Just like last night, gold, silver, platinum and palladium are on the rise in Asia. The Asians buy physicals. As the sun moves to the West, you can usually expect selling to commence at exactly 3:00 a.m. when they arrive at work in London. By 8:00 a.m. the sell-off games continue at the COMEX as the funds and bullion banks screw around with paper contracts. In the end, the physical market will dictate the price. Let them play their games. They are running out of time. As soon as QE3 is announced, most likely by June, but no later than September, it is a new ball game for gold and silver. Be patient. Keep accumulating at these prices. 2012 will end well for the precious metal complex.
Richard Duncan, author of one of my favorite books, The Dollar Crisis, has written a new book. This one is entitled, The New Depression: The Breakdown of the Paper Money Economy, and I highly recommend it. Richard Russell briefly reviewed the book on Monday and here, according to Russell, is the gist of the book.
The Greenspan-Bernanke Fed created the greatest credit boom in recorded history. So what’s next?
Answer: “A credit expansion boom must unavoidably lead to a process which everyday speech calls the depression.” — Ludwig von Mises
What is Fed chief Bernanke’s attitude towards the credit expansion? Read on —
“I would like to say to Milton Friedman and Anna Schwatz regarding the Great Depression. You’re right. We, the Fed, did it. We’re very sorry. But thanks to you, we won’t do it again.” Fed governor Bernanke.
Above, Bernanke apologizes for two items: (1) the Fed’s having increased interest rates in late-1928 (to stem inflation), (2) The Fed did not print money to bail out the banks when the credit that the banks had extended could not be repaid.
In other words, the Fed did not issue more fiat money in 1928. when, according to Bernanke, it “should have.” But Bernanke will definitely not let that happen again. Bernanke is a firm believer in the thesis that the Fed can ward off collapse during a crashing credit boom. We can therefore be certain that when the US economy turns down, Bernanke will fight any slowdown with a new massive infusion of Fed-created fiat money.
“The US economy has been built on $52 trillion of credit that the private sector is now incapable of repaying.” Russell Comment — In other words, the towering credit boom is now bursting like a balloon meeting a pin.
“For the year 2012– Expect QE3.” Duncan expects that the Fed will continue to fight the current listless economy with additional massive infusions of fiat money. Because of this, Duncan predicts either: (1) a coming period of hyperinflation — or (2) a coming period of deflation and depression. Duncan thinks number 1 is the more likely, and it may take another one to two years before we actually get there.
Duncan’s remedy for today’s mess is for the US government to keep spending — to spend trillions more on worthwhile projects — anything that will generate business and profits in America.
But Duncan warns against creating more trillions of credit for the purpose of merely lifting the stock market and increasing consumer consumption.
“There is extreme disequilibrium in the global economy. Too much credit has caused too much industrial capacity and has driven asset prices far above the level of the income that can be supported by the general population.”
Russell expects a bout of serious inflation or even hyperinflation, possibly followed by a credit-induced deflation/depression. I happen to agree with Russell – first comes the (hyper) inflation. Looking ahead, I now protect my financial assets with gold (silver and platinum), but before the coming bout of deflation/depression stage arrives, I will consider moving up a portion of my portfolio into Harry Browne’s Permanent Portfolio (PRFFX), which will protect me against deflation as well as inflation.
Browne allocated the funds assets into four equal sections – gold, bonds, stocks and cash. Any two or three of these classes can underperform at any given time, but the other portfolio component(s) would perform so strongly, you would get an overall gain that would outpace any increase in the cost of living.
Going forward, let’s get the first double in our portfolio from inflation, and then worry about the deflation that should follow. If it looks like it is on the horizon, then we move half our assets into PRFFX. Remember, in this mutual fund, one fourth of your money invested IN GOLD. I will probably fund this move by selling silver and platinum, but will hold onto all of my gold. As Russell says, “I will never sell my gold!”