Dollar Caught in Catch-22: Default or Debase?
While the bond market may have bounced over the last couple days (which I suspect is mostly because the bond market knows the Fed will soon be getting more aggressive with its monetization programs), that bounce has only occurred in terms of dollars.
Because of the dollar’s steep decline, the US bond market continues to crash as far as foreigners are concerned - and these foreigners obviously own a lot of US Treasury debt.
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I'd also note that gold, on the other hand, continues to rally in all the major fiat currencies (see the chart below).
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What’s the message there? I’ll leave that for readers to decide for themselves, but I'd submit that the market may be catching on to the predicament that the Fed and Treasury are in. There are only 2 options that lie ahead for the biggest debtor on the planet (i.e. the US government), and those options are 1) default or 2) debase - and they both lead to more inflation.
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I like your thinking, but I would like to point out that there is a possibility that we get back in the ring with another round of deflation (or two).
The S&P500 earnings don't look that good, by most metrics the market is overvalued, and more housing defaults are on the way. This could again trigger another round of deflation.
We may for the short-term do a Japan scenario.
Long-term I have to agree with you, as inflation is the most likely course because I don't think that we will want to loose two decades as Japan has done staying in a deflationary funk. Plus peak oil, will probably hit us in 2011, 13, 15? (and we again won't be prepared), and may force inflation even if the economy is still weak.
All opinion, looking into the snow globe. But there may be gold flakes instead of snow flakes floating around
Now if he was talking Silver, he would be spot on-- which bring me to my real question:
Is the fact that silver closing in on the ratio to gold from last year signaling for Gold to join in the advances, or is Silver catching up to Gold, for a deflationary stop on the train, and come crashing down just in time for summer's end?
