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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Inflation or Deflation, Look to Gold for the Answer

Commodities / Gold & Silver Dec 22, 2008 - 04:57 AM GMT

By: David_Vaughn

Commodities Best Financial Markets Analysis ArticleOur world is becoming ever more a dangerous place to live. Now, our own president cannot carry out his duty without having to swerve to avoid a thrown shoe. But, wow, did it leave his hair disheveled. Needs a haircut anyway. Too long and shaggy. George, look out for those thrown shoes! But what about that debate over who will take precedence…deflation or inflation?


Jim Rogers, 10-22-2008 – “Throughout history, whenever you've had gigantic amounts of paper money created, it's led to inflation down the road. Things are going down now because of forced liquidation but that's not deflation, that's temporary, Jim Rogers, CEO of Rogers Holdings said.” jimrogers-investments.blogspot.com/2008/10/jim-rogers-video-interview-october-2008.html

And another shoe!

Kind of reminds me of that movie classic came out about 10 years ago. George, George, King of the jungle, strong as he could be……looook out for that tree!!!! I do believe that American presidents are given extensive training what to do when an Arab shoe comes propelling itself through the air headed straight for your nose. 

“The Fed is sending a message that it will print money to an unlimited extent until it starts to see the economy expanding…” bloomberg.com/apps/news?pid=20601087&sid=aHtjzkdBhlrI&refer=worldwide#

You could tell the Special Forces training our American presidents receive while in office. Never for a moment was there fear in Georges eyes as that stinking shoe filled with camel dung came sailing thru the air right for ole' Georges nose. Never for even a moment was our US president afraid. My respect for him that day grew a 100 fold.

Deflation is argued. Inflation is argued. No one really knows for certain the direction of US dollar. Well, I'll make a humble and simple prediction for where we all will be by the end of 2009. The dog house. Yep. Move over Spike we just might have to begin sharing your residence with you before the end of 2009. George will provide you with your shoes. 

Jon Nadler, Senior Analyst, Kitco Bullion Dealers Montreal , 12-17-2008 – "PEOPLE USED TO BUY CERTIFICATES, NOW THEY WANT PHYSICAL GOLD." “In Switzerland, home to the world's largest private banking industry, demand for gold bars and coins shot up six-fold to 21 tonnes in the third quarter of 2008, more than in any other European country.”

Good reporting Jon Nadler. It's clear to me you have your ducks in a row. Thanks for the encouraging press release. Why buy gold today? Well, it's cute. Has that nice yellow shiny polish on its face. 

Howard Ruff , 12-8-2008 – “GOLD AND SILVER WILL BOUNCE BACK WHEN INFLATION REASSERTS ITSELF.”“ It is axiomatic that deflation is the spawning ground for inflation, as the government doesn't know how to fix deflation, depression or recession other than to throw money at it.” “THE CREATION OF ALL THE MONEY FLOATING THROUGH THE ECONOMY WILL EVENTUALLY MEET ALL THE CONDITIONS FOR INFLATION. You need to be patient, which is hard.” kitco.com/ind/Ruff/ruff_nov082008.html

Narry a moment of fear in his heart as he faced those shoes. Remember President Jimmy Carter who found himself trapped in a row boat with a killer rabbit? Never saw a man grab for a paddle for protection as fast as he did that day. But not our George. Bravery beyond the call of duty. The shoe was a size 10. 

“Anna Schwartz: 'The Fed Is Inviting Inflation”2-9-2008” “…she is accusing the Federal Reserve of "ignoring" the dangers of inflation. "I think the Fed is inviting inflation by lowering rates to the extent it has," she said in an interview with The New York Sun yesterday.” "The Fed will face a time when they will have to raise rates unless they are going to permit inflation to keep going higher, and when that happens, they may do more damage to the economy than anything that is likely to occur now," Ms. Schwartz said.” nysun.com/business/anna-schwartz-the-fed-is-inviting-inflation/70958/

Do you ever watch Dr. House, “House, M.D,”? While just a TV show it does illustrate well a basic truth. And that is a good diagnosis is often very difficult to come by. A + A = B or does A + A = C? The point is that the establishment and understanding of the longer term trend is very often mired by short term events. 

Bill Buckler, The Privateer – “It is our misfortune to live in a "Dark Age" when it comes to the knowledge of the principles upon which economics in general and monetary theory in particular are built.”

Right now some of the brightest minds in the field of economics are arguing that deflation will be our primary curse for the next decade. On the other side of the river are financial gurus predicting that the component of inflation will be the primary motivator and determining factor of our long term economy. It's always the trend that is most hard to see when we are standing still. 

“Anna Schwartz on Fed and Treasury Responses to the Financial Crisis” 10-18-2008 - “Bernanke Is Fighting the Last War, by Brian M. Carney, Commentary, WSJ: ... [Anna] Schwartz ... co-authored, with Milton Friedman, "A Monetary History of the United States " (1963). It's the definitive account of how misguided monetary policy turned the stock-market crash of 1929 into the Great Depression. ... Ms. Schwartz thinks that our central bankers and our Treasury Department are getting it wrong again.” “Today's crisis isn't a replay of the problem in the 1930s, but our central bankers have responded by using the tools they should have used then. They are fighting the last war. The result, she argues, has been failure. "I don't see that they've achieved what they should have been trying to achieve. So my verdict on this present Fed leadership is that they have not really done their job." typepad.com/t/trackback/423467/34659719

Certain events as time passes are becoming more evident and inescapable. One fact that cannot be denied now or ignored is the tremendous massive dollar creation via the US printing presses. All these newly created trillions of dollars will filter back into our economy and into consumer hands. And as we have learned all through history is that currency debasement leads to inflation. And inflation ultimately has the capacity to tear a civilization apart. 

Gerald Celente – “A Great 2008-2009 Depression?” “The Feds cannot print enough money to save the day. We're going into the worst depression that any living person has ever seen. It's going to be worse than the Great Depression of 1929.” “We're still firm believers that gold and diamonds and other precious gems and metals are going to be the things to invest in as the paper currencies collapse. There are no fiscal or monetary tools that can turn this around.” “We're looking at the collapse of Empire America .” talk.collegeconfidential.com/parent-cafe-election-politics/567726-gerald-celente-dragflation-great-2008-2009-depression.html

Gerald Celente operates Trends Research Institute. His record for trend setting has been right on the money. Worth listening to. 

“Investors warn liquidation of assets and deflation is temporary calm before the storm” “Economic experts have predicted that rampant inflation caused by government stimulus packages will soon take hold of the economy and force precious commodity prices to all time highs.” “Johann Santer, MD at Superfund Financial Hong Kong told CNBC that he expects to see gold climb from its current position at $710 to a whopping $1500-$2000 an ounce within the next three months.” “Santer explained that deflation is not going to protect us from what he sees as inevitable heavy inflation in the long run caused by the huge amounts of money being pumped into the market in the name of saving the economy.

Santer predicted that we may even see double digit inflation. “ "At the moment there is a major sell off in everything, people are really looking at cash and treasury bills but in the long run, we will not escape from inflation so we have a medium to long term target of $1500 [gold] within the next three months." “Johann Santer's prediction mirrors that of numerous other fund managers and top investors such as Jim Rogers, Robin Griffiths and Jurg Kiener who are now predicting that global central banks' insistence on printing their way out of economic turmoil is setting the stage for a hyperinflationary holocaust, a knock-on effect of which will be gold's acceleration towards $2,000, as demand for precious metals outstrips supply.” infowars.net/articles/november2008/131108goldoil.htm

And we know for a fact right now that the supply of physical gold is not meeting demand. Many placing gold orders have to wait weeks for their orders to be filled. How long can the price of anything be kept down and unaffected by the real supply and demand processes? 

“MAX KEISER PREDICTS THE [GOLD] COMEX WILL CRASH AS THE HUGE AMOUNTS OF SHORTS WILL NOT BE ABLE TO DELIVER PHYSICAL GOLD AND SILVER WHEN DELIVERY IS DEMANDED. THIS WILL LEAD TO HUGE SPIKES IN THE PRICE OF THE PRECIOUS METALS WITH GOLD PERHAPS DOUBLING IN ONE DAY.” DISINTER.WORDPRESS.COM/2008/11/12/MAX-KEISER-ON-THE-COMING-COMEX-DEFAULT/

The question now being asked by all is where to put present remaining assets. And history has proven time and time and time again that physical assets become the vehicle of choice. For people with any money now are not just considering potential gains of their investments. They are concerned at asset preservation. If you have a buck today can you safe guard that buck for the next ten years with any degree of certainty. 

Puru Saxena, Editor, Money Matters, 11-14-2008 - “These ridiculous government bail-outs are hugely inflationary and will further erode the purchasing power of paper currencies.” “I urge you not to be fooled by the recent strength in the US Dollar. This is nothing more than a short-covering rally and the American currency is likely to witness an epic crash in the future. There is no way you can have a strong currency when you are the greatest debtor nation in the world (debt of US$54 trillion).” financialsense.com/editorials/saxena/2008/1114.html

And there are too many nation states that have fallen via currency debasement that they are not necessary to repeat here. We can recollect from memory those great powers that have fallen due to mammoth inflation degrading in turn the national currency.

Larry W. Reaugh - “It's a new world out there but the emerging economies need our products [resources & gold].”

Our incoming new administration has stated that for the next two years excessive dollar creation must be achieved to bring needed liquidity into the system. But it never ends and the damage of inflation only escalates. You can continue to fill a balloon with air with all the confidence in the world but that balloon is eventually going to pop. And that is what we are beginning to witness with greater intensity every day now. This crisis is not going to go patiently away and the creation of new money backed only by the wind will only add fuel to the economic flames growing now all around us. 

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We've just completed an article recommending six gold stocks whose prices have been driven to a ridiculous low. These are quality mining companies with the gold in the ground. And their market cap is less than their cash in the bank? Buy! These are the type of companies to acquire that have the potential to make a lot of money as the precious metals market turns around. Who these six stocks are?

Inflation is coming. Massive. It's inevitable. And inflation is the best scenario for higher gold prices. Speculate only what you can afford to lose. Gold is still going to be around even after all this economic mess settles down a bit in twenty years. Gold mining stocks are at the bottom of a life time opportunity. Be brave. Buy low. Sell higher.

David Vaughn
David4054@charter.net

The future legacy of the United States will be the refined art of financial leverage.

© Copyright 2008, Gold Letter Inc.

“The Worldwatch Institute, an organization that focuses on environmental, social and economic trends, says the current rate of global demand for resources is unsustainable.”  

The publisher and its affiliates, officers, directors and owner may actively trade in investments discussed in this newsletter. They may have positions in the securities recommended and may increase or decrease such positions without notice. The publisher is not a registered investment advisor. Subscribers should not view this publication as offering personalized legal, tax, accounting or investment-related advice. The news and editorial viewpoints, and other information on the investments discussed herein are obtained from sources deemed reliable, but their accuracy is not guaranteed. © Copyright 2008, Gold Letter Inc.

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