Big Brother will do whatever it can to block the average Joe from using his gold.

I think the boomers are going to get shellacked. Most boomers need to get the capital out of their house in order to retire. So houses NEED to get more affordable for young people if they want to see any capital. If houses don’t get cheaper and can’t sell, then boomers will use reverse mortgages… tha will just create inflation.

Many say that boomers will just keep on working but the reality is that over the last few decades, which were good times. 40% of people were FORCED into retirement due to layoffs or sickness. 40% is a HUGE number.

One thing I have noticed is that economists keep on clinging to past theories and forget to merge them with demographics. The boomer numbers have been out there since the 50s yet nearly no one has really incorporated them into their models because of short-termism.

Oil and commodites are still more expensive than they were a few years ago when long term business plans were being done. At one point these higher costs will flow through the system and increase the current cost basis. Companies will just not sell if they can’t break even.

In the end, I guess that is the point: inflation is a policy prescription for solving our entitlement debts. One very smart, post-boomer, hedge fund manager said to me, with a sneer: “The baby-boomers are going to inflate their way out of the national debt. We’ll get screwed.” He’s said to be buying gold and taking possession.

For example, for a decade, we’ll see a focus on the supply until all other variables become overextended. Then for another decade we’ll focus on one of those overextended variables until other ones get overextended. Up to now we’ve seen a focus on taxes, interest rates, money supply…

When you print money it goes into 2 places:
1. Goods and services
2. Assets

So even if the money supply declines (which many would call deflation) you could end up with:
1. Asset inflation on individual assets despite lower aggregate asset valuations (if write-off, destruction or bankruptcies)
2. Higher cost of goods and services (what many call inflation)

And I don’t know if that has ever happened before. If it hasn’t, I can bet some economist will come up with a new theory focusing on a couple of variables.

I just can’t believe deflation can last for very long because that would mean the boomers (55+ are the ones with the money) would have even more money to spend. Considering the dependency ratio is going from 5 workers per retiree to 2/1, I just can’t believe the young people would just fork over their money AND become more productive to benefit an older generation that has not saved enough. It just does not make sense psychologically.

If inflation does not work, we’ll be going through a revolution.

“Each extra dollar added to circulation devalues the dollars already in circulation and contributes to increase in prices.”

I get, and agree with, the first part of your statement, that an increase in the money supply should devalue the existing supply of money already in circulation (i.e., if $10 were already in circulation, adding an additional $10 should in theory lower the value of the first $10 already circulating in the economy). I don’t see, however, the leap you make in the second part of your statement, that the devaluing of money contributes to [an] increase in prices. There has to be demand for goods and services from somewhere/someone using those dollars that are in circulation, new or old. If demand is not there for goods and services from either businesses or consumers, given that access to credit is being dimisnished by banks, how do you see an increase in prices given a higher supply of money that is basically sitting on the banks’ balance sheets?

Note: I’m in the deflationist camp, too.

I personally tend to lie more in the deflation camp and agree the printing press is not big enough.

“It is immediately obvious that the expansion of public shadow money is no match for the massive contraction seen in the private side. In this light, the question of the efficacy of the QE rollout and other public shadow money expansion has a tinge of futility to it, and not just in terms of money supply inflection points. The continued risk aversion by banks means inside money contraction, and not outside money expansion, is the threat. Not just the wilful allowance of rising inflation by policy makers, but, much more relevantly, a recovery in loan creation is needed. ”
http://zerohedge.blogspot.com/2009/05/chasing-shadow-of-money.html

“One of the core macroeconomic themes that Zero Hedge has been expounding on since inception, which mirrors some of the major concerns of David Rosenberg, has been the evaporation of consumer wealth, income and equity as a function of both declining stock and real asset values and persistently high consumer debt. In an economic paper, the San Francisco Federal Reserve confirms that these concerns are not unfounded, and could be the very core of the processes that undermine the administration’s attempts to restore economic growth.

While the administration is doing all it can through various media conduits to imprint the idea that inflation is all but a guaranteed reality at this point, so that consumers begin borrowing at an expansive pace yet again, consumer leveraging is exactly the process that has commenced unwinding, and the obvious impact on the personal saving rate which has been growing at a dramatic pace, has been visible throughout the economy. And as the consumer deleverages additionally, deflation is a certainty, as the combined impact of asset value decline and associated leverage flow through the economy, further depressed prices of goods and services. The four charts below from the Fed’s release strike at the heart of the administration’s faulty attempt to relever the US consumer.”
http://zerohedge.blogspot.com/2009/05/san-francisco-fed-concerned-about.html

According to the Quantity Theory of Money, inflation (growth in prices) is a function of three factors: 1) rate of change in economic output (which has declined in recent months); 2) rate of change in velocity of money (which dropped precipitously in the autumn); 3) rate of change in the money supply (which has increased substantially). Currently, the thinking is that the drop in velocity and the decline in output growth offsets the growth in money supply, leading to low inflation and even threat of deflation. Certainly, a lot of posts here note that banks are holding cash on their balance sheets (low velocity). You also will note that there is a lot of discussion about continued credit weakness with problems such as increase in commercial real estate defaults, which is likely to lead banks to continue hoarding cash to offset potential future losses. When the crisis passes, and the cash starts being lent out, the velocity of money increases, and inflation returns. A way of considering this potential outcome is simple: there is a lot more cash in the economy now than there was last year. Each extra dollar added to circulation devalues the dollars already in circulation and contributes to increase in prices. The Fed has mechanisms for soaking up the excess. However, a significant group of observers believe that the government is incented to allow inflation to increase because doing so is a way of reducing the government debt load, so there will be political resistance to taking steps to reduce the money supply. Others have commented that short terms risks need to be addressed urgently despite the long term risk of inflation. Paul Krugman also made a comment reported in The Economist that “Higher inflation than before the crisis might help” (June 11, 2009). Looking back on history, there was a very significant spike in inflation during the late 1940’s, after WWII ended and the velocity of money grew. After several years, the crisis passed, and we lived well.

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Devalue vs. its debt.