OT - a contained depression


When will we see an enduring rise in real and nominal interest rates? That would require a marked strengthening of investment, a marked fall in savings and a marked decline in risk aversion — all unlikely in the near future…The US recovery might not withstand significantly higher rates, particularly given the dollar’s current strength. Debt also remains high in many economies.
Ultra-low interest rates are not a plot by central bankers. They are a consequence of contractionary forces in the world economy. While upward moves in rates seem ultimately inevitable from current levels, it is likely that historically low rates will be with us for quite a while. Those who bet on jumps in inflation and a bond-market rout will continue to be disappointed. The depression has been contained. But it is a depression, all the same.

a depression that resulted in high stock prices? Makes no sense until you realize that the alternatives (bonds mostly ) are yielding very low return. And despite poor leadership in the government , the world is a far safer place today than it used to be .Today’s fanatics lack the ability of even a Mussolini to project power. If (when?) we get out of the contained depression and into real growth that should also support the market.
It ain’t over until it’s over applies to bull markets too. And anybody who held the types of stocks discussed on this board in 2008 and 2009 can remember how much of the profits and losses came from market cycles.

Maybe fiat money does not behave like gold money. Say you find a pirate’s treasure, you are going to try to take it all. Suppose instead that you move from a small room full of air to one that is much larger and has ten times more air. Are you going to breath ten times as much? No. Why the difference in behavior? Why does more air not create inflation when more gold does?

Money is like the joker in the deck of cards, it will substitute for anything. I give you money for your pig and you buy a car with the money. How is fiat money different from gold money? In that fiat money is perfect money devoid of any usefulness, all you can do with it is to exchange it for something else. Gold and silver you can use as jewelry and in various industrial processes.

You can go dig for gold but ordinary mortals can’t print fiat money. But you can borrow it cheap since it’s worthless. The only thing that jacks up the interest rate is the risk you are going to expose the fiat money to. If you promise to do nothing at all with it and return it eventually, the fiat money can be had for free. But if you are going to use it in a risky enterprise where there is the possibility that it will be lost, the lender has to charge interest to make up for the loss.

Once central banks use fiat money, the gold money tools stop working because fiat money is not the same as gold money. In fact, you no longer need a central bank to control money, only to print it.

Denny Schlesinger

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Denny, I can’t tell if you’re trying to make an argument for the return to the gold standard or something like it. I assume if you think about it, you will quickly see that only whackos like Ron Paul advocate such a thing. It would quickly destroy investing activities.

Jewelry and limited industrial applications while real are a real stretch for asserting the practical value of gold. Gold remains essentially without any productive capacity.

Warren Buffet has never held so much as a gram of gold for investment purposes says: We pay some guys substantial sums of money to dig gold out of a hole in the ground in order to pay some other guys a substantial sum of money to stand guard over another hole in the ground where we put it for safe keeping.


Funny thing is that the US has the highest interest rates in the developed world. This is a new normal. TLT, the 10yr treasury bond fund has performed better than the indices over the last year because the world is buying treasuries for the (comparatively) high yield.

As far as gold, it’s priced in dollars, and the strong dollar will drive it down on its own.

Companies are buying back shares at record levels and central banks are buying their own debt the same way, which is propping up some stock prices as well as bond markets.

That said, there are lots of great companies that are growing very fast and are far better for investment… but no rise in rates is coming anytime soon.

Just like in the old monopoly rules - “The Bank never ‘goes broke.’ If the Bank runs out of money, the Banker may issue as much more as may be needed by writing on any ordinary paper.”

Denny, I can’t tell if you’re trying to make an argument for the return to the gold standard or something like it.

I’m not. I don’t have an affinity for gold:

The Myth of the Gold Standard

Gold Bugs Bug Me

What Is FIAT Money?

I’m trying to understand money. Some of the things I say in the above essays now I think are wrong but it took massive central bank money printing to make me realize that my understanding of money was faulty.

My geography teacher used to tell us that you don’t understand something until you can define it. Not describe it but define it. Most “definitions” of money are just descriptions of the uses of money. That’s not good enough. Not even John Kenneth Galbraith was able to define money in his book of the same name Money, Whence It Came, Where It Went.

From my review:
“It will be asked in this connection if a book on the history of money should not begin with some definition of what money really is. What makes this strip of intrinsically worthless paper useful in exchange, leaves another piece of similar size without any such worth? The precedents of such efforts are not encouraging. Television interviewers with a reputation for penetrating thought regularly begin interviews with economists with the question: 'Now tell me, just what is money anyway?” The answers are invariably incoherent… The reader should proceed in these pages in the knowledge that money is nothing more and nothing less than what he or she always thought it was…" What a cop out!!!

Denny Schlesinger

Money: Whence It Came, Where It Went by John Kenneth Galbraith

A precious metal standard didn’t destroy investing opportunities in the thousands of years it was used. Some Romans were very rich even by today’s standards.

The modern world has moved beyond it.
Probably for the better. At least in most cases, excluding events like the Weimer Republic. I doubt if a gold standard will ever come back.

Warren Buffett never invested in any tech stocks either so he missed out on some of the biggest run ups in market history. In the last few years he has lagged the SP500. He invests in other things, some old tech ,and has done very well.But that doesn’t mean that the only opportunities are the ones he invested in. Only one or two of the biggest stock market winners over the last 20 years would have interested Mr Buffett


Some amazing gains and some surprises (to me) on the list . Middelby, ovens. A railroad.

Gold was a fabulous investment at one time. I can remember buying $20 US gold coins for $60 each. And getting silver coins for face value. 1964 Kennedy halves for 50 cents, now with a melt value of over $6.00 And the risk was literally zero, the halves are always worth 50 cents. Inflation didn’t change the return much for the first few years because appreciation was so fast.