Alex Wallenwein: Will Deflation Crash the Gold Price?

The following is an excerpt from Alex Wallenwein's witty missive, fittingly titled "Fed-Ache".

Will Deflation Crash the Gold Price?

There is probably enough that could be written on this topic to warrant an entire article, maybe even a book, but the question also has a very quick and easy answer. The answer is "no" because gold is primarily money, not a commodity. It is good for almost nothing except for making jewelry and for using it as money. That's why it's so valuable. Even jewelry is a latent form of money, if you think about it.

As the money stock decreases during a credit deflation, it becomes more valuable relative to goods and services, and so its buying power increases. Non-western people know this. Westerners will have to re-learn this lesson the hard way. They will keep their money in interest-paying loser-investments because they believe that cash and gold are "non-performing" assets that earn no interest.

In other words, in a deflation, "cash is king" - and gold is cash. In fact, gold is better than paper cash. That should tell you where to focus your investment dollars.

Got gold?

Alex Wallenwein
Editor, Publisher

Alex Wallenwein: Credit 'Crunch' - or Credit Collapse?

"..Mortgages are really nothing more than another type of promise to repay.

When you take out a mortgage, the bank clerk types a number into the bank's computer that shows up in the system as a "credit" on your account. This is done in return for your promise to "repay" the bank. That way, the bank gives you a legal fiction and your government backs up the bank's claim against you, in case you default, with the banks right to sue you in court.

In essence, it is you - not your government - that backs up your country's money supply. In truth, it is your future productivity that creates the money that "makes the world go "round" as the popular ditti says.

You are Atlas holding up the financial world, and the banks are riding on your shoulders.

The banks, though, have now finally shot themselves in the foot.

Their quintessential need to get more and more people into debt so that the banks themselves can prosper, has led them to generate more and more creative ways of finding more and more potential borrowers.

Their last resort was to make loans to home buyers who really didn't qualify for a mortgage. They felt constrained to loan to people who really didn't demonstrate the requisite future productive power they could pledge in return for the "credit" the bank created on their accounts.

So, when times eventually got a little tougher as interest rates rose, they began to default on their mortgages - in growing numbers.

Those borrowers didn't have much to lose. They got their homes for zero or near-zero down payments, based on fictitious "stated income" figures which the mortgage brokers were encouraged to dream up for them in order to make it look on paper as if the loan was justified. The loan broker's supervisor closed both eyes, issued the loan, and bagged his bank-sponsored bonus vacation for having found yet another sucker who would go for this gambit, and the world kept spinning.

These mortgages are now the epicenter of the so-called credit crunch.

But they are no different in nature than the very "money" that everybody earns and spends, the very money that governments, banks, and businesses now fear may one day stop flowing as abundantly as it has so far.

The sad truth is that both the mortgages and they money they are supposed to be repaid with are nothing more than - debt..."

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