Radical gold bugs say manipulation will fail

Gold underperformed during the deflationary 30s as did stocks, and real estate. Gold is usually a crisis hedge and inflation hedge. Inflation tears a fiat currency apart so as it become less valuable, gold’s value increases. I believe some of the reasoning is it has always had value and has a finite supply where as the central banks around the world can in theory print infinite amounts of paper money. The dollar performed well in the 30s as did short term Treasuries - that was about it. It was a period of deleveraging that followed the debt ridden, inflationary 20s. Credit shrinkage and debt destruction are characterisitics of deflationary as they cause assets to drop in value (except the actual currency) - which is what we have now.

This period is like the 70s in some ways and unlike it too. Back in the 70s wages spiraled upwards (partly due to much stronger unions). Wages which make up so much of the cost of services/products have actually dropped during the past several years. There is also very little collateral backing the assets and debt in the US as compared to the 70s. Plus the savings and savings rates are much smaller than the 70s. Debt levels were higher than they were after WWII back then but are dwarfed by debt levels now at the government and consumer levels. Add SS and Medicare with the Trillions in derivitives and we have the chance for a real disaster. While deleveraging helps push up the dollar’s value (as does the well timed dollar intervention), the real question is whether other countries will dump their dollars (Saudis, Japanese, or Chinese) thanks to lousy fiscal and monetary policies of the US government for 20+ years as well as its accomplice - the banking industry.

Of course gold and especially silver are manipulated to the downside. I wonder if this will change. Perhaps silver will explode only when we have completely run out of it in 5-10 years. Maybe gold will skyrocket when we have emerged from a period of deleveraging and still have low interest rates (and reckless lending habits) - orrrr if the dollar really is dumped..?

The Fed can offer ridiculously low I.R.’s while lenders make credit easy, but that doesn’t mean that banks will loan to each other, to consumers, or that consumers will continue the suicidal spending (debt creating) spree that has gone on for over 20 years.

I can’t believe USA will allow longer term deflation. Deflation just wipes out the balance sheets of consumers, business, banks and govt alike. Deflation is total destruction and capitulation. US will end up having to tolerate high price inflation to prevent wholesale deflation. This will be achieved by printing money, and making elecrtonic money to anyone who needs it, especially very powerful and rich people. I think Obama has already promised cash handouts ala Bush and there will be no end to the bailouts-all funny money in exchange for junk.

The currency should become trashed, and people will look to gold as a natural reserve currency once again, probably all within 6 months.

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