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Thursday, July 16, 2009

Bill Bonner loses his faith in government?

Is he losing his faith in government's ability to inflate?
We figured the economy would continue to worsen (after all, you can’t correct a half-century credit expansion in a few months)…and that the feds would continue to fight it. As more and more people lose their jobs, the feds would become more and more desperate. Gradually, they’d come to see that they needed to use stronger, more experimental techniques. This would lead them to be a bit bolder with their ‘quantitative easing,’ otherwise known as “a little technology called the printing press,” to quote Ben Bernanke.

We figured that sooner or later, the feds would get the hang of causing inflation. So, we could just buy gold and wait.

But now we see; we are trapped…just like the feds themselves. Do we hedge against further economic deterioration…deflation…and falling asset prices? Or do we hedge against inflation…a falling dollar…and a collapsing bond market? What if we hold our big position in gold…and feds NEVER are able to cause inflation? What if the pain of the depression is never severe enough to make them go whole hog on quantitative easing? What if the Chinese put it to them straight: if M2 goes up more than 10% a year…we stop financing your deficits? Gold could sink…or go nowhere…for the next 10 years.
-- from "An Economy on Life Support" by Bill Bonner

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