Hi Forum I am an economic novice but am extremely curious about the subject so please correct anything that needs correcting I like to think in logical strings so here goes Banks along with the Reserve bank have the ability to increase the supply of currency in Australia Reserve Bank by issuing bonds Banks by issuing credit for home, car, personal loans etc The additional supply in an economy causes inflation as there is more currency chasing the same amount of goods Gold prices increase as a reflection of the supply of money in an economy Contraction Is contraction a market revaluation of an asset? A senario Ponzi Bank calls in a home loan because the mortgagee is 3 months behind on repayments The house is put up for auction and the resulting sale is 20% lower than initial agreed home value This happens to 10% of the community Is this a contraction of the housing market? Does the electronic credit issued by Ponzi Bank evaporate with the markets revaluation of the asset and therefore evaporate inflation? I am confused about why there is no signs of rapid inflation caused by QE1, QE2 (i figure it has to filter through an economy???) If my version of contraction is right, doesn't that mean that gold can be repriced dramatically to the downside as well as upside? Sorry if this is too simplistic Cheers Alfie
^^^ Yes Ponzi money equivalents fraudulently issued by FRB system is written off when you default or eventually pay off the debt. Deflation was the primary beast in the absence of the QE policies. RE implied gold price is a bit trickier as you are depending on the role of gold during the deflation you are talking about currency exchange rates. Broadly purchasing power of gold should be improved even if the nominal price falls.
