The Golden Storm Cellar

A bit of news you may have missed in all the election excitement: The Fed is injecting about $800 billion of “thin-air” money into the economy between now and next June (they are buying government debt).  Bernanke hopes that it will drive down interest rates and encourage people to produce and consume.  Quantitative easing, as this strategy is known, has another effect–inflation.  Bernanke thinks that we have enough slack in the economy to prevent unmanageable inflation.

Markets don’t think so.  Gold two days ago dipped down to the low $1300s per ounce.  This afternoon it is bumping up against $1400.  What is the market telling us?

It is saying that we are fools.  Bernanke’s attempt to bolster the economy will only continue the charade for a bit longer.  The stock market may well go up, in non-inflation-adjusted dollars.  We may even see some asset bubbles emerge again.  People will have short memories and they will act the same way they did right before the Big Bust.  This time, though, there will be no place to hide.

Our fiat dollar is done, cooked, dead, deceased.  It is no more.  The only real question is when hyperinflation will hit us.  An article I shared this morning set the time horizon at five years.  I had thought we might have ten, but now I doubt it.

Of course, no one knows for sure when a tornado will hit.  All anyone can do is build a storm cellar.  In this case, consider building it from gold.


Terry feels obligated to remind everyone that no government body has certified his ability to predict the future, financially or otherwise.  Investments in gold can go bad just like any other.  Study before you invest, and use your best judgment.  Most of all, just don’t sit there and think this will all go away.

About Terry Noel

I am an Associate Professor of Management and Quantitative Methods at Illinois State University. My specialty is entrepreneurship.
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