ATLANTA— In world markets, there may be no better indicator of where inflation is heading than in the simple observance of the price of gold denominated in a given country’s currency. And with that said, it is interesting (and frightening) to note that gold has started a march back towards its all-time high price in terms of U.S. dollars as set around this part of last year. It is especially disconcerting that the price march seems to be happening much more rapidly in the incredibly important U.K. and Euro-zone economies. Consider the following:
Strong investor buying on Monday pushed the price of gold above $900 a troy ounce, hitting a 3½-month high in dollar terms and posting all-time highs in euro and sterling, in a stark sign of money seeking refuge from equities and bond markets.
Traders said that investors, particularly in continental Europe and the UK, were pouring money into gold exchange-traded funds – a popular way to gain access to the metal – and also noted strong buying of physical gold, from coins to bars.
Many continental Europeans have witnessed hyperinflation first hand, in Germany during the late 1940′s as well as other parts of Eastern Europe in times since. As we have documented before, world central banks (including our own), are rapidly expanding the supply of fiat currency injected into the world markets. I have read in various opinion pieces that the life-span of fiat money historically has averaged around 100 years. The United States came off of the formal gold standard during the 1930′s and Richard Nixon ended all ties between U.S. dollars and gold in the early 1970′s. The question becomes: will we outlast history? Or will we fall short of history’s standard? The consequences of a collapsed currency are extremely grim. It is something we have never faced.
Beware should it seem sometime next year like we are roaring out of this recession. Such a rapid reexpansion of the economy may well be the first indicator of the push towards massive inflation. Again, history will not judge well the massive stimulus packages in the form of TARP and Barack Obama’s stimulus should big-time inflation occur. Tread lightly with our trillions, Barack Obama!
TennesseePaul
Stephen VanNuys
Brooklyn Daniel
The Freedom Thinker
I’m wondering about this as well. The amount of coin out there in a recovery would cause massive inflation. But, I’ve been reading still in the real estate market about how many loans and homes are “off the books”. The collapse began in 2007 meaning some 5 to 7 year ARMs could mature right in the midst of a recovery. Too fast of a recovery will require the Fed to raise interest rates to combat inflation. Doing so would push more homes onto the foreclosure market.
The low interest rates of the mid 2000′s were a response to the economic collapse seen at the tail end of the Dot.Com bust, Eron, WorldCom, Aurthur Anderson, Adelphia, collapse, and 9-11 attacks. That appears to represent Greenspans discription of flattening one bubble only to create another some where else.
Yeah – Greenspan is responsible for some of this. I think he made a mistake. He says that when the Fed would raise interest rates in the middle part of the decade, long-term rates would not move (which is abnormal). He blamed money flowing in from Asia to buy up treasuries and other debts obligations, which was artificially suppressing long-term rates and driving the housing boom. Anyway – but I’ll bet if they had moved rates higher, faster they might have been able to pop the bubble earlier. I think it’s time they realized inflation is not just an occurance within consumables. Assets can be inflated as well (stock market under clinton, housing bubble, etc.). It’s an example of misdirected capital. Anyway – the short of it is that the Federal Reserve cannot manage this stuff like they think they can. We just need a strong dollar policy when we get out of this and that should be the Fed’s only goal at the other end. No more movements of the currency to start or stop growth- it is failing with disastrous consequence.