I have written about the inflation/deflation debate on several occasions. The flag bearer of the deflation camp for years was Robert Prechter, this position has now been assumed by Harry Dent who is just as wrong and has as poor if not a worse track record. A client of mine was recently sent an e-mail by Mr. Dent which he forwarded to me and wanted my take. In a “nutshell” which I will crack into pieces below, Harry Dent wrote about a $1 bet that he made with Porter Stansberry 2 years ago when gold was trading at $1,650. He bet that 10 years into the future, gold would be lower than it was at the time. Harry Dent claims that gold is NOT a safe haven and that it will trade down to $700 in the next 2 years and will probably bottom between $250 and $400 by 2022. The letter said, “He’s looking good (so far)” and is written from what I would call a “gloating” standpoint, I believe he is delusional at best.
So how did he support such laughable numbers? He said the action of the dollar during the 2008 meltdown was “proof” that the dollar is the safe haven and that gold is not (because it dropped in late 2008). I ask this, is the U.S. government in the same financial position today that it was back then? …or do we have another $7-8 trillion worth of debt around our necks? What about future obligations and “guarantees?” Do we not have another $25-50 trillion worth piled up? How about the Federal Reserve? Have they not more than quadrupled their balance sheet over this time period via QE and other programs…undertaken to “save the world?” Are total dollars more or less plentiful today?
Dent says that there will be no inflation and supports it with and I quote, “Governments have been printing at unprecedented levels for 5 years now and there is little official inflation.” Wake Up! Really? This is the best that you can come up with? First off, what do you mean by “official inflation?” Do you mean the numbers that the BLS makes up and pulls out of thin air each month as opposed to “unofficial” inflation that real people really experience and really pay at the grocery store, their insurance companies, the gas pump, to their utility companies and let’s not forget to colleges? Or have you forgotten about “unofficial” inflation as in the rising prices of stock markets (that he says, will crash to which I agree very well may happen)? Do you really believe that there is no inflation?
I would be remiss if I did not remind Mr. Dent (since he claims to be an “economist”) that the DEFINITION of inflation is the creation of money itself, it is the government that has bastardized the definition of inflation into the “numbers” or the reports that they themselves create. Harry, you seem to have fallen for this one quite hard if you believe that “inflation” is the “movement” of prices …and the reports of such. The upward “movement” in prices is NOT inflation… it is the RESULT or symptom if you will of inflation …which is caused by yes, you know…the over creation of money. This is like someone who has a small headache because of a fever, the fever did not just come on for no reason, the patient is actually sick. The headache is caused by the fever and the fever is caused by an infection, just because the headache is not severe because you have taken some aspirin does not mean that the fever is not 106 degrees and the patient won’t die.
Mr. Dent also claims as “proof” that gold will crash is that it was in a “bubble” that has popped and is in the process of returning to whence it started which in this case is $250-$400. Really? A “bubble?” Why? Because as you say, “Anything that goes up 7.7 times in 10 years is a bubble?” Did you ever consider that gold was incorrectly “priced” at $250 in 2001 in the first place because the miners were (dumb enough) fooled into …and the Western central banks were (forward) leasing gold into the market? Have you ever taken into account that there are now 100 “ounces of gold” represented by paper that do not even exist …and never will? On this point alone I could argue that real physical gold should really be valued in dollars at $130,000 per ounce! I could argue that the true bubble today is in the dollar itself and in our Treasury market, it’s an easy case based on the numbers alone and the fact that dollars are certainly over owned all over the world. I could also argue that gold cannot possibly be in a bubble because it surely is not over owned with 1% or even less of Americans owning it… and how can anything be in a bubble if very few own it and it costs more to create than it is selling for?
Sorry Harry, you, just as your predecessor Mr. Prechter has used flawed foundational facts, “garbage in…garbage out.” You talk about the dollar strengthening throughout the Great Depression and this is your proof that if deflation is coming, when it arrives the dollar will become more valuable. Can I please point out that back in the days of the Depression, gold and dollars were interchangeable? Back then you were able to go into your bank with gold and receive dollars or …you could go in with dollars and withdraw gold. They were one and the same until 1933 when FDR outlawed the ownership of gold. How much “gold” do you think your local bank has on hand today? The answer is ZERO unless they break into the safety deposit boxes of their unsuspecting customers. The “link” between the dollar and gold was broken for citizens in 1933 and again to foreigners in 1971. Gold and the dollar now are mirror images (opposites) of each other and you make the conclusion that the dollar will do again today what it did back in the 1930’s …when in fact dollars were gold and gold was dollars.
With the above in mind, that dollars and gold are the opposite of each other, do you really believe that assets deflated in the 1930’s versus dollars (or was it really against gold) because there were too few dollars? Or could it have been because there was too little gold which dollars could be printed off of? Did dollars have value because they were “dollars” or did gold have value because it was “gold?” I have heard the saying “as good as gold” all of my life …have you ever heard the phrase “as good as dollars?” No, you have not and I will tell you why. Dollars are created by “man” at man’s will. The OVER creation of dollars (and all the other fiats) are the work of insane psychopaths pushing and pulling levers like the great Wizard of Oz (dollars and gold by the way were the hidden meaning behind the yellow brick road and the Emerald City in the movie). Gold on the other hand was created by nature, by God, by the world’s evolution whatever your belief may be. The point is this, there is only so much of it, it is difficult and costly to mine and “they ain’t making any more of it.” How much “cost” is there to simply printing a $1 gazillion note? Zero…which is exactly what it’s worth! The bottom line is this and please do not forget it, dollars (just as every other fiat today and every fiat before it) are someone else’s liability … i.e. there is a counterparty risk. Gold on the other hand is NO ONE’s liability (except for the horse’s bottom who has sold it short) gold is an asset and has NO counterparty risk unless you have accepted someone’s paper receipt for it. Gold is gold, gold IS money…dollars are paper…NOT money but simply a currency based on the “full faith and credit” of a bankrupt government. I do also want to point out the obvious, gold is still gold but today’s dollars are not even a shadow of what they were in the 1930’s. “Gold” was the value behind dollars back then…you are now saying that dollars on their own have value and that that value will increase? Harry Dent, you are a comic!
I have to say this, I am willing to go anywhere to stand up and debate you Mr. Harry “deflation” Dent. I would never bet you “$1” over the price of gold in 2022 because I don’t believe that dollars will even be in circulation by then. I would rather bet you $1,650 dollars versus one ounce of gold on the outcome. If I lose I pay you $1,650 in dollars, if you lose you pay up with 1 gold ounce. In this manner we both put our convictions on the line rather than some foolish $1 “Trading Places” bet. I of course would also be remiss if I did not ask how your “Dow 40,000” by 2008 forecast turned out. Could that have only happened if we went into hyperinflation years ago? I guess you have now flipped flopped with your “Dow 3,000″ forecast?” Please Harry, think this through, what you want us to believe is that pieces of paper that can be created at will AND for free will become worth MORE during a time of severe stress and when investors will be seeking safety and true value. Really? Are you delusional? Let’s get it on and debate this like real men! You will need to support all of your claims with logic, carnival barking and answering with the word “because” won’t cut it.