Bill,
What I guess I wonder about it that currently the preferred haven of safety has been US T-Bills (at least since we went off the Gold standard). It took quite a bought of inflation, initiated by the oil squeeze, to send oil prices to the moon.
So my real quandary, the one that I can't quite get a grasp on, deals with debt default and the impact that this "destruction" of money signifies. Even though a debt default certainly hurts the banks at risk on those loans, the result is a tightening up of lending requirements and aversion of risk. In effect, my theory, and what history reflects after 1929, was that CASH was king. (of course, backed by gold at that time). It seemed only later that precious metals took out as the gov't started deficit spending in an attempt to prime the economic pump. Btw, does anyone know where to find a historical gold for the '20s - 40's?? That would help a lot in trying to figure this out.
What I'm positing is that debt default will create the ultimate destruction of capital and thus, reducing money supply on a global basis. It may at this time that money supply shrinks enough that the FED is then able to make some headway in adding liquidity to reinflate the economy.
What I'm describing is somewhat similar to what is currently happening in Japan. Very low interest rates, but still people don't want to spend and boost consumer demand out of fear for their retirement nest eggs.
But afterward after deflationary pressures have leveled off, then GOLD would be a screaming buy.
What I see know is the difficulty goldbugs have in changing psychology from investing in T-Bills instead of the yellow metal. However, a potential short squeeze in Gold could really bring people's attention to the metal as well as completely disrupting the Fed's defense of Fiat money.
Thus, I see a huge battle looming in the gold market and after all is said and done, due to sweeping deflation and depresionary fears across the globe, gold may wind up going far lower until we hit bottom in the CRB.
Could you address some of the issues of why destruction of money through defaults would result in a flight to gold versus a flight to governments bonds? (corporate bonds certainly will suffer as in August). T-Bills were the only bonds that didn't suffer extensive liquidity problems.
Regards,
Ron
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