[KingM]

$this->bbcode_second_pass_quote('scienceteacher', 'A')nd what about silver. Anybody here think it will return to $20+ -and if so when? I've lost a fortune.

[DantesPeak]

WHy is the dollar index a deflation index? The US dollar, which is actually issued only by the Federal Reserve, is mostly backed by loans to banks and brokers, plus various mortgage backed securities and derivatives.

Previously the dollar was almost entirely backed by US government debt.

How can a huge drop in the dollar's intrinsic value be deflationary?

The dollar index only measures a perceived value change vs. other currencies. A deflation index should be similar to a cost of living index.

The cost of living here in the US is rising faster than last year, mortgage rates and real estate taxes are moving up. While the value of existing homes is falling, it's not clear if the cost of buying a new home is falling. The cost of most everything else is going up.

[threadbear]

$this->bbcode_second_pass_quote('scienceteacher', 'A')nd what about silver. Anybody here think it will return to $20+ -and if so when? I've lost a fortune

[mattduke]

It's difficult to perceive timescales greater than a couple months, isn't it?

[kjmclark]

$this->bbcode_second_pass_quote('scienceteacher', 'A')nd what about silver. Anybody here think it will return to $20+ -and if so when?I've lost a fortune

[LoneSnark]

Sorry scienceteacher, not anytime soon. Remember the old axiom: buy low, sell high. Holding precious metals is always a good idea to hedge against societal collapse. But you should have bought it years ago when silver was cheap, not recently when silver was expensive.

Afterall, anyone can tell that society is healthy enough right now (there should be several years of street riots and total warfare before collapse, I suspect). As such, I went ahead and sold all my gold for $940 an ounce (paid $360 an ounce for it back in 2001). That makes me goldless, but I feel confident I can buy it all back in a few years, well before anything serious will have a chance to go down.

[shady28]

$this->bbcode_second_pass_quote('DantesPeak', 'W')Hy is the dollar index a deflation index? The US dollar, which is actually issued only by the Federal Reserve, is mostly backed by loans to banks and brokers, plus various mortgage backed securities and derivatives.
Previously the dollar was almost entirely backed by US government debt. How can a huge drop in the dollar's intrinsic value be deflationary? The dollar index only measures a perceived value change vs. other currencies. A deflation index should be similar to a cost of living index.
The cost of living here in the US is rising faster than last year, mortgage rates and real estate taxes are moving up. While the value of existing homes is falling, it's not clear if the cost of buying a new home is falling. The cost of most everything else is going up

[Heineken]

$this->bbcode_second_pass_quote('scienceteacher', 'A')nd what about silver. Anybody here think it will return to $20+ - and if so when?

I've lost a fortune

[Heineken]

$this->bbcode_second_pass_quote('shady28', 'I')'m not sure where to begin with this - most everything you said here is either false or seriously distorted. First, no one said the dollar index was a deflation index. I posted the link simply to inform. Clearly, some don't like people being informed ... --snip-- This is a classic inflationary boom driven by debt, followed by a deflationary bust as the debt bubble implodes. The commodities market was simply the last of the big bubbles - bubbles are the places investors look to put their money (hoping that they will get out before the next guy). Now that there are no bubbles left, there are only two good bets : cash and treasuries.

[BigTex]

$this->bbcode_second_pass_quote('shady28', 'N')ow that there are no bubbles left, there are only two good bets : cash and treasuries.

[MrBill]

Some commodities denominated in USD dollars are stronger, while some are substantially weaker.
[align=center]S&P Commodity Price Index[/align]
[align=center][/align]
[align=center]Rogers Commodity Price Index[/align]
[align=center][/align]
The USD is weaker against some currencies, while it is substantially stronger against some others. Keeping in mind that USD interest rates are quite a bit lower than in many other countries, so those interest rate differentials should in fact point to a much weaker US dollar, but it isn't at the moment.
[align=center]USD against EM currencies[/align][align=center][/align]
[align=center]USD against Major currencies[/align]
[align=center]
[/align]
That is not because US fundamentals have dramatically improved, but shows how the quickly the rest of the world has deteriorated. A global slowdown is going to pull commodity prices down, especially as measured in a basket of currencies and not just US dollars, while causing deflation in many other assets that were bought at high prices with borrowed money that now needs to be repaid and/or those assets need to be sold. Deflation.

[shady28]

$this->bbcode_second_pass_quote('Heineken', 'A')ren't you forgetting a few things? New demand for commodities from China, India, and many other countries is now in place that simply wasn't there before. Demand might fall from where it was a year ago, but it's never going to fall to where it was in the last boom-bust cycle.
World population continues to rise. Most resource bases continue to shrink, erode, degrade, deplete, even under conditions of temporarily reduced total demand.
What about food prices? They aren't falling, and you can't get more basic than food. Future bubbles are baked in, because the pie keeps shrinking and the pie eaters keep multiplying.

[Heineken]

$this->bbcode_second_pass_quote('shady28', '1') - Food prices are falling. The spike in food prices in the first half of the year is old news. -0-snip-- "SNS & PTI NEW DELHI, Sept. 10: Growth in six core infrastructure industries dropped to 4.3 per cent in July 2008 from 7.2 per cent a year ago, which economists feared could stunt the expansion of an already slowing economy."

[MrBill]

No, you're right, Heineken. Wealth is turning natural resources into value-added products that can be sold to someone else at a profit. No natural resources then no wealth creation. This is Mother Nature's limit to growth. However, I do think that N. America has more natural resources than, say, Chindia. What they have is labor. They still need to add value to that cheap labor by turning natural resources into something of value that they can then sell at a profit. There is a role here for Africa, Asia and S. America to play to provide those natural resources, of course, but they still have to overcome some of their own development problems such as BIC Syndrome that often means that high commodity prices are not necessarily turned into economic wealth. Or at least not broad based wealth.

[Heineken]

I agree that the chewing-up-resources game has a way to go yet, Bill. But it is a one-way street called "Madness Alley."

[shady28]

$this->bbcode_second_pass_quote('Heineken', 'W')hat is your source for your claim of falling food prices? I certainly haven't seen that at my grocery store.
I didn't say that demand couldn't be destroyed. I said it can't be destroyed back to pre-boom levels. Not without a Depression or a Dieoff. Giving the depleting resource base and rising inelastic demand, the boom/bust cycles will inevitably lead to higher prices for commodities, over time.
Some of what Bill wrote makes sense, but those are temporary technicalities. What too many of you financial gurus overlook is that wealth isn't money, it's resources. Commodities. You fail to adjust for the deterioration of the environment, which is the source of everything.

[frankthetank]

Shady-

You're wrong. At least for those of us who live in Wisconsin and grocery shop. I shop for food at least 3 days a week (never eat out) and i pay very close attention to prices and increases. The ONLY thing i've found that i buy (wide range of products) that has decreased has been Stevia (sugar alternative). That came down a couple bucks for some reason (its expensive and i should give it up). EVERYTHING else is more. I just witnesses a large block of cheese i've been buying jump $2! From $7.50 to $9.50... I've also noticed meat prices. I use to pay $1.50/pound for ground pork this past winter...now its $2.29... Cooking oils have increased. The price of rice has skyrocketed. The cost of a can of kidney beans just took a few cent jump last time i was in there. A jar of peanut butter went from $1.79 to $1.99...that just happened this summer. A bag of frozen cherries we buy went from $6.50 to $7.09... that happened just a month or so ago. I consult with others, and everyone says the same thing...

I want real world data...

[Heineken]

$this->bbcode_second_pass_quote('shady28', 'F')alling food prices can be seen in the commodities indexes first. You can see that at bloomberg.com, the charts Mr Bill posted, or just google for CRB. Most food prices have been falling rapidly for the past couple of months - far more rapidly than they rose. When we say the commodities indexes are crashing, that most certainly means many kinds of foods are crashing with it. In fact, it appears to me that food related commodities have *mostly* been tanking faster than oil and gold. --snip-- That's not that bad considering what happened to real estate and stocks, but it's not nearly as good as having cash...

[threadbear]

Currently, there are deflation expectations that will drive commodities lower, perhaps much lower. Inflationary expectations helped drive them into the stratosphere in the 18 months prior to August '08. We are going from overbought to oversold conditions. It will take until AFTER the elections, before it shakes out. The invisible hand of "the market" turns out to be govt manipulation, promises to foreigners (Saudi Arabia in particular) and how people respond to the triggering effects on various markets, by same.

[threadbear]

Shady isn't wrong, anymore than anyone else on this forum. He is looking at one set of variables, while others focus exclusively on others. He may be right. The US dollar may turn out, through international support and domestic behind the scenes manipulation, to be the next desired asset. Personally, I think you HAVE to figure resource depletion, particularly in oil, into the equation. Whether the Saudis will or can, drive the price way down, for the long term is a huge question.