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Strategies & Market Trends : Natural Resource Stocks -- Ignore unavailable to you. Want to Upgrade?

To: Paxb2u who wrote (14147)	8/3/2004 12:20:17 PM
From: isopatch	Respond to of 108962

Reasonable question. The answer is very important: First I'll try to outline the big picture with a little outside the box thinking. Then, answer your question about gold, in that context. Consider that a given quantity of <easy money> has had less and less impact with each reflation effort. Each time the FED has tried using a flood of liquidity to paper over a problem such as: The Asian currency crisis in 1998. The Y2K non event. Or, the most recent mini-recession. It's taken larger and larger injections of money into the credit system. Despite that, we've gotten only modest inflation numbers instead of a major inflation cycle such as we experienced in the late 1970s. The reason we've not seen even 1/2 of the inflation rate we got in the late 70s is because aggregate debt levels have exploded to preposterous levels. Levels that cannot be sustained without a massive deflationary implosion. Remember, each time the FED has flooded the system with more and more credit they've added to total aggregate debt. Federal fiscal policy is generating rapid increases in Tsy & agency debt in recent years. The impact of all this has been tracked by the number of dollars of debt necessary to create a dollar of GDP growth. This has risen more and more rapidly over the past 10 years. Bottom line? The FED's use of easy money, the government deficit spending and the private economys reliance upon debt to fuel the economy is losing it's effectiveness. It's a vicous cycle. The more the FED, tries to flood the system, the less effective it becomes. The end game has arrived when the FED floors the pedal and economic growth tanks instead of rises. How is this possible? Simple. The FED, our Federal Government and our private economy has been digging the grave for it's own overly used policy of easy money, deficit spending. Over 40% of our Tsy debt is now owned by foreigners. The only incentive for our biggest bond buyers in Asia to continue to finance our profligate spending is because the American consumer continues to buy Asian mfg goods and services hand over fist. Once the consumer retrenchs? The incentive is gone. Asian buyers slow their buying of our paper. And guess what?! Message 20372953 No more tic toc. It's now. Ringa ding ding. <Times up.> Now to answer your specific question. Gold will be dragged with everything else in the months ahead because the kind of debt implosion which has to occur from this mind boggling level of aggregate debt will hit too hard and too fast for the FED or other CBs to handle. They won't just be spitting into the wind. It'll be a 75 mile/hr gale!! The Deflation Storm. JMVVHO, of course. Isopatch