Just started my stack. Starting small and slow while I research. I have been doing a bit of reading and it seems that a lot of the potential upside for precious metals comes from the expected devaluation of the US dollar. Does anyone have any articles or links about predictions for the AUD price of precious metals if the US is faced with high inflation? I'm not sure if our smaller government deficits will provide the AUD with some protection and hence mute the increase in PM prices, or if the flow on from the US will simply be overwhelming to all fiat currencies. Any pointers would be welcomed.
All fiat currencies will devalue along with the US dollar, elbeit possibly as a slightly lower rate of decay. However, since we readily accept the US monopoly money here in Ozzstralia we will go down as well. Remember that for each monopoly dollar entering Ozz the RBA has to print an Ozz monopoly dollar (out of thin air) to 'absorb' it ...
Exactly. Because the USD is the world's reserve currency, as they print more dollars they actually 'Export' inflation to nations all over the world, hence food riots in mid eastern countries and inflation issues in China etc.
HUH ? why ?! our currency is floated, we aren't pegged to the US dollar, so we print yes, BUT for our own reasons, not simply because america prints then we would print to. If that was the case our inflation would be much higher then what it currently is .... China would actually fix their inflation problems if they floated like us, but of course that is a topic is for another discussion...
Worst case - total meltdown of Wall Street and dollar is valued at paper weight. Everyone flees to solid things of value. Riots in the streets - see Argentina's version of this. Best case - Australia attends to its own emergency by quickly decoupling the Aus dollar and govt guaranteeing it. Both cases are bullets and beans territory and PM holders will find bargains everywhere. Most likely in my opinion is a couple of weeks of terror in the markets, sheeple panic slowly and by the time they're ready to make real problems the new world currency is established and 5 years of rebuilding on that happens. In the meantime the middle class has disappeared and we have the elite rich, their servants, and the vast population of serfs - not a lot different to what we have now but more stark. PM holders could become the yeomen of old in the best case if this transpires. As the Zen master said - all that's left to us is to have a good laugh.
hence my tag julie im highly amused at the world &systems in place anger is such a useless emotion maybe i should have been a zen master
The RBA would print an AU dollar for every US dollar entering the banking system of Australia - not for every US dollar in existance. Got nothing to do with being pinned to the dollar - only to do with the fact that we accept US dollars as payment for property, commodoties and anything else you can buy here...
In fact thats exactly whats happening in China - albeit to a much greater extent. US funny money enters China and the PBC then has to create yuan out of thin air to cancel/absorb every US dollar which enters China as "payment" for goods exported to the US. hence the amount of yuan is exploding, causing serious inflation in China. the US literally exports its inflation to China - and every other country that accepts US dollars as payment. its the US's main export product today... savvy?
No , thats fine, its a clean SWAP for goods purchased, they buy AUD to buy AUD products, this has nothing to do with inflation when US buy commodities from us. When US print more of their dollars it takes more of the USD to buy the same commodity here in australia so this is no problem to us its their problem cause its more expensive for them. One day we might be asking for 1 american dollar to buy a bag of sugar but then as they print more we will be asking 1.50 USD hence our dollar rises against their money. Inflation for them YES, inflation for us NO. Why do you think the AUD rises when american dollar starts to tank ?! Thats because how much america prints has nothing to do with our money directly (in directly of course there is as all economies are joined but directly NO) Yuan should be rising their economy is strong but its not the case right, yuan is still very lowly valued and isnt even floated, its cause china maniplulate their money for their benefit. In China it is happening WHY ? Cause china has their Yuan pegged to the dollar, AND THIS HAS EVERYTHING to do with why they have higher inflation then we do. If china want to keep their goods cheap, as america start to print a crap load of dollars the YUAN will start to rise. If Yuan gets too strong china will no longer be able to export their goods at the extremely cheap prices that they do now. In order to maintain this balance china Prints MORE then america so that the YUAN is more Abundant then USD and hence priced lower (remember its all about supply and demand and china is increasing the supply of their yuan to devalue it lower then USD) People in china obviously earn Yuan so what this means is their is more YUAN chasing the same amount of goods. Reason being china want to keep that peg to the us dollar (that peg which keeps them below the us dollar, keeping exports strong) and it means that the price of goods must go up to keep up with the amount china is printing to maintain that peg. In short its good for the macro economics of china but terrible for its domestic economy. With Australia its different, america print, we say whatever, our dollar rises (and its done that, remember when it was 70c usd for 1 australia dollar, look at the yuan, ratio is pretty much the same cause they have maintained that ratio) In the long term tho, if we start to become uncompetitive to countries like brazil with regards to exports of iron ore (as a result of our $ becoming to strong) australia might take some action to keep some sort of ratio.
The inflow of foreign currency into Australia has NO effect on the money supply in Australia via OMO's (Open Market Operations). The supply of foreign dollars into Australia would result in the Price of Australia dollars rising, with the net effect being NO change in the total number of Australian dollars in existence. eg. 1 million USD into Australia means $1millionAUD in return at 1:1. Lets say all of a sudden 100 million USD flows into Australia. The Government doesnt "print" more money to match. Instead on the open market either: a) more $A are made available by those that hold them (banks etc) OR b) the exchange rate changes. Say NO more $A were made available in the above example, the exchange rate would go from 1:1 to 100:1. So $100 million USD would buy $1 Million AUD.
Thanks for saying it in such simple way Australia getting USD's has no effect to our money supply (not in australia). America Does not import inflation to AUSTRALIA (directly, indirectly maybe). BUT America does import inflation to china. It is however up to china to accept it. At the moment because of their large reliance on exporting, they must import it from America and Must accept it. We here in aus we dont maintain a peg so the more america has no direct effect on our dollars.
China is affected more than Australia because they sell more goods to the USA than Australia do. Think about it this way: As the USA buys goods from Australia, USD are used to pay for the goods and enter the economy which is then converted to AUD. So more AUD is being created to account for USD entering Australia.
If you still don't agree, ask yourself what happens to US dollars when they come to Australia, they don't just disappear, they are converted to AUD.
What Mathew stated is correct, just do abit of research. By the logic you gave, i guess it means when i use my fiat AUD to buy gold, more gold was generated out of thin air when i exchanged my aud for physical gold ?! Course not, it just means, the amount of gold in circulation just decreased. What was once 1000000 ounces in the market just went to 999999 ounces after i bought my one ounce, Now gold is more rare by one ounce and the price rises accordingly. Just as is with australia dollars. There is a certain amount of AUD in circulation. Once someone in US buys AUD there is just less of it in circulation, hence the price of AUD (exchange rate, goes up). Look at the whole economics, why is the AUD rising, because it is in demand, why ? cause china is buying all our commodities along with many other countries, so they purchase AUD so they can purchase our goods hence higher demand for AUD, hence price of AUD goes up, cause there is less of it around and is in high demand. Once this stops and people stop buying the AUD, the price will drop. (its just the basics of supply and demand) Again why is china going through massive inflation, because of the PEG, look it up, Obama EVEN said in his speech that china can fix their inflation problems IF they let their currency float. This is correct, its one of the few things that Obama has said that is correct... Please reference this and other similar articles http://caps.fool.com/blogs/allowing-yuan-to-float-only/15412 So again, the MAIN reason why chinese have much larger inflation is because of the PEG they maintain with the USD. And again, because we DONT maintain a peg to the USD we dont have inflation as bad here in australia. We dont care how much america prints, just cause america prints a gazillion new USD notes , we dont need to maintain a peg so we leave whatever AUD in the market as is, when someone buys our AUD it just decreases the amount in circulation and allows it to rise as the amount of AUD in the market gets scarcer (of course there are other things at play but this is the basics of it and the main difference between aus and china). China on the other hand will print 2 X gazillion so their YUAN can stay below the USD to allow their exports to be more cheaper then what the US can produce. If China where to open its reserves and let all that money out through lending it would blow inflation right out of control...most of that money that china has is in its reserves. China has massive monetary inflation and has price inflation too BUT its price inflation is nothing compared to its monetary inflation. If the two matched chinese people in china would be in dire straits.
Well no more AUD are actually "created". Rather those who hold AUD like banks, Super Funds etc choose to offer for exchange some of their AUD for the incoming USD in the FOREX market. Like any supply/demand market, if more USD are offered than AUD the relative value of the USD will fall and visa versa. If you have a fixed exchange rate then the above is not always the case because supply/demand forces are not at work. Think of it this way, if you go to the shop to buy an apple and 100 are for sale but there are 200 people there each with a $1 coin - what happens? 1 of 2 things. The price of apples goes up to $2 each thereby every person still gets half an apple (or 1 apple to 2 people) OR if the price is fixed at $1 there is rationing so half get an apple half miss out. Usually price is the rationing method used in capitalist economies, that is, the apple would rise to $2 in price. But in a command or communist type economy then rationing (remember the huge bread ques in the Soviet Union?) is used instead.
