Why Have Gold and Silver Fallen?

[jimmy]

@krazy kaju

Furthermore, you entirely misrepresented my views. If read in the context of this entire thread and the rest of my post, the half-sentence you nit-picked out of my thread indicates that inflation in commodities like gold and silver is hard to achieve during a recession, not that inflation in consumer goods is hard to achieve.

But there again, gold prices move with inflationary expectations. If you have soaring inflation (entirely possible in a recession) then gold prices will go up won’t they?

[krazy_kaju]

sighs

Again, reread my post:

@krazy kaju

Thinking that the Federal Reserve will keep up the rates of monetary expansion that we have now is extremely naive. Bernanke is a monetarist of sorts and I don’t think he’ll be afriad to raise rates when inflation gets out of hand. It is very hard for monetary policy itself to create simultaneous inflation and recession, because there are inherent contractionary forces in an economy when all the loans being issued by the CB during the boom have to be repaid. The Fed would have to lower rates significantly to be able to “paper over” not only the contraction but to even create significant amounts of inflation to prevent commodities from crashing.

Then you reply:

@jimmy

So once again, the mantra that keeps getting hammered in public - recessions are deflationary - is completely misguided. No small number of economists, investors and members of the public are currently selling commodities because they believe that recessions are deflationary when the reality is that this quite simply is not true - it’s a wive’s tale.

You imply that I said that recessions are deflationary when I never said such a thing. THAT is a straw man. Again, I was not talking about overall inflation - which also takes into account consumer goods, capital goods, and other things besides metals and other basic, raw commodities. If you look at the data, the price of commodities like gold and silver relies heavily on the boom-bust cycle.

If you read my post the entire premise is centered around how much inflation would have to run to make gold and silver profitable investments. It would be very hard to create such an environment. Of course, the argument is that printing paper isn’t hard, but from the standpoint of a central bank of a modern industrialized western nation, hyperinflation (which would be necessary to make commodities a valuable investment in a bust) is unlikely to happen.

Furthermore, please note that I’m saying that monetary policy itself is unlikely to create simultaneous inflation and recession as in stagflation, not that simultaneous inflation and recession have never happened. Other factors, such as excessive government regulation and taxation, are needed to create an environment where recession and high levels of inflation go hand in hand.

So yes, sorry for the confusion of semantics, but I think we’re still running in circles arguing over the same thing, unfortunately.

[jimmy]

@krazy kaju

You imply that I said that recessions are deflationary when I never said such a thing.

Well I’m sorry. I mistook what you actually did write: “It is very hard for monetary policy itself to create simultaneous inflation and recession, because there are inherent contractionary forces in an economy”, to mean that you thought recessions were deflationary. Surely you can understand how I might have made such a mistake.

In any event, this is just wasting time.

[krazy_kaju]

Yeah it’s mostly my fault for not making my post clearer though.