Inflation & Population are Key Factors.
Question: If government created even electronic money for its expenses, wouldn’ that be inflationary?
Answer: Not necessarily.
“inflation” is really the depreciation in the purchasing power of the currency. There is a whole other dimension that is overlooked – money supply relative to the population.
DEFLATION will occur if you had a fixed money supply that never increased in proportion to the population growth. If you have $100 and a population of just 10 people, then the per capita money supply is $10. If yoy do not increase the money supply keeping it fixed at $100 by the population is now 20, then deflation emerges (assets decline currency rises) since the per capita money supply is then $5 instead of $10.
INFLATION unfolds if you still have 10 people by the money supply increased to $200 for then you have a per capita money supply of $20.
Population increases and decreases are absent from the normal economic model. This is a huge mistake. The birth rate DECLINES as a society prospers for the people no longer need large families as the safety net for the future. This sets the stage for the economic contraction on a grand scale.
Here is the chart of the population of Rome itself. It peaked with Marcus Aurelius in 180AD. Thereafter, the crises began and the population declined. The debt per capita kept rising and with it taxation. This became a vicious circle chasing more and more people out of Rome.
Therefore, simply increasing the money supply in proportion to the increase in population is not inflationary. However, whenever the money supply growth EXCEEDS population growth, there is an economic contraction. You can then hedge the inflation with assets from gold to stocks. That is call a FREE MARKET and the most important thing is we restore freedome with none of this “papers please” nonsense.
Gold – To Buy or Not To Buy
Gold is still in a basing phase. The interesting thing is how some have sold this market as the single exception to everything in the world and how it can only rise. Gold is a tiny fraction within the scheme of the global economy. It really is no longer relevant for in case you haven’t noticed, they have successfully replaced even paper with electronic bits of data – ie Bitcoin. This changes everything and eliminates privacy.
Nonetheless, all is not lost. It is important to at least understand the nature of the beast or else how are you going to survive. Gold is a infinitesimal market and claims that it has to rise to $30,000 to restore some equilibrium sound nice, but are impractical. Here are two coins, the rarest of all Roman known as the Saturninus of which (1) is in private hands, and the 1804 US silver dollar of which there are 15 known. The Roman sold for $500,000 back in 1997 whereas the 1804 sold for $3.7 million in 2008. The Roman today would probably fetch $5 million or more, but there is no equilibrium. Demand fluctuates and like the silver gold ratio, it will move all over the place.
The advantage of gold has been its wide acceptance of an object of value. That has made it desirable and negotiable. But make no mistake about it, it will not go to $30,000 simply because if you divide the gold reserves into the debt that is where it should be. Sounds nice, but NOTHING works that way. Using that logic, the Saturninus should bring 15 times that of an 1804 US coin or about $55 million. You can look at countless areas in all countries and sectors. What makes a condo worth $5 million in NYC when the same thing in Princeton, New Jersey would be $1 million. It is called demand. The Dow was at 1,000 in 1980 and gold hit $875. The Dow reached almost 15,000 and gold almost 2,000. Under this logic, gold has to rise to match the Dow, or the Dow must crash to match gold. Such equilibrium comparisons are like fools gold.
Gold will rise, but not until 2015-2017 for an exponential move. It should find support and establish a base. It will rally and get everyone excited as they always do coming out claiming the low is in place and how they were right because money is fiat. Then gold will go back down, they will eventually have to capitulate and those that bought on the nonsense of stories for the wrong reasons will get burned as always. Understand, it is a market. There is a TIME to buy and there is a TIME to sell. Welcome to cycles.
The Misunderstood National Debts
The single greatest problem we face is that we borrow constantly with no intention of paying anything off. In fact, if we tried to pay off the debts that all nations are creating, there would be massive revolution and the rivers would turn to blood.
Why did city states begin to borrow rather than simply raise taxes during the Middle Ages? National debts are in fact merely a deferment of taxes. They were NEVER a cancellation of taxes, nor were they a substitute for taxes as they have become today. They were merely a deferment of taxes because they eventually had to be paid back.
Government began to borrow because of fiscal mismanagement. Whenever they needed an exceptionally large amount of money, they risked political unrest if they suddenly raised taxes aggressively. Thus, government began to borrow rather than tax with the idea that they could raise taxes more gradually to cover the debts.
During the Middle Ages, forced loans emerged as a popular method of getting money. Nor only do we see the famous forced loans of Venice and Florence, as well as in Aragon, but also France engaged in the practice during the 12th and 13th centuries and the time of Philip IV, he just seized everything he could from the Catholic Church, Italian bankers, to the Knights Templar.
Long-Term loans were unknown among the Italian bankers before the 12th century.and the first state annuities appeared in Valencia in 1366 where there was no repayment, just a perpetual amount paid regularly. Annuities appeared in Northern France during the 13th century, while annuities began to replace forced loans during the 14th century. From there onward, the forced loans diminished in value of either annuities or redeemable bonds that we current have today.
The governments eventually dropped the annuities for the most part because people were living longer. The redeemable bond emerged as the more popular instrument. Today, they are redeemable, true, but are immediately replaced creating rolling debts that only increase – never decrease. Thus, the debts we have total no sane man would buy no less contract to lend. We assume this is the way it is and nobody questions the long-term prospects. This is the essence of the crisis with no resolution as things progress absent reform.