-- Posted Friday, 30 May 2008 | Digg This Article | Source: GoldSeek.com
Rick’s Picks
Friday, May 30, 2008
“Phenomenally accurate forecasts”
We argued here yesterday that although hyperinflation is remotely possible, it will not be the result of a political decision, since the consequences would be too grave, devastating the savers who are the life’s blood of credit markets. If hyperinflation does come, we believe it can do so only via a mortgage bailout effort that mushrooms out of control, eventually encompassing all debtor households. Our essay elicited an interesting response from, among others, “Karl,” a self-described gold-bug with whom we have corresponded regularly. He believes the powers that be made a conscious decision years ago to hyperinflate, and that the process is designed to transfer wealth to those who silently rule our financial lives. Karl’s thoughts, immediately below, are followed by our brief response.
Metals Hold Key
“I found myself nodding my head in agreement with your latest. I think the point that is lost on many who are in the hyperinflationary camp is that we want to equate a parabolic rise in prices being the end result of whatever the Feds of the world are doing. I want to equate this to the metals and what it may mean down the road.
“First off, I don't feel that we need to see a Weimar-type scenario for the metals to continue higher. The bottom line is that the rest of the world still looks at gold as a monetary metal (or a store of wealth) and acts accordingly. That we took Our currency off the gold standard was because the accountability that gold held bankers and countries to, became too restrictive. Gold and silver have always been money, and as much as we in the U.S. haven't looked at it that way since Nixon took closed the gold window in the early 70's, we still need to look at the two, gold and dollars, in relation to each other. By that, I mean that it's not so much how much (and when) prices rise or have risen, but the relationship between the amount of dollars created against the amount of gold that is out there. At least, this is how I feel we should be viewing it.
Obscene Relationship
“When you do that, you see some sort of obscene relationship that puts gold's value relative to the number of dollars created in the 30 to 40 thousand-dollar range.
The world is shifting away from dollars because of our perceived inability – ever -- to get our fiscal house in order, and folks still want to think that the inflation is about higher and higher prices. Granted, we may continue to see higher prices for goods, but we don't need a hyperinflation in prices to tell us hyperinflation has arrived: We already have it in the number of dollars (and yen and euros and pounds, etc.) created.
“Consumer confidence is everything, and keeping the consumer confident that his currency will remain valid is paramount. But that is here in the U.S. The next economic powerhouse will be Asia, and that mantle was passed on by the bankers. They love gold over there. India too. I think everything that is happening is designed to keep the consumer confident no matter how many lies have to be told. I recall Paulson saying of the stimulus plan that if more stimulus was needed, it would come. It doesn't sound as if they are going to do the responsible thing. As a matter of fact, I think they took this path intentionally.
Why Continue Pumping?
You said this: "Ruinous deflation would be a fait accompli by then and there would be little point in effecting a hyperinflationary rescue. Deflation would simply be allowed to run its course, with the government restructuring mortgage contracts so that each of us would continue to make monthly payments commensurate with our means." But answer me this: If allowing the proper economic consequences [i.e., deflation] to take hold is where this will lead (rather than continuing to print money ad infinitum), then why continue to pump up the money supply now?
If I were to answer that myself, I would say that they want to accelerate the transfer of economic power. I really don't think this stuff just happened. Many discussion forums have talked about our being led down this path intentionally over the last ten years. I could talk about other things at the risk of sounding like one of the tin-foil-hat crowd, so I won't go there.
It appears they have two options: Inflate or deflate. Both lead to the same place eventually.
Our response:
Thanks, as always, for you insightful reflections, Karl. I had thought to mention in my essay, as you have below, that hyperinflation and deflation do indeed lead to the same place; however, I decided I’d gone on long enough already. But you are surely correct about this, since hyperinflation is by definition unsustainable. And once it has peaked, how could it possibly precipitate out other than as a deflationary bust, bringing abject and widespread destitution in its wake?
However, I have a real problem with the idea that “They” have engineered things so that all of the wealth and power will wind up in the hands of the usual bunch of trilateralists/zionists/masters-of-the-universe/Goldman Sachs Directors, etc. In fact, much of the West’s wealth is simply going to vanish -- just as it has begun to do with the demise of Bear Stearns and other financial behemoths. The bondholders have been spared so far, mostly at taxpayers’ and shareholders’ expense, but I’m not so sure there’ll be much of a carcass left for the supposed cabal to feast on when the K-wave deflationary trough bottoms in perhaps another 6-8 years.
By then, the real wealth of the world will have shifted – organically – to Asia and the oil producers. And while they may revere gold in those places, I doubt they will feel compelled to tie their money to it. They won’t have to, since their currencies will be strong without the artificially induced buoyancy of global reserve status the dollar has enjoyed. Also, there will be no financial powerhouses in the world that emerges from the Second Great Depression, only economic powerhouses. Financial clout should be merely a side-effect of economic clout – a fact that Americans seem to have lost sight of long ago, so busy were we enjoying the benefits of our illusory, paper-thin prosperity.
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-- Posted Friday, 30 May 2008 | Digg This Article | Source: GoldSeek.com