Recently by Richard Russell: You ‘Bear’ Beware, You Better Take Care
Years ago I coined a phrase that described the US’s predicament. The phrase was "inflate or die." As far as I’m concerned, inflate or die is even more to the point today. Here’s why. The US possesses 8,133 tons of gold, or more than three times the amount of gold held by any other nation (Germany is second with 3,396 tons of gold).
Have you ever wondered why the US hangs on to its gold like grim death? And at the same time the US talks down gold? Have you wondered why the US appears (like China) to be encouraging its citizens to buy, hold, and accumulate gold? Why is the US government distributing gold coins to Americans? Why did the US government come out with a new Buffalo solid gold coin and advertise that coin widely?
Why did Nixon slam shut the gold window when France wanted the debts that the US owed France to be paid in gold rather than dollars? Why did Nixon and company refuse to give up any more US gold?
The reason is that the top US leaders knew that gold was our only true tangible money. A few of our most knowledgeable leaders distrusted the Federal Reserve notes that we, the US, were printing and buying goods from the rest of the world with. They knew that with the growing US debts, we’d never be able to pay them off. And they knew that eventually, through spending and compounding, the growing debts and deficits would wreck the US economy and maybe even destroy our democracy.
Now with a national debt of over $15 trillion, the choice has really come down to "inflate or die." There’s a primary bear market in process now. This is the "die" part of the choice – "inflate or die." If matters continue as they have been going, the US, as we know it, will indeed – die. Bernanke is no fool. He can see that quantitative easing is not working. With QE1 and QE2 and "twist" already baked into the US economic system, business is still lousy, unemployment is still at 8.2%, and no amount of Fed stimulation seems to be able to turn the economy brighter.
There are still only two choices – inflate or die. The die part of it would be to allow the bear market to play itself out to the end – to the bitter bearish end. But this would be Great Depression number 2, and the country would surely not stand for it. It might even foment a revolution. But how about the inflation part? This would require truly a massive amount of Fed money creation. The printing presses would have to go wild. Furthermore, enormous inflation would almost surely wreck the country (remember German inflation after World War I, and the rise of Hitler?) So inflate or die would have serious (more likely disastrous) consequences.
The world is now deflating. And the Fed appears helpless to halt the deflation, no matter what they try. The antidote for deflation is a devaluation of the currency. The Fed has failed in its desperate attempts to halt deflation – which is becoming worse as the weeks go by. Americans (voters) are increasingly discouraged and disappointed with both the Fed and Congress.
INFLATE OR DIE. Wait, there is one more thing that can be done. We have this vast store of gold, the biggest hoard of gold the world has ever seen – 8,133 tons of gold.