Thursday, January 03, 2008

Consequences of a Credit Based Econony

Yesterday, gold, platinum and oil made all-time highs. This morning, the London A.M. Gold Fixing posted an all-time high of $865.35. It may surprise you that gold, platinum (which is called "the white gold") and oil (called "black gold") are appreciating substantially.

Most of us do not know that the increase in the broad money supply, which is called "M-3," is no longer reported by the government. So the Government and the Federal Reserve are trying to hide what they are doing. Very few people understand that the money supply expanded over 16% in 2007, which is greater than at any time in nearly 50 years. Furthermore, most investors do not want to understand how monetary inflation precedes price inflation and that the greater the monetary inflation the greater the price inflation. Obviously, a dramatic or persistent price advancement in gold and oil will cause investors to take notice.

Uncle Sam is churning out dollars in an effort to ward off a recession. Foreign central banks are pumping out paper to keep their own currencies competitive with the dollar. The great global competitive currency devaluation is coming. When you consider this extraordinary monetary inflation now being generated by central banks, it is hard not to imagine extraordinary price inflation sitting right out on the horizon.

Should it be a surprise that gold and other precious commodities such as platinum and silver, which are known as a safe havens in these times, will see higher prices?