BW - re your 12:19 post on 8 July :
For money supply to increase, something has to be monetised. Only certain assets are allowed to be monetised by US financial institutions.
If oil prices increase, this in itself cannot create an increase in the quantity of dollars. Epstein's argument is that increasing oil prices result in an increase in the operating costs of business, which leads to higher debt levels and consequently higher money supply as the debt is monetised.
In reality, at any given time the supply and demand for all commodities is changing and prices need to change to balance the equation. However, these price changes ( up and down ) should not result in an increase in the money supply beyond an amount which is equal to the rate of real economic growth.
In one of his many contradictions Epstein actually manages to hit on one of the real causes of increasing money supply : the monetisation of debt to pay for the cancerous growth of government.
During the last 12 months we've seen stagnant oil and food prices, and yet the total quantity of dollars has increased by 8% ( another counter to Epstein's case ) . The reason is that the extra dollars have fuelled the inflation of financial assets or found a home overseas courtesy of the trade deficit.
I agree with you that the Fed will try to avoid inflation at all costs. IMHO, those who believe we will see deflation during the next couple of years are under-estimating the ability of the Fed and the US Govt to keep this thing going a bit longer via a massive injection of liquidity.
Regards, Milhouse
Gold is money, it always has been and it probably always will be. To anyone who has some small understanding of monetary history this proposition is so obvious as to be axiomatic. What we have been witnessing in recent years is simply a shift in the ownership of that portion of the above ground stock of gold which is held for monetary purposes. The shift is from governments to private hands, and from the West to the East. The monetary demand for gold in the Middle East and Asia has risen relentlessly and the percentage of the above ground stock which is held by Central Banks has decreased.
The results of the above :
1. An accentuation of the shift of economic power to Asia
2. Significant depreciation of the national currencies which have lost their gold backing ( it is no coincidence that two of the weakest currencies in Europe are those of Belgium and the Netherlands )
3. Increasing impotence of Central Banks to exert any influence on exchange rates
The price of gold may drop further before it goes up, but this has got nothing to do with whether or not gold is money.
Regards, Milhouse
Find out more about Kitco at info@kitco.com, or call 1-800-363-7053.
Copyright © 1996 Kitco Minerals & Metals Inc.
