For anyone who has to explain to his broker, spouse, or friends why he’s been hoarding gold, the chart below may help you…
Our Exploding Money Supply
The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10. It is so far outside the realm of our prior experience that historical comparisons are rendered difficult if not meaningless…
To date what’s happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5%…
The more dollars are printed, the less each one is worth. You don’t really need to know what role the monetary base plays in our system. You don’t even need to know that an increase to the monetary base of this magnitude could be catastrophic. All you need to know is the government has created over 100% more of it than existed a year ago – the fastest increase of all time, by a huge amount.
The coming great inflation will destroy America’s economic leadership. It will lead – eventually – to the return of settling international obligations in gold instead of paper dollars. And this will happen much faster than anyone expects.
By the time Obama leaves office, you will not be able to exchange dollars for any sound currency in the world without permission from the U.S. government. The price of gold will be well over $2,500 per ounce.
We are the first nation in history to enjoy unrivaled control of a global, paper-backed reserve currency. This allowed us a nearly unlimited financial privilege: We could effectively pay for all of our debts with money that we simply printed. This power led our politicians to believe deficits don’t matter and our consumers to believe they could never go broke… Some bank would endlessly refinance their mortgages.
The lack of market discipline led to too much money and credit. Debts expanded at a far faster clip than savings, resulting in an inevitable credit collapse. Now, the second part of the crisis is beginning: the paper deluge.
Most people understand intuitively that when inflation increases, the price of gold increases, too. The reason is simple: It’s much easier to print money than to mine gold. The supply of gold grows at about 1% a year and almost never any faster. Gold is unique. It has few industrial applications. Almost all of the gold that has ever been mined is still in use, as jewelry or in coins or bars. Thus, the total supply doesn’t change much.
But here’s the big question for investors right now: How long will it be until this ocean of paper causes a severe decline in the dollar and a massive run-up in gold?
We can’t know for certain. Nobody has seen anything like this, ever. But I believe it will take at least two years before all this inflation arrives, and when it does you better be ready – with Gold!