Investing in Gold: Protection from Runaway Inflation

Since the feds can't grow their way out of debt...they'll have to try to inflate their way out.


Trouble is, first...central bankers don't have that good a grasp of inflation. They can control the amount of money in the monetary base at the Fed. But they don't really control what happens to it next. For a long time, prices don't necessarily react...because, in a depression, the velocity of money slows down to a crawl. The banks don't lend; the money doesn't get around...and it doesn't feed into consumer prices. Then, all of a sudden, people realize that there dollars are losing value...suddenly, they are eager to send them on their way. Velocity increases - fast. It is as if they had put cash in a particle accelerator. Instead of 6% inflation, the CPI goes to 12%...or 25%...or 100%.


The other problem is the 'bond vigilantes.' You remember them. They're the ones who so impressed Bill Clinton that he said that if he died, he wanted to be reincarnated as a bond trader. Because those guys are the ones with the real power, he noticed.


America is going to need to borrow an additional $1.6 trillion this year. And then keep borrowing $1 trillion-plus for years and years to come. There are no surpluses - ever again - in any plausible budget forecasts.
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