Wednesday, June 24, 2009

Ask the Germans, they know!

What do they know you may ask?

They know about the reality of a destroyed currency having suffered greatly from the hyperinflation of the early 1920s. At its worst inflation caused prices to double ever 2 days and by the end of 1923they had an exchange rate of 4,200,000,000,000 Marks to 1 US dollar compared to a modest 4.2:1 ratio from just a few years earlier. They know that aggressive monetization of debt is a good way of stoking inflation and if not corrected could mimic what we’ve more recently watched in Zimbabwe, where shelves were empty because of price controls and they could not print new notes fast enough to keep up with the need for more zeros.

German Chancellor Angela Merkel so understands the need for sound monetary policy that she has openly spoken out against quantitative easing criticizing the central bank of England, the U.S Fed and the ECB despite the long standing precedent giving these banks independence from political interference. Merkel knows the practice of buying ones own dept is wrong and can lead to heavy inflation and destruction of currencies; any perceived benefit is simply postponing and compounding the carnage.

Germans also remember the value of having real assets like gold and silver as seen by extreme retail shortages last summer when most dealers where not only out of bullion but were also being unable to assure future deliveries, stopped taking orders. While shortages in the market were not just a German problem one company TG-Gold Super Markt.De
apparently saw a market niche for an easier way to access small purchases of gold and have created the worlds fist bullion ATMs for the German, Austria and Swiss markets.

The first machine recently had its premiere and one day test at Frankfurt’s train station, future plans call for 500 units to be placed at other train stations, airports and busy malls this year

The premiums on the small 1,5,10 gram bars offered from the machine are quite high and might impact sales but as a promotion and educational tool for bullion and the companies other online products these ATMs should be invaluable.

I’m actually scared these things will come here and I’ll have to fight temptation each and every time I to to the mall or Toronto’s Union Station which I pass through 10 times a week. While I would normally refuse to pay such premiums the sizes offered in these ATMs could be purchased with the kind of cash I often have on hand, making impulse control an issue. If these machines pumped out silver I’d probably never have spending money in my pocket again.

It would seem that Germany is somewhat more savvy than rest of the western nations, still it’s too bad they took part in years of Central Bank gold sales to suppress the price.

I think the biggest issue with the German position is how it will destabilize the EU. Do the Germans know that? Could their sound money policy cause the inevitable break of the union or at least a return to their own currency? Eventually I think it will.

Interesting stuff!


Anonymous said...

Hi Lord of Wealth,

Are you a deflationist or inflationist? Some ppl said we are heading into deflation but others said Inflation. What's your take on it?

If you do see inflation coming, what do you think the imapact would be on Canadian Real Estate market?

I live in Vancouver and this city is seriously overpriced. I am hoping that either deflation or inflection will bring RE price down here... hopefully by a lot

CSB said...

while the current scene looks like deflation because of the destruction of value in housing, stocks, commodities I do not believe it can continue. Too many major governments in the world are verging on broke, the U.S. U.K. both are in big shit, add in the other EU zombies, spain, portugal, greece, the baltic states, Hungary, and you see there is no choice to get out from under their debts is to print them away.

Yes current destruction of value is greater than creation but the expected and vast monetization of the U.S. debt will bring inflation.

For us it depends on the BoC is willing to destroy our dollar in order to keep the U.S. green back in trading range. I hope they do not, still, I expect inflation to come back I'm just hoping it is not the hyper inflation I believe the U.S. is destined for.

Historically inflations are very much the norm, delflation much less so.

Anonymous said...

See what the economist Nouriel Roubini said about the current and future state of our global economy

This is not going to end well...