Victor Sperandeo has penned an editorial in today’s Barrons, “Lessons From History: When Governments Cannot Borrow, Hyperinflation Is Frequently The Result.”
Here’s an excerpt:
Without the support of foreign buyers, government spending will have to be paid with newly printed money, and the inflation consequences will be dire. Historically, nations default when the bulk of the debt is owed to other nations, but the U.S. still owes most of its debt to its own citizens.
Gold trading at more than $1,350 an ounce, despite no appreciable increase in the consumer price index, is much more understandable when you realize that in periods of hyperinflation, gold tends to appreciate by 2,000% to 50,000% against a hyperinflated currency.
Do the gold bugs know something we don’t? In time, the markets will surely say whether this is so. But unless drastic measures are taken to change the trend of deficits, or unless purchasers of U.S. government debt ignore all rational measures of risk, a psychological breaking point is approaching. When this happens, history tells us that hyperinflation is not far behind.
Inflation is going to hit. The question is when, how much, and is it going to produce tradable moves. I have no idea on the first two questions, but I think the last one is a yes.
ps. But don’t get too excited. It’s not going to be like the late 70’s when al you needed was a chart book and a ruler to catch mega moves. This time it’s going to be alot messier,more violent moves, with stop losses getting hit on good positions much more frequently. Markets are much noiser today.
Really? You think the gold move in the late 70s wasn’t a violent mess?