In real life the tendency for people is to always remember “last time”, yet “last time” seldom repeats in the same way. That is how it has been for the many who have constantly called for a Dow Crash and a Deflationary Depression for over a decade, now, as they look back to the 1929 Era as a reference point for today. Things are very different this time due to the ability of the Fed to print Dollars to extreme levels. Let’s take a look at today versus the 1929 Era Depression. The two links, below, outline some aspects of what is going on today.
The Deflationary K-Winter of 1929
The “Deflationary” portion of the long-term economic cycle is called Kondratieff Winter. It is characterized by huge debts with a topping economy and stock market. We hit the K-Wave Winter in 1929, and again in the year 2000. The most important factor in how things play out in a K-Winter is the “state of the Dollar.” In 1929 the US Dollar was tied to Gold at a set rate of $20 to one ounce of Gold. You could run to the local bank and trade $20 for an ounce of Gold, anytime you wanted so in the 1929 Era the Dollar was a very, very strong and held its “value” very well. When the stock market topped in 1929 we saw a panic waterfall decline in most asset classes because people could simply sell their stocks and get US Dollars that were “as good asGold”- backed by Gold. Gold has been seen as the ultimate store of value by humans for thousands of years, and in the 1929 Era, a move to Dollars was essentially a move to Gold.
In the 1929 Era the “state of the US Dollar” was one of “deflation” with a very strong Dollar that was stable. People grabbed Dollars and buried their Dollars in their back yard. By doing so they protected the buying power of their savings by with Dollars that could be traded for Gold at a fixed rate. The “state of the Dollar” will always dictate the “pricing environment” in the US. In 1929 the strong deflationary Dollar allowed investors to toss Stocks, Bonds, and other assets out the door once the panic ensued. Practically all asset classes fell in a waterfall decline by about 90%. About 90% of all debt was defaulted upon before it was over. This all occurred due to the very strong deflationary Dollar that was backed by Gold as investors sought stability for their savings. After the 90% asset fall, those who had Dollars could by almost 10 times as much of something than they could before the 1929 panic asset decline.
The Deflationary Depression of the 1929 Era ended when the US “Devalued the US Dollar” in the early 30’s. When the Dollar is tied to Gold, the Dollar is devalued by a mechanical means. In the early 30’s the US Government devalued the Dollar by simply announcing that they would re-set the value of the Dollar lower at a set rate of one ounce of Gold to 35 Dollars, instead of to $20. Thus, the Dollar was “devalued” buy 75%, and suddenly your Dollars would buy less of anything. Suddenly prices increased 75% if you were buying with the devalued Dollars. Prices immediately rose since it took more Dollars to buy things, and suddenly for all intensive purposes the Deflationary Depression of the 1929 Era ended. This still left a very weak economy to deal with, but the sprouts of economic growth were sewn in rising prices.
Fast forward to the current K-Winter.
The Current Inflationary K-Winter
In the 60’s Greenspan wrote how he wanted to be the Chairman of the Federal Reserve when the next K-Winter came knocking. He wrote that he thought that he could print enough Dollars and keep interest rates low enough to neutralize and to beat the next K-Winter. The new K-Winter arrived in the year 2000 with massive debts after Greenspan forced rates lower to “bubble up” the stock market as high as he could. He wanted asset prices high going into the K-Winter to create a high base of assets that people could sell for cash flow as the K-Winter top arrived in the year 2000.
Currently, the Dollar has no ties to value, whatsoever. The Dollar is backed by the full faith of the US Government. After the first wave down in the Stock market the Fed stepped up in 2002 to devalue the Dollar using the loan multiplier system of their banks where about $10 can be loaned for each $ on deposit. They slashed loan requirements and offered loans to practically anybody – credit card loans, house mortgages, student loans- any kind of loan to print and devalue the Dollar. The Fed was starting the process of heavily devaluing the US Dollar- the exact opposite of the 1929 Era. Suddenly, the US Dollar was in a “state of Dollar Inflation.” The Fed was actively “bubbling up” asset prices especially in the Stock Market and the Real Estate Market to battle the deflationary effects of the huge debts of K-Winter. This improved “cash flow” for people. Remember? The “state of the Dollar” ALWAYS dictates the Pricing Environment so we had price inflation- not waterfall price deflation as in the 1929 Era when we had “Dollar Deflation- a very strong Dollar.”
Those looking back at “the last time K-Winter of the 1929 Era” have continually called for a Deflationary Depression and Stock Market Crash, and they still are! It CANNOT happen with aggressive Dollar printing- it is mathematically impossible! The price of the Dollar is the “2nd variable in the price fraction”, the denominator. As Dollars are aggressively printed the “price and value” of the Dollar falls. Anytime you have the denominator falling quickly in a price fraction the answer rise, “price” rises. This is what Greenspan intended for today’s K-Wave Winter back in the 60’s!
Go to Part II…………………………………….
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A much more extensive writing on Gold and Gold charts, where Gold might be going, and when; is linked, below, to Jim Sinclair’s site. You will have to scroll about half way down the page, but the article is there in its entirety.
PRICE VERSUS VALUE
My article on THE SILVER ROCKET is linked, below
The Gold version.
And finally, if you need a break from all of the negativity, you might want to take time out to read the following story to a younger loved one in the family.
Goldrunner maintains a subscription site that covers Gold, Silver, and the Gold and Silver Stocks that can be found at GOLDRUNNERFRACTALANALYSIS.COM
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For the moment,
Please understand that the above is just the opinion of a small fish in a large sea. None of the above is intended as investment advice, but merely an opinion of the potential of what might be. Simply put: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. In the interest of full disclosure, GOLDRUNNER is personally invested in the Precious Metals sector including various Precious Metals and other individual stocks. GOLDRUNNER reserves the right to modify or eliminate any or all positions at any point in time.