"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.' There has never been any attempt to abandon the credit expansion. Indeed any crisis was simply an excuse to open the monetary spigots. This, then, is the beginning of the total catastrophe of the American dollar, indeed the entire world monetary and financial structure."

-- Ludwig von Mises

"We have experienced asset bubbles, and we now have an economy that is more highly leveraged than it ever has been in the post-World-War II period. Greenspan has been instrumental in bringing about this high leverage."

-- Paul Kasriel

“Inflation is the senility of democracies”

-- Sylvia Townsend Warner

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"Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion. . . . To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection — a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end. . . . It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression. We must not forget that, for the last six or eight years, monetary policy all over the world has followed the advice of the stabilizers. It is high time that their influence, which has already done harm enough, should be overthrown."

-- Friedrich August von Hayek (1932)

"Knowing a great deal is not the same as being smart; intelligence is not information alone but also judgment, the manner in which information is collected and used" -- Dr. Carl Sagan

There are a surprising number of people in the world today who believe derivatives are nothing more than gambling instruments, whose only function is to deprive innocent and uninitiated investors of their hard-earned money. And then there are those of us who know better.

“I continue to believe that the American people have a love-hate relationship with inflation. They hate inflation but love everything that causes it.”

--William E. Simon

“There is no such thing as prices outside the market. Prices cannot be constructed synthetically, as it were…”

“It is ultimately always the subjective value judgments of individuals that determine the formation of prices…”

“Action is purposive conduct. It is not simply behavior, but behavior begot by judgments of value, aiming at a definite end and guided by ideas concerning the suitability or unsuitability of definite means. . . . It is conscious behavior. It is choosing. It is volition; it is a display of the will.”

-- Ludwig von Mises

“Excess capacity is temporarily suppressing global prices. But I see inflation as the greater future challenge."

- Alan Greenspan, June 25, 2009

"By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

-- John Maynard Keynes

I don't know what I did before YouTube. With just a few mouse clicks, I can pull up literally hundreds of interviews, editorials, and broadcasts about anything that suits my fancy. And lately, my fancy consists of interviews with some of the most vocal and compelling minds daring to speak out against the atrocious fiscal policies the U.S. is employing to battle this economic crisis.

I have seen Jim Rogers dress down countless reporters and anchors bent on defending the status quo. I've seen Marc Faber confidently proclaim that 2009 is the year to "massively short Treasuries." I've seen Peter Schiff stand firm while being publicly jeered at by the likes of Art Laffer, as well as Ben Stein (who proudly proclaimed that investment banks were undervalued in late 2007), only to be vindicated within months.

"If we win another such battle against the Romans, we will be completely lost"

-- Plutarch, Pyrrhus 21,14

This piece follows a previous article, in which I warned against shorting equities -- despite the fact that I believe the stock market is going to fall dramatically, at least in real terms (which I'll again expand upon later). As usual, my cautious outlook prompted a flurry of emails from readers asking what they should be doing with their money in order to prepare for the impending firestorm of rising prices that will derive from the inflationary printing and unprecedented credit-easing governments worldwide are foisting on their citizens.

It's important to note that, although I refer to "the" collapse of the dollar and Treasuries, these events are not going to happen in one minute, or one day, or even one week. Indeed, since I started writing about this scenario in December, the government has done so much to try to reverse the course of this trend, and yet the cracks have widened, and the dollar and Treasuries continue their inexorable march downward. Even though I don't believe, however, there will be any particular event that will trigger the collapse, I do believe it will accelerate with time -- ultimately exploding in a quick, catastrophic climax.

"Insanity: doing the same thing over and over again and expecting different results." -- Albert Einstein

The Einstein platitude above is so overused that I'm almost disgusted with myself for planting it at the beginning of this article. Almost. But then I think about how utterly applicable it is to this piteous disaster we're still calling an economy, and I really have no choice.

"Inflation is the senility of democracies."

-- Sylvia Townsend Warner

In my last article I observed that, in a poor economy, bear market traps are driven primarily by a collective flawed perception of current and future corporate earnings. I pointed repeatedly to the lagging earnings trends of the 1929 to 1932 correction, as well as to the sheer number of times reckless investors were drawn to deceptively attractive price-to-earnings ratios and high dividend yields, only to see those numbers destroyed by an ever-worsening economy. And that's exactly where we are right now – in the middle of yet another bear market rally driven by faulty earnings and dividend expectations. How do I know this? Because corporations depend on consumers, who have lost almost all ability to borrow money. The spending-spree is inarguably over.

“[It is] an ill wind that bloweth no man to good.”

I’ve heard a lot of discussion in recent months about the future of the dollar and the economy. Some people think this is just a typical downturn – that we’ll get through it and then everything will be just fine. Housing prices will rise again. The stock market will recover. The United States will prosper. Everything will be as it was. Similarly – and more recently – there has been a plethora of talk about whether the recent rally in the stock market is the beginning of a new, long-term bull market.

"A man must be big enough to admit his mistakes, smart enough to profit from them, and strong enough to correct them."

-- John C. Maxwell

Over the past year or so, I have been paying a lot of attention to the relationship between The Dow Jones Industrial Average and the price of an ounce of gold – which is commonly expressed by the Dow-to-gold ratio. On the surface, the ratio seems simple enough; if the Dow is at 10,000 and gold is at $1000 an ounce, the Dow/gold ratio is 10. Likewise, if the Dow is at 2000, and gold is at $2000 an ounce, the Dow/gold ratio is 1. But if you think about it, the relationship contains more than the two obvious components -- the DJIA and gold; the equation also employs a component most people tend to overlook, which is the dollar. And once you consider the Dow/gold ratio from this perspective, the added dimension has all sorts of thought-provoking, and even frightening implications.

For an historical perspective, I've borrowed a chart of the Dow/gold ratio from a brilliant article by a talented analyst named Steve Saville, from December, 2008 (click to enlarge):

On top of the $8.5 trillion dollars the U.S. Federal Government has obligated itself to spend in the foreseeable future, now the Fed has also committed to spending another $300 billion to buy long-term Treasuries over the next 12 months. That's $300 billion. That's just under one-third of a trillion dollars. And where will the Fed get this money?

The pundits would have you believe that taxation is the only option to raise this vast sum of capital, but the reality of the situation is that unless these pundits are utterly incapable of doing basic arithmetic – which they aren't -- they are simply trying to scare you. And perhaps rightly so, because there is only one way the U.S. government can fund $8.8 trillion in spending, and taxation is only a small part of the "solution."