Conference nyoss1::market_investing

    ==> No nation has ever prospered by trashing its own currency.
    
    Recent dollar weakness is due to lower demand. Foreign investors
    perceive the USA as a bad investment due in part to Clinton's image
    as an ineffectual leader, driven by polls, unable to make up his mind.
    
    The other possibility is too much supply. If you knew that tomorrow
    someone would drop many billion dollars in currency over the country
    what would you do with your dollars today? An increase in the supply 
    of dollars will lower their value, so the right thing to do would be
    to buy as much stuff as you could, with borrowed money, and pay back
    the loans tomorrow with the "free" money that falls from the sky.
    Of course merchants would raise prices (and interest rates) in response
    to all the folks rushing to buy goods -- supply and demand again.
    
    The Fed doesn't own many airplanes but it can create dollars at will
    simply by buying bonds on the open market. They pay for the bonds with
    money materialized out of nowhere. This increases the money supply and
    means each dollar you have is worth slightly less. Devaluation.
    
      John

>>    The Fed doesn't own many airplanes but it can create dollars at will
>>    simply by buying bonds on the open market. They pay for the bonds with
>>    money materialized out of nowhere. This increases the money supply and
>>    means each dollar you have is worth slightly less. Devaluation.

So is that what devaluation means? In 2012 or thereabouts when we don't have
enough money to pay Social Security for the baby boomers, the Fed will just
allow the printing of more money? Will the Fed just "give" the money to the
banks?

I still don't understand how this devaluation will translate into the (cheaper)
dollars flowing into the baby boomers' hands. 

Vicki Meagher

> So is that what devaluation means? In 2012 or thereabouts when we don't have
> enough money to pay Social Security for the baby boomers, the Fed will just
> allow the printing of more money? Will the Fed just "give" the money to the
> banks?

    No. Money is printed by the Mint, part of the Treasury Department.
    The Fed is not in the business of "giving" money away. They make loans
    (among other things); they don't "allow" money to be printed.

    Say you have $10000 in the 1st National Bank. You think to yourself,
    "I have $10000."

    Ah, but your bank loans that $10000 to Mickey Vagher. Mickey deposits
    it in his account in the 2nd National Bank. Mickey thinks to himself
    "I have $10000."

    Both you and Mickey can withdraw and spend money so the money supply
    is $20000 despite the fact that the only "real" money is yours.
    And the 2nd National Bank could loan "Mickey's" $10000 to someone else,
    expanding the money supply to $30000. No sleight of hand. No printing
    presses running all night long. No gifts from the Fed. (Actually, the
    banks can only lend $9200 out of every $10000 but let's drop that for
    the moment 'cause that doesn't make much difference here).

    The money supply expands when someone is willing to go into debt.
    (Switch to Church Lady voice) "Let me seeee now, whooo do we know who is
    alllways willing to go into debt? Could it be ... THE US GOVERNMENT!?!"

    When the baby boomers start to retire en masse, the Social Security
    retirement trust fund will have to pay them their pensions. Well, let's
    pretend that's going to happen, personally I think that's a fallacy.
    Like Old Mother Hubbard, the Social Security administrator will open
    the cupboard door and will find...a bunch of Treasury Bonds!
    
    Well now, those bonds won't pay the checks the recipients are supposed
    to be getting. But they're bonds, they'll mature into cash. Where does
    that cash come from? It comes from the bond issuer, The US Treasury.
    Where does the US Treasury get the cash to pay off the bonds that are
    maturing at that time? Why, by borrowing MORE money! Taking in cash and
    issuing bonds that will mature still further in the future. (Also by
    taxing payrolls, but that alone won't cover the expenses. Which is why
    we don't have the crisis today but rather in the future).
    
    So, the theory goes, when Social Security starts paying out baby boomer
    benefits the Treasury will have to borrow heavily to cover the
    anticipated cash outflow. This borrowing will drive up interest rates
    and zoom the money supply, just like Vicky and Mickey did, thereby
    cheapening all the dollars. People anticipating these higher interest 
    rates will borrow before it is absolutely necessary, so as to lock in
    a lower rate -- just like the 1979-1981 interest rate spiral when the 
    prime reached 21% or so. High interest rates cause a rise in the cost of
    goods produced, since nearly every business carries debt.
    
    So we've got a rise in the price of goods and a supply of dollars on
    the increase, thereby cheapening the value of the dollar and increasing
    the price of imported goods. Except, the theory goes, on such a grand
    scale that the $10000 you put in the bank in 2102 won't even buy a
    decent lunch in 2014.
    
> I still don't understand how this devaluation will translate into the (cheaper)
> dollars flowing into the baby boomers' hands. 

    Remember this is partly conjecture. Someone else might postulate that
    the baby boomer's own savings, coupled with means testing for Social
    Security, might drastically reduce the need to pay out benefits even as
    it substantially increases the savings rate. This conjecture has its
    own flaws but is nevertheless another possibility. There are others.
    So you can't look at today's situation and make complete inferences
    about what the future WILL be.
    
      John

    Well...i've invested heavily in Gold Coin & Swiss Francs...not that i
    know what i'm doing, but when the crap that's floating around
    Washington finally hits the fan...it'll make the Great Depression look
    like a minor recession...
    
    Yes inflation is exactly how the Government devalues your currancy and
    remember inflation can take many faces.  What we're struggling with
    right now i believe is not inflationary pressures on commodity and
    producer prices, but currency pressures...the governement and Fed
    doesn't want to admit it publicly, but they are being forced to raise
    interest rates by the pressure being put on Long Term Bonds...the
    reason for this pressure is the Japanese and European investors who
    have so willingly bought our bonds in the past are pulling out of this
    market in a big way...the only way to sell our Governmanet debt is to
    raise short term interest rates to impact long term rates.  Making the
    bonds more attractive...remember, this is all a bidding game and right
    now the Government doesn't control the game...they did when they played
    with lower short term rates to revive the economy, because the whole
    world was in a recession, but now the money managers have some leverage
    from world economic expansion, they have choices...and they are insisting 
    on higher returns for their investment in the US Government.
    
    Now not to be an alarmist...but the political pressures to shrink
    Government and reduce the cost, combined with the laws being passed in
    many states re-establishing states rights could lead to some very
    unsettling social implications...the last thing we need is riots in our
    inner cities and money will flow out of this country in a heart beat.
    i just hope Newt Gingrich and company understand what type of timebomb
    they're playing with, because this could get real ugly, real fast...
    
    Read Figgie's book "Bankruptcy 1995" if you want to get a good picture
    of the type of situation we've gotten ourselves into and prey for the
    best....
    
    		Dugo

    
    	I think we have a little over-reaction here. Note .3 is right on
    the money concerning Social Security; which is really money "borrowed"
    from us worker bees to buy bonds maturing tomorrow to pay us off. Kind
    of like zero coupon bonds where the banker (the US Gov't) keeps the
    "premium" to fund his expenses today.
    	
    	What I found interesting is the gold coins/swiss franks. Since
    one is money (and subject to inflation, etc. just like the dollar),
    and the other is a commodity (which obeys its own market rules, not
    the rule of hedging inflation), how do they offer any protection at
    all in a global depression? And that is what we are talking about here.
    The US market drives the export-oriented economies of all major
    exporters. We tank, they all tank. Japan, the "Tigers", the Europeans,
    everybody. So what makes gold good?
    
    	Personally, the best strategy is to be aware, be flexible in
    savings/investment, and be out of debt. You can ride any wave they
    send your way then.
    
    
    		the Greyhawk

788.3 and 788.4:

Thanks. That helps explain it a little better.

So much of the commentary I read in the business/finance press is ideologically
tainted that I don't know what to believe. 

Vicki Meagher

    re: .3
    
    Minor nit: Currency is printed by the Bureau of Engraving and Printing,
    not the Mint. The Mint mints coins. 
    
    re: the commentary
    
    I more-or-less agree with .5: Our economy is highly-interconnected with
    the Pacific Rim and Europe. If the disaster scenario that .3 and .4
    project actually happens, it won't be pretty anywhere else, either. 

.6> So much of the commentary I read in the business/finance press is ideologically
.6> tainted that I don't know what to believe. 

    Yes, there is plenty of that. I have found _Strategic Investment_ to be
    rather unbiased in its analyses and predictions. See note 725.
    
.7> Minor nit: Currency is printed by the Bureau of Engraving and Printing,
.7> not the Mint. The Mint mints coins. 
    
    Oops. I thought the Mint owned the BEP but not so, they are equals.
    
      John

>>    Yes, there is plenty of that. I have found _Strategic Investment_ to be
>>    rather unbiased in its analyses and predictions. See note 725.

Thanks. I read note 725 (in fact, I read it when you wrote it originally), but
your description made "Strategic Investment" seem very ideological.

I surely would like to find economic predictions that take into account the
tremendous strains (to put it mildly) that population growth of the future will
place on us. (There, my bias is showing: neo-Malthusian.) 

Vicki Meagher

    Hi Greyhawk,
    
    Let me just say i do appreciate your replies in DIGITAL, you bring a
    fresh and balanced view of all things considered...and i respect much
    of what you bring to the table there...keep up the good vibes!!!
    
    Now to my comments about GOLD and Swiss Francs (Re 788.4)...like i
    prefaced in my comment, i don't necessarily know what i'm doing but my
    thoughts are these...
    
    First off, Switzerland has one of the highest per capita incomes in the
    world.  They have NO DEBT, i've read that they are the only currency in
    Europe still backed by gold (but not tied to a gold standard, ie;
    they have gold deposits to back their money, but the value of the
    currency floats independent of gold).
    
    Second, they have been neutral through out history in any major war.  
    i'm not only concerned about what could happen in this country, but even 
    more concerned about Russia and it's impact on Europe.  If the world 
    does fall off the deep end the big money will flee to Switzerland IMHO.
    
    It would be interesting to look at the behavoir of the Swiss Franc
    during WWII, but i haven't actually done that (but now that i think
    of it, i guess i will).
    
    My feeling is this; unlike the Pacific rim that traces much of it's
    wealth to the consumer goods arena...Switzerland's economy is based on
    managing money.  If currencies around the world have problems, my
    feeling is Switzerland will be the last place with solid money...not
    that you'll be able to spend Swiss Francs...but you will be able to
    convert them when needed in a favorable exchange (ie; lot's of people
    will want them).              
    
    My feelings on gold mirror this...gold has languished for years now at
    around $350-400/ounce...but back in the late 70's gold was at a high of
    $800/ounce...and if you remember we were suffering though inflation at
    20%/year.  There is talk going on now of forcing the Government back
    to the Gold Standard...whether this comes into play or not is
    debatable...if it does, you'll see gold go to over $1000/ounce
    overnight.
    
    In any event my thoughts are this, as we run up to a collapse of our
    currency, it will be preceeded by Hyper-Inflation...most down play it,
    but we could be forced into it by collapsing faith in our Government to
    service it's debt and the subsequent impact.  Agin my feeling is Big
    Money will look for safe havens away from the dollar (and intertwined
    economies, ie; Yen, Duetchmark, etc.) and move toward secure havens
    like Swiss Francs and Gold...
    
    Now again, i may be an extremist and you may be naive...but in any
    event neither of us could say we really know...i've read Figgie's book
    and the picture isn't bright...IMHO the downside factors are much
    stronger than the upside and when you're an investor, you need to plan
    accordingly...
    
    i think your last statement hit it on the head, regardless of how deep
    you think the situation really is stay flexible (ie; liquid), follow
    the markets carefully (ie; aware) and be prepared (ie; have a plan)...
    
    i guess that's what we all would like to know...what's the best plan and 
    that is precisely what my 'Investing during Hyper-Inflation' note was all
    about.
    
    Thanks for listening,
    				Dugo        
    

    
    	Dugo -
    
    	Hey, thanks for the pat. It's very appreciated. 
    
    	If we go to hyper-inflation, ala late 1920s Germany, I am
    outtahere.
    
    	Tell you what, let's get some land in the Islands....
    
    
    			
    
    
    
    
    	Seriously, Doomsday books are mostly marketing devices. Gold
    doesn't pay interest/dividends, etc. and neither does currencies.
    Stick with good stocks, bonds, own your own home, etc. you'll do
    fine. Don't worry about things that go bump in the night. Enjoy.
    Collect interest payments/dividends, etc. Buy flowers for mom.
    Relax. It ain't gonna happen for at least five years.
    
    		the Greyhawk

    If you believe that the value of precious metals will rise, then
    according to articles I've read it is better to invest in the mining
    firms than the metals directly.  Some have recommended further that the
    way to benefit the most is to buy stock in the marginal producers. 
    That is, the ones whose cost of production is closest to the price of
    the metal itself because they are the ones that will benefit the most
    from a rise in prices.

    The lazy man's way and perhaps for most the best way is to buy a sector
    fund that specializes in precious metals.  One that I see referenced a
    lot is Lexington Strategic Metals(?).  Another is Fidelity Select
    Precious Metals. These funds are very risky and certainly not
    everyone's cup of tea.  I don't own any at the moment and have no basis
    for recommending either.  I have been charting Fidelity's fund which
    has been headed South lately.

>    If you believe that the value of precious metals will rise, then
>    according to articles I've read it is better to invest in the mining
>    firms than the metals directly.
    
    As a rule, yes -- but it depends on what you're after. You buy and sell
    paper to make paper. If you envision an apocalyptic hyperinflation with
    the attendant breakdown of society, gold stocks won't be any more useful
    than Federal Reserve Notes. Gold and silver coins will be an accepted
    medium of exchange. So will cigarettes, booze and ammunition.
    
    Personally I'm no longer worried about inflation (contrarians take note).
    The real problem is deflation.
    
      John

    This is getting interesting...Swiss Francs are up about 15% compared to
    US Dollars this year due to the slide in our currency...so currency
    hedging is an investment that does pay, albeit a speculative one...if
    this were roulette, my money is riding and will continue to ride on the 
    Dollar falling much, much further unless we fix the deficit...
    like today!!!
    
    As to gold...i'm about even this year (bought at 380...market now at
    385)...but i'm doing better then many, many mutual funds...and the
    thing about gold is when it spikes you better be holding, because you
    won't get the chance to jump in at the bottom...
    
    Interest is important, but if it isn't keeping up with inflation (CD's
    at 3.5%)  your losing...as was pointed out, gold stocks aren't any good
    if they are represented by a currency that is devaluing (ie; being
    eaten away by inflation)...
    
    i think many in here maybe don't understand how far we're falling behind 
    the purchasing power in other countries...i was in Scotland for 6
    months when the pound was at about $1.48 and things were very expensive
    over there compared to here...i shudder to think what it's like at
    $1.58 to the pound...face it folks, you can't afford to live your
    current life style in Germany or worse Japan...
    
    My concern isn't deflation, but 'stagflation'...remember that period... 
    20% inflation and no growth, unemployment on the rise and prices headed
    with it...it is not unprecedented...
    
    Folks, unless you haven't really noticed...there's some seriously
    scared, angry and vengeful people in Washington these days...contrary to
    popular opinion they do have a clue about how deep our sneakers are in
    this sh*t...and there'll be a literal war in Congress to try to fix
    it...unfortunately time is not on our side!!!
    
    As to Figgie's book...Greyhawk, i do agree that most of those books are
    written for profit, but Figgie's book most DEFINITLY was not...he
    states pretty clearly that his only goal is to warn the American people
    of what is to come...all profits from the book go to educational
    support funds and he is a big promoter of the Concord Coalition...
    
    If you haven't read 'Bankruptcy 1995' at least take the time to go to
    the library and do so...those forwarned will be those who will weather
    this situation...
    
    Peace,                                
    		Doug