KEEP YOUR EYES OPEN AND YOUR POWER DRY

If the current credit/debt situation gets further out of hand and results in a serious deflationary depression, the question becomes, how gold will react in a deflationary environment?

We are still weathering the storms of Mare Incognito: uncharted waters. (as I wrote in an previous article of the same title in 2009) Cash and Gov’t bonds may perform better than gold, but who knows for certain?  Gold cannot go bankrupt and therefore may well be the place for the inevitable flight to safety by many in a deflationary depression.

In my opinion however, I still think we’re heading for serious inflationary waters. There has been no diminution of the inclination by Big Ben to temper his obsession with printing more money to “solve the problem,” in fact, quite the opposite. The fact that this scenario was a major theme in his Ph.D. thesis (although his focus was of 1929) should not go unnoticed. People tend to often hold on to the effort to be right, in spite of convincing evidence to the contrary, far to0 long.  Monetary inflation seems unavoidable in my opinion.

The way I see it, most pressing fiscal issue is to restore confidence in the banking systems of the world. Absent this confidence, money is worthless and as the world these day is so connected financially, a fiscal lack of confidence will have immediate disastrous consequences.

This is the problem Big Ben is trying to handle in his effort to keep the ship of state afloat. His dangerous tendency to implement only his single solution may have some apparency of short-term success – and we may muddle through for a few years yet – but the potential for disasterous consequences far outweighs any short-term success. Still it’s hard to see any outcome other than eventually having to pay the piper, though I still hold out some faint hope that he knows what he’s doing.

I do subscribe to the ideas of many who advise holding on to physical commodities (silver, gold, working utensils, food, fuel, things to barter, etc.) as much as possible while this whole scene sorts out as in my opinion, the real wealth of the world is in the real things of the world, setting aside the more philosophical forms of wealth (wisdom, friendship, faith, etc).

Other than this, I just keep my eyes open and my power dry.

daniel w. jacobs
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