Inflation, deflation and stagflation

Episode 75: GoldMoney’s Alasdair Macleod talks to Jason Burack of Wall St for Main St, and Ron Hera, founder of Hera research. The three of them discuss inflation vs. deflation, the debt bubble, economic stagnation and the corresponding investment implications.

Hera explains that inflation and deflation are a function of the money and credit supply, and not primarily a function of the price level – although changes in the latter are ultimately a consequence. He states that the enormous and unsustainable credit bubble (both private and public) lends strong support to the deflationary scenario. The men agree that measured in gold, there can be asset price deflation while prices measured in terms of paper currency continue to rise.

Further they point out that our monetary system is inherently inflationary, and unsustainable without constant growth. We have now reached a point where expansion can no longer be sustained. Burack says that the government sector is crowding out the private sector. Japan appears to be the unpleasant blueprint of what is to come for many countries in the West.

They also discuss the possibility of longer-term stagflation and financial repression. Hera states that governments and central banks can prolong this system against the forces of the market for much longer than many anticipate by printing money and suspending accounting rules.

Finally they talk about the outlook for gold and silver prices. Burack mentions the coming change in the Basel III rules that could increase banks’ demand for physical gold. They also discuss the integrity of official gold reserves and ETFs. In the face of our fiscal and monetary challenges, the three expect precious metal prices to continue to rise.

This podcast was recorded on 27 November 2012.

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Alasdair started his career as a stockbroker in 1970 on the London Stock Exchange. In those days, trainees learned everything: from making the tea, to corporate finance, to evaluating and dealing in equities and bonds. They learned rapidly through experience about things as diverse as mining shares and general economics. It was excellent training, and within nine years Alasdair had risen to become senior partner of his firm. Subsequently, Alasdair held positions at director level in investment management, and worked as a mutual fund manager. He also worked at a bank in Guernsey as an executive director. For most of his 40 years in the finance industry, Alasdair has been de-mystifying macro-economic events for his investing clients. The accumulation of this experience has convinced him that unsound monetary policies are the most destructive weapon governments use against the common man. Accordingly, his mission is to educate and inform the public in layman’s terms what governments do with money and how to protect themselves from the consequences.

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