The Bailout Part 2 Deja Vu

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Sunday, September 28, 2008

The Bailout Part 2 Deja Vu

The bailout looks a lot like a rerun of a horror movie. Feed the beast massive infusions of freshly created dollars.

Remember 9/11? It was the cash injections and low interest rates that propelled Gold upward. Printing dollars and having low rates is a reason to dump dollars. You cannot create more of anything on a mass scale and make it gain in value.

That â€œliquidity injectionâ€ and the lowering of interest rates have direct negative bearing on the dollar index, and a positive impact on gold and gold equities. Liquidity (or Money supply) is the lifeline of commodities and equity. Four months after the initial shock of 9/11 and the associated lowering of interest rates, gold and gold stocks staged rocket propulsion, with gold going from $250 to $330, and the XAU moving from 50 to 90 in the first half of 2002 alone. The dollar held up for 4 months after September then staged a dramatic 25% fall from 120 to 87 between 2002 and 2003.

The amount of liquidity being added to the system this time dwarfs that of post 9/11 in the past 2 weeks alone we have added 150 Billion to the bank reserves. This isn't money we have in savings, we are a debtor Nation. Add the 700 Billion to bailout Wall Street plus the many more cash infusions that are coming and you get the picture.

If this works it looks like a rerun of feeding a debtor society more liquidity to do it all over again, if not, we could look like the former Soviet Union after they drove themselves into massive debt fighting a war on terrorism in Afghanistan! Sound familiar? Look at the decline in the dollar and increase in Gold prices since 9/11. As that money made its way into the system over the years following it diluted our dollar now you get an idea of what's coming next.

Regardless of projections. We all need to ask ourselves this question. Is my money safe? It is if you believe in the full faith and credit of the United States Government. It is if you believe mass creation of dollars will strengthen its value. We have created a house of cards through Zimbabwe economics. I smell Inflation on a massive scale.

Gold has no debts, it has no liens, it is money in every region of the world. As dollars lose value Gold is its mirror image. If this bailout doesn't work it may be all we have left. Gold is wealth insurance.

The result of the BAILOUTS move is massive mid to long Monetary inflation, no matter how you slice it.

The initial reaction may be very positive, stocks will jump along with a sharp rally in Financials and possibly the US dollar. Eventually printed money makes its way into the economy, it will be spent, credit will be easier to obtain again and we will resume our appetite for credit. The dollar is becoming diluted as a flood of them are on the markets. The dollar will drop over the next five years. This will eventually lead to huge demand for OUR goods and services.

This is being done in chorus with other nations around the globe. They add liquidity, we pay the price of diluted mass currency expansion via inflation. Economies will grow and prices will surge as China benefits from the liquidity and resumes its mass spending while it builds out an infrastructure for the next decade.

Th alternative is a complete collapse of the entire world Monetary system. A picture to bleak to paint.

So let the mass amounts of worthless paper begin to be printed. See you $10.00 a gallon gas and $3,000.00 Gold. After all, it will be better for the Fed to pay the debt with all the worthless paper they are creating, right? Its not their money, its "We the People" that will pay to keep the Ponzi scheme rolling.
JMC

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