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The Gold Bugs May Be Right This Time

Posted on November 8 2009 9:35 pm
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I’ve generally regarded gold bugs, that is, investors perpetually bullish on gold as an investment as somewhere out on the fringe. They tend in the popular mind to be associated with eccentric people living in the wilderness, their concrete bunkers filled with ammunition and beef jerky.

But no more.

Maybe the gold bugs are right this time. They’re everywhere: advertising on the “Glenn Beck Program” and all over TV and radio — and they’re doing this for a reason. People are beginning to grasp the economic catastrophe –apparently planned by the Obama administration— that still awaits America and the rest of the world.

U.S. policymakers have ramped up the money supply so dramatically and so rapidly that it seems impossible at this point to avoid nasty hyperinflation. America may not experience hyperinflation as severe as anything seen in Weimar Germany, Zimbabwe, or Brazil, but by American standards it is going to be awful.

Beck noted on a previous show that a massive increase in the money supply takes roughly two years to cause inflation or hyperinflation in the economy. In the 1970s the government printed money like crazy and added 13% more to the money supply over two years. This caused an inflation rate of 12%. The Federal Reserve chairman at the time, Paul Volcker, had to raise interest rates in order to stem inflation. He raised interest rates to 20%.

But, Beck noted, the money supply in the U.S. has been increased by 120% in the last year or so in order to meet the impossible demands of a reckless president and Congress. It certainly seems to resemble the Cloward-Piven Strategy of orchestrated crisis applied on a grand scale.

To what heights will our interest rates have to rise in order to tame the inflation that is about to be unleashed? Will those brutal interest rates snuff out economic growth? America is going to find out.

Jonathan Hoenig of Capitalist Pig Asset Management (pictured above) said on Beck’s TV show that

“as more and more people are dumping the dollar these days, they’re turning to gold as a store of wealth, which is exactly what’s pushing it, as you pointed out, to new all-time highs today.”

Gold has touched $1,100 per ounce in recent days.

As America’s reckless spending continues it prompts more foreign investors, including central banks– to dump their dollar holdings. Said Hoenig:

A dollar is a piece of paper and gold is a store of value. And, of course, that would go anywhere these days. So, that my gold, this is the hottest investment literally in the world right now. Gold is a store of value — it has been literally since Christ walked the Earth.

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