Gold Safe Haven, Not Dollar

In previous crisis people have rushed into dollars and the dollar became stronger.  This time the dollar is not getting stronger but gold is.  Some point, well before hyperinflation, I expect gold to be more of a safe haven than the dollar.   I think we have reached that point.  It may also be that the trouble in OPEC countries risks weakening the support the dollar gets from oil being priced in dollars.  And clearly it can also be both.

We are starting to get clear signs of price inflation and I expect we will get more.  As signs of inflation go up interest rates will go up too.  Rising interest rates are bad for bonds, stocks, and real estate.   Commodities, gold, and silver may be the only safe havens.

Abandon All Hope

After the US voters showed a clear interest in government having some fiscal restraint congress can only find $74 billion to cut out of a budget of $3,800 billion.  For this and other reasons things are going to get really bad. These cuts will probably really end up smaller.

Over the last two months the 2011 deficit estimate has gone from $1.267 trillion to $1.4 trillion and then $1.645 trillion. So the best estimate of the size of the deficit has gone up $378 billion in the last 2 months when they have been promising cuts.    Every 1% increase in interest rates adds around $140 billion per year in interest payments on the debt.  Interest rates are going up.  These $74 billion cuts are nothing, the deficit will keep going up.

The printing of money is out of control and there is no longer any reason to hope that it will be controlled.  The US has past its Havenstein Moment.  At this point hyperinflation is nearly certain.  As they say when a hurricane is coming, "PREPARATIONS TO PROTECT LIFE AND PROPERTY SHOULD BE RUSHED TO COMPLETION."

Commodities Already Priced in Gold

 If you think in terms of gold coins, there is no commodity inflation since 2002.  However, in paper money prices have jumped up.  In effect the world commodities are already priced in gold.

The last people to switch to the new money will get the worst deal.

Note that 17.5% interest compounded annually for 10 years will result in something being 5 times the original size.  This kind of inflation in commodities will eventually feed through to everything else.

This is not what a recovery looks like.

This graph of food stamp participation is not what a recovery looks like.