Yesterday, I was talking to Backwoods Jack. I told Jack that gold should finish the year up about 10% and silver up at least 18%, which would be the best performance of any financial asset. He was surprised. He follows the prices and knew that gold and silver weren’t doing that well now. I said, Jack, last December both gold and silver fell off sharply. If gold and silver just maintain their current price level then the gains I just quoted will hold up. Also, note (in the two 1 Year Charts below) what happened to gold and silver in January and February. They were monster months for the metals. After the 2012 year-end uncertainties end – The Fiscal Cliff is resolved one way or another; the Fed re-affirms that it is increasing its bond purchases; and the year-end selling by the Hedge Funds subsides (they are selling profitable assets like gold and silver to balance their year-end losses to get the most positive year-end balance sheet possible); I would be surprised if gold and silver did not respond by moving up very strongly.
The next chart, is a visual stunner, courtesy of Valcambi. The sharp upward trend in the US Monetary Base, which began in 2008, should resume as the Fed’s increasing bond-buying spree is reflected in its balance sheet.
Fed Seen Pumping Up Assets to $4 Trillion in New Buying – Bloomberg.com
By Joshua Zumbrun & Catarina Saraiva – Dec 10, 2012 11:00 PM CT
The Federal Reserve will amplify record accommodation tomorrow by announcing $45 billion in monthly Treasury buying that will push its balance sheet almost to $4 trillion, according to a Bloomberg survey of economists.
Forty-eight of 49 economists predict the Federal Open Market Committee will purchase Treasuries to bolster an existing program to buy $40 billion in mortgage bonds each month. The panel pledged in October to continue that plan until the labor market improves “substantially.”
Continue reading on Bloomberg.com
This type of increase in our money base will end badly, with out-of-control inflation, and if our friend John Williams, over at Shadowstats is correct, hyperinflation will commence by late in 2014.
Bill Holter’s following piece about the Dollar coming home to roost and what would happen if we refuse to accept dollars for our assets is interesting. Please do read it. At first glance, some of you may think that this could never happen. How could the US refuse to honor the Dollar as payment for our land and corporations? Well, in August, 1971 we did a similar thing – the US refused to honor the Dollar as payment for our gold. That’s when Nixon took the US off of the gold standard and broke our long-standing promise to redeem our gold for Dollars at a fixed rate ($42.22/oz. at the time, up from the original fix of $35/oz. set in 1933).
Here are the details and note the unemployment and inflation rates at the time – 6.1% and 5.84%.
At the time, the U.S. also had unemployment and inflation rates of 6.1% (Aug 1971) and 5.84% (1971), respectively. To prevent a run on the dollar, stabilize the economy, and decrease unemployment and inflation rates, on August 15, 1971, Nixon issued Executive Order 11615, pursuant to the Economic Stabilization Act of 1970, which imposed a 90-day maximum wage and price ceiling, a 10% import surcharge, and, most importantly, “closed the gold window”, ending convertibility between U.S. dollars and gold. The President and fifteen advisers made that decision without consulting the members of the international monetary system, so the international community informally named it the Nixon shock.
-Wikipedia entry “Nixon Shock”
Here are the current rates of unemployment and inflation (the blue line represents the way we calculated in 1971). Unemployment is over 22% and inflation is 10%.
Yes, unemployment and inflation are worse today than they were in the fall of 1971, when Nixon refused to accept Dollars for gold. Holter’s views are not so far-fetched after all.
Isn’t it interesting that we worry about the “yet to happen” hyperinflation but fail to realize that we have been living with it for a long time as is. Check out the Loss of U.S. Dollar Purchasing Power data, courtesy of Shadowstats. You didn’t know it was already this bad, did you?
As soon as foreigners start to unload Dollars the hyperinflation game is in play. The massive amount of dollars that are out of the country will start to flow back into the domestic money supply. The Dollar’s value will plummet (toward 72 and lower on the USDX). That’s when Sinclair’s “currency induced cost-push inflation” will commence. I’ve been warning about this for the last 15 years. I think I’ve been a bit early….
That’s when all Hell will break lose as the tens of millions of Americans living off of the government’s food stamps, welfare and unemployment checks will no longer be able to make ends meet. Heck, they can barely do it now. An empty stomach leads to riots in the streets. That’s what sparked the Arab Spring riots in the Middle East – the inflation, exported by the United States from our policy of flooding the world with Dollars that pushed up the cost of their food. THEY reached the boiling point when they could no longer afford to put food on the table, and they took their anger to the streets. When the Dollars start flowing back here, the results predictably will be the same. Rising food and energy costs will decimate those on a fixed income or government assistance and our brainwashed population that expects the government to take care of them from cradle to grave will not accept it. And if we refuse to accept the Dollars – see what Holter has to say about that alternative in the following article.