Printing press vs deflation, who prevail?

The world seems to be worried about Europe situation ever since Greece ignited the Europe debts fiasco. Most people that not in the know, were shocked by the enormous debts of several euro nations. Triple digit of debt to GDP ratio seems to be norm in this region, but not everyone aware of their debts are only small fishes compare the staggering amount of United States debts. As of today, United States national debt is amounted to 13 trillion and counting, debt to GDP ratio is "only" 94%. On average, each taxpayer owes around $120,000.

Why western nations are in such a deep shit?
Well, western world has been spending more than they earn for a long time, contrasting to the Asian. They used to be the wealthiest and privileged nations in the world. Somehow, US are still seems to be wealthiest nations in terms of GDP now, at least in their own illusion. Before sub prime crisis, everyone is rich in US so long they “own” properties. Many of them bought more than one property to speculate in the seemingly never ending bull market, even though they don’t have money! This kind of sub prime thing will never happen in Asia, at least not in Singapore, where you have to fork out 20% of cash to fund a property purchase.

American got the wake up call after the burst of the bubble. To make the matter worse, US continue to spent unprecedented amount of money to fix the nation's economy through stimulus after stimulus. Why? Because no stimulus no liquidity, not liquidity no monies, no monies – businesses are dead. Ok, but where is the money coming from?

First, this is accomplished through debts, whereby Uncle Sam sells Treasury securities to other countries and institutes. Asian nations are the majority holder of US bonds (China, Japan, Oil Countries, etc).

Second, since they are running out of money, they create more money! This is through increasing the money supply on a high scale, to create enough "liquidity" for banks to make loans, therefore spurs economic activities. This is like dropping money from a helicopter, this explained why Uncle Ben has a nick name called "Helicopter" Ben.

As of today, there is a tight battle between deflation camp and inflation camp. The deflation camp says the economy is simply is too deep into shit. Dismal corporate earnings and high unemployment will keep the prices low for a long time. The inflationist says the Fed that headed by Helicopter Ben, will do anything to fight deflation, including printing more and more money out from thin air.

So who is right? In short term I have no clue. As of today, US Federal Reserve Chief Ben Bernanke insisted to keep the interest rate low amid the potential threat of double dip recession, and warns of uncertainty in US outlook. However the Fed also signaled today that no moves were imminent to bolster the economic recovery despite a "somewhat weaker outlook".

In long term, I strongly believe the mounting deficit and struggling economy will force Fed to continue to flood the market with liquidity. Those monies that they printed out of thin air, basically by monetizing the bonds, will come back and haunt them someday. USD will continue to devalue until all the hard assets that priced in USD become “astronomical”. I think the demise of the reserve currency is not too far fetch to happen in my life time, perhaps even in the next 10 years. Those of you that read history should aware that no paper currency survives forever. Only real money can survive forever, that is our precious gold and silver.

The Monies Story

Why am I talking about money, everyone knows what is money, at least it seems.

Money is something that a 5 years old kid can understand, yet it can be something that a highly educated adult not understand.

What is the definition of money? Simply put, money is something that your society recognize and accept as payment for stuffs and services.

The evolution of money begun when human started trading. They started with barter system, which is not very efficient. Later, the use of commodity money eventually developed. Example of commodity money are base metals like copper and nickels, salt, corns, large stones, shells, barley, etc. They can be so weird that you can't imagine.

All these commodity money have one big problem: they are commodity. Being a commodity means they are abundance, easy to mine or grow or harvest. They are hard to divide and impossible to standardize in a larger society. Some of them are edible and can go bad over time, some of them are immobile (ie: A giant stone).

Later, commodity money gave way to representative money.
Representative money consists of coins, or papers that can be exchanged for a fixed quantity of a commodity, ie: gold or silver. The value of representative money stands in direct and fixed relation to the commodity that backs it, while not itself being composed of that commodity.

Gold and Silver has been widely adopted as common money in many cultures and time frames in the human history. One of the most famous form of representative money is the evolution of Gold Standard.

Why gold and silver are the ultimate form of money?

• It is a store of value (Even your grandmother knows it, precious metal is the best bet against paper currency devaluation.)

• It is precious and scarce (We can't simply use a piece of plastic, wood or rock as money, else the world would quickly flooded with such currency and diluting its value. )
  

• It is uniform, (one troy ounce of 999 purity of gold coin is theoretically equal to another one troy ounce of 999 gold coin. Even though diamond and gem stone are scarce, they differ in terms of grades and qualities) *Note: Gold and Silver Coins carry different premiums depend on the producer, forms, popularity, liquidity, rarity, etc.

• Its divisible, a few thousands years ago, human already know how to make precious metal in various form to use as money.

Finally , we have fiat money.
Today, when you pull out your "money" from your wallet, be it USD notes or SGD notes, to buy some stuff from grocery store, the store keeper happily accept it, because your paper money is officially recognized as something valuable as stated on the paper. Have you ever just what is backing your currency notes?

Lets try to understand what is paper money, or fiat money.
Fiat money's value is not derived from any intrinsic value or guarantee that it can be converted into a valuable commodity. Instead, it has value only by your government order. When your government declare this piece of paper note worth this amount of breads, you are unlawful to say no, because the government make these papers to be legal tender.

So, if fiat money is not backed by something real, what are the things that backing fiat money?
You may be surprised! The answer is debts. I will touch on this on later posts.

Welcome to Bullion Investment Blog!

Hello there, this is my first rant in this blog, finally.
Like many people in the financial blog sphere, I am a investment enthusiast and a avid reader, specifically interested in financial world.

Why I start this blog?

I think we are living in a very interesting time. Things may get even more interesting ahead of us. We could be living in the end of a cycle, or the beginning of a new cycle.

We witnessed the peak of the stock market around 2001, and then the dot com bubble was deflating at full speed and hit the low in less than 3 years time.
We witnessed the property bubble burst in 2008, when people were talking about the end of capitalism. Then the stock market came back with a vengeance from March 2008 low.
Now there are gurus talking about double dip recession and there are other gurus talking about real recovery.

My take, is that we are going to see a lot of volatility and uncertainties. But in mid to long term, we are moving to another cycle, where some will prevail and some falter. I think the understanding the mechanics and signals of market and world is of paramount importance to survive this wealth transfer cycle.

I started this blog to share my opinions and investment ideas, and hope to spur intellectual discussions and debates.

As you can read from my blog title, I am especially attracted to precious metal investment theme, some call us gold bug or gold bull, whatever.
I have immersed myself into equity investment since I was young, but the idea of precious metal investment never came across my mind until recent years. As I understand more and more about this world, financially and politically, it opened my eyes. It sorts of explaining the behavior from government and elite groups, and why things happened in certain ways.

The subsequent posts in my blog will be highlighting the case of bullion investment, latest news and developments in financial world that relevant to the theme of this blog.

I sincerely hope there will be something that you learn and ponder about from this blog.