[gnm]

Tell it to the people screaming to buy gold in the late 1970's when the world was going to end, we were running out of oil and natural gas, prices were skyrocketing, overpopulation, overfishing, global climate change, inflation, recession......uummmm......

Its a good idea to take a look at how that all unfolded. While things had hit the crapper due to dropping available energy from 71 on or so - it had taken 5-8 years for people to really start making changes and at the same time the fix had been in the making all those years - I mean since the initial shortfall trade deals, supply lines and expansion of drilling in the oil rich areas had been ongoing. So by the time the public at large finally realized the sky was falling, along came ample new supply to prop it up.

Where is the ample new supply going to come from this time.....

-G

[cube]

To: MattS
It's been fun talking to you MattS but it is obvious you are not interested in a serious conversation.
Furthermore you have a bad habit of using cherry picked info to create misinformation so I honestly don't see you having anything useful to offer me.

good bye *waves*

---you are now on my ignore list---

[mattduke]

At what point did gold make the instantaneous transition from "terrible investment you should never consider owning because it will always go down because it is useless" to "way too expensive and overbought due to public hysteria", and why did it never pass through the "a good time to buy" phase? Rationalizations for not owning gold change more rapidly than justifications for the Iraq war.

[Twilight]

At what point did gold make the instantaneous transition from "terrible investment you should never consider owning because it will always go down because it is useless"...

Who ever said never? What always goes down?

...to "way too expensive and overbought due to public hysteria",...

That would be now.

...and why did it never pass through the "a good time to buy" phase?

That was years ago, when the likes of the UK government were dumping it. If you bought it then and still hold it now, then you are laughing. Maybe consider selling what it cost you with some interest. Buying now is a different story. See below.

Rationalizations for not owning gold change more rapidly than justifications for the Iraq war.

Not really, they just changed as the bubble matured and other influences came into play. Right now being long gold is like being short oil - extremely dangerous because if something financial or chemical respectively goes "boom", you will be screwed without warning. In the end it is whether a clever idea is worth the risk of putting it into practice.

[cube]

A new oil well or gold mine cannot be brought into production in 6 months. If it only takes 6 months to open a new dot-com company or build a house that's why after only 6 years the market is over-saturated and has reached its peak. That's why the dot-com bubble and real estate only lasted for 6 years.
Even if you do not believe in PO and are convinced there's an oil reservoir the size of Texas somewhere on this planet you have to admit it is physically impossible to over-saturate the world oil market in 6 years. It doesn't matter if ALL the world's oil drilling rigs are working 24/7/365 ---> the world will not be swimming in oil in 6 years.
Maybe 12 years but not 6.

Numbers game!! 1 oil well takes 15 days to drill, another 15 to complete and start production. 1000 rigs in America drilling for natural gas stop, and start drilling the new oil discovery the size of texas.

12 wells/year/rig, 1000 rigs, 12,000 new wells in a new Ghawar in a year, making Ghawar volumes of 20,000 bbl/day/well, X 12,000 new wells = 240 Million Barrels/ Day phased in over ONE year.

Yeah...I think you need a smaller example of how fast things CAN'T be done. Those kinds of volumes can saturate this planet and a couple of others.....

You are living in a fantasy world. Or you haven't done your homework.

Now you know why I have MattS on my ignore list.
When a person says something like this it means they have come onto this forum to waste YOUR time..........not to offer any meaningful information.
I'm getting pretty good at spotting these Trolls from a mile away.
The names on my ignore-list are starting to stack up.

[cube]

...to "way too expensive and overbought due to public hysteria",...

That would be now.

So you believe gold is over-priced.
okay fair enough.
I always like to say, "An opinion is like a rear end - we ALL have one."
but....(no pun intended)

Isn't there a maxim in investing which states there is ALWAYS something out there that is under-priced.
It is impossible for literally EVERYTHING to be over-priced.

So what is under-valued and thus a good buy right now, Twilight???

[Twilight]

An excellent question. Always easier to say what is not than what is. I am still trying to figure it out.

I think if the future is deflationary, cash is undervalued. Anything you make now would then have higher buying power later, as most things fall relative to it as credit becomes scarce. The trick is surviving the price inflation that is preceding it, and afterwards declining industry could still make some items relatively even more scarce than cash. At random. It is not going to be easy, it could be a bit of a pinball game. But that is a period yet to come, right now my assumption is the credit bubble has propped up the price on virtually everything and the effects are coming to an end over the next few years.

[sjn]

An excellent question. Always easier to say what is not than what is. I am still trying to figure it out.

I think if the future is deflationary, cash is undervalued. Anything you make now would then have higher buying power later, as most things fall relative to it as credit becomes scarce. The trick is surviving the price inflation that is preceding it, and afterwards declining industry could still make some items relatively even more scarce than cash. At random. It is not going to be easy, it could be a bit of a pinball game. But that is a period yet to come, right now my assumption is the credit bubble has propped up the price on virtually everything and the effects are coming to an end over the next few years.

This really doesn't make complete sense. Cash is only useful when it can buy products and services, during the PO economic contraction/collapse there will be necessarily less products and services, yet still plenty of cash to spend!

On the other had there are going to be shortages of the things people need to live, and cash may well be a determining factor of who gets those resources (if we still have a financial system, which is a massive assumption at this point), in that case there may well be competion for the available cash, making it more valuable, but this can only come after the buying power of the majority has been removed, there isn't going to be enough to go around to support everybody!

[Cloud9]

At one time I was led to believe that the majority of the money in circulation was virtual as compared to a relatively modest amount of actual cash. Most of what I spend is in the form of credit card transactions. My savings exist on a hard drive at a credit union and, I have a little cash in my pocket.

If the entire credit system were to seize, the FDIC fold, virtual bank accounts disappear and credit cards be voided, would that not make cash more valuable?

[Twilight]

This really doesn't make complete sense. Cash is only useful when it can buy products and services, during the PO economic contraction/collapse there will be necessarily less products and services, yet still plenty of cash to spend!

I think the coming recession will comfortably outrun the effects of peak oil. For a long time we are going to have less money than ability to produce goods and services.

[cube]

An excellent question. Always easier to say what is not than what is. I am still trying to figure it out.

I think if the future is deflationary, cash is undervalued. Anything you make now would then have higher buying power later, as most things fall relative to it as credit becomes scarce. The trick is surviving the price inflation that is preceding it, and afterwards declining industry could still make some items relatively even more scarce than cash. At random. It is not going to be easy, it could be a bit of a pinball game. But that is a period yet to come, right now my assumption is the credit bubble has propped up the price on virtually everything and the effects are coming to an end over the next few years.

I totally disagree with your analysis.
You already know what my position is.
The future will determine who's right and who's wrong.

[Tyler_JC]

At one time I was led to believe that the majority of the money in circulation was virtual as compared to a relatively modest amount of actual cash. Most of what I spend is in the form of credit card transactions. My savings exist on a hard drive at a credit union and, I have a little cash in my pocket.

If the entire credit system were to seize, the FDIC fold, virtual bank accounts disappear and credit cards be voided, would that not make cash more valuable?

That's a pretty big IF. The FDIC is not going to fold because the federal government has an obligation to keep the financial system functioning. The experience of Freddie Mac, Fannie Mae, the S&L Crisis, and the Great Depression leads me to believe that every possible action will be taken in order to insure the continued flow of capital. If not, the government disappears. I have faith in the Iron Law of Bureaucracy. The Feds want to continue to exist and that means that the capital markets need to function.

And this thread has gotten seriously off track...

[Twilight]

That's a pretty big IF. The FDIC is not going to fold because the federal government has an obligation to keep the financial system functioning.

Indeed, during the run on Northern Rock and in particular the simultaneous rumours about Alliance & Leicester, the UK government guaranteed all deposits up to £35k, implicitly making the role of the FSCS in providing deposit insurance virtually redundant. In the event of further collapses, the FSCS would cover the first couple of billion, other banks the rest, and if they were unable to recapitalise it, the government would print the difference.

So the precedent already exists in a major banking nation. If FDIC were to run out of funds, insured banks would be given the tap on the shoulder for an injection, and if that were to prove insufficient, the government would print as and when required. I see no great mystery here because if common sense were not enough, the UK effectively established policy for everyone.

[sjn]

That's a pretty big IF. The FDIC is not going to fold because the federal government has an obligation to keep the financial system functioning.

Indeed, during the run on Northern Rock and in particular the simultaneous rumours about Alliance & Leicester, the UK government guaranteed all deposits up to £35k, implicitly making the role of the FSCS in providing deposit insurance virtually redundant. In the event of further collapses, the FSCS would cover the first couple of billion, other banks the rest, and if they were unable to recapitalise it, the government would print the difference.

So the precedent already exists in a major banking nation. If FDIC were to run out of funds, insured banks would be given the tap on the shoulder for an injection, and if that were to prove insufficient, the government would print as and when required. I see no great mystery here because if common sense were not enough, the UK effectively established policy for everyone.

And that will, of course, be massively inflationary.

[Twilight]

And that will, of course, be massively inflationary.

It depends on the precise extent of the catastrophe. The UK has a trillion pounds of deposits, but a whole trillion would not need to be printed. If it became necessary, it would no longer be necessary, if you catch my drift.

On the other hand, the complete implosion of a small bank and half a dozen building societies could be met by the other banks. The government would only have to print the difference in the event a large bank were to fail, and you could count those on the fingers of your two hands. If one did, we could be talking a hundred billion... pretty soon it adds up to real money, I know. But the inflationary effect would be survivable. It is one bailout we could easily afford, and we could not afford not to do it, unlike the other stuff on the menu which so far appears discretionary.

[Tyler_JC]

What's another couple hundred billion dollars in a 50 trillion dollar global economy?

Re-capitalizing the banks is inflationary but it's not 1920's Germany inflationary.

[sjn]

What is to stop any re-capitalisation attempt from injecting capital into a bank only for it to disappear as losses are written off and subsequently needing further injections for the bank to stay solvent? How long can you keep throwing good money after bad, before it all goes bad?

[Tyler_JC]

What is to stop any re-capitalisation attempt from injecting capital into a bank only for it to disappear as losses are written off and subsequently needing further injections for the bank to stay solvent? How long can you keep throwing good money after bad, before it all goes bad?

Nobody knows the answer to that question, I'm afraid.

[Twilight]

What is to stop any re-capitalisation attempt from injecting capital into a bank only for it to disappear as losses are written off and subsequently needing further injections for the bank to stay solvent? How long can you keep throwing good money after bad, before it all goes bad?

Balance sheets are finite, so if you take the stuff we know to be high risk and mark it zero, you know exactly how bad it could be. Much of the confusion is coming from the banks doing it a few percent at a time. Besides, one need not recapitalise every bank that screwed up. Fundamentally the only people who need to be made good are depositors. The rest assumed risk when they got involved. We do need bankruptcies to act as a deterrent, otherwise there is no reason not to play craps with the money.