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Gold/Mining/Energy : Gold Price Monitor

GDXJ 98.59

-2.8%

Nov 13 4:00 PM EST

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To: Zardoz who wrote (15088)	7/31/1998 9:47:00 PM
From: Ken Clayton	Read Replies (2) of 116759

One thing to consider is that if a full blown deflation were to hit the US, with the value of equities, commodities, and real estate decreasing, the actions of the bond market may not be to go up as many have surmised. After all with the value of every thing else going down what will keep the value of a bond up? Capital flows, flight to safety many say. But you have to remember what is happening to the SE Asian countries at this time is a full blown inflation, everything is more expensive to them including US debt. As the Yen heads towards 200/USD, inflation will rack Japan and the $1 trillion of capital flows expected to hit US markets will not materialize. Inflation is eventually what will be exported to the US.This will be the big surprise. A world crash this time will not be deflationary as it was in the 20's, the key being the magnitude of the interest bearing US debt. If the bond tanks and interest rates skyrocket, how will the US government fund the deficits? Remember we're not likely to have budget surpluses with a severely contracted economy. There's only two ways out - a default (not too likely) or a massive monetization by the FED and thus inflation. Kenny

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