Inflation, Deflation, Confusion AHHHHHHH

The inflationists constantly remind us that it is the amount of money chasing goods that leads to inflation. It goes something like this... Simplistically, there are two people in the world, each one has one dollar. There is only one item to buy in the whole world, an apple. Eventually the bidding between these two people reaches one dollar because there is nothing else to buy in the world. Then I step in as the government trying to be re-elected, I flood the population by giving each of the two citizens one extra dollar. They now each have two dollars. The bidding for the apple continues and soon approaches the two dollar maximum. Simplistic inflation.

On a much larger scale, we must take into account the speed at which money is spent thus if there is two dollars in the world, but is spent electronically two times in the course of a day, the total real spendable money is the two dollars times the movement equally four dollars. Thus the deflationists suggest even though world central banks are producing trillions of electronic dollars, it is fundamentally not inflationary because, #1 the speed of the movement of money is decelerating, and #2 asset values for examples homes and stocks are going down in value. Both of these individuals are correct given the appropriate period of time for their reference. However the reality is the deflationists currently are correct because the movement of money and the loss of asset value far exceeds the electronic production of new money. An example...the current stock market losses are $8-10 trillion and the current housing losses are in the vicinity of $5 trillion. Even though governments have created a shocking $5 trillion of electronic money, by the above evidence we are clearly in a deflationary period.

Relative to the inflationists, the printed words continue to scream, "but they are printing more money." Although that statement today is true more money is being destroyed then created.

Let's look at tomorrow...
Two things will occur. At some point, the creation of money will equal or appear to be equalling the amount of money destroyed times the change in velocity of that money's movement. When that is perceived whether today or tomorrow or next year, inflationary forces will gain the strong upper hand.

How do we make money? There is no rush. Wait for the technical indicators of moving average crossovers and MACD's to tell us. Speculating is fun and fine but the real money will be made in catching the trend. The people that bought GLD, GDX, XLE etc.. have experienced losses of staggering proportions being 100% correct but one day early.

-The Doctor