2008 - The 2nd great depression since 1929?

[explod]

Because gold is seen as "real" money, and demand increases when it looks like the purchasing power of the currency is falling - ie. inflation.

During deflation, asset prices are getting cheaper relative to the currency, so the value of cash is not falling (although the currency can fall relative to other currencies due to floating exchange rates, but that would lead to inflation again in that country if it imported a lot). As gold may already be another over-priced asset, it could fall as well.

Possibly a simplistic view, but that's my thoughts anyway.

GP

I suppose the next question is "What is real money?" a piece of paper is a promise of exchange, for labour, goods etc. Uncertain times make the value uncertain. The volatility in currency exchange rates is making people concerned at these promise notes. Gold may well not go up but its tangible value is a certainty. Some banks in the world have restricted withdrawals so more and growing concern here too.

Inflation adjusted, gold is way under its old values of 1980 and the 30s so I suppose some people are going to punt it up and because it is a mere .005% of circulating, (so called) value out there, it is probably a very sound one irregardless of which way money value flates.

Possibly simplistic also.

 

[GreatPig]

What is real money? ... Gold may well not go up but its tangible value is a certainty

The way I see it, real money is only something that people agree has value, and can retain that value because it can't easily be created and is long-lasting.

Gold has little intrinsic value as a product other than it looks good in jewellery - and I think often only then because it looks expensive due to the perceived value of gold (ie. I don't like gold jewellery). It has some use in industry, but not as much as silver for example, so other than its perceived value, it's really just a blob of junk.

But if you want to have something other than a barter system, then you need to settle on something as a form of currency, and gold has the desirable properties of scarcity, inertness, the inability to create more (despite the alchemist's best attempts), and some practical issues like being malleable and easy to cast into different shapes and sizes, etc.

Personally I have no desire for gold other than for the reason that it's deemed to have value, and is believed to hold that value in an inflationary environment. If it wasn't for that, I'd have no use for it at all, except perhaps in my pebble garden.

Cheers,
GP

 

[KIWIKARLOS]

Gold is just as useless as paper money. If cr@p hits the fan I would much rather have $900 dollars worth of petrol than $900 worth of gold. I guarentee if you put the petrol to good use you would make more money than you would on your gold.

Gold is virtually useless as a material for everyday things. That said though all this is in the context of a depression two thousand years of human history still says that gold will hold some bewildering value in the eyes of man

 

[Buddy]

The thing is though one barrel of oil = 18000 man hours of work. The US controls over half the worlds oil. It doesn't matter that china has a massive amount of cheap labour the US has even bigger amounts of even cheaper labour. .....................

Kiwi,
I take your point about the value of oil (ie Energy). Maybe in the future, photovoltaic cell will be worth more than gold. Ha, they just about are now, . However, can you explain the background, and how you calculate that 1 bbl oil = 18,000 manhours?

 

[dogwithflees1983]

If the great man Warren Buffet is not a fan of gold (becuase as previously stated it adds no value & just sits there!) either am I !!

 

[Kimosabi]

If the great man Warren Buffet is not a fan of gold (becuase as previously stated it adds no value & just sits there!) either am I !!

Mr Buffett is one of the Globalist elite and I think the real reason he doesn't like gold is that they can't print more gold when they need it like they can with paper money...

 

[wayneL]

People keep saying the FED is creating money out of thin air but thats hogwash.

Hsawgoh! I have three words that disprove that! FRACTIONAL RESERVE BANKING.

 

[2BAD4U]

Personally, the questionable events of 9/11(There still isn't any evidence that Bin Laden was behind the Atacks of 9/11, http://www.fbi.gov/wanted/terrorists/terbinladen.htm), plus nearly half of the supposed "Terrorists" were found to still be alive after 9/11, along with Building 7 collapsing like a controlled demolition, plus, plus, plus, followed by the period of insanely easy credit, that has created the biggest credit bubbles the world has ever seen, looks like a set up to me.

And the government have put tracking devices in all our fillings as kids and every full moon I can hear SBS radio through my teeth.

 

[explod]

The way I see it, real money is only something that people agree has value, and can retain that value because it can't easily be created and is long-lasting.

Gold has little intrinsic value as a product other than it looks good in jewellery - and I think often only then because it looks expensive due to the perceived value of gold (ie. I don't like gold jewellery). It has some use in industry, but not as much as silver for example, so other than its perceived value, it's really just a blob of junk.

But if you want to have something other than a barter system, then you need to settle on something as a form of currency, and gold has the desirable properties of scarcity, inertness, the inability to create more (despite the alchemist's best attempts), and some practical issues like being malleable and easy to cast into different shapes and sizes, etc.

Personally I have no desire for gold other than for the reason that it's deemed to have value, and is believed to hold that value in an inflationary environment. If it wasn't for that, I'd have no use for it at all, except perhaps in my pebble garden.

Cheers,
GP

Could not agree with you more. But due to its history, the greed of mankind, its falling production and being such a finite part of the market, it is a very sound investment vehicle at the moment. That is all that counts with me.

 

[ithatheekret]

If the great man Warren Buffet is not a fan of gold (becuase as previously stated it adds no value & just sits there!) either am I !!

But he likes silver ........ with a little disinformation added for some twist .

At present it's [POG] just sitting there . But it's sitting better than a lot of it's surrounding neighbours .


I bet he'd like it back at 252 for a swoop on , he's just gone into bread and butter bond insurance , nice safe earnings .

The so-called anti gold foundations have one problem , it's a tangible asset to most Asians democratically that out numbers the nayers .......... about 300 - 1

 

[MRC & Co]

last ABS result showed that unemployment rate was falling... more people are working now...

http://www.abs.gov.au/AUSSTATS/abs@...362607CA0519045ACA25712B000D0425?OpenDocument

But what happened to labour force participation? Or the under-employment rate? Remember, there is a LOT more to the "unemployment rate" than meets the eye. The statistics dont actually tell that much IMO.

 

[numbercruncher]

But what happened to labour force participation? Or the under-employment rate? Remember, there is a LOT more to the "unemployment rate" than meets the eye. The statistics dont actually tell that much IMO.

Exactly, one thing I noticed on the stats was in that quarter the total number of recorded unemployed only dropped by 2000 but the number employed grew by 20,000 -

And going forward we have more people retiring than entering the workforce, its only Immigration that assumably covers the shortfall.

increased by 26,800 to 10,631,000. Full-time employment decreased by 7,800 to 7,587,600 and part-time employment increased by 34,600 to 3,043,400.

One in Three Australians employed full time

 

[robots]

hello,

must be a lot doing it easy if part-time worker nos any indication

thankyou

robots

 

[dalek]

Exactly,
And going forward we have more people retiring than entering the workforce, its only Immigration that assumably covers the shortfall.
One in Three Australians employed full time

I think you may find retirees re-entering the workforce a big contributor to those numbers.
I know they are the prefered staffing option for some major retailers.

 

[blablabla]

Another great depression is less likely to happen than some other sort of economic meltdown.

If something terrible is easily foreseeable then surely the leaders of the world would take appropriate action to avoid it. Nope, for example the current subprime crisis was forecast well in advance by many eminent economists. Only two possible conclusions can be drawn. Either the leaders of America chose this route to the currrent disaster as being preferable to whatever other routes were available over the last few years, or the leaders of America haven't got much of a clue about complex issues. I'll let you form your own opinion, either way things do not look good.

If the future is going to be different then it could become better than it is now. Let's hope so. Otherwise move to a rural area so you can live off the land if a calamity does occur.

 

[GreatPig]

Only two possible conclusions can be drawn. Either the leaders of America chose this route to the currrent disaster as being preferable to whatever other routes were available over the last few years, or the leaders of America haven't got much of a clue about complex issues.

There is a third possibility: the leaders of America were unable to do anything about it because there was no viable solution ("viable" not necessarily meaning "possible", but they are politicians who need to get re-elected and need campaign funding for that).

GP

 

[wayneL]

There is a third possibility: the leaders of America were unable to do anything about it because there was no viable solution ("viable" not necessarily meaning "possible", but they are politicians who need to get re-elected and need campaign funding for that).

GP

Bingo.

 

[Uncle Festivus]

If the future is going to be different then it could become better than it is now. Let's hope so. Otherwise move to a rural area so you can live off the land if a calamity does occur.

I see it as a cleansing period where all the unrestrained excesses of the last 37 years are brought back to a sustainable level, from a consumerist and moral point of view. The fact is, we/the world are consuming at an unsustainable pace, with China actually bringing the problem to the fore at a faster pace than would have been just through the normal pace of 'westernised' growth.

If you plan for it you are prepared for it.

 

[ozambersand]

A while ago I came across a paper by John Simon called "Three Australian Asset-priced Bubbles" which mentions the 1929 episode and more detail on the 1987 crash. In the discussion paper by David Merrett that followed, he described the real estate asset bubble in the 1890's:

The rapid growth in credit fuelled the Melbourne ‘bubble'. The growth of the share market, comprised of more listed companies, and with higher daily turnover was another important contributory factor. Asset prices were marked to market on a daily basis and reported in the press. The gains of holding securities were there for all to see. Transaction costs of trading financial securities were, as John noted, lower than dealing in real property or other physical assets. The market looked relatively safe, risk could be diversified and you could cash out in a liquid market. Market-makers were important catalysts. Company promoters and share brokers assured investors and clients that this game of pass-the-parcel would never end. The expanded financial and securities markets leveraged the ‘bubble' going up and coming down. There was a new dimension to the end of a ‘bubble', a secondary impact as the financial institutions struggled as the customers speculations turned to losses and defaults. The route between the breaking of the land boom in 1889 and the banking collapses of 1893 is long and tortuous, but there is a strong causal link.
The liquidations and reconstructions of many Australian banks depressed the real economy for many years.

These papers were presented at an RBA conference back in 2003 which looked at Asset Prices and Monetary Policy.

http://www.rba.gov.au/PublicationsAndResearch/Conferences/2003/

Other papers at the conference dealt with issues such as: "How Should Monetary Policy Respond to Asset-price Bubbles?" by David Gruen, Michael Plumb and Andrew Stone.

As I understand it, the usual way of dealing with a suspected asset price bubble is to slowly lower and raise interest rates in response to changes and hope the knowledge that this will happen is enough of a deterant to it happening (incidentally Bernanke is on record of being more pro-active in this regard). The last paper mentioned discusses circumstances when monetary policy should actively try to burst the bubble. (If you can get past the equations!)

One discussion paper points out the dangers:

...the focus should be on the ability of central banks to assess whether developments in credit and asset markets are materially increasing macroeconomic and financial system risk. In my opinion such assessments, while difficult, are not impossible. Knowing the answer to the bubble question would obviously be helpful, but it is not essential. It seems perfectly reasonable to argue that one is agnostic as to whether asset prices have become overvalued after an extended period of credit and asset-price increases, and at the same time, argue that the level of risk in the system has increased. History provides us with too many examples in which credit and asset-price booms, often accompanied by high levels of investment, have ended in severe economic contractions. While clearly not all booms end in this way, the record of the past century or so strongly suggests that these developments can materially increase the risk of something going wrong.

(My emphasis)
It noted that there have been other asset prices bubbles that did not lead to doom and gloom after but David Merrett added:

The key reason would seem to have been the modest expansion of credit for a very long time after the bank crashes of the 1890s. A chastened banking system behaved very conservatively, while many of the non-bank financial institutions that had underwritten speculation in the 1880s had perished.

This conservatism lasted for some time for different reasons until the 1980's when he says:

Conditions for a ‘perfect storm' were brewing through the 1980s and 1990s. Once again, there was a sea change in the strength of the permissive factors that played such a decisive part in the 1880s. There was a massive increase in credit, especially after financial deregulation. The crude measure of the assets of financial institutions, excluding the central bank, to GDP rose from 107 per cent in 1981 to 160 per cent by 1987. Since World War II more and more firms incorporated and listed on stock exchanges. Households and financial institutions, particularly life offices and pension funds, acquired shares as part of their portfolios. The ratio of the market value of listed equities to GDP rose from 22 per cent in 1976/77 to 70 per cent in 1986/87.
Bull markets in other countries provided a strong demonstration effect to local investors. Firms took advantage of favourable sentiment to issue fresh capital.

His prediction about the result of another crash was:

If this ‘bubble' is of the same order of magnitude as the Melbourne land boom of the 1880s, will its end be as catastrophic? I suspect that it will not, largely because of policy instruments available today. Falling asset prices will reduce household balance sheet totals and net wealth. How many households are so heavily geared that a drop in price will result in bankruptcy? Will the reduction in wealth spill over into lower consumption expenditures that will feed through to the real economy? If that were to happen the weapons of both monetary and fiscal policy can be deployed. Moreover, there was no lender of last resort facility in the earlier episode. Contagion spread across fringe financial institutions and finally to the banks. Nearly all of those that ‘suspended' and reconstructed were solvent. The current regulatory regime enforces higher prudential standards than were exhibited in the late 19th century. Further, the Reserve Bank can act as a lender of last resort if that is necessary.

The common factor in all bubbles seem to be a sudden increase in the availability of credit and ways credit can be gained and applied. As far as a depression coming? Remember these papers were written back in 2003 and the scenario then was that they didn't think a "burst bubble" today would lead to a depression of the magnitude of the 1890's or the 1920's however you can almost "bank" on their being a decrease in householder's "net wealth".

 

[ozambersand]

Number cruncher quoted:

One in Three Australians employed full time

This trend I believe has contributed to the whole problem. By shifting a large part of the workforce from guaranteed fulltime employment to part time, the short term effect might have been improved balance sheets of the companies involved (hence higher profits and higher share price )
However the final effect has been more people not having the certainty of employment to qualify for lower interest mortgages , hence low docs, hence sub-prime problems......!
Perhaps the answer is a gradual return to full time jobs with a likelihood of still having that job in fifteen years time!