Remember, the system literally cannot function without inflation, and the US is a debtor nation on an epic scale. That leaves only 2 choices: Default, or debase, and they both lead to more inflation at the end of the line.

We saw a mere taste of this back in September and October, after Lehman went bust and blew a giant hole in the credit-derivative structure. The result was a freezing of the entire financial system and a step towards default.

The massive amount of new money created by the Fed can never be taken out of the system, though some seem to think it can - any attemp to do so would leave the system just as frozen as it was back in September and October. These hopeful individuals miss the reason why the Fed is being forced to inflate in the first place: The system needs more and more inflation at a parabolic rate simply to sustain itself. This is Greenspan's real legacy - a much larger version of Madoff’s Ponzi scheme.

Speaking purely from a mechanical standpoint, the only way the financial system (as dysfunctional as it has become over the years) can remain intact is via massive inflation, period. And just as we’ve seen over the past several months, politicians don’t have the stomach to allow the system to collapse, which could unleash social anarchy.

I’ve been saying this very same thing for several years, and I believe the events of 2008 have clearly borne that out - though they admittedly didn’t do so exactly in the order or precise manner that I thought they would (i.e. the Fed failed to inflate fast enough mid-year in 2008 in order to prevent Lehman and the rest of the credit dominos from falling, and that produced the global “margin call” back in the fall - one that even weighed on gold, to some extent).

Nevertheless, the fact that the Fed failed to inflate fast enough then only means it’s now having to inflate at an even greater rate - and the inflationary consequences will be much more dire as a result.

A resumption of the dollar’s decline and the reliquification of the financial system go hand in hand, because without inflation there would be no financial system. Importantly, gold (and other hard assets, to a lesser extent ) will be the assets that benefit the most from that inflation going forward.