ddtuttle

The Coming Dollar Deflation

We are in a huge deflationary spiral. I have read figures like $29T of global wealth destroyed, just so far. The central banks have printed only a fraction of that. So it's easy to why the money supply is shrinking. You can call this dis-inflation if you want, but at some point it becomes regular deflation.

Of course the world is worse off than we are. England and the EU certainly are, Russia is toast, Brazil India and China all have a lot of stuff shoved under the rug (unreported liabilities, weird government interventions, and huge investments in US real estate securities). So the US dollar remains the strongest currency. Add the repatriation of global investments gone bad, or just requiring redemption and that lifts the dollar doubly.

However, we almost lost the entire financial system, again, last week when Citi caved in. We have had 3 episodes, each worse than the last, where immediate action by B&H was required to save the system. Can they keep this up indefinitely? Is this really good news that they can save time and again. Will they make a mistake?

We easily could loose all the big banks, after all they are already bankrupt. Will the gov be forced nationalize the banking industry? What about the auto industry, the insurance industry? We are a long way down these roads already.

I think B&H (Ben and Hank) are realizing that they cannot print enough money to stop this monster, and are shifting their priorities accordingly. Banks are just trying to find a way to survive to fight another day. The auto industry is toast.

Where does your confidence in the system come from? It is amazing!

Anyway there are serious dislocations coming the consequences of which are impossible to predict. But within all the scenarios gold will retain its value. It will soar if we end up with hyper-inflation. It will be hedge against other assets falling in price a deflationary scenario where the US gov is shaky.

Gold is not a commodity, it's not a currency, it is an insurance policy against exactly the scenarios we seeing play out on CNBC everyday. If Gold goes to $2000, that means everything else you own (your house, car, 401k etc.) is worth less than half, not exactly a great scenario there either.
DDT