The dying of money

Excerpt from Parsson, Jens O., Dying of Money: Lessons of the Great German & American Inflations, Wellspring Press, 1974, p.71.

"Everyone loves an early inflation. The effects at the beginning of inflation are all good. There is steepened money expansion, rising government spending, increased government budget deficits, booming stock markets, and spectacular general prosperity, all in the midst of temporarily stable prices. Everyone benefits, and no one pays. That is the early part of the cycle. In the later inflation, on the other hand, the effects are all bad. The government may steadily increase the money inflation in order to stave off the latter effects, but the latter effects patiently wait. In the terminal inflation, there is faltering prosperity, tightness of money, falling stock markets, rising taxes, still larger government deficits, and still roaring money expansion, now accompanied by soaring prices and ineffectiveness of all traditional remedies. Everyone pays and no one benefits. That is the full cycle of every inflation"

There is much discussion around investment circles whether we are headed for inflation or deflation. Make no mistake we are headed for inflation, in fact hyperinflation. As Jenso Parsson highlights above we are currently in the terminal phase with faltering prosperity, stock markets and tightening of money. The almost unimaginable money printing by the Federal Reserve (note charts below on the Feds balance sheet) flows on to all other countries. With the US dollar as the worlds reserve currency money supply increases must be matched by all governments to ensure stability in currency markets. Whilst the short term deflation scare appears real, inflation is the 1000 pound gorilla in the room that no one has noticed. As the hyperinflation and global currency crisis story becomes known gold and silver prices will head to the moon.







I have been highligting the short term downside price risk to gold and silver for some time now. This weeks sell off to below $850 provides a good entry point. Prices could still move lower in coming weeks but the risk reward is now as favourable as it has been since 2005. I added some silver this weeks when the price dipped below $11.00 and expect to buy gold next week should the price drop below $800. Silver prices in particular offer great value relative to gold with a ratio of about 73 to 1. As I have discussed many times before the long term ratio is about 15 to 1. The recent trading range (2006-2008) has been 50-55, implying a silver price even based on recent ranges, significantly under priced relative to gold.
I have also started accumulating high quality gold and silver stocks this week, however given the precarious nature of stock markets this is a high risk strategy.