Jacko69

The End of Gold

Read Bernanke's 2002 speech on Deflation if you want to know what his reaction to deflation would be. There is going to be massive quantitative easing. And if the banks won't co-operate, he will get the new money directly to the people. Think big tax refunds financed with new money. Think big fiscal spending financed with new money. Lots and lots of new money. Count on it. They will do everything they can to prevent deflation setting in. They will err on the side of too much new money creation rather than too little because they would prefer a too much inflation to deflation. The Fed does have the power to devalue the dollar (ie: create inflation) because it has the legal authority to "print" infinite amounts of new money. Even if demand for money falls they will simply overwhelm the fall in demand by massively increasing the supply. The value of dollars will fall. The Fed knows it must do this because allowing deflation in a highly indebted economy is economic suicide. Either way gold is good: if money supply increase devalues the dollar, gold rises. If they loose the battle with defaltion (highly unlikely for the reasons above) then the banking system collapses in which case (if you can survive) gold is better than dollars as a store of wealth. In the event of scenario two, you also want a gun, a bike, lots of tins of beans and a farm located far away from the starving, rampaging masses.