Paul Krugman: Genius

4 Responses to “Paul Krugman: Genius”

1. Hard Rain says:

   July 22, 2011 at 12:19

   This graph tells me all I need to know about price of gold:

   http://www.zerohedge.com/sites/default/files/images/user5/imageroot/draghi/GC%201_0.jpg
2. JoeSmith says:

   July 26, 2011 at 07:33

   Hi, I would like to get some opinions from HA on something for a layperson .. I’m watching with some trepidation as the US and Euro kleptocratic ponzi fiat scams appear to be spiraling toward their logical conclusions faster than ever. What I’m wondering is what is likely to happen to the Rand if all this comes crashing down, is it going to go down with the other currencies or is it possible that some capital will seek relative safety on our shores, driving it up? Secondly if I have a SAn property homeloan, would my payments actually become cheaper to afford as our currency devaluates (assuming I keep my job), or would the economic downturn make it harder to service my debt – how bad will the depression be? Will owning the property help hedge against inflation? Finally, assuming I have (say) a R600K home loan but R300K cash in an access bond, is that R300K best left in the access bond or would is it probably going to be better to draw some of it and buy gold?

   I meant to attach this to “rand price of gold” but can’t seem to leave comments there. If you don’t have time to answer, I understand.
   • JGalt says:

     July 27, 2011 at 12:07

     Hi JoeSmith, it’s really tough to call exactly what will happen to the Rand and in what order in an acute currency crisis. The SARB holds about 80% of its assets in foreign currency, mainly USD, EUR, and GBP. As these currencies are debased, so too are the assets backing the Rand, and hence the Rand loses value in a qualitative sense if not quantitative. If the rate of implosion of these FX reserves had to accelerate, the SARB would need to print it up to stay solvent as well. Unless the SARB comes to its senses and backs the Rand with more precious metal, we don’t have high hopes for the future of the Rand.

     Yes, your homeloan will be cheaper to service in real terms as the currency is debased. What is key, however, is that you are near the printing press and can get hold of newly printed money when it is injected into the economy. This puts you ahead of others in terms of paying your bond with new Rands that still have the old purchasing power. Personally, I have mostly delevered, and am renting in order to be nimble in the future. Things can change very quickly, and being prepared is important to me right now.

     I believe precious metals will be a better hedge against the monetary inflation than residential real estate. Farm land is another story, however. No doubt a paid-off home will be a great asset, but I don’t want to be near a major city during a currency collapse. (Read “When Money Dies” by Adam Fergusson to see why I say this.) I guess prioritisation of what assets to hold is key, and residential property in a major centre is near the bottom of my list at this stage.

     On your last question, I can’t really advise on this owing to the numerous personal factors you need to consider. Age, financial position, financial goals, risk/reward profile, etc. Using your Rand savings to buy gold and silver and then one day cashing that in to pay down debts is probably a safe strategy.
3. ad says:

   August 1, 2011 at 14:33

   I agree JGalt with your preparations, exactly what I have done; mostly delevered, renting and savings in gold (both bullion and krugers) and some silver.

   On the rand the SA gold reserves are MTM and will balance losses in the dollar. I calculated that relative to economic size SA would only need to add between 30 to 60 tons of gold to the existing reserves to equal the reserves of the EU and the US, the largest holders. We have an estimated 6000 tons in the ground which will in itself back the rand and does to a certain extent already.

   The biggest problem however is mismanagement and interference in the economy by the government as you always point out. The disastrous land policies and continued decimation of the agricultural sector and exodus of farmers for one is bizarre. One would think that anyone could connect the dots between rising food prices worldwide and the advantages of a thriving agricultural sector.

   On another note Moeletsi Mbeki made a statement recently which not a single journalist has picked up as usual. Personally I would love to hear his ideas on this, perhaps an invitation for a guest post?

   South Africa’s future was grim under the ANC government because of its refusal to modernise the monetary system, or the labour force, to keep up with the times.