Stagflation In Extremis and The Explosive Rise of
Tuesday September 18, 2012 10:31
Stagflation is where economic growth slows, unemployment is high
and prices rise.
Stagflation’s appearance in the 1970s was like an outbreak of
three-headed children. It wasn’t supposed to happen. Prevailing
wisdom—an oxymoron among economists—held that high employment
and rising prices were economic handmaidens; and that, conversely,
slowing economies and inflation were mutually exclusive
In the 1970s, for the first time in
capitalism’s history stagflation appeared, i.e. prices rose and
economic growth stagnated; and, while economists would search for reasons
to explain the apparently inexplicable, it was only because they avoided
the obvious that they did not find the answer.
In August 1971, President Nixon upon the advice of Milton
Friedman—the same Milton Friedman who erroneously taught Ben
Bernanke economic contractions can be reversed by monetary
expansion—ended the convertibility of the US dollar to gold.
The consequences of cutting ties between paper money and gold were not
what Friedman expected. Friedman believed—belief is the
operant word here—that ‘free-market forces’ would bring
floating currencies into orderly market-driven valuations. Friedman was
The historic severing of ties between money and gold instead would
result in extreme currency swings along with slowing growth, rising
unemployment and rising prices, i.e. stagflation. Friedman’s advice
would make a mockery of the Phillip’s Curve—the inverse
relationship between the rate of unemployment and the rate of
inflation—as it later would make a mockery of money itself.
In Time of the Vulture: How to Survive the Crisis and Prosper in the
Process (3rd edition, 2012), I discussed what happened when Nixon cut the
ties between the US dollar and gold in 1971:
It was as if someone removed a pin from the axle of international
commerce when the US dollar was no longer convertible to gold.
Previously, the US dollar was linked to gold, and other currencies were
linked to the dollar. Everything was stable. It is no longer so. Once the
pin connecting gold and paper money was removed, everything changed. The
axle of international commerce began to vibrate and lately it’s
been getting much worse. The fear is that the wheels are now about to come
Stagflation was the result. No longer constrained by the need to
exchange costly gold for increasingly worthless pieces of paper money,
governments began to debase their currencies until monetary restraint was
as rare as celibacy in an era of drug induced free-love.
Cutting the link between the US dollar and gold not only allowed
governments to debase their currencies (the US dollar had previously
connected all currencies to gold), it would eventually bring about the
destruction of capitalism itself via excessive levels of debt.
John Exter, central banker extraordinaire, opposed cutting the
ties between the US dollar and gold. His objections, however, were
overridden by Paul Volker, then President Nixon’s Under-Secretary
of the Treasury for Monetary Affairs.
Instead of raising the price of gold as Exter recommended, Volker
decided to instead cut all ties between the US dollar and gold, the
course of action Milton Friedman had recommended to President Nixon.
Exter later commented on the significance of that act:
The final link between the dollar and gold was broken. The dollar
became nothing more than a fiat currency and the Fed [and especially the
banks] were then free to continue monetary expansion at will. The
result..was a massive explosion of debt
Gold Wars, Ferdinand Lips, The Foundation
for the Advancement of Monetary Education, New York
After 1971, the era of gold-backed money was over. All currencies
are now paper coupons issued by heavily-indebted governments with
expiration dates written in invisible ink.
STAGFLATION AND GOLD
As prices rose in the 1970s, so, too, did the price of gold. In less
than 10 years, gold went from $35 to $850. But the de-linking of the US
dollar from gold not only ushered in higher gold prices but the heretofore
unseen phenomena of stagflation and a level of economic instability
commensurate with a monetary unit of now uncertain value.
Removing gold from paper money led not only to an era of economic
instability; but it would eventually bring about the collapse of
capitalism itself. Capitalism needed gold-convertible money to instill
confidence in its debt-based paper banknotes; and without gold,
capitalism’s confidence game would collapse, a collapse Buckminster
Fuller had predicted.
Removing gold from capitalism is no different than removing lime
from cement. It’s not going to work as well as before. In fact,
it’s not going to work at all. Without gold, capitalism is like
cement without lime, a recipe for disaster. The more cement, the larger
Capitalism’s demise could well result from today’s
hyper-variant form of stagflation—stagflation in extremis.
Instead of a slowing economy and rising prices as in the 1970s, today we
are facing a contracting economy along with unceasing money printing by
As a result, hyperinflation, not inflation, may accompany
today’s contracting economies. In that scenario, inflation may well
become virulent and once that line is crossed there is no going
back—an outcome Friedman and Volker didn’t consider when they
removed gold from capitalism’s fraudulently leveraged foundation of
fractional reserve banking and paper banknotes.
STAGFLATION IN EXTREMIS AND THE EXPLOSIVE RISE OF
Today, we are about to experience stagflation but this time it will be
stagflation in extremis; and this time gold’s rise will be
explosive. The below chart (2007) shows the similarities between
gold’s rise in 1979-80 (wave 5 of III) and today’s similar
positioned projected take-off point to far higher prices.
Regarding the above chart, its authors, goldrunnerfractalanalysis,
…We developed a price target back in 2006/2007 for Gold
to reach the $10,000 to $12,000 range during this Gold Bull.
Anything above that range would mean that the
"Stagflation" comparison to the late 70's was exceeded and
"Hyper-inflation" would become a real
possibility. [bold, mine]
… The Dollar Printing since December of 2011 fulfills the
need for a pretty constant acceleration of Dollar printing in effect to
stave off a true period of deflation. The parabolic printing of
Dollars leads to a parabolic devaluation of the Dollar and parabolic
Gold. This is all about Dollar devaluation, not so much where the
Dollars are going. Thus, the economy will continue to deteriorate
creating the need for more Dollar printing, QE.
Stagflation compared to the 1970s, i.e. in extremis, is now in
motion. Hyperinflation is a possibility and gold’s explosive rise,
measured in hyper-inflated US dollar could easily surpass the previously
estimated $10,000-$12,000 range. What that price will be is
anyone’s guess—and, at this point, a guess it will be.
Gold’s final resting place will be atop the banker’s
crematorium where the ashes of their paper money will be the only
evidence left of the immense power they once held over humanity.
PRINTING MONEY IN THE ENDGAME
The bankers’ money printing in the endgame, QEetc, has staved
off capitalism’s inevitable collapse but at an extremely high price;
as the coming rendering will be of an even greater magnitude than if the
collapse been allowed to take its ‘natural’ course.
Of course, the word ‘natural’ is unknown in the
bankers’ dark lexicon drawn from the recesses of their self-serving
and societally destructive self-interests. The bankers’ world,
however, is ending; an ending predicted in 1981 by Buckminster Fuller in
The Critical Path.
In my current video, Bucky’s vision of the coming better world,
I discuss Buckminster Fuller’s extraordinary vision, a vision that
gives direction as well as hope as we enter ever deeper into the crisis
Buy gold, buy silver, have faith
By Darryl Robert Schoon