Coming Inflation to Boost Gold, Stocks

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To have deflation, we would need a long-term reduction of more than 50% in the propensity of financial institutions to lend and borrow. There's no evidence that anything remotely like that has happened. Indeed, up until the failure of Lehman Brothers, the velocity of money has remained very nearly the same in 2008 as it was in 2007. Because that is the case, with the base number of dollars doubled, inflation should run wild. It is a mathematical certainty.

...In the last two months, there has been a frightening increase in the Fed balance sheet. Fed dollar liabilities, as of October 30, 2008 stood at over $1.92 trillion dollars. As late as September 11, 2008, the Fed’s balance sheet was only $932 billion. On August 29, 2007, 14 months before, the balance sheet totaled only $902 billion. The number of dollars, floating about, inside the U.S. economy has literally doubled in the last 2 months, and is rising very fast from there. As noted, the M2 and M3 money supply statistics are ultimately derivatives of the Fed balance sheet. Over the past year, both have expanded rapidly, indicating that, excluding the multi-week “blip” after the bankruptcy of Lehman Brothers, most banks are still very willing to lend.

...To have deflation, we would need a long term reduction of more than 50% in the propensity of financial institutions to lend and borrow. There is no evidence that anything remotely like that has happened. Indeed, up until the failure of Lehman Brothers, the velocity of money has remained very nearly the same in 2008 as it was in 2007. Because that is the case, with the base number of dollars doubled, inflation should run wild. It is a mathematical certainty.

...In the long run, therefore, the dollar will fall and inflation will rage...All major currencies are likely to fall deeply against the price of real things, including real estate (once the froth is removed), hard goods, food, medicine, medical care, furniture, salaries, gold, silver, and so on. In short, the chance of deflation and a “traditional” depression is vcry close to zero. There is a one hundred percent probability of inflation.

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