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The spotlight was on the dollar in overnight trade as punters fled from the failing reserve currency in expectation of the long awaited QE2. Gold finally broke out to all time highs settling just short of $1270 on the close, but I wouldn’t have been surprised to see gold much higher given the bloodbath on the dollar index and the massive up-tick in grains & the AUD. This chart will have you scoffing on your porridge this morning, make sure you savor every mouthful.
Oats -
The shuffle out of dollars, like a rising tide tends to floats all boats, at least that is what is reflected in prices. The reality is these gains are an illusion brought about by the money printers and their glorious policy of austerity for the poor, welfare for the bankers. As they print to loosen the noose of bankruptcy, hung tightly around the bankers’ necks, the rest of us are squeezed at the petrol pump and the supermarket by higher prices. While the dollar shuffle appears to pose no immediate systemic threat, America’s deteriorating fiscal situation will inevitably result in skittish investor psychology, turning the dollar shuffle into a full scale dollar panic which looks more like a game of 52 pick-up. ZeroHedge picked up on some of John Williams’ work:
John Williams, arguably one of the best trackers of real, unmanipulated government data via his Shadow Stats blog, has just released a note to clients in which he warns that hyperinflation may hit as soon as 6 to 9 months from today. With so many established economists and pundits seeing nothing but deflation as far as the eye can see, and the Fed doing all in its power to halt the deleveraging cycle, both in the open and shadow economies, what is Williams' argument? Read on. Incidentally, even if some fellow bloggers disagree with Mr. Williams' assesment, we believe it is in our readers' best interest to have them make up their own mind on this most critical economic development.
SUMMARY OUTLOOK
Systemic Turmoil is Unthinkable, Unacceptable but Unavoidable. Pardon the use of the Aerosmith lyrics in the opening headers, but the image of tap-dancing on a land mine pretty much describes what the Federal Reserve and the U.S. Government have been doing in order to prevent a systemic collapse in the last couple of years. Now, as business activity sinks anew, much expanded supportive measures will be needed to maintain short-term systemic stability. Such official actions, however, in combination with global perceptions of limited U.S. fiscal flexibility, likely will trigger massive flight from the U.S. dollar and force the Federal Reserve into heavy monetization of otherwise unwanted U.S. Treasury debt. When that land mine explodes — probably within the next six-to-nine months, the onset of a U.S. hyperinflation will be in place, with severe economic, social and political consequences that will follow. The Hyperinflation Special Report is referenced for broad background. The general outlook is not changed.
What does this mean for US financial markets? (take a wild guess)
In these circumstances, the financial markets likely will be highly unstable and volatile. Looking at the longer term, strategies aimed at preserving wealth and assets continue to make sense. For those who have their assets denominated in U.S. dollars, physical gold and silver remain primary hedges, as do stronger currencies such as the Canadian and Australian dollars and the Swiss franc. Holding assets outside the U.S. also may have some benefits.
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