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Gold/Mining/Energy : A to Z Junior Mining Research Site

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To: 4figureau who wrote (4347)	5/8/2003 9:47:55 AM
From: 4figureau	Read Replies (2) of 5423

Inflate or Die! Richard Russell Dow Theory Letters May 8, 2003 Deflation- Why is deflation so feared by the Fed? It's feared because in the debt-logged US, any deflation could bring down the house. The US system is based on debt and the ability to service that debt. In deflation, dollars are worth more and harder to come by. If the US was to lapse into deflation, the mountains of debt that reside in ever crevice and corner of the US economy could give way to mass bankruptcy -- and paralysis at the Fed. Real interest rates could sink below the zero level, making the Fed impotent, and unable to work its "inflation magic." This reveals the Fed's fear of gold and even a partially gold-back currency. A system based on gold would force discipline on the Fed. It would prevent the Fed from increasing liquidity at will. Such a system would stymie the Fed and put a brake on debt creation. Since rising debt is a cornerstone of US prosperity, you can see why the Fed will fight to the death the inclusion of gold into the system. The Fed in its anti-deflation policy has a huge problem. The US depends on roughly $1.5 billion in foreign money coming into the US every day. This is the money that off-sets the US's chronic current account deficit, which is running at half a billion dollars a year. Lower rates or a declining dollar make US investments less attractive. How do you keep foreign money coming in? That's going to be a terrific problem. The essence of the whole situation is this -- the Fed will to anything and everything to stave off deflation. One thing they are doing now is buying bonds as part of their policy of holding long rates down. Rising rates are deflationary. The war is on. I have for years labeled this war -- INFLATE OR DIE! Never since I first started using this phrase has it been more true, and more urgent. 321gold.com

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