Investors Should Prepare Now for Coming Inflationary Depression – Got Gold?

My Forecast
1. Continuing Depression
The trillion-dollar spending policies enacted during the late Bush years and now the Obama years are extraordinarily dangerous. The federal government (and the state & local governments, too) are spending beyond our means as well as theirs. Bankruptcies, foreclosures, business contraction and unemployment are certainly at depression-level. Talk of a recovery is wishful thinking since the effects of still more bad policies are on the horizon.

Right now we have:
a) Unemployment at 17%
(I am not talking about the much reported yet highly inaccurate “official unemployment rate” which is a sham; I am talking about what is called the “U-6” employment rate that the Bureau of Labor Statistics compiles. It is a much less reported yet more accurate measure of unemployment. This statistic includes those counted in the “official unemployment rate” and adds in those that dropped out of the job search; the so-called “discouraged” unemployed. U-6 also includes those that are “under-employed” which means those that want full employment but have had to settle for part-time employment.)

b) Foreclosures at all-time highs

c) Bankruptcies at all-time highs

d) Personal debt still at record levels

e) Government debt at all-time high (and still soaring)

Now, couple the above list with [the fact that]:
a) The tax-cuts enacted in the past decade are set to expire by January 2011
If they do, in fact, expire the effect is a tax increase that would deliver a body-blow to an already weak economy. A tax increase is nothing more than money taken by force by the government from the private economy. Basically that would mean less income and less invest-able capital for the private sector as the government forcibly siphons these resources and redirects it to a bureaucracy that is already the biggest in American history.

b) [There is talk about the possible introduction] of a Value Added Tax (VAT)
A VAT is a dumb during good economic times and quite stupid during bad economic times. Even the name is idiotic since taxes don’t add “value”…it merely increases the price or cost of that particular product or service.

c) [Consideration is being given to the passing of] Cap and Trade legislation
[Such legislation] would raise energy costs greatly since the legislation is nothing more than a huge hidden tax on energy usage. [In fact,] it would do little or nothing for the environment but it would do much harm to our economy.

Summary
If taxes, regulations and other burdens and risks are not decreased immediately and substantially, then this depression will continue.

2. Inflation
Inflation is not an “if” but a “when”. As the federal reserve keeps creating trillions of dollars out of thin air, there will be consequences. Technically, they are indulging in “monetary inflation” but of course most people think of inflation by its symptom which is “price inflation”. Since many observers don’t see price inflation, they assume that deflation is winning the day and will be here for the foreseeable future. This is wrong. Inflation will become evident when two conditions occur:
1. The excessive creation of money (again, this is “monetary inflation”)
2. When this money circulates through the economy (also referred to as “velocity”)

“Human Needs” Commodities
If the government creates trillions of dollars and these dollars do not circulate, then velocity will not occur. Just keep in mind that “velocity” occurs where there is DEMAND. There are many areas where there is simply no substantial demand, such as housing and autos, so money will not flow there in this economic environment. However, money does flow to areas of “human need” – and this is a key reason why I am a long-term bull on commodities in general and “human need” commodities in particular. For example, the price of wheat has gone up 71% during the past 12 months and I think that similar price movements (or higher!) are in store for many [such] essentials.

Store of Value Commodities
I also believe that gold and other precious metals such as silver will continue their bull market. Why? Because, as inflation unfolds among essential commodities, people will need a “store of value” as the world’s major currencies keep on being over-produced. When people start to see that the dollars they hold (or other currency) start to lose value as the government over-produces it, they will then see that having cash is not a “safe harbor”; inflation will erode its value. They will then seek to replace currencies that are “depreciating” or losing value and shifting their resources to that which holds value…gold and silver.

In fact, as people world-wide see the problems with fiat currencies such as the U.S. dollar, euro, etc., and with paper assets such as stocks and bonds, etc., they will migrate into those things that will hold value or appreciate over time. The flight will be from “paper” to “stuff”. “Stuff” like precious metals, food, water and other essentials.

Summary
There will be little or no inflation in those things that people do not need. The corollary to that (and this goes back to my forecast) is this: There will be severe inflation – even hyperinflation – in those things that people do need. We have a huge world population and their needs will be addressed. When you couple this demand with expanding money supplies across the globe, rising prices will be the result. The stage is being set for historic price inflation in those commodities that are “essential”.

Investors need to prepare [for an inflationary depression which is half way here already].

*http://mladjenovic.blogspot.com/2010/08/inflationary-depression-forecast.html (Mladjenovic offers an audio seminar “Cash in on the Commodities Super Bull Market” and also a free financial newsletter at www.RavingCapitalist.com.)

Editor’s Note:
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
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