USAGOLD Discussion - March 1999
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In your post you wrote,
"Now, on the fact that the manifestation of the inflated money supply has been in the paper economy. Back in November I and then Aragorn, pointed out that peoples money is not IN the market. The money went from the buyer to the seller of the stock, and then (or after more cycles of stock market "investment" ) into the "real" economy. So, is there really such a thing as inflation [and money--Aristo] in equities?"
I had shared your and Aragorn's view until this small change in perspective occurred to me just now. What you have said is, and remains, technically correct; nothing is "IN" the stock market--the money passes THROUGH to the seller. But I would suggest we consider this thought too: In a rising or otherwise promising stock market, the seller may tend to sit on the cash from his sale, keeping it as liquid cash, waiting the short while until it is to be reinvested in whatever he feels to be the newest promising stock. Arguably then, Peter (and Aragorn), I would suggest that in this regard someone may suggest (though not technically correct) that much of the nation's excess cash is tied up in the stock market. When stocks are no longer generally viewed as the best form in which to hold or risk one's wealth, this cash in limbo will flow elsewhere. As it chases around real goods, with the seller also spending his cash as quickly as received, the price inflation that everyone questions will become readily apparent to accompany the money supply inflation that has developed over recent years in the U.S.
This is a taste of the blurb I mentioned jotting down.
The dollar is a tired old man from whom we've asked too much. For too long the dollar has had to be all things to all people. Now, it is more important than ever to recognize the several props that became necessary subsequent to the golden legs being cut from under the dollar. Because it can no longer stand alone, enter Bonds on the left and Investments on the right--its crutches.
The modern dollar (following the global inflation of supply from 1930's to 1990's) has utterly lost its monetary capacity as a store of wealth/value, and it retains only the capacity of a medium of exchange.
Think of the cash dollar as spending-money. It is not something to be held for long in its pure form.
Think of Bonds as holding-money, the paper form in which people were intended to engage in "savings"-- to "store the value" of their modern fiat dollar. However, modern trading and speculative practices in the Bond markets has changed this. Volitility in relative values of global currencies (exchange rates) and shifting governmental policies has undermined this "store of value" element of Bonds.
Think of Investments as employing your cash in a career. With an Investment you are putting your money to work for one or more companies in the form of stock shares. This is not without risk! Your money may be injured or killed on the job. It may leave for work one morning and never return home. While it is away at work, you must accept that it is out of your hands entirely. The reason people subject their dollars to this risk is to supplement their own income (two careers are better than one(?)) because of the overall failings of the dollar's (and Bond's) failings as a store of wealth/value.
There would not be near the stressed foreign exchange, bond, and stock markets if all people would see the new dollar for what it is and react accordingly. I offer the solution in the form of a personal gold standard.
Use dollars only as a medium of exchange--that is ALL that they are!!
Stay away from Bonds--they are a false-prophet of value and profit!!
Use Investments in stocks only on that fraction of your wealth that you are willing to risk in a sane market--because sanity WILL RETURN to the markets.
Use Gold to consistently convert all excess monetary wealth. There are more and more people worldwide using this approach as they have already learned the hard lesson from a failed fiat currency. Gold is with only tiny effort a medium of exchange, or "spending-money." Gold is a Rock of Gibraltar form of savings or store-of-wealth/value. Any past manipulation of price is nothing but a GIFT to those who enter the gold standard now. Any manipulation cannot much longer bear up under the current stresses in the systems. For this reason, gold is also right now able to function as the safest of all possible Investments...your money will leave for work in the morning, and return many times multiplied in the evening. Spend what you like ON what you like, and leave the balance as gold.
The dollar is tired. Let him Rest in Peace. ---Aristotle