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Stagflation Causes More Damage Than Inflation and Promotes Gold
Stagflation Causes More Damage Than Inflation and Promotes Gold
Stagflation Causes More Damage Than Inflation and Promotes Gold
BY JULIAN PHILLIPS03/24/2011
China will overcome their rising inflation as those suffering it are seeing their incomes rise rapidly and the impact of inflation negligible. As their costs rise, their income rises faster, leaving little pain. Interest rate rises benefit the vast majority of Chinese, who are by nature savers as they increase income to them. But even they can see that inflation is making a mockery of interest rates returns [after bank charges]. The combination of poorer returns, in the current inflationary environment is beginning to make the Chinese saver realize he is better off with gold than deposits at the bank. In the developed world the same should hold true. Negligible returns from interest rates, after bank charges, are far below growing inflation levels resulting in a drop in total savings, now needed more than ever to live on. While gold does not give a return it does rise faster than inflation, far faster and reflects unstable economies and uncertainty. With the benefit of hindsight we can see that gold has multiplied almost five times since the turn of the century, only 10 years plus a little. Savers who went for gold are far richer now than they were then, in real terms. As to the future, it seems that interest rates will not overtake inflation so ensuring that bank deposits returns after bank charges will continue to yield negative returns. If interest rates do rise it is likely that the bond markets will collapse, thus making these forms of [almost] cash, inadequate investments. Gold is international cash and will flourish while bond markets collapse and will flourish while bank deposits [after bank charges] fail to perform like gold or silver. Should the economy fail to reach higher levels of growth, equity markets will, at best stall, even if they do not fall. Rising interest rates will bring them down. The prospects in a stagnating inflationary environment will be for gold and silver to rise as they protect wealth, while other markets don't. If as is a most likely prospect currencies tend to weaken, then gold and silver will remain internationally acceptable, while they rise against all currencies.
What has become a real factor in people's perception of the future is the discouragement factor on consumer's perceptions. It causes more saving to be made, more debt to be paid off, more acceptance of harder times, making the consumer pull in his future hopes. Spending then suffers when consumers might well be able to spend more, because they don't want to be caught in the debt trap again. Have absolutely no doubt that it is a job-secure, house-secure, cash-secure consumer that will be the backbone of a real recovery. Until he is a common sight, any recovery will continue to be limp. If he now has to savor low inflation as well, he will hunker down until the horizon looks far brighter than it does now. The current situation, although not exactly 'stagflation', feels like it is. This scene may well persist for a year or two, or more still. Once this 'tone' of stagflation reaches the political arena, anger will replace hope and social turmoil follow. While some may feel that overall we are seeing a failure of capitalism [except for those in a position to take advantage of it], we are in fact seeing a failure of the global monetary system as described by rising precious metal prices.