Gold Perspective on a World Gone Economically Mad !

• Most people do not understand that countries like US, UK and Japan will never repay their sovereign debts totally. The options are: sell off say pieces of California to China(ie creditor country) or print money out of thin air until your debts are inflated away. No politicians in their right mind will sell away a piece of their territory to repay debts. They will be ‘dismembered’ by the public. So, printing money out of thin air to repay their debts is far and away the easier and better choice.
   
• If you owe US$12 trillion, you just turn on the electronics and electronically print US$12T. It is that easy! The consequence is horrendous though. It amounts to currency debasement and  instituting inflation. Remember the German Weimar republic of the 1920s and 1930s? They needed a wheel barrow of paper currencies to buy a loaf of bread. Could it happen to America? I won’t bet against it.
   
• When currency devaluation kicks in, people throw away their fiat currencies in exchange for gold. This is what is essentially happening now with the smart money. The smart money is accumulating gold as an insurance against the eventuality of currency debasement. Adam Brochert opines:
   
  Assets are deflating relative to Gold. This is the missing link of the deflation/inflation game. …. I also know that every currency in history has failed, whether Gold backed or not. When Gold backed, currencies are destroyed because the government breaks its promise and drops the Gold backing whenever a war needs to be fought or times get too hard. When not Gold backed, currencies generally hyperinflate into oblivion and are then replaced. History keeps repeating over and over again, but this time, gosh darn it, it is different. Bernanke and widdle Timmy Geithner are the most powerful brain trust ever seen in the history of financial markets and will take care of everything for everyone.
    
  Keeping these admittedly Gold buggy-type background thoughts in your mind so that you realize this piece is written by an irrational lunatic, those who are calling for the imminent destruction and collapse of the U.S. Dollar need to remember that we are not the only country on the paper-money-road-to-hell path.
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  I do not fear only for American citizens or the American dollar, as a global crack up boom in assets priced with paper money seems a likely path if things continue on the current track. In Gold terms, we have already been in deflation for years depending on the asset in question. For what asset class left is not deflating in Gold terms?
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  If China, Japan, the Eurozone, Australia, India, the Middle East and Brazil all agree to crank up the printing presses and create an astronomical amount of new debt to replace that lost by the private sector, and then they all agree to buy each others’ debt with this newly created debt, this will be deflationary when Gold is used as the currency of measurement. But will it really feel like deflation to the average gal or guy on the street holding paper currency units? For it is really only Gold that has a done a reasonable job of preserving purchasing power over this past cycle. Gold has reverted to its role as the international currency of last resort.
   
  This is why the “mainstream” inflation-deflation debate has become less meaningful for me – I think we are in a wicked deflation, but it’s in terms of Gold. And yet, in the parlance of paper, a rising Gold price is almost by definition called inflation. Six of one, half a dozen of the other. One thing I do know for sure even without a PhD in Ponzi economics: Gold’s in a bull market and you don’t want to bet against it. 

Disclaimer – I am not a financial advisor. This is not an advice to buy, sell or hold any stocks or bonds or any precious metals. I am long gold and silver.

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