dollar, causes the single most important commodity, oil, to be increasingly difficult for American's to obtain. That could be more devastating to the lower and middle classes while less damaging to the elites.

I would guess that China will be a large factor in determining if we have inflation or deflation. I suspect that some of the Fed's current actions are attempts to counter some Chinese threats.

Of course, I'm not an economist.

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John Adams
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Post by John Adams »

SwissMrs&Pitchfire wrote: I am still trying to get my mind settled about China...will get back to you.
This is where the Gadianton's always run into issues - whenever they think they're ready to take over the world, someone else wants power too.

It's fun to try and guess what's going on, but I'm sure there is continual infighting even amongst supposed coordinating Gadianton factions.

Again, I would think that ultimately deflation after inflation would cause the most damage, but can the various factions agree on timing (e.g., U.S. faction might want to do it soon, but the China faction might want to wait and vice versa--assuming they actually still are even working together at this point)?

Again, fun stuff to guess about, but ultimately it's back to the scriptures for me.

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SwissMrs&Pitchfire
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Post by SwissMrs&Pitchfire »

Where are we now?
I'm glad you asked!

Read this one! (click on the link there too)

http://www.lewrockwell.com/north/north557.html

The fed has actually been dramatically deflating real dollars it seems in order to combat the massive inflation of credit that created the bubbles we see.

News to many I am sure!!!

Given that and given the credit contraction that is underway and likely to get much much worse (if you cannot pay for your house who is going to give you a car loan either, or a credit card if credit defaults spread? I believe they will spread!!!)

I would say that we are a little ways into a deflationary period that will prove very ugly.

If we can see it now (and i hope that others eyes will be opened to it), we are either being lied to (by those who publish the various stats, the fed and the new M3 predictors, or Mish and the M' predictor etc...) or the cat is very much out of the bag. I very much think that the cat is out of the bag.

The fed has known and seen it for a long time (hence the monetary tightening) but they have not bothered to say anything about it, that is protectionist or deceitful or both! Who else knows and how have they (and will they) react?

But my answer is that we just went through a period of massive bubble creating inflation and are now seeing the pendulum swing the other way with a lot of momentum!

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SwissMrs&Pitchfire
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Post by SwissMrs&Pitchfire »

Given that understanding, China dumping it's reserves would prove a great normalizer and boon to us all, please do! But they are not stupid. Perhaps they are saying one thing and (for the most part) doing another. (Which is anecdotally what Cramer admitted to doing as a trader). China stands to be the big winner in deflation! Don't think that they do not know it either. Look for them to push for deflation then!

Dumping their dollars is suicidal whereas influencing credit availability and leveraging (manipulating) our monetary policy is their cash cow (literally).

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SwissMrs&Pitchfire
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Post by SwissMrs&Pitchfire »

Then... when their dollars are worth something and are sufficient only to normalize our monetary base, look for them to buy us all lock, stock, and barrel! And thus cometh the bondage...

Wormwood
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Post by Wormwood »

why I'm a gold bug

The Saints have been advised to pay their own way and maintain a cash reserve. Recent history has demonstrated that in difficult days it is reserves with intrinsic value that are of most worth, rather than reserves, the value of which may be destroyed through inflation. It is well to remember that continued government deficits cause inflation; inflation is used as an excuse for ineffective price controls; price controls lead to shortages; artificial shortages inevitably are used as an excuse to implement rationing.

But.... same talk

When will we learn these basic economic principles? However, “… when we really get into hard times,” said President Clark, “where food is scarce or there is none at all, and so with clothing and shelter, money may be no good for there may be nothing to buy, and you cannot eat money, you cannot get enough of it together to burn to keep warm, and you cannot wear it.” (Church News, November 21, 1953, p. 4.)

Check list

“First, and above and beyond everything else, let us live righteously

check, as best I can in this wicked country

“Let us avoid debt as we would avoid a plague; where we are now in debt, let us get out of debt; if not today, then tomorrow

done

Let us straitly and strictly live within our incomes, and save a little

check done

Let every head of every household see to it that he has on hand enough food and clothing, and, where possible, fuel also, for at least a year ahead

check done

You of small means put your money in foodstuffs and wearing apparel, not in stocks and bonds

check done

Let every head of every household aim to own his own home, free from mortgage. Let every man who has a garden spot, garden it; every man who owns a farm, farm it.” (Conference Report, April 1937, p. 26.)

check done

last is gold/silver/cash

Ezra Taft Benson, “Prepare Ye,” Ensign, Jan 1974, 68

http://www.lds.org/portal/site/LDSOrg/m ... &hideNav=1

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SwissMrs&Pitchfire
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Post by SwissMrs&Pitchfire »

I applaud your wisdom.

For those not so prepared,
Build a Reserve


Gradually build a financial reserve, and use it for emergencies only. If you save a little money regularly, you will be surprised how much accumulates over time.

President Gordon B. Hinckley

Image

President Gordon B. Hinckley has taught: “Set your houses in order. If you have paid your debts, if you have a reserve, even though it be small, then should storms howl about your head, you will have shelter for your wives and children and peace in your hearts” ("To the Boys and to the Men," Ensign, Nov. 1998, 54).

Image

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cjex
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Post by cjex »

This topic (debt) above all other strikes fear in my heart... I have just finished 8 years of school and even though I stand to produce a large income 2-3 years from now I make very little as of now and I have an Incredibly large student loan. I lived my life before school debt free, bought cars cash, paid credit cards off monthly. but now with 100 times my bi-weekly income in debt Im not sure what to do.... do I have time to pay it off? Or should I at least buy some sweet boots for the labor camp?

Proud 2b Peculiar
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Post by Proud 2b Peculiar »

Our only hope to be able to get out of debt and own our home is to sell our land and sell our house and get something less.

So far, that is not going so well. We need $9200 for the land and the offers have been $5500 at the highest, for 1.3 acres.

We need the land to sell so we can afford to do the repairs to this house so we can sell it, and get into something less. (We will need $88,000 to get out of this one)

I have student loans that total $3050 and my husband has $1400.

We barely cover what we need to cover and every few months get church assistance. The (our leaders) don't think we can cut back on the house or the car, and I feel like it is the only way.

I am still open to any ideas anyone has.

Also, we have $25000 in medical debt, that they have said they will settle for $10000 and our car is $19000.

We have been told to file a BK but I couldn't if I wanted to until May 2008, and frankly, I don't want to. I want to be honest and pay my debts.

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John Adams
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Post by John Adams »

SwissMrs&Pitchfire wrote:
Where are we now?
I'm glad you asked!

Read this one! (click on the link there too)

http://www.lewrockwell.com/north/north557.html

The fed has actually been dramatically deflating real dollars it seems in order to combat the massive inflation of credit that created the bubbles we see.

News to many I am sure!!!

Given that and given the credit contraction that is underway and likely to get much much worse (if you cannot pay for your house who is going to give you a car loan either, or a credit card if credit defaults spread? I believe they will spread!!!)

I would say that we are a little ways into a deflationary period that will prove very ugly.

If we can see it now (and i hope that others eyes will be opened to it), we are either being lied to (by those who publish the various stats, the fed and the new M3 predictors, or Mish and the M' predictor etc...) or the cat is very much out of the bag. I very much think that the cat is out of the bag.

The fed has known and seen it for a long time (hence the monetary tightening) but they have not bothered to say anything about it, that is protectionist or deceitful or both! Who else knows and how have they (and will they) react?

But my answer is that we just went through a period of massive bubble creating inflation and are now seeing the pendulum swing the other way with a lot of momentum!
Do you ever go to dailyreckoning.com? There was an article there recently (I can't find it right now), talking about how the outstanding Federal Reserve Credit grew in huge amounts from the late 90s through the end of 2006 (easy money & inflationary growth) and then in the last 9 months it has held relatively stable (i.e., no longer increasing money supply, no longer causing inflation, and letting deflation from mortgage industry collapse come into play). However, then just this past week they started increasing the Credit line again, so your guess is as good as mine.

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SwissMrs&Pitchfire
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Post by SwissMrs&Pitchfire »

Do you ever go to dailyreckoning.com?
Not on any regular basis. It is sad that the fed has to hold it's cards so close. It should be a very open process.
I have student loans that total $3050 and my husband has $1400.
Charity and Cjex, have you put the loans in deferment? You can defer them indefinitely if you are not making enough. At least that way you can take care of any essentials (like good camp shoes!)

Honestly, the brethren have stated repeatedly that debt for schooling is acceptable and I would place faith in their words. Perhaps D&C 72:13 will come into play in the future. D&C 111:5 may also be a comfort.

The Lord worked miracles in relation to debt in the early church and will again to those who live by faith. In another instance the opportunity to lend oneself out of bondage was mentioned. Perhaps if you have some physical cash savings and we do actually see Hyper-deflation, that money will be worth a sufficient ammount to bargain with your creditors who will be facing massive defaults with almost all other customers. In that way you may lend your way out of debt as the scripture relates in 104:82-84.

Go forward with faith, it will all work out. Sufficient unto the day is the evil thereof. In other words don't worry about it, the birds take no thought of the morrow and the Lord cares for them, are thou not much better than they? Yet will He not forget thee. The promises are great and hence our worries should be few.

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