America's Overheated Printing Presses and Huge Debts Helping Drive Gold Higher

Josh Lipton points out:

The American Enterprise Institute for Public Policy Research (AEI) published a paper indicating that “by all relevant debt indicators, the US fiscal scenario will soon approximate the economic scenario for countries on the verge of a sovereign debt default.”

Well, the U.S. is acting like a banana republic.

Lipton also quotes Einhorn and Rosenberg to argue that America's overheated printing presses and huge debts are helping to drive gold higher:

David Einhorn of Greenlight Capital, recently speaking of why he’s become a fan of gold, had this to say:

I have seen many people debate whether gold is a bet on inflation or deflation. As I see it, it is neither. Gold does well when monetary and fiscal policies are poor and does poorly when they appear sensible. Gold did very well during the Great Depression when FDR debased the currency. It did well again in the money printing 1970s, but collapsed in response to Paul Volcker’s austerity. It ultimately made a bottom around 2001 when the excitement about our future budget surpluses peaked.

Einhorn added:

Prospectively, gold should do fine unless our leaders implement much greater fiscal and monetary restraint than appears likely. Of course, gold should do very well if there is a sovereign debt default or currency crisis.

David Rosenberg, chief economist and strategist at Gluskin Sheff, also continues to favor gold. The fact that the yellow metal continues to surge higher -- even with ongoing deflationary developments -- suggests that other factors are driving bullion to new bullish heights, he says.

“It’s called scarcity of supply relative to fiat currency,” Rosenberg argues.

Comments

[Roger Knights:]

Asian and Arab central banks are underweight in gold, and have a decade's worth of buying ahead of them. Their resources dwarf the gold market. That's all you need to know, long-term.

Short term, there are still a lot of shorts who need to cover.

Nov 06 11:00 AM

[Mad Hedge F...:]

cdr ) I know what keeps Obama awake at night. Let’s say we spend our $2 trillion in stimulus and get a couple of quarters of weak growth. Then once the effects of the stimulus wear off, we slip back into a deep recession, setting up a classic “W.” Unemployment never does stop climbing. This happened to Roosevelt in the thirties. So congress passes another $2 trillion reflationary budget. Everybody gets wonderful new mass transit upgrades, alternative energy infrastructure, and bridges to nowhere. But with $4 trillion in spending packed into two years, inflation really takes off. The bond market collapses, the dollar tanks big time, gold goes ballistic to $5,000, and silver explodes to $50. Ben Bernanke has no choice but to engineer an interest rate spike, taking the Fed funds rate up to a Volkeresque 18%. Housing, having never recovered, drops by half again. This all happens in the 2012 election year. Obama is burned in effigy, a Mormon is elected president, and the Republicans, reinvigorated by new leadership, retake both houses of congress. We invade Iran. Crude hits $500. This is not exactly a low probability scenario. Remember Jimmy Carter? This is why junk bond yields are still stubbornly high at 12.5%, and credit default swaps live at lofty levels. Are the equity markets pricing in this possibility? No chance. The risk of Armageddon is still out there. Personally, I give it a one in three chance. Pass the Xanax.

Nov 06 01:34 PM

[swsprime:]

Dang Mad! You gave me the name and phone number of your nice Comex Lady and I lost it. Can you email it again to [e-mail]?
Thx.....

Nov 06 01:47 PM

[AndrewBaker:]

Yes, gold is headed higher, but there's a correction due; so I sold out this week, and will wait it out until the correction has appeared to bottom. I was in leveraged before, but my next buy will be unleveraged as the swings in price are likely to increase, which hurts a leveraged longer term position.

Nov 06 02:41 PM

[JeffDB:]

On Nov 06 01:47 PM swsprime wrote:

> Dang Mad! You gave me the name and phone number of your nice Comex
> Lady and I lost it. Can you email it again to swsprime@yaho...
-------
Unfortunately, spambots harvest edresses off of sites like this and one can be inundated with spam ever after if they then sell it on CDs of millions of edresses for professional spammers.

You can protect against this pretty easily by using a temporary disposable edress that forwards email for a short while to your real edress. Once you get what you need, you can dispose of that edress and whatever spam is addressed thereto will no longer find its way to you.

Here are a few sites offering such free edresses:

www.spamgourmet.com/
www.sneakemail.com/
www.trashmail.net/

Sorry for interrupting &/or being off topic.

Nov 06 03:00 PM

[Bill S. Friend:]

At 60:1 silver would be $83 if gold hits $5000.


On Nov 06 01:34 PM Mad Hedge Fund Trader wrote:

> cdr ) I know what keeps Obama awake at night. Let’s say we spend
> our $2 trillion in stimulus and get a couple of quarters of weak
> growth. Then once the effects of the stimulus wear off, we slip back
> into a deep recession, setting up a classic “W.” Unemployment never
> does stop climbing. This happened to Roosevelt in the thirties. So
> congress passes another $2 trillion reflationary budget. Everybody
> gets wonderful new mass transit upgrades, alternative energy infrastructure,
> and bridges to nowhere. But with $4 trillion in spending packed into
> two years, inflation really takes off. The bond market collapses,
> the dollar tanks big time, gold goes ballistic to $5,000, and silver
> explodes to $50. Ben Bernanke has no choice but to engineer an interest
> rate spike, taking the Fed funds rate up to a Volkeresque 18%. Housing,
> having never recovered, drops by half again. This all happens in
> the 2012 election year. Obama is burned in effigy, a Mormon is elected
> president, and the Republicans, reinvigorated by new leadership,
> retake both houses of congress. We invade Iran. Crude hits $500.
> This is not exactly a low probability scenario. Remember Jimmy Carter?
> This is why junk bond yields are still stubbornly high at 12.5%,
> and credit default swaps live at lofty levels. Are the equity markets
> pricing in this possibility? No chance. The risk of Armageddon is
> still out there. Personally, I give it a one in three chance. Pass
> the Xanax.

Nov 06 08:29 PM

[Boxed Merlot:]

On Nov 06 01:34 PM Mad Hedge Fund Trader wrote:

> …I know what keeps Obama awake at night… in the 2012 election year
> …Obama is burned in effigy, a Mormon is elected president…The risk of
> Armageddon is still out there. Personally, I give it a one in three chance…


That’s enough to keep me awake at night! Mormons, Scientologists, MSM Kool Aid hawkers, c’mon, when’s mom and dad coming home from vacation?
Too bad the era of objective education, voluntary adherence to sound lawful conduct and fair return on honest effort has been supplanted by fiction, coercion/manipulation by a “superior” intelligentsia and forth estate profligates wrestling for our next generation’s sovereignty.
Do you mean a 33% chance of Armageddon or the definition of it?

Nov 06 11:55 PM

[Bruce Pile:]

I agree with Einhorn. Gold pricing tends to be a function of fiscal policy stupidity. And it doesn't matter if that stupidity causes deflation, inflation, or some gyration back and forth between the two. That is why Gold has a high correlation with debt. Debt threatens instability, no matter what form that may take. I have a post up at my blog goodstockinvesting.blo... showing two charts - a debt chart and a gold chart. They are twins and have a much tighter correlation than the inflation rate vs gold or about anything you could plot vs gold.

Nov 07 11:32 PM