Why Harry Dent is both right and wrong on deflation
Harry Dent has been predicting a massive deflationary crash for years, but it is yet to manifest. In a deflationary crash, he says, the price of gold will fall significantly, to around $700. A scary fall indeed for investors in the gold market.
He bases his analysis primarily on demographics and the coming exodus in stock market sales as the baby boomers hit retirement and need to sell their stocks in search of capital and income. The theory is a sound one and although Dent has been wrong about the S&P 500 turning over in 2016, it still feels like global markets are overdue a fall of historic proportions. We have the retail sector falling apart, personal debts reaching unsustainable levels and extremely slow job growth (using government statistics, if we use shadow stats we would see that there is no job growth).
The problem with Dent's forecasts is that he has not anticipated the level of government and bank intervention in the markets. Billions are being pumped into the markets to prop them up, while at the same time suppressing gold. Derivatives and High Frequency Trading AI are also used to manipulate prices and the mainstream media continually tells the population that we are in recovery, despite the real facts. It is no wonder that markets continue to reach new highs when the truth is obscured from view. At some point Dent's prediction for a massive market fall and a deflationary collapse will come true, but in the meantime governments have no choice but to prop the markets up.
The main problem with a deflationary collapse is that it would very quickly escalate into a total collapse, governments know this and they prefer the spectre of inflation, where they can continue to maintain some level of normality. The super wealthy continue to benefit while the rest of us have our wealth eroded. Money and debt will therefore continue to expand until it cannot.
Should a deflationary collapse occur we would immediately see individuals and businesses in negative equity on property, vehicles and other assets, the stock market would wipe out billions in personal wealth and debt defaults would reach record highs. In a world of Fiat currency, debt based money supply, debt defaults and falling stock markets would reverse the wealth effect pulling money out of the economy. With virtually no tools left in the bag, bar helicopter money and negative interest rates, governments would soon collapse as tax receipts would be unable to cover debt repayments, let alone maintain any public services.
We are already seeing hints that a deflationary collapse is on the horizon. Historically low interest rates and loose monetary policy in the US has been reversed which will more than likely create enough damage to initiate a recession. That will be the start of much looser monetary policy and much higher inflation in an attempt to try and stave off the inevitable deflation that Dent has been calling for.
However there is a problem. Government implementation of loose monetary policy will only create inflation, a la Venezuela, Argentina, Zimbabwe. They know this and they cannot risk western societies collapsing in the same way, because this would mean global catastrophe. The only solution is to create a global debt jubilee and introduce some element of gold backed currency. This would reduce burdensome government debts and allow individuals to pay down their debt in a new gold backed currency. It would alleviate societal collapse, even if enormous losses were experienced by banks and other financial institutions. This is where Dent is both right and wrong. Gold, in a gold backed currency would be worth many times it's current value. Everything else valued in gold would be worth considerably less. We would see a massive deflationary collapse in everything BUT gold, as gold again takes over the role of the incoming global currency.
I expect that Dent will eventually realise this and adjust his forecasts accordingly.
This is a theory not a certainty, but gold has always protected people in times of collapse, so no matter what happens, it may pay to have a little gold.
Sources:
http://www.goldcore.com/us/gold-blog/the-greatest-crash-of-your-life-is-just-ahead-harry-dent-warns/
http://www.zerohedge.com/news/2017-01-31/harry-dent-stocks-will-fall-70-90-within-3-years
chart http://www.livecharts.co.uk
image http://www.pexels.com
I like the way Dent Has demographics models and that is a nice tool to have in your toolbox.But i think he is wrong on gold because if it went to 700 dollars no one could find any to buy!
This is true. If Russia and China are buying huge amounts now, how much would they buy at that price??
Expertly Written Post - Interesting read, I cant help thinking I actually wouldn't mind seeing $700 Gold again - I would stack to high heaven, I'm sure most people will and then the physical will all be bought up very quickly - and then we get a new real price for Gold - I think we are at the bottom now, but you never know, the price riggers might have to smash to those levels to keep game going - Great thought provoking post @unclehermit
I've got no hair left to tear out if we hit $700!
Neither will I ;-)
Great post, very informative. I also like your thumbnail pic lol I love the kitties!
Thanks. Likewise re the thumbnail. Cat's are terrific animals.
Congratulations @unclehermit! You have completed some achievement on Steemit and have been rewarded with new badge(s) :
Click on any badge to view your own Board of Honor on SteemitBoard.
For more information about SteemitBoard, click here
If you no longer want to receive notifications, reply to this comment with the word
STOPCongratulations! This post has been upvoted from the communal account, @minnowsupport, by unc.hermit from the Minnow Support Project. It's a witness project run by aggroed, ausbitbank, teamsteem, theprophet0, and someguy123. The goal is to help Steemit grow by supporting Minnows and creating a social network. Please find us in the Peace, Abundance, and Liberty Network (PALnet) Discord Channel. It's a completely public and open space to all members of the Steemit community who voluntarily choose to be there.
If you like what we're doing please upvote this comment so we can continue to build the community account that's supporting all members.
The thing about it is, technically speaking, gold is completing what seems to be completing wave B of the ABC elliot wave theory. Though you wrote this post last year, recently gold has broke below the ascending triangle it was forming and is continuing the down trend. Other commodities are rolling over as well completing their B wave.
Dent talks about how commodities peak every 30 years. all commodities peaked back in 2008-2011.
The theory of gold being a safety play during a crash is a notion I believed a few months ago. I also believed silver could do the same. So much so, I accumulated 125 ounces of the metal in the past year. However, after more research, I have seen that gold has almost never moved in a positive direction during market crashes. During the 2008 crash, gold fell about 40% or so (of course it then continued it's trajectory a few months later to hit $1900.
As of right now I believe it is best to stick with what is trending higher and avoid everything else that isn't.
If this crash is around the corner, I don't want to be holding anything that is heading to the downside.
Alternative note investments and bonds are beginning to look attractive as well.
I found your article through google search. I'm very interested in the inflation vs deflation debate.
Hope all is well in your world.
Thanks for your reply - I've been pretty busy working on my business so not had much time to blog recently.
One point to note is that Gold does tend to bounce back after the crash. During the crash everything is sold to raise cash to cover debts, however, once the initial crash is done and loose monetary policies are implemented to counter the crash gold and silver tend to react to currency weakness and fear of currency collapse.
This time around it is likely that a global currency collapse will occur to counter massive derivative losses. To overcome this I believe a return to sound money will be the only solution.
The charts are telling us that gold is about to fall. I believe this is the beginning of the crash that will accelerate in the coming months. You might therefore be correct in your analysis and gold will fall, however, Dents view that Gold is a commodity is fundamentally incorrect. Gold is money. Currency is debt. Silver will become money as the people attempt to hoard it while gold rises to unaffordable levels.
When? The authorities will try to put this off for as long as possible through various visible and hidden means, and they are powerful, so it's likely that the crash may not occur fully for many months, but it appears that the wheels are in motion.
If Dent were to view gold as money and see that currency is just debt, he would no doubt agree with this analysis. Thus according to his analysis there will indeed be massive deflation against money (real money).
I see gold and silver as money too, but the only thing is that all of the traders out there treat it as a commodity. In a very long term perspective, you're better off buying the investments you believe in, but to someone like me who wants to time things, cash looks attractive at the moment.
Cash might provide you with the opportunity to buy at lower prices. At some point there will be a critical mass of people who start to see currency as worthless debt and realise the value of gold. This will occur as a result of a system breakdown, more than likely triggered by a derivatives collapse. Everything (including currency) is built on debt. The only safe haven during a debt collapse will be gold (and other valuable, storable assets). Crypto currencies will also benefit to some extent, but as people rush out of risk assets they will prefer gold to crypto's.
I've heard of the risk of derivatives. What will bring them to collapse?
Rising interest rates more than likely.